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Good day and thank you for standing by. Welcome to the Brandywine Realty Trust Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that 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.

Michelle, thank you very much. Good morning, everyone, and thank you for participating in our fourth quarter 2023 earnings call. On today's call with me are, George Johnstone our Executive Vice President of Operations; Dan Palazzo, our Senior Vice President and Chief Accounting Officer; and Tom Wirth, our Executive Vice President and Chief Financial Officer. Prior to beginning, certain information that will be discussed during our call may constitute forward-looking statements within the meaning of the federal securities law. Although, we believe estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release, as well as our most recent annual and quarterly reports that we filed with the SEC. First and foremost, we hope that you and yours are well and are looking forward to a successful and ever-improving 2024. During our prepared comments, we'll briefly review our fourth quarter results and then spend time to outline the key assumptions of our 2024 business plan. After that Dan, Tom, George and I will be available to answer any questions. And looking at 2023, we posted fourth quarter FFO of $0.27 per share and full year FFO of $1.15 per share. Our combined leasing activity for the quarter totaled 550,000 square feet. During the quarter we exited 240,000 square feet of leases, including 66,000 square feet of new leases in our wholly-owned portfolio. In our joint venture portfolios, we achieved 312,000 square feet of lease executions, including 140,000 square feet of new leasing activity. Our quarterly rental rate mark-to-market was 13.4% on a GAAP basis and 7.5% on a cash basis. Our full year mark-to-market was 13.5% on a GAAP basis, which outperformed our business plan and our full year cash mark-to-market was at 4.8% within our range. We ended the quarter 88% occupied and 89.6% leased, a 100 basis points below our previously announced targets. That occupancy and lease percentage was lower due to two things. We anticipated December move-ins that slid until January. That was about 50 basis points of that change. And the anticipated portfolio sale that we had under agreement did not come to fruition. That was on an underleased portfolio and that impacted our occupancy by 50 basis points. On the other hand, occupancy in our core markets of Philadelphia, CBD, University City, the Pennsylvania suburbs and Austin, which comprised 93% of our NOI or 89% occupied and 91% leased. In looking just at our PA urban and suburban operations, we are 93% leased. As we highlighted in our supplemental package on page 4, eight of our wholly-owned properties comprise over 50% of our overall vacancy, impacting our occupancy numbers by almost 500 basis points. Plans are well underway to address each of these projects, ranging from accelerated leasing and capital investment programs as well as continuing to explore sale and conversion opportunities. Our 2023 spec revenue was $17.1 million in -- at the bottom end of our range. The metric was at the lower end of this range due solely to lower leasing volumes in our Austin Texas operation. The operating portfolio does remain in solid shape. Our forward rollover exposure through 2024 is now an average of 6.4% and through 2026, an average of 6.2%. Several points to amplify in -- green shoots if you will. The increase in physical tours has been very encouraging. Fourth quarter physical tours exceeded third quarter towards by 54%, exceeding our trailing fourth quarter average by 55% or over 200,000 square feet per quarter. And also, our tour activity remains above pre-pandemic levels by 42%. On a wholly-owned basis, 55% of our new leasing activity was a result of a flight to quality. Tenant expansions continue to outweigh tenant contractions and our total leasing pipeline is up for the third consecutive quarter and stands at 4.2 million square feet. That pipeline is broken down between two million square feet in our wholly-owned portfolio, which is up 300,000 square feet from last quarter. Then we have 2.2 million square feet on our development projects, which is up 150,000 square feet from last quarter. The two million square feet in our existing portfolio pipeline, includes approximately 250,000 square feet in advanced stages of lease negotiations and also about 41% of our operating portfolio and new deal pipeline are prospects looking to move up the quality curve. So while the timeline for lease execution remains more protracted than we would like, tour velocity and the composition of those tours, which as you know is the starting point for the leasing cycle continues to improve. In terms of staging through the portfolio, proposals that we have outstanding are up 200,000 square feet quarter-over-quarter and leases and negotiations were up 170,000 square feet from last quarter. Turning to the balance sheet. Our year-end net debt-to-EBITDA was 7.5 times, which is up by 0.1 point from the third quarter, primarily due to our delay in anticipated reduction in debt attribution from our unconsolidated joint ventures, asset sales being below our 2023 target and a slight increase in our development and redevelopment spend. As a counterbalance to that, our core EBITDA metric, which excludes joint venture debt attribution and development and redevelopment spend ended the year at 6.3 times within our targeted range. Looking at liquidity. On the liquidity front, controlled capital spending and our refinancing efforts have enabled us to maintain excellent liquidity as we closed out 2023 and look forward to 2024. For 2023, we achieved our goal of having full availability on our $600 million unsecured line of credit. We also closed the year with approximately $58 million of unrestricted cash on hand. More importantly as noted on page 13 of our SIP based on our 2024 business plan, we expect to have full availability on our line of credit at year-end 2024. During the quarter, we also bought back $10 million of our 2024 unsecured bonds at a slight discount. We did complete $25 million of sales during the quarter. We did end the year about $78 million of sales, which was below our business plan range. While we received good investor interest, the lack of attractive lender financing resulted in pricing levels below our expectations. And given our strong liquidity position, we decided to postpone several sales until market conditions improve. As Tom will touch on our consolidated debt is 96% fixed at a 5.1% rate. We do continue to assess our options to refinance our 2024 bond maturities. We're evaluating a secured mortgage financing on several of our properties or an unsecured offering. We expect to finalize that plan in the next 90 days and our 2024 business plan does assume this refinancing occurs by 6/30 2024 at a mid-8% interest rate. As noted on page 38 of our SIP, we do have four operating joint ventures with loan maturities during the first half of 2024. Our ownership stake in those ventures ranges between 15% to 50%. All of these loans are secured solely by the real estate and are non-recourse with no obligation for either our partner or Brandywine to fund any additional money. That being said, we do believe these ventures present a valuable opportunity as the debt and real estate markets recover. As such along with our partners, we are engaged in productive conversations with each lender. And while these discussions are progressing slower than we originally anticipated, we do expect the full resolution on each of these ventures within the next 90 to 120 days. And given the nature of those discussions, we still do anticipate our overall joint venture debt attribution will be reduced by over $100 