Okay, I think we're all set ready to begin here. So I'm Michael Lewis, Managing Director and Lead Office Realty Analyst at Truist Securities. I have the privilege today of introducing the management team of Brandywine Realty Trust. Directly to my right, Jerry Sweeney, the President and Chief Executive Officer. Tom Wirth, directly to his right, Brandywine's Chief Financial Officer. And on the end there, Dan Palazzo, Chief Accounting Officer. Brandywine Realty Trust, ticker BDN, is an office realty headquartered in Philadelphia, about a $750 million equity market cap. I didn't check this morning. The format here, I'm going to turn it over to Jerry for a little bit. I'm going to ask some questions. If there's a question in the audience, feel free to raise your hand. I will leave some time at the end here for some Q&A from the audience as well.
Before we get into market fundamentals and other topics, I thought maybe, Jerry, for the investors out there that might be less familiar with Brandywine, maybe you could give a brief overview of the company and your strategy.
Great. Thank you very much, Michael. Thank you all for attending. Quick snapshot of Brandywine. We're, as Michael mentioned, office company, headquartered in Philadelphia. We're really a two-market company. We get about 80% of our NOI coming in from the greater Philadelphia marketplace and about 20% from Austin, Texas. We have a small percentage of operations coming in from Metro D.C., as well as New Jersey and Maryland. As mentioned, we're primarily an office realty. Very stable, high-quality portfolio. Own portfolio is about 12 million sq ft. Big concentrations in Philadelphia's central business district, University City Philadelphia, and the Pennsylvania suburbs. We've really begun to diversify our product mix over the last couple of years. We have a couple of very large mixed-use developments I'm sure we'll talk about.
One in University City Philadelphia, where we were awarded the master development rights by Drexel University to build about a 5 million sq ft mixed-use development called Schuylkill Yards. It's adjacent to our Cira Centre and Cira Centre South developments, which adjoin 30th Street train station, which is the third busiest train station in the country. We also have a very large mixed-use development that we call Uptown ATX in northwest Austin. That project really just commenced construction a couple of years ago. We delivered our first two projects, a residential and an office product, last year. We also just received approvals from Cap Metro, which is Austin's regional rail authority, to build a train station at Uptown ATX. When we build out that development, which will take a number of years and could be as high as 17 million sq ft, it will be Austin's first transit-served development.
Our current development pipeline is just shy of $1 billion. It is comprised of 21% office, 42% residential, 27% life science, and some retail components as well. As we look at our four-development pipeline, it is primarily a mix of office, life science, and residential. We have been an active recycler of capital over the years. Last year, we sold about $300 million worth of properties. This year, we have targeted about $50 million of sales. Our balance sheet is in very good shape. We have just shy of $600 million of liquidity. No bond maturities are coming up until late 2027. We have every expectation of taking advantage of some of the distressed opportunities we see in the marketplace over the next couple of years. With that, Michael, I will turn it back to you.
Yeah. Fantastic. I thought, since we're talking about office real estate, obviously, a downturn the last few years, maybe we're at a point here where things start to look up. Maybe you could just talk a little bit about cap off for us, the work from home, the hybrid work strategies, and now kind of more talk about return- to- office. Maybe the question is, talk a little bit about office leasing demand in Philadelphia and Austin and how you're kind of positioned to capture more than your fair share.
Yeah. It's actually been a great evolution over the last couple of years. I mean, we're seeing the vast majority of our tenants are back at least three, many four, and some moving to five days a week. I'll give you some stats that might help reinforce that. I mean, our CBD Philadelphia office portfolio is 96% leased. We are getting the highest rents we've ever gotten. Between 60% and 80% of our new leasing activity around the company is coming from tenants who are moving up the quality curve. When you really take a look at the bifurcation of office space, it's been pretty interesting in the last couple of years. Like when I take a look at Philadelphia, the overall vacancy rate is between 18%-20%, depending upon what brokerage firm numbers you use. 50% of that vacancy is in 10 buildings.
