Brandywine Realty Trust

05/01/2026 | Press release | Distributed by Public on 05/01/2026 12:55

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The Private Securities Litigation Reform Act of 1995 (the "1995 Act") provides a "safe harbor" for forward-looking statements. This Form 10-Q and other materials filed by us with the SEC (as well as information included in oral or other written statements made by us) contain statements that are forward-looking, including statements relating to business and real estate development/redevelopment activities, acquisitions, dispositions, future capital expenditures, financing sources, governmental regulation (including environmental regulation) and competition. We intend such forward-looking statements to be covered by the safe-harbor provisions of the 1995 Act. The words "anticipate," "believe," "estimate," "expect," "intend," "will," "should" and similar expressions, as they relate to us, are intended to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved. As forward-looking statements, these statements involve important risks, uncertainties and other factors that could cause actual results to differ materially from the expected results and, accordingly, such results may differ from those expressed in any forward-looking statements made by us or on our behalf. Factors that might cause actual results to differ materially from our expectations, including any impacts from the imposition of tariffs, changes to the U.S. trade policy and any impacts of the U.S. government shutdown, are set forth in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2025. Accordingly, we caution readers not to place undue reliance on forward-looking statements. We assume no obligation to update or supplement forward-looking statements as a result of subsequent events, new information, changed circumstances or otherwise, except as required by law.
The discussion that follows is based primarily on our consolidated financial statements as of March 31, 2026 and December 31, 2025 and for the three months ended March 31, 2026 and 2025 and should be read along with the consolidated financial statements and related notes appearing elsewhere in this report. The ability to compare one period to another may be significantly affected by acquisitions completed, development/redevelopment properties placed in service and dispositions made during those periods.
OVERVIEW
During the three months ended March 31, 2026, we owned and managed properties within four segments: (1) Philadelphia CBD, (2) Pennsylvania Suburbs, (3) Austin, Texas, and (4) Other. The Philadelphia CBD segment includes properties located in the City of Philadelphia, Pennsylvania. The Pennsylvania Suburbs segment includes properties in Chester, Delaware and Montgomery counties in the Philadelphia suburbs. The Austin, Texas segment includes properties in the City of Austin, Texas. The Other segment includes properties located in Northern Virginia, Washington, D.C., Southern Maryland, Camden County, New Jersey and New Castle County, Delaware. In addition to the four segments, our corporate group is responsible for cash and investment management, development/redevelopment of certain real estate properties during the construction period, and certain other general support functions.
Our financial condition and operating performance are dependent upon the demand for office, residential, life science, parking and retail space in our markets, our leasing results, our acquisition, disposition and development/redevelopment activity, our financing activity, our cash requirements and economic and market conditions, including prevailing interest rates.
We generate cash and revenue from leases of space at our Properties and, to a lesser extent, from the management and development/redevelopment of properties owned by third parties (primarily unconsolidated real estate ventures) and from investments in the unconsolidated real estate ventures. Factors that we evaluate when leasing space include rental rates, costs of tenant improvements, tenant creditworthiness, current and expected operating costs, the length of the lease term, vacancy levels and demand for space. We also generate cash through sales of assets, including assets that we do not view as core to our business plan, either because of location or expected growth potential, and assets that are commanding premium prices from third-party investors.
Overall macroeconomic conditions, including but not limited to inflation, higher interest rates and changes in work patterns, including remote working arrangements, that have contributed to negative lease absorption within our office markets, have had a dampening effect on the fundamentals of our business, as reflected in, among other metrics, our period to period changes in our borrowing costs, occupancy levels and rental rates, as well as downward pressures on asset valuations. These adverse conditions could continue to impact our net income, cash flows and liquidity and could have a material adverse effect on our financial condition and results of operations.
Notwithstanding the challenging macroeconomic conditions, which have contributed to recent difficulties in asset dispositions at acceptable prices, leasing of vacant space at attractive rents and sourcing of capital for development projects at acceptable costs, as well as to impairments of assets, we believe that our portfolio of Properties and investments, and liquidity profile, will allow us to maintain stable operating performance. In our ongoing assessment of our Properties, we consider both their quantitative and qualitative attributes, including in relation to other properties within a given submarket or adjacent submarkets that compete with our portfolio for tenants. The attributes that we consider in our assessment include the age and condition of the property, average asking rental rates, access to mass transit and highways, floorplate efficiencies, amenities within, and nearby, the property and availability of parking as well as market demographics that bear on demand for space at our properties. We also believe that our portfolio and liquidity profile will enable us to raise capital, as necessary, in various forms and from
different sources, including through secured or unsecured loans from banks, pension funds and life insurance companies. However, there can be no assurance that we will be able to borrow funds on terms that are economically attractive or at all.