million. Looking at our dividend we closed out the 2023 with full year FFO and CAD payout ratios well covered at 63% and 80% respectively. As we noted in our supplemental package, we did record impairment charges totaling $151 million during the fourth quarter. That wholly-owned impairment charge is really based on several assets located in our D.C. operation, really representing shorter-hold periods which is evidence of our intention to sell those assets as soon as permitted by market conditions. And then given certainly the unresolved loan renegotiation status on several of our unconsolidated operating joint ventures, we are recognized the impairment on several of those ventures on assets located in Virginia, Maryland and suburban Pennsylvania. Looking at our 2024 business plan. We are providing 2024 guidance with an FFO range of $0.90 to $1 per share with a midpoint of $0.95 per share. The primary drivers of this guidance is additional interest expense equal to $0.15 per share, represents the full impact of refinancing done in 2023 both on our consolidated and our joint ventures and the anticipated refinancing of our $350 million 2024 bonds. We will also with our -- two of our residential projects entering the lease-up phase, we will recognize charges against earnings of $0.05 a share during 2024. That's really based on as you know as once residential projects are delivered capitalization ceases and we'll be recognizing those operating carry losses during the lease-up. There were several other items including onetime items in 2023 we don't expect to occur in 2024, slightly higher G&A expenses offset by additional land sales and other items that comprised the remaining $0.01. And looking at the operating metrics, our 2024 GAAP NOI will approximate 2023 levels. The -- our core portfolio year-end occupancy is expected to remain flat year-over-year. We do have several known move-outs during the year. So our average occupancy during 2024 will be slightly below our average occupancy in 2023. Our cash mark-to-market range will be between 0% and 2%. GAAP market -- mark-to-market range will be between 11% and 13%. While the cash range is lower than our 2023 levels, it is driven purely by the regional composition of our projected 2024 leasing activity. Our mark-to-market in CBD and University City and the Pennsylvania suburbs will perform above our business plan range, while Austin will be below that targeted range. We do expect spec revenue will range between $24 million and $25 million which is up 43% from 2023 levels. We are currently $19 million or 79% at the midpoint achieved. That midpoint level is above our historical averages and we believe that puts our operating plan in excellent shape looking at the current year. Occupancy levels of between 87% and 88%. Lease levels will be between 88% and 89%. Retention will be impacted by a couple of move-outs during the year and we targeted a range -- an improvement over 2023, but still in the 51% to 53% range. Same-store cash NOI growth will be 1% to 3%. We anticipate it being between negative 1% and 1% on a GAAP basis. Capital control will remain a key focus point and we anticipate that our capital spend as a percentage of lease revenues will be about 12%, slightly above our 2023 result. Based on increased 2024 leasing activity, the continued development and redevelopment spend, we do project our net debt-to-EBITDA to be in the 7.5x to 7.8x range. We do -- the $0.60 per share dividend will represent a 63% payout ratio and a 92% CAD payout ratio at the business plan midpoint. Our business plan does project $80 million to $100 million of sales activities to occur in Q4 with minimal dilution. And while that CAD ratio is slightly above the 2023 levels, it is well covered particularly as additional development revenue comes online. Looking at some financing, certainly with a more favorable tone to the interest rate financing climate, we do expect investment sales market to improve as the year progresses. As such we do plan to have a number of assets in the market for price discovery and have built $80 million to $100 million of sales into our capital plan, with again as I just mentioned, those sales occurring primarily in the fourth quarter. We are targeting sales in the Met D.C. and Pennsylvania suburban markets. We also anticipate continuing to sell non-core land parcels. In looking at our developments, as noted earlier, our development leasing pipeline stands at 2.2 million square feet. That's up 5% from last quarter. While we only executed several leases during the quarter, we did see the pipeline of that -- I'm sorry, we did see the status of that pipeline advance. As of now, we have about 120,000 square feet of leasing under early negotiations 800,000 square feet of proposals outstanding, and 240,000 square feet of space undergoing test fits. Tour velocity does continue to pick up. Our objective is certainly to get our prospects across the finish line, while continuing to build that pipeline. We opened 2024 with the commercial components of One Uptown and 3025 JFK delivered. So we do anticipate activity levels to continue to increase. However, given the length of time to complete space plans, obtain permits and then construct the space, our 2024 financial plan does not include any spec revenue coming from these two projects. To accelerate revenue recognition, we are building one to two floors of spec suites in each building that will be completed by midyear. When we take a look at our total development pipeline from a cost standpoint that pipeline is 31% residential, 41% life science and 28% office. As we noted in the supplemental package, our remaining funding obligation on this entire pipeline is only $11 million. And looking at specific projects 3025 JFK, which is our residential office life science tower, as I mentioned delivered late Q4 2023 on the commercial component we're currently 15% leased with an active pipeline totaling 770,000 square feet, which is up 88,000 square feet from last quarter, the delivery of the additional residential units continues with a balanced phasing in over the next quarter. Activity levels remain good, tours are occurring daily, and we currently have 83 leases executed for about 25% of the project, and 73% of those leases have taken occupancy. We do project the residential component of that project will be between 80% and 85% leased by year-end 2024. And looking at 3151 Market our 440,000 square foot life science building. That is again on schedule and on budget. The building is scheduled for delivery in very late Q2 2024. We have a pipeline totaling 357,000 square feet with about 120,000 square feet in early lease negotiations and 90,000 square feet at the proposal stage, so a good advancement of that pipeline in the last quarter. We do continue to seek a construction loan in the 55% loan-to-cost range and expect that to close sometime by mid-year. Looking at our Texas projects. Uptown ATX Block A construction is also on time and on budget. Our leasing pipeline there includes a mix of prospects ranging from 5,000 to 200,000 square feet. We did commence a floor of spec suites and during the quarter executed a 12,000 square foot lease. We are also proceeding on building out an additional four spec suites. The multifamily component of 341 units will begin phasing in during the third quarter of 2024 and we anticipate that residential component will be 50% leased by the end of 2024. Our next phase of B+labs expansion on the ninth floor is now complete. That is also 100% occupied. We have now shifted focus and commenced construction on the 8th floor of 27,000 square feet and we have three active prospects in the very advanced stages of lease negotiation there as well. So with that, I'll now turn the presentation over to Tom to provide an overview of our financial results.