Less than 10% of the buildings in the marketplace comprise 50% of the vacancy. We're seeing that in the other submarkets we're in as well. It has really become a story of have and have not. As people are bringing their employees back to the workplace, we're seeing more and more companies migrate to higher quality office. From a net effective rent standpoint, controlling capital costs, absorbing a vacancy loss, I think the top quality office product is doing incredibly well. We see that trend not just in CBD Philadelphia, but also out in University City and the suburban markets as well. Interestingly, we're starting to see our competitive set begin to shrink for two primary reasons. One, we're seeing a number of buildings that are functionally obsolete being taken out of service and become candidates for residential conversion.
Some of the older buildings are also undergoing some financial distress, which really takes them out of the marketplace for active leasing activity. For example, in Philadelphia, just yesterday, about a 900,000 sq ft block of vacant office space was traded to a company who's going to take that out-of-office inventory and use that to create about 600-700 residential units. As we're looking at the existing market conditions that we're in, given our top flight inventory, our ability to raise net effective rents, juxtapose that again against the inventory set shrinking over the next couple of years in all of our markets, and then add on to that that the forward supply pipeline is incredibly small using any of the firm's forecasts.
I mean, they're projecting between now and 2030, only between a 30-50 basis point annual addition to the office stock annually. We think the high-quality office product will do very well. We're seeing that statistically within our own portfolio. We think the next couple of years portend even more success going forward.
Great. You may have already addressed this question in a way, right? You talked about the highest rents you've got and good net effective rents. Some office realty are seeing a cash flow crunch as they spend a lot of money to release portfolios back to pre-COVID levels. Are you seeing a similar thing, a mismatch between kind of economic lease and cash-paying lease? Is there kind of a cash gap there for you as well?
Yeah. I think in some cases there is, Michael. I also think we have moved in a number of our markets to doing away with gross free rent and moving to net free rent. Where we need to give free rent, the tenants are paying operating expenses during that period. In other situations, we're moving to a significant stepped rent program. From day one, the tenant is paying rent to obviate the cash flow crunch and then stepping up the rent over term. I think we can't do that in every market or in every product. I think in some of our properties that are north of 90% leased, where there's a dearth of available space and we have more prospects looking in that space than we have space available, we're able to really drive, I think, economic returns quite nicely.
Now, when we take a look at Austin, excuse me, Austin has a bit of a disequilibrium right now between oversupply and under-demand. In that marketplace, we've seen our occupancy levels go from 95% occupied pre-pandemic down to about 75% leased today. In that market, we've actually done a lot of analysis to take a look at, for each of these buildings, how long will it take to lease up the properties? How much capital will we need to put in? Then taking those two data points, saying, okay, what's the real net present value to us of that building? It takes five years to lease up. We're putting in $21 million of capital. We discount that back. How does that net present value equate to what we think we can sell the building for today?
In a number of cases, that NPV equals kind of current market value today. We have a number of properties in Austin that are up for sale. That eliminates kind of the cash crunch for us, shows where we can allocate the capital that we do not need to spend on those properties, put it in the higher returning projects, and then kind of takes out of the value trap that some of these office buildings may have over the next couple of years. It is really very much of a submarket dynamic. Take a look at where we can really move rents, where we can kind of compress concession packages, where we can, at the one extreme and the other extreme, where do we actually need to recognize the reality of what we think a couple of these buildings may be worth.
It is a lot of quantitative analysis, really understanding the marketplace here. That is why I think one of the benefits we have as a vertically integrated company is we have a great research team, great leasing people, great product, great onsite property management. We have great visibility into every one of our 1,200 tenants in terms of what they want to do, what they are thinking, where they want to expand, or their relocation opportunity. It is very, very much a day in, day out communication program with the marketplace and our tenant base.
Nice. In terms of supply, I imagine there's going to be very few office buildings built for a while. I can think of two ways that impacts you, right? First, it should allow demand to outpace supply, which is a good thing for you as an existing landlord. Second, development's a meaningful part of the company's strategy. You talked about development a little bit at the very beginning. Maybe give us some more thoughts on, does this limit your external growth potential in the near term or what the plans are for development?
Yeah. Look, I mean, we have a large four-development pipeline. For right now, our focus is very simply on leasing and stabilizing the existing development pipeline. I think we're making very good strides on that. We have one of our recently delivered projects at the Schuylkill Yards, which is a mix of residential and office. The residential is 98% leased. The office is 82% leased. Very good progress there. Our residential project down in Uptown ATX in Austin, we just delivered that. That's running ahead of Proforma at 72% leased. We've actually done 100 leases in the last 60 days. Demand drivers there are really picking up. We have a 350,000 sq ft office building that's in lease up right now. We have a pipeline of about 600,000 sq ft.