We continue to seek revenue growth throughout our portfolio by increasing occupancy and rental rates. Occupancy at our Core Properties at March 31, 2026 was 88.3% compared to 86.6% at March 31, 2025.
The table below summarizes selected operating and leasing statistics of our Core Properties for the three months ended March 31, 2026 and 2025:
Three Months Ended March 31,
2026 2025
Leasing Activity
Core Properties (1):
Total net rentable square feet owned 11,392,096 11,930,549
Occupancy percentage (end of period) 88.3 % 86.6 %
Average occupancy percentage 88.8 % 87.0 %
Total Portfolio(2):
Tenant retention rate (3) 44.6 % 55.4 %
New leases and expansions commenced (square feet) 160,103 94,934
Leases renewed (square feet) 76,628 231,725
Net (negative) absorption (square feet) (38,479) (146,458)
Percentage change in rental rates per square foot (4):
New and expansion rental rates (0.9) % 6.8 %
Renewal rental rates 5.0 % 9.3 %
Combined rental rates 4.1 % 8.9 %
Weighted average lease term for leases commenced (years) 8.3 4.4
Average annual rent (per square foot) (7) (8)
$ 43.35 $ 36.68
Capital Costs Committed (5) (6) (7):
Leasing commissions (per square foot) $ 4.18 $ 3.83
Tenant improvements (per square foot)
$ 3.45 $ 11.08
Total capital per square foot per lease year $ 2.23 $ 3.78
Average annualized capital as % of average annual rent (7) (8)
6.4 % 12.2 %
(1)Includes all wholly-owned operating properties. Does not include Properties under development/redevelopment, recently completed not-stabilized properties, or properties held for sale.
(2)Includes leasing at recently completed not-stabilized property. The statistics presented for periods ended prior to the three-month period ended March 31, 2026 have not been adjusted for properties sold subsequent to the periods presented.
(3)Calculated as a percentage of total net rentable square feet.
(4)Includes base rent plus reimbursement for operating expenses and real estate taxes.
(5)Calculated on a weighted average basis.
(6)The decrease in capital costs committed for the three months ended March 31, 2026 is primarily due to leases having lower average lease terms and a lower percentage of new leases compared to renewals.
(7)For comparison purposes, we exclude new leases of space when the previous lease of such space ended more than 12 months prior to the signing date for the new leases.
(8)Average annual rent represents total initial contractual rent under the applicable leases (as impacted by free rent) plus contractual fixed rent increases due under the applicable leases averaged over the total terms (without regard to extension options) of the applicable leases.
Our actual leasing capital costs as a percentage of rents are largely a function of the composition of our leases to new tenants or renewals with existing tenants, in addition to size and timing of occupancy. We generally experience lower leasing costs in connection with the renewal of leases with existing tenants compared to leases with new tenants. Our properties compete for tenants with similar properties primarily on the basis of location, total occupancy costs (including base rent and operating expenses), services and amenities, and the design and condition of the properties. As leases at our properties expire, we face competition to renew or re-let space in light of the competing properties within the applicable markets. As a result, and as part of customary lease negotiations, we are often required to provide rent concessions or abatements, incur charges for tenant improvements and other inducements, including early termination rights or potential below market renewal options, all of which impact, in varying degrees, annualized rents.