Thank you, Jerry, and good morning. Our fourth quarter net loss was $157 million, or $0.91 a share, and our results were impacted by several non-cash impairment charges totaling about $153 million or $0.89, a share. Our fourth quarter FFO totaled $47.2 million or $0.27 per diluted share and our full year FFO totaled $198.3 million or $1.15 per share and was within our range of -- $1.15 to $1.17 guidance range. Some general observations regarding the fourth quarter. During the quarter, we had several moving pieces and several variances to highlight. The contribution from our joint ventures was $2.2 million, below we forecast primarily, due to increased costs to commence the lease-up of our multifamily project at Schuylkill Yards, and a onetime charge at one of our joint venture properties that's nonrecurring. Interest expense was $600,000 below, we forecast primarily due to some higher capitalized interest. We also forecasted two vacant land parcel sales to generate $1 million of earnings of -- one of those land parcels has been delayed to 2024 close. On impairments, as Jerry mentioned, we recorded impairments on both our wholly-owned properties and joint ventures. The wholly-owned impairments were based on short and anticipated hold periods in the DC Metro area -- primarily DC Metro area, and the joint venture impairments were based on the uncertain outcome related to the recapitalization of those partnerships. However, we do believe the ultimate success and recoverability of those investments. Our fourth quarter debt service and interest coverage ratios were 2.5 and 2.6 respectively, and net debt to GAV was 43.4%. Our fourth quarter annualized core net EBITDA was 6.3 times and was within our range that we had given. And our combined net debt to EBITDA was 7.5 2 times above our 7.1 to 7.3 high end of our range. Our leverage was within our targeted range. We didn't achieve that due to 2023 business plan sales targets, the debt attribution we had anticipated being reduced, due to some of the recapitalization events that we hope to take place in the first half of 2024 and continued capital spend on the development projects. During the quarter, 2340 Dulles was stabilized and added to our core portfolio. On the financing side, we remain focused on the 2024 bonds and continue to evaluate funding on both a secured and unsecured financing market, with an objective of completing the financing in the first half of the year. We're exploring some property level secured financing options including, another wholly-owned CMBS transaction. We anticipate our ongoing sales and joint venture liquidation strategy will also generate additional capacity. As we've discussed in the past, we prefer to remain an unsecured borrower and we'll continue to monitor the unsecured market as well. Given the above, we have seen improved pricing for both secured and secured financings since our first call. We will continue to seek the most efficient capital source, with a bias towards the unsecured market. Regarding the upcoming joint venture maturities, as Jerry mentioned, we are working with our partners on the 2024 maturities, to potentially extend those current maturity dates with our existing lenders and commence marketing efforts, with some new lenders on certain properties for sale to help lower JV leverage. Going to 2024 guidance. At the midpoint, our net loss of $0.31 per diluted share and FFO will be $0.95 per diluted share. Based on our 2024 guidance range, this is a decrease of $0.20 per share. It's primarily driven by our interest expense going down -- going up and there -- on both the wholly owned and JV side. Our 2024 range is built on some general assumptions. Overall, portfolio operations remained very stable, with property level GAAP NOI totaling roughly $305 million or an increase of around $5 million compared to the prior year. Full year impact of 2340 Dulles and 405 Colorado will benefit us about $6 million. We continue to see the lease-up of 250 King of Prussia generating several million dollars. 155 King of Prussia will commence operations in the fourth quarter and generate about $1 million. Offsetting that is about $4 million of reductions due to the 2023 sales activity including losing the state of Texas. So that $4 million is income that was in 2023 that will not be in 2024. There will also be a modest increase in the same-store portfolio. FFO contribution from joint ventures will total a negative $8 million to $10 million. This loss is primarily driven by our multifamily lease-up on stabilization – up to stabilization and will total about $9 million. Also higher interest costs on the operating portfolio in 2023 that are anticipated to occur in 2024. G&A expense will be between $35.5 million and $36.5 million. Total interest expense including $4.5 million of deferred