A building that we literally just delivered a couple of months ago in Philadelphia, a life science building that we are in the process of leasing up. The major focus right now, despite the fact that we have a very large four-development pipeline, is actually leasing up the existing pipeline, generating the NOI there. We have partnerships in a couple of those properties, recapitalizing those partnerships. We will focus on four-development. We are still continuing to do some planning activity on those developments. To wit, we just recently had two significant events for the company. One is our Uptown ATX development. It just got upzoned again by the city of Austin given its mass transit capacity. We have the ability to do a lot more square feet there than we originally anticipated.
In Radnor, Pennsylvania, one of our core suburban markets, the township just passed a comprehensive master plan that gives us the ability to kind of create a mixed-use development and increase density in our 2 million sq ft Radnor development. Development will always be part of our future. Certainly, based upon where capital markets are, leasing dynamics, the major focus of the company right now is to lease up these developments, recapitalize them in a creative manner, potentially take advantage of some of the distress that we're seeing out there through bridge financing or distressed acquisitions. We will worry about the development pipeline when market conditions are a bit better.
Great. You mentioned one of the life science buildings. I wanted to ask about that specifically. You had set a goal to move the portfolio from about 8% life science today to 25%. Maybe give us a sense of life science fundamentals today. If 25% exposure, you think is still the right amount or if you're starting to shift those goals a little bit?
You know . We think 25% is the right target for us given our large concentration in Philadelphia. Sometimes with goals, life intervenes. I think we're hoping to get to 25% a little bit sooner than I think we will. I mean, the life science sector has certainly taken some hits over the last couple of years. I think the long-term demand drivers are still very much in play. Philadelphia has really three major medical research centers: University of Pennsylvania and their healthcare system, Children's Hospital of Philadelphia, the Wistar Institute. There's a few other ones like Jefferson and Temple. It's primarily those three. They've been a fairly large recipient of NIH grants over the last couple of decades. Of course, the new administration in Washington has really started to take a hard look at what they're doing with NIH grants.
There's been a cutback in that since January, certainly with the NIH issuing the 15% indirect cost override to future NIH grants. That's put a bit of a squeeze on that as well. Certainly, there's been almost $10 billion of NIH cuts since January or grants put on hold. In addition to that, there's been about just shy of $1.5 billion National Science Foundation grants put on hold. That does have an impact on the dynamics in the sector. Particularly on the institutional side where there's large NIH recipients like University of Pennsylvania Medical System. We look at our target market to grow our life science exposure, which is kind of on the private life science side where they're trying to raise capital.
That's been impacted significantly by the fact that you still have about 150 publicly held life science companies that are trading below cash value. There's been a huge pullback in the biotech sector from public market pricing. If you think about trying to raise capital as a private life science company, the pricing you'll be able to achieve has been seriously impacted by where the public market valuations are. When I take a look at the life science building we recently delivered in Philadelphia, we have a very large pipeline of deals. A number of those deals have advanced to the point where we're ready to sign leases. The reality is we're not going to sign the lease, and the tenant won't be in a position to sign the lease until they complete their fundraising cycle. A lot of fundraising's underway.
We'll see how that continues to go. I mean, the science is amazing. I think you'll continue to see some amazing scientific breakthroughs strictly in the cell and gene therapy mode. We're dealing with companies in our portfolio. They're dealing with cell and gene therapies that can cure lupus, cure hemophilia. There are a lot of diseases out there that still don't have FDA approvals in place for. The forward pipeline, I think, is pretty significant. When you take a look at the large pharma companies, 80% of the world's pharma companies have large concentrations in the Philadelphia region, 60% of pharma patents are cliff vesting in the next 5-10 years. There's a huge push by pharma companies to invest capital into the life science, particularly cell and gene therapy sectors, to try and grow their patent pipeline over the next few years.