The table below summarizes occupancy statistics of our Core Properties by segment for the three months ended March 31, 2026 and 2025:
Three Months Ended March 31,
% Occupied
% Occupied
2026 2025
Philadelphia CBD 94.2 % 93.2 %
Pennsylvania Suburbs 88.2 % 87.9 %
Austin, Texas 70.5 % 74.5 %
Other 91.6 % 80.4 %
Total - Core Properties
88.3 % 86.6 %
The table below summarizes the occupancy statistics of our Properties, broken down by property types for the three months ended March 31, 2026 and 2025:
Three Months Ended March 31,
Three Months Ended March 31,
% Net Operating Income (4)
% Net Operating Income (4)
% Occupied
% Occupied
2026 2025 2026 2025
Office
89.1 % 91.6 % 88.0 % 88.3 %
Life Science (1)
6.2 % 5.7 % 84.2 % 81.3 %
Residential (2)
4.7 % 2.7 % 82.2 % 82.9 %
Total (3)
100.0 % 100.0 % 87.6 % 87.8 %
(1)Represents Philadelphia portfolio assets located at 3000 Market Street and 3025 Market Street in Philadelphia, Pennsylvania, dedicated life science floors at Cira Centre in Philadelphia, Pennsylvania and 250 King of Prussia Road in Radnor, Pennsylvania.
(2)Represents our residential operation at 2929 Walnut Street and 3025 JFK in Philadelphia, Pennsylvania.
(3)Does not include Properties under development/redevelopment.
(4)See Note 14, "Segment Information," to our consolidated financial statements for the definition of Net Operating Income.
In seeking to increase revenue through our operating, financing and investment activities, we also seek to minimize operating risks, including (i) tenant rollover risk, (ii) tenant credit risk and (iii) development risk.
Tenant Rollover Risk
We are subject to the risk that tenant leases, upon expiration, will not be renewed, that space may not be relet, or that the terms of renewal or reletting (including the cost of renovations) may be less favorable to us than the current lease terms. Leases that accounted for approximately 3.2% of our aggregate final annualized base rents as of March 31, 2026 (representing approximately 3.3% of the net rentable square feet of the properties) are scheduled to expire without penalty during the remainder of 2026. We maintain an active dialogue with our tenants in an effort to maximize lease renewals. If we are unable to renew leases or relet space under expiring leases, at anticipated rental rates, or if our tenants terminate their leases early, our cash flow would be adversely impacted.
Tenant Credit Risk
In the event of a tenant default, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment. Our management evaluates our accrued rent receivable reserve policy in light of our tenant base and general and local economic conditions. Our accrued rent receivable allowance was $0.4 million, or 0.2%, of our accrued rent receivable balance as of March 31, 2026, compared to $0.4 million, or 0.2%, of our accrued rent receivable balance as of December 31, 2025.
If economic conditions deteriorate, including as a result of inflation and high interest rates, we may experience increases in past due accounts, defaults, lower occupancy and reduced effective rents. These conditions would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition.
Development and Redevelopment Risk
Development and Redevelopment projects are subject to a variety of risks, including construction delays, construction cost overruns, building moratoriums, inability to obtain financing on favorable terms, inability to lease space at projected rates, inability to enter into construction, development, redevelopment and other agreements on favorable terms, and unexpected environmental and other hazards.
As of March 31, 2026, the following projects are in active development (dollars, in thousands):
Property/Portfolio Name
Location Substantial Completion Date
Activity Type
Approximate Room Count or Square Footage Estimated Costs Amount Funded
Debt Financing
165 King of Prussia Road
Radnor, PA
Q2 2026
Development
121 Rooms
$59,500 $40,724 $ -
3151 Market Street
Philadelphia, PA
Q4 2024
Development
441,000 $317,000 $221,420
(a)
$ 80,500
(a)In December 2025, we closed on a $50.5 million Commercial Property Assessed Clean Energy ("C-PACE") financing for the development project at 3151 Market Street, which includes $30.0 million in future funding for new leasing.
In addition to the property listed above, we have classified one office building in Wilmington, Delaware as redevelopment, but we have yet to incur material development costs on the project.
As of March 31, 2026, the following unconsolidated real estate venture development project remains in development (dollars, in thousands):
Property/Portfolio Name (% of BDN Ownership)
Location Substantial Completion Date Approximate Square Footage
Estimated Costs (a)
Amount Funded
Construction Loan Financing
Our Share Remaining to be Funded
Partner's Share Remaining to be Funded
One Uptown - Office (67%)
Austin, TX
Q1 2024
362,679 $ 206,400 $ 161,552 $ 121,650
(b)
$ 19,547 $ -
(a) Estimated costs include base building costs plus projected tenant fit out costs for remaining vacancies.