financing costs will approximate $122.5 million due to the refinancing of the bonds, which Jerry outlined will increase quarterly interest expense by roughly $4 million. Forecasted higher use of our line of credit to fund development until our speculative second half asset sales takes place and forecasted higher interest rates compared to 2023. Capitalized interest will total about $6 million – will decrease about $6 million to $10 million as current development redevelopment projects are completed and become operational. Land sales and tax provisions we estimate between $4 million and $6 million, as we anticipate further progress on selling non-core asset parcels. Termination and other fee income will be between $10 million and $12 million, which is slightly below our 2023 levels, due to some onetime activities in the 2023 results. Net management leasing and development fees will be between $11 million and $12 million, a slight decrease due to lower forecasted third-party fees. Expected property sales $80 million to $100 million will take place primarily in the second half of the year with no material dilution anticipated. We anticipate no property acquisitions. We anticipate no use of the ATM or buyback activity and we believe our share count will be roughly 174 million shares. Looking at first quarter guidance. Property level operating income will total approximately $74 million. We'll be below the fourth quarter operating number by $2 million, primarily due to some of the fourth quarter asset sales and higher operating costs in some of our portfolios. FFO contribution from our joint ventures will total a negative $1 million for the first quarter. That's again primarily due to the ramp-up of leasing at our multifamily project here at Schuylkill Yards. G&A expense for the first quarter will total about $10 million. That sequential increase is consistent with prior years and is primarily due to the timing of deferred compensation expense recognition. Total interest expense will approximate $26 million. Capitalized interest will be about $3 million. Termination fees and other income will total about $2.5 million. Net management fee and development fees will be about $1.5 million. And we have no land gain sales projected for the first quarter to be material. Turning to our capital plan. It's pretty straightforward. It's about $660 million. Our 2024 CAD range will be between 90% and 95%. The main contributors to the higher range is primarily higher interest rates and expense and interest on the loss – and losses on our joint ventures. Looking at the larger uses, we saw about $110 million of development spend, which includes spend on 155 King of Prussia Road. We have $105 million of common dividends, $35 million of revenue-maintaining capital, $30 million of revenue-creating capital, $40 million of equity contributions to our joint venture partners. That's both for capital but also for some recapitalization of the joint ventures that we expect to occur in the first half of the year. And then $340 million bond redemption. The sources for those are going to be $145 million of cash flow after interest payments, $343 million of net loan proceeds, either secured or unsecured, that will decrease our cash by about $50 million. As mentioned at the midpoint, $90 million of proceeds coming from land and other sales and $32 million of construction loan proceeds to offset the spend at 155 King of Prussia. Based on the capital plan above, our line of credit is expected to end the year undrawn leaving full availability. We also project that our net debt to EBITDA will range between 7.5 and 7.8, with the increase primarily due to the incremental capital spend on our development projects with minimal project income forecasted by the end of the year. Our debt to GAV will approximate 45%. Additional metric of core net debt to EBITDA should be 6.5 times to 6.8 times. As of 12/31, it will primarily exclude our joint ventures as all of our active development projects will be forecasted to be complete. We believe the core leverage metric better reflects the leverage of our core portfolio and eliminates our more highly levered joint ventures and our unstabilized development and redevelopment projects. We believe these ratios will be elevated due to the development pipeline. And we believe that once these developments begin to stabilize, our leverage will decrease back towards the core leverage. We anticipate our fixed charge and interest coverage ratios will be roughly 2.2, which represents a sequential decrease from this year, again due to some higher interest costs. We continue to see stabilization within our joint venture developments this year. And we hope that the leverage will then begin to improve, as we go into next year. I will now turn the call back over to Jerry.