Right now, we think the underlying long-term demand drivers are very, very constructive. I think pretty much in line with what we thought. Certainly with, I think, the political overlay, the cutback in some of the government programs, the uncertainty related to what the near-term outlook is for some of those programs, and then compound that with the dislocation in the biotech public market valuation space, it is going to take a little bit longer than we initially anticipated. Look, when we take a look at all this science coming out of those three major institutions in Philadelphia, pretty amazing stuff. Capital will find its way to support that. I think we started a 70,000 sq ft incubator a few years ago, 14 different companies, some sponsored by major pharma companies. We have graduate-level labs we have put in place that are doing very, very well.
Where I think the gap has been in the last 12 months is there was a greater expectation that some of these companies that are in graduate-level space, a 5,000, 10,000, 15,000 sq ft, would be able to raise significant capital and grow into 30, 000, 50, or 75,000 sq ft. That last piece is what's really been on hold over the last couple of quarters.
Got it. My next question is about asset values. I know you're always testing the market with potential dispositions. When I was preparing these questions, I estimated your stock was traded at a 12% implied cap rate. What do you think asset values are today? Do you have disposition plans?
Yeah. We actually think it's at a 14% cap rate just for public consumption. Now, look, I think one of the real interesting dilemmas right now in the office space is what are the effective valuations? A couple of data points. We sold $300 million of properties last year at cap rates ranging from the high sixes to 11%, purely a function of the weighted average lease term, the credit of the tenant, the occupancy levels. So pretty wide range in terms of what's been pricing in the public marketplace. That's data set one. Data set two is a lot of the properties that have traded in the office sector have been some of the lower quality buildings. You really haven't seen a lot of the trophy class buildings trade. You're seeing some of that in New York here.
You saw one in Austin a few months ago. For the most part, a lot of the headline trades are lower quality properties. In fact, when we knew we were going to a very tough point in the cycle and we were taking a look at our multiple-year business plan, we really had a couple of key predicates. One was to make sure we covered all of our financial exposures, got all of our refinancings done, and made sure that we maintained sufficient liquidity to fully execute our business plan and take advantage of opportunities. The second predicate was do no harm to our best assets. We have some very high-quality assets. Trying to jam a sale on those in today's marketplace will not get optimal pricing. I think there still needs to be a fair level of price discovery in the office space.
We're looking forward to the second half of this year and next year showing some more clarity on that. We're seeing more and more institutional investors come back in the market for high-quality office. The debt markets from a bank and CMBS standpoint and HD standpoint seem to be working very well compared to they were a year ago. We think the confluence of increased investor appetite, the financing market showing more depth, and then I think a growing recognition of the fact that there's been a real bifurcation of quality product in the office space. I mean, the A space is generating much higher effective rents, much higher occupancy levels, lower rent concessions versus the product that's functionally obsolete. One of the reasons why we did so much sales last year was to kind of test the thesis of where pricing is.
I think we got some good data points on that. This year, our target is to sell about $50 million. My guess is we'll do more than that. Again, we're putting a wide range of assets on the market for sale to see what the market will bring. Similar to the exercise outline that we do in Austin, before we put anything on the market, we know, or we at least think we know, what the value of that asset is to us through doing a whole range of financial projections with high rent growth, low rent growth assumptions, different capital assumptions. We kind of have a box that we think the value of the asset really does mean to us. That's the discipline that helps us move forward with our disposition program. Short answer is we've got some visibility on stuff that we sold.
We track everything in the market. We think actually you're going to see pricing of office product increase over the next couple of years as the financial markets and investor appetites continue to increase.
Thanks. I'm going to ask an open-ended question about the balance sheet for whoever wants to take it. What can you tell us about your financing strategy, your target leverage, access to capital, cost to capital?
Yeah. I think maybe Tom, you and I can tag team. Look, I think one of our objectives is we lost our investment grade rating a couple of years ago with a downgrade of the office sector. As we look at our financial plan going forward, we plan to return to an investment grade company as soon as we can. We've had an active dialogue with the agencies. We understand what they need from us to achieve that objective. Look, one of the simple factors for us as you look at the company is back in 2022, our debt costs, our interest carry costs were about $75 million. With about the same level of debt today that we had back then, that interest carry cost is $135 million. When you take a look at it, we saw a big impact on our fixed charge coverages.
We wish our NOI grew at twice the rate that our debt costs grew, but it hasn't. We had that squeeze in our fixed charge coverage as well as the EBITDA multiple. Tom, maybe you can explain some of the tactics we look to do over the next year or two.