(b) On May 1, 2026, the One Uptown Office Venture entered into the extension option for its loan with the existing lender. The maturity of the One Uptown Office loan was extended until July 29, 2028, and the total loan capacity was reduced from $121.7 million to $108.9 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting periods. Certain accounting policies are considered to be critical accounting policies, as they require management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in the accounting estimate are reasonably likely to occur from period to period. Management bases its estimates and assumptions on historical experience and current economic conditions.
Our Annual Report on Form 10-K for the year ended December 31, 2025 contains a discussion of our critical accounting policies. There have been no significant changes in our critical accounting policies since December 31, 2025.
RESULTS OF OPERATIONS
The following discussion is based on our consolidated financial statements for the three months ended March 31, 2026 and 2025. We believe that presentation of our consolidated financial information, without a breakdown by segment, will effectively present important information useful to our investors.
NOI as presented in the comparative analysis below is a non-GAAP financial measure defined as total revenue less property operating expenses, real estate taxes and third party management expenses. Property operating expenses that are included in determining NOI consist of costs that are necessary and allocable to our operating properties such as utilities, property-level salaries, repairs and maintenance, property insurance, and management fees. General and administrative expenses that are not reflected in NOI primarily consist of corporate-level salaries, amortization of share awards and professional fees that are incurred as part of corporate office management. NOI is a non-GAAP financial measure that we use internally to evaluate the operating performance of our real estate assets by segment, as presented in Note 14, "Segment Information," to our Consolidated Financial Statements, and of our business as a whole. We believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. While NOI is a relevant and widely used measure of operating performance of real estate investment trusts, it does not represent cash flow from operations or net income as defined by GAAP and should not be considered as an alternative to those measures in evaluating our liquidity or operating performance. NOI does not reflect interest expenses, real estate impairment, depreciation and amortization costs, capital expenditures and leasing costs. We believe that net income (loss), as defined by GAAP, is the most appropriate earnings measure. See Note 14, "Segment Information," to our consolidated financial statements for a reconciliation of NOI to our consolidated net income (loss) as defined by GAAP.
Comparison of the Three Months Ended March 31, 2026 and March 31, 2025
The following comparison of the three months ended March 31, 2026 to the three months ended March 31, 2025 makes reference to the effect of the following:
(a)"Same Store Property Portfolio," which represents 59 properties containing an aggregate of approximately 11.2 million net rentable square feet that we owned and consolidated for the three-month periods ended March 31, 2026 and 2025. The Same Store Property Portfolio includes properties acquired or placed in service on or prior to January 1, 2025 and owned and consolidated through March 31, 2026, excluding properties classified as held for sale;
(b)"Total Portfolio," which represents all properties owned and consolidated by us during the three months ended March 31, 2026 and 2025;
(c)"Recently Completed/Acquired Properties," which represents two properties (250 King of Prussia Road and 3025 JFK - office) placed into service or acquired on or subsequent to January 1, 2025;
(d)"Development/Redevelopment Properties," which represents three properties (300 Delaware Avenue, 165 King of Prussia Road and 3151 Market Street) currently in development/redevelopment. A property is excluded from our Same Store Property Portfolio and moved into Development/Redevelopment Properties in the period that we determine to proceed with development/redevelopment for a future development strategy; and
(e)"Q1 2025 through Q1 2026 Dispositions," which represents properties disposed of from January 1, 2025 through March 31, 2026.