Thanks, Tom. So look, the key takeaways are operating portfolio is in solid shape. Again we have very manageable rollover exposure through '26. We will continue to have a relatively strong mark-to-markets, good control of our capital spend. And certainly, we're very pleased with the level of leasing activity through the pipeline that we are seeing. We recognize that we are executing a baseline business plan, that will continue to improve our liquidity. It will keep our operating portfolio in very solid footing, with real clear focus on leasing up our development projects to generate forward earnings growth. So as usual, we'll end where we started which is that we really do wish you and your families well. And Michelle, with that, we are delighted to open the floor for questions. [Operator Instructions] Thank you.

Thank you. [Operator Instructions] Our first question comes from Anthony Paolone with JPMorgan. Your line is open.

Great. Thanks. I guess maybe for Tom. I think you quantified the drag from the apartments being about a nickel. And so I'm just wondering, if you can give us a sense like when those are fully stabilized, does that nickel drag? Does it become a few pennies positive? Or like what sort of the bounce off of I guess what seems like maybe the '24 is perhaps like the worst impact of bringing those things online.

Tony, I do think it will turn into a positive a couple of cents once it's stabilized. I think, there's two sets of timing. I think that we will have some of those hits for Schuylkill Yards taking place in the first and second quarter, since they opened up end of the third quarter. So, we'll begin to see positive NOI as we look at Schuylkill Yards, as we get into the second half of the year. But first half of the year, we will see a majority of those charges that we talked about. And then separately, we expect to be fully open on the project One Uptown. So, again second -- probably third quarter, you'll see some charges starting to hit there for that project, while it leases up. And I think, as you get towards the end of the year though, and go into next year, we see -- you should see a couple of cents of positive momentum moving into the beginning of '25.

Okay. So I mean, we should think about almost like, I don't know $0.07 of swing from '24 into '25 from those? Is that like order of magnitude?

Yes. I think that's the order of magnitude, because right now, the NOI that's coming online is being offset by our preferred equity and interest expense. And until that NOI -- and so the NOI is just not high enough in the beginning to offset that, but yes I think it's probably going to be about $0.07 swing as you go into '25.

Okay. And then just second one, maybe for Jerry, the 4.2 million square foot leasing pipeline that you talked about, can you maybe give us a little more color as to the nature of the tenants driving that maybe their industries, type of space they're looking for and such?

Yes. Tony. George and I will tag team it, but we really haven't seen any perceptible change in the composition of the tenancies quarter-over-quarter. Our primary pipeline here in Philadelphia remains life science institutional requirements as well as law firms, accounting firms, engineering firms, et cetera. Down in Austin the pipeline there is actually less tech reliant and more service related whether it be insurance companies -- financial service firms, insurance companies along those lines. So, we've seen a fairly large drop-off in the larger tech requirements in Austin. But certainly even as we saw 405, the downtown building that was leased up primarily to non-tech tenants. We're actually -- given the dearth of new tech requirements and frankly the managed sublease space in that market currently controlled by tech tenants, we've really shifted our focus as we mentioned a couple of quarters ago to smaller-sized tenants that are very much service-based versus technology driven. Hence the reason we're building out a couple of floors. But George maybe you can add some additional color to that.

Yes, I think you hit the nail on the head. I mean professional services seems to be the predominant industry leaders whether that's financial services law firms. And then obviously as Jerry mentioned life science almost exclusively at 3151 but professional service pretty much everywhere else around the company.

And just one other point of color on that. I mean we continue to see a lot of these traditional service firms looking for a better corporate home. So, that quality thesis we do continue to see. We think that the quality of the space we're presenting as well as the relative stability of our company from a financial standpoint compared to a lot of private firms is definitely narrowing the competitive set, which is I think one of the reasons why we're seeing the pipeline build at such a rapid rate. The challenge we have is to get that pipeline across the finish line. And I think we've -- we're very clearly focused on that and want to make sure that we meet all of our leasing objectives.

Okay, great. Thank you.

Thank you.

Thank you. Our next question comes from Michael Griffin with Citi. Your line is open.

Great. Thanks. Jerry in your opening remarks you talked about how tour activity is notably above recent quarters. How quickly could we see that actually translate into demand and leasing for space?

Not quick enough for me Michael. It's -- we're putting a full-court press. We are responding to a lot of RFPs, RFIs where the level of tour activity has picked up. Like even in Austin, Texas I mean the amount of tour activity we've seen just thus far this year and it's only really one month under the belt is equal to about two-thirds of what we saw last year. So, we are beginning to see a number of, as I termed, green shoots and the major chance of just getting them across the finish line. I mean a data point that's helpful I think is our spec revenue target this year is well above what the spec revenue target was last year. We are entering this year close to 80% done on that spec revenue target. That provides a very solid basis for us to try and generate some additional leasing revenue coming in in the second half of the year. We have also started to take a more aggressive approach on pre-building some of our spaces, not necessarily spec suites, but doing whatever we can within our buildings to get as much done as possible so that we can compress the time from lease execution to occupancy. We've expanded our internal space planning team, which is extraordinary. So, they're able to turn space plans very quickly. Based upon those preliminary space plans we're able to drive any long lead order times for tenants. So, the name of the game is I think the theme that you hit on which is how do we compress tour proposal to occupancy. And that's a whole company initiative from our leasing teams to our legal teams our space planning folks and our construction development teams. So, we recognize the urgency of getting additional revenue into our portfolio. So, every building has been examined to make sure that we've got every vacant space in great shape. We are tracking tour volumes. We're following up at a senior executive level with all of our key prospects. So as I mentioned a full-court press, at every level of the company to continue to build that pipeline to our social media and marketing outreach programs, and then capture more than our fair share of transactions that come through the door.