Yeah. As we look at the balance sheet, part of what is going to help us deliver also is taking a look at these development joint ventures. As Jerry mentioned, just shy of a billion dollars where we have construction loans, preferred partnerships that are not optimal structures for us to maintain. They put a burden on our fixed charge. They put a burden on our EBITDA. It is taking cash out of the company's wholly owned balance sheet and putting into these joint ventures. Part of our goal this year as we put in our business plan is to start to recapitalize these joint ventures and either sell some of the pieces, make our ownership percentage lower, and go into more of a pari passu structure.
As you do that, you'll see us have some of those losses come away and then see cash coming back into the balance sheet to help recharge it. A big part of that goal between now and let's say the end of 2026 is to recapitalize all of those ventures. As we do that, you'll see those metrics start to come back in line. Probably still have to do some asset sales and have some other proactive things to do. We have one CMBS loan we'd also probably want to take out before the end of 2026. There are a number of levers we're going to try to pull between now and the end of 2026 to help bring the balance sheet back into compliance where we can meet with the rating agencies.
They were usually like to ask all the companies about their dividend policy and their payout and whether it is secure. I think this is an interesting time because in office REITs, two of the office REITs I cover relatively recently enacted dividend policies of only making one minimum payment at the end of the year to maintain REIT status. Maybe remind us your dividend policy. Again, when I made these questions, it was a 14% dividend yield. Maybe give us some color on what you are thinking as far as the dividend is concerned.
Yeah. I think before the 2025 business plan came out, we had a pretty well-covered dividend. The plan was to keep that in place. As we looked at the 2025 plan, we had two factors come into play. One was we had a historically high number of tenant improvement allowances come due that related to leases that were done back as early as 2021. We also, in some of the development deals that Tom had mentioned, have preferred structures. From a financial reporting standpoint, even though we're not paying those preferred dividends or the return on that preferred capital, we need to reflect that in our income statements. In 2025, our dividend will be short of being fully covered in line with our historical 75% coverage ratio.
As we look at our 2026 plan going forward, we believe we can grow back into the current dividend level by the end of 2026 through some of the lease of the development projects and a few other things in the company. Management and the board look at the dividend policy every year. It is a very high yield. We do have room from a taxable income standpoint to adjust that downward if we so choose. Given our business plan is right now showing the ability for us to move forward and cover that dividend, we thought that given the dislocation of the stock price, we hear from a lot of our shareholders that the dividends are an important component to them of the return of the total return metric. We believe we have sufficient liquidity today.
We have plans put in place to grow back to that dividend level. We will see how those business plan execution points work out over the next several quarters. We always have the ability to adjust that down if we feel it is appropriate.
Great. I have more questions. Since we only have a little bit of time left, I thought I'd open it up to the audience, see if there's any questions in the audience. Otherwise, you have to listen to me ask another question. I wanted to ask one. The question I get asked recently about Brandywine is what NVIDIA is going to do in Austin. I know you have some space to lease in Austin. Maybe it's not specific to NVIDIA. Is there any update on that topic that you could share?
I can't really talk about any one specific company, as you might expect. You knew that when you asked the question, right? I think what we're seeing in Austin in our development project is really very positive. The pipeline has been increasing significantly. We are starting to see a number of the tech companies have come back into the market. I mean, I think what happened a few years ago, you had a number of tech companies that were hiring at a significant pace during the pandemic take down really large blocks of space that they ultimately wound up not necessarily needing. That created kind of the sublease deluge in that marketplace that I think has hurt that overall market recovery. To a great degree, that's burning off.
We have actually seen in the last couple of quarters a number of larger tech companies come back into the market. The company you mentioned is one of them. They are definitely in the marketplace looking for space. We have a couple of financial service companies as well as a few other tech companies with fairly large space requirements that have come out in the last quarter or so. Despite this equilibrium condition that exists in Austin today, I think we still are very, very confident of the long-term demand drivers coming out of that marketplace. We hope to be able to post a couple of good results in the next couple of quarters at One Uptown that kind of demonstrate the depth of that demand.
You can all probably see we're getting the red light here. I don't see questions in the audience. I want to thank Brandywine for participating and thank the audience, of course, for joining us today. Have fun at the rest of the conference. Thank you.