Comparison of the three months ended March 31, 2026 to the three months ended March 31, 2025
Same Store Property Portfolio Recently Completed/Acquired Properties Development/Redevelopment Properties Other (Eliminations) (a) Total Portfolio
(dollars and square feet in millions except per share amounts) 2026 2025 $ Change % Change 2026 2025 2026 2025 2026 2025 2026 2025 $ Change % Change
Revenue:
Rents $ 108.2 $ 105.3 $ 2.9 2.8 % $ 6.0 $ 2.3 $ 0.9 $ 1.0 $ 5.6 $ 5.8 $ 120.7 $ 114.4 $ 6.3 5.5 %
Third party management fees, labor reimbursement and leasing - - - - % - - - - 4.7 5.8 4.7 5.8 (1.1) (19.0) %
Other 0.2 0.2 - - % - - - - 1.4 1.1 1.6 1.3 0.3 23.1 %
Total revenue 108.4 105.5 2.9 2.7 % 6.0 2.3 0.9 1.0 11.7 12.7 127.0 121.5 5.5 4.5 %
Property operating expenses 31.0 28.5 2.5 8.8 % 1.4 0.6 1.1 0.6 5.1 3.8 38.6 33.5 5.1 15.2 %
Real estate taxes 10.4 10.1 0.3 3.0 % 0.2 0.1 0.3 0.2 0.4 1.0 11.3 11.4 (0.1) (0.9) %
Third party management expenses - - - - % - - - - 2.2 2.6 2.2 2.6 (0.4) (15.4) %
Net operating income 67.0 66.9 0.1 0.1 % 4.4 1.6 (0.5) 0.2 4.0 5.3 74.9 74.0 0.9 1.2 %
Depreciation and amortization 36.2 35.4 0.8 2.3 % 3.0 1.6 1.7 0.3 8.3 7.1 49.2 44.4 4.8 10.8 %
General & administrative expenses - - - - % - - - - 12.3 17.5 12.3 17.5 (5.2) (29.7) %
Provision for impairment (c) - - - - % - - - - 11.9 - 11.9 - 11.9 - %
Net gain on disposition of real estate - (3.1) 3.1 (100.0) %
Operating income (loss) $ 30.8 $ 31.5 $ (0.7) (2.2) % $ 1.4 $ - $ (2.2) $ (0.1) $ (28.5) $ (19.3) $ 1.5 $ 15.2 $ (13.7) (90.1) %
Number of properties 59 59 2 3 64
Square feet 11.2 11.2 0.4 0.7 12.3
Same Store Occupancy % (b)
Other Income (Expense):
Interest and investment income 0.7 1.2 (0.5) (41.7) %
Interest expense (40.9) (31.9) (9.0) 28.2 %
Interest expense - Deferred financing costs (1.4) (1.2) (0.2) 16.7 %
Equity in loss of unconsolidated real estate ventures (8.7) (10.5) 1.8 (17.1) %
Net gain on real estate venture transactions - 0.1 (0.1) (100.0) %
Net loss $ (48.8) $ (27.1) $ (21.7) 80.1 %
Net loss attributable to Common Shareholders of Brandywine Realty Trust $ (0.28) $ (0.16) $ (0.12) 75.0 %
(a)Represents certain revenues and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation, third-party management fees, provisions for impairment, and changes in the accrued rent receivable allowance. Other/(Eliminations) also includes properties sold and properties classified as held for sale, the parking operations of predevelopment projects, the residential and retail components within University City in Philadelphia, Pennsylvania, the restaurant component of Cira Centre, the B.Labs incubator, remediation costs of insured events..
(b)Pertains to Same Store Properties.
(c)Held for use impairment charges are excluded from Same Store Property Portfolio operating income and presented in Other (Eliminations).
Rents
Rents increased primarily as a result of the following:
•$6.4 million increase due to the consolidation of 3025 JFK Venture and 3151 Market Street Venture in the fourth quarter of 2025;
•$0.9 million increase related to our Recently Completed/Acquired Properties, which are comprised of 155 King of Prussia Road, Radnor, PA and 250 King of Prussia Road, Radnor, PA; and
•Partially offset by $2.2 million decrease due to the sale of Four Barton Skyway, Austin, TX in the second quarter of 2025 and the sale of Quarry Lake II, Austin, TX in the third quarter of 2025.
General & administrative expenses
General & administrative expenses decreased due to lower stock compensation expenses recognized in the first quarter of 2026 compared to 2025.
Property Operating Expense
Property Operating Expense increased primarily as a result of the following:
•$2.0 million increase due to the consolidation of 3025 JFK Venture and 3151 Market Street Venture in the fourth quarter of 2025;
•$2.5 million increase due to higher utilities cost and operating cost in the first quarter of 2026 compared to 2025; and
•Partially offset by $0.7 million decrease due to the sale of Four Barton Skyway, Austin, TX in the second quarter of 2025 and the sale of Quarry Lake II, Austin, TX in the third quarter of 2025.
Depreciation and Amortization
Depreciation and Amortization expense increased primarily due to the consolidation of 3025 JFK Venture and 3151 Market Street Venture in the fourth quarter of 2025 partially offset by a decrease due to the sale of Four Barton Skyway, Austin, TX in the second quarter of 2025 and the sale of Quarry Lake II, Austin, TX in the third quarter of 2025.