But you haven't seen tenants -- they're still taking a while to make these decisions, right? They haven't shortened their timeframe in terms of leasing decisions. You're just seeing more inbounds in the format that's correct.

Yeah. I hate to give you a generalization, because it really is so anecdotal. We've had some companies that make decisions very quickly and move very quickly. We've had other ones, particularly the larger ones that tend to be a little more over-deliberative in kind of thinking through their space. But George, do you have any color on that?

Yeah. I mean, I think the cycle times have remained relatively unchanged. I do think as Jerry mentioned that, the larger the tenant oftentimes that decision has taken a little bit longer because they're sometimes going through the analysis of combining several locations into one. And we've seen that with a number of tenants kind of taking that flight to quality and "Okay, we're going to move out of two different buildings into this one." And then going through their demographic studies of commuting times and things like that. But the one thing we're encouraged by is, in terms of converting tours into proposals we're running at about a 40% success rate. And then, once we've got somebody at the proposal we're running at about a 30% -- low-30% conversion to an executed lease. So we do kind of feel that once we get somebody into the building, get them comfortable with the space we've got a great opportunity to convert it. But again as we've discussed the entire decision isn't solely ours.

Got you. That's helpful. And then maybe just one on the debt stuff for, Tom. For the JV debt coming due or that's already past due you talked about kind of conversations that you're having with your lenders right now. Does it make sense to put additional financing on it? Or would you almost be better off kind of handing back the fees on some of those properties?

Yeah. I think that we would probably not want to put additional financing on. I do couch that by, if there was a potential for us to put in capital that would be at a level that we would recover that ahead of the debt or ahead of a portion of the debt. That may be something we would consider. But I think for most of them to put on additional debt or -- that would not be a preference. Although, I will say one of the financings that we will look to do this year we probably will look to lower the balance of that refinancing debt and that may come in the way of contributions from the partners to refinance that property. So there is one situation where I think when we do refinance it we will -- you will see us to add capital. And we do have that on our liquidity plan. The others, no, it would not be a situation where we put more debt on those.

All right. That's it for me. Thank you, Tom.

Okay. Thank you.

Thank you. Our next question comes from Dylan Burzinski with Green Street. Your line is open.

Hi guys. Thanks for taking my question. Just wanted to go back to some of the occupancy comments that you had talked about in your prepared remarks, So we're talking -- you guys came in 150 basis points below where you guys have targeted coming into the quarter. You mentioned 100 basis points, 50 of that being occupancy sliding into January and 50 basis points from a portfolio sale that didn't come to fruition. So I guess just curious what was the other 50 basis points drag on occupancy that you guys thought you had when you guys provided guidance last quarter?

Yeah, Dylan, it's George. Yes so the third component really was just not getting pipeline conversion on a number of new deals that have kind of carried into 2024 that we kind of thought we were going to get those kind of executed and into the leased number.

And then I guess just on that portfolio sale, can you kind of talk about -- was it clearly -- was it just a reason that they could not get debt and that sort of why the transaction never happened? Or could you just give us additional color on sort of what happened with that particular portfolio sale.

Sure. I'd be happy to. It was a -- call it an under leased portfolio, which remains in our -- in the wholly-owned stack, right, at this point. It was really to a non-institutional-grade buyer who was fairly thinly capitalized and was looking for third-party financing. When that didn't prove out to be the case, they proposed that we take back a significant piece of seller financing, which as we talked on the previous call, we were willing to do, but I think the terms of that seller financing were such that we felt holding that portfolio for a short term, get some near-term lease renewals done, wait for better capital market, presented a better opportunity for us to recover value. It did impact the year-end numbers. Obviously, that portfolio does impact our 2024 numbers, but we felt from a financial and a return standpoint, it was the right decision not to proceed with that sale.

All right. Thanks, guys.

Thanks, Dylan.

Thank you. Our next question comes from Steve Sakwa with Evercore ISI.

Yeah. Thanks. Good morning. I guess, just following up on Dylan's question. Jerry, just help us like think through what's the confidence level that you have in the 88% to 89% on the percent leased and the occupancy for this year, given the things you just outlined, slower time to get things over the finish line, like what conservatism or buffers have you put into this year's plan maybe versus last year?

Well, I think we have a high degree of confidence in the numbers we've put out. And I think, it's evidenced by the high percentage of execution we already have in place as well as a thorough review of the status of our entire pipeline. So, bottom line confidence level, very high. I think, if we look at sensitivity, we do have some revenue coming in from our Austin, Texas operation, which is always precious given the slow velocity in that marketplace. Now again, as I mentioned, we've seen an up-tick in activity. We again have a good portfolio to market. But certainly, we would expect that even, if that were to be slower, we would make up for that as we have in many past years, by increased velocity in our Pennsylvania suburban, University City and CBD portfolios. But George, maybe you have some additional thoughts.

Yeah. Sure. I mean, in terms of square footage, the open plan is roughly 340,000 square feet. 100,000 of that are renewals that we feel confident about and then about 240,000 square feet of new leasing. And again, we've got 55% of that new leasing coming out of Pennsylvania, both the suburban and the downtown operations and about 42% coming out of Austin. So, we think again, the fact that at $19.3 million achieved. I mean, we've kind of achieved last year's total spec revenue run rate. And we think the balance of the plan is certainly achievable and we're doing everything we can every day to hopefully outperform that plan. But I think in terms of expectations, we think these are appropriate given where we are today.