Provision for Impairment
During the first quarter of 2026, we recognized a provision for impairment of $11.9 million on three properties, two of which are located in the Other segment and one of which is in the Pennsylvania Suburbs segment. There were no impairments recognized in the first quarter of 2025.
Interest Expense
Interest expense increased by approximately $9.0 million for the quarter ended March 31, 2026 compared to 2025, as detailed below.
Component
Change in interest expense for the quarter ended March 31, 2026 compared to March 31, 2025 (in thousands)
Increases to interest expense due to:
An additional $150 million aggregate principal amount of 8.875% Guaranteed Notes due 2029
$ 2,741
Issuance of $300 million aggregate principal amount of our 6.125% Guaranteed Notes due 2031
4,594
$50.5 million Commercial Property Assessed Clean Energy ("C-PACE")
1,087
$178 million Construction Loan acquired through 3025 JFK consolidation
3,235
Decrease in capitalized interest on 3151 Market Street Venture
2,807
Total increases to interest expense
14,464
Decreases to interest expense due to:
Repayment of $50 million Construction Loan due 2026
(637)
Repayment of the $245 million Secured Term Loan due 2028
(3,598)
Repayment of the $70 million One-Year Term Loan due 2025
(728)
Other interest expense
(457)
Total decreases to interest expense
(5,420)
Total change in interest expense
$ 9,044
LIQUIDITY AND CAPITAL RESOURCES
General
Our principal liquidity funding needs for the next twelve months are as follows:
•normal recurring expenses;
•capital expenditures, including capital and tenant improvements and leasing costs;
•debt service and principal repayment obligations;
•current development and redevelopment costs;
•commitments to unconsolidated real estate ventures and investment vehicles;
•distributions to shareholders to maintain our REIT status;
•possible acquisitions of properties, either directly or indirectly through the acquisition of equity interest therein; and
•possible common share repurchases.
We expect to satisfy these needs using one or more of the following:
•cash flows from operations;
•distributions of cash from our unconsolidated real estate ventures;
•cash and cash equivalent balances;
•availability under our Unsecured Credit Facility;
•secured construction loans and long-term unsecured indebtedness;
•sales of real estate or contributions of interests in real estate to joint ventures; and
•issuances of Parent Company equity securities and/or units of the Operating Partnership.
As of March 31, 2026, the Parent Company owned a 99.7% interest in the Operating Partnership. The remaining interest of approximately 0.3% pertains to common limited partnership interests owned by non-affiliated investors who contributed property to the Operating Partnership in exchange for their interests. As the sole general partner of the Operating Partnership, the Parent Company has full and complete responsibility for the Operating Partnership's day-to-day operations and management. The Parent Company's source of funding for its dividend payments and other obligations is the distributions it receives from the Operating Partnership.
As summarized above, we believe that our liquidity needs will be satisfied through available cash balances and cash flows from operations, financing activities and real estate sales. Rental revenue and other income from operations are our principal sources of cash to pay operating expenses, debt service, recurring capital expenditures and the minimum distributions required to maintain our REIT qualification. We seek to increase cash flows from our properties by maintaining quality standards for our properties that promote high occupancy rates and permit increases in rental rates while reducing tenant turnover and controlling operating expenses. Our revenue also includes third-party fees generated by our property management, leasing, development/redevelopment and construction businesses. We believe that our revenue, together with proceeds from property sales and debt financings, will continue to provide funds for our short-term liquidity needs. However, material changes in our operating or financing activities may adversely affect our net cash flows. With uncertain economic conditions, vacancy rates may increase, effective rental rates on new and renewed leases may decrease and tenant installation costs, including concessions, may increase in most or all of our markets during the remainder of 2026 and possibly beyond. As a result, our revenues and cash flows could be insufficient to cover operating expenses, including increased tenant installation costs, pay debt service or make distributions to shareholders over the short-term. If this situation were to occur, we expect that we would finance cash deficits through borrowings under our Unsecured Credit Facility and other sources of debt and equity financings. In addition, a material adverse change in cash provided by operations could adversely affect our compliance with financial performance covenants under our Unsecured