Okay. Thanks for the color. Jerry, I think if we did the math right, the leasing on the residential in Schuylkill was pretty slow in the fourth quarter. If we did our math right, maybe there was 20 leases done in the fourth quarter from the last time you had reported. A, is that correct? And if so, why was the leasing so slow on that new project? I know time of year is a little tough, but 20 in a quarter just seems abnormally low?

Yeah. I think, Steve, great question. And I think your math is always correct, if I remember correctly, but we wound up -- our last earnings call was late October, and I think that the numbers we gave kind of reflected that leasing activity through the earning state. So frankly from our standpoint, just a backdrop, we were really delighted to get that level of activity, because a lot of the amenity space in the buildings weren't completed until much later in the year. So we did have a slower November and December, primarily as a function of the holidays, but tour activity has picked up. There's a seasonality to it. So, we do expect to do 12 to 13 new leases in each of January and February and kind of move into an accelerated pace as the spring leasing season picks up. But we really benchmarked that based on a number of tours. We've had as many as seven to eight tours a day coming through the project. And now again that it's 100% physically done. The outdoor park area is done, the lobbies are finished, all the furnitures at the amenity floor, the outdoor amenity deck is fully operational. We really do expect to see a good acceleration of that leasing velocity going into the into the full season. As I mentioned, we do expect it to wind up being about 80% to 85% leased by the end of the year.

And just a quick follow-up. Are the rents that you're achieving and the concession levels consistent with what you had budgeted? Or have rents and/or concessions kind of been better or worse than you thought?

No. We had a level of concessions that were in line with our pro forma to kind of do the opening occupancy levels. Right now the average rent is around $3200 a month and we're running right on line with our performance. Certainly, as we start to move into the leasing season. We hope that the concessions we were giving will disappear based upon the tour activity that we're seeing. So we have a high level of comps in the pro forma that we pulled together for this project will be executed.

Great. Thanks. That’s it

Thank you, Steve.

Thank you. Our next question comes from Upal Rana with KeyBanc. Your line is open.

Hi. Good morning. Could you talk about some of the sequential changes you saw in the development pipeline? I saw that there were some ownership increases completions and stabilization days are pushed out and some additional leasing done. So if you can give some color on that that would be great.

Sure. The -- and we can tag team that. The increase in ownership as you may recall those -- the Schuylkill Yards and the Uptown ATX developments are in joint ventures. Those joint venture partners are preferred. So they had an obligation to fund up to their level of investment which they've done. And beyond that we make additional capital contributions. As we make those capital contributions our ownership percentage could change. So that's the reason for that. I think the -- where there were changes made to the development schedule it simply reflects what our reassessment has been of the time to get the space actually built out and delivered. And we continue to see delays at the regulatory level of getting permits approved getting all the appropriate clearances to actually build out the space. One of the reasons why I was mentioning that we're doing a lot of interior space planning and spec build-outs so we can kind of circumvent that delay process.

And Upal on the reason for that is we do most of those increases that's causing us to put in more capital was really related to interest rates and in carry on the project. So when we started these projects we had a certain level of -- or even before we started while we're working on the loans we had a certain level of interest based on where the curve is at the time and that kind of got built into the budget. Certainly as rates went up a little faster than we thought and they're coming back down a little slower than we anticipated they have caused the that part of the budget to go up. And that's what we're funding primarily. There hasn't been many increases other than just some of the interest numbers related to the loans going up. And we've chosen to fund those as Jerry said.

Okay. Got it. Thank you. And as a follow-up could you talk about any updates on the vacancy reduction plan? What's the breakdown of some of the assets that you plan on leasing up selling and converting on the listed assets? I know you mentioned some of the disposition plans and timing. So want to see if there's any other color you wanted to add there?

Well, the full-court press is on leasing a number of those properties particularly when we take a look at some of the higher-quality projects on that list like Cira Centre, 401 Plymouth Road. So there it's more of an accelerated leasing marketing outreach program. We take a look at 101 West Elm we have commenced a significant lobby renovation there and common area upgrades that we think will help reposition that property. 300 – excuse me, 300 Delaware Avenue, we're evaluating the feasibility of the conversion opportunity on that project to residential as we are with a couple of these other projects as well. So I think it ranges across the board. But I do think we've identified a couple of those is probably more appropriate for a residential conversion opportunity versus continuing to re-tenant as office space and then making some capital investments in a couple of the projects as well in their lobbies, common areas, et cetera.

Great. Thank you.

Thank you.

Thank you. Our next question comes from Bill Crow with Raymond James. Your line is open.

Hey, good morning. First question is when you look at the competitive leasing landscape in the Philly and Austin markets, is it your sense that your competitors are getting more desperate and urgent in their leasing less urgent and desperate? Where does the market stand from a panic perspective?

Yeah. Good question Bill. Look I think as I touched on earlier that we are in a very good position given the quality of the product we have and our ability to execute both from a tenant improvement brokerage commission standpoint. And that's really been one of the wonderful things about having an unsecured balance sheet, which is why Tom I think touched on our preference to being an unsecured borrower. It gives us really good operating latitude. I think a lot of our private market competitors have secured financings in place. They certainly -- they may not have the ability to fund the TIs or maybe in the middle of loan negotiations, they may be trying to work out refinancing programs. And all that just signals a delay in execution to a tenant market that wants in this kind of climate particularly given the macro-overtones, a high level of certainty of execution. So we think that really is a wonderful competitive advantage for us. I would not define it as a panic mode at all. I think each of these markets is seeing more leasing activity. Absorption numbers still are fairly bleak in most of the markets but you're seeing more tenants in the market, more tenants looking for higher-quality space. So I think at the higher end of the quality class those properties seem to be performing much better to which -- our CBD Philadelphia properties being in the 90% lease range certainly compared to a 20% vacancy is the best evidence we can give that we'll continue to see deals. And even with Bill where there is a call it a panic mode on the part of one landlord if they don't have the right product, they're not going to get the deal, because the consumer preferences as we've talked is changing. I mean tenants as they're bringing people back to the workplace on a higher quality work environment, they want a very strong management services delivery platform, which we have and they want to know that they have confidence that their landlords are going to be there to service them through their entire course of their tenancy. So I think the market -- the macro tone seems to be a little bit more dour than what we're seeing at the ground level. But we recognize that like the other office companies we need to demonstrate that change in tone through lease executions. And that's really the focus for the company.

I appreciate that. I do have a follow-up for Tom. I think if I go back to Tony's question about the cadence and the recovery of the development the $0.07 that you outlined in stabilizations. Do you think earnings hit bottom late this year as we go through the asset sales, the refinancing and then we build off that? Or is it -- is the $0.07 that we're going to capture over the course -- into 2025. Is that enough to keep you flat or positive in 2025?

Yes. If you look at our yields on our multifamily build once they get to stabilization, they're going to be generating over $0.09 of NOI right? So that's, kind of, like if they hit stabilization, which will occur in the beginning, the first half of 2025. Right now we're projecting for this year for them to do less than $0.03 in the $0.0250 range. So really it's a swing between that NOI where it is. So, for example, in one of our projects the one that's going to start up in Austin they're going to generate negative NOI for 2024. So, when you couple that with the lease up that's starting to occur here at Schuylkill Yards, you're getting to an NOI number that's $0.06 below. So, the fact that when you turn on both the preferred and the interest expense, that's all getting -- those are where those losses are coming from. As we grow from that $0.02 to $0.03 of NOI that we're expecting over the course of this year, you'll start to hit that full $0.09 of earnings on the multifamily, call it, end of first quarter beginning of second quarter of 2025.

So, 2025 is going to be positive, right…

Yeah.

When we see growth overall.

Yes. That's the NOI growth overall, because we're already taking full hits on the interest and the preferreds as you get into the third and fourth quarters, because both projects will be fully available and fully taking those charges.

All right. Perfect. Thank you for your time.

Yes. Thank you, Bill.

Thank you. And our last question comes from Omotayo Okusanya with Deutsche Bank. Your line is open.

Yes. Good morning, everyone.

Good morning.

I wanted to go back to -- I wanted to go back to the interest expense forecast for the year. Tom, the debt refinancing that you have planned for the year that debt comes due in 4Q. I'm just curious if it's going to be refinanced earlier which is why it's having a bigger impact on interest expense. And also wanted to understand the type of SOFR forecast that we're using on your variable debt and how that's impacting your interest expense forecast as well?

Sure, Tayo. So I'll start with the bonds. So, we -- a couple of points on that. One is, as we talked about on our last call, we prefer doing that bond deal a little sooner than later. However, since the last call, we have seen rates come in quite a bit. I think that our borrowing costs have probably come in on a secured or unsecured deal at least 150 basis points. So the tone has been better for us to get a bond yield done or a secured deal done. I think though we would prefer getting one done earlier than later, Tayo. So if you look at that cost if we do one in the second quarter, every quarter we think roughly $4-plus million of interest expense -- in additional interest expense by taking out that bond early would occur. So if we think we're going to do a bond deal or a secured financing in the second quarter, whether it's unsecured or secured. That will add about $8 million over those two quarters to the bond deal in mid-October. So that is a big charge. On the SOFR side, we -- as we mentioned, we may be using the line a little bit more this year versus last year. We do have floating rate debt at the JV level. Not all of that debt is fixed. So we have been taking SOFR charges there. And then the normalization of the --and we have been using the curve, Tayo when we go through our numbers we do try to use the curve with a little bit of cushion on there. But I would say, also the biggest thing in the JVs was the Commerce Square loan, which was partially in 2023 full year effect in 2024. So we we're looking at roughly -- we're looking at over $6 million of interest charges year-over-year because of that and because of SOFR.

That’s all. Thank you.

Thank you, Tayo.

Thank you. There are no further questions. I'd like to turn the call over to Jerry Sweeney for closing remarks.

Great. Well, Michelle, thank you for your help, and thank you all for participating in our call. Wish you a good day and we look forward to updating you on our business plan on our next quarterly earnings conference call. Thank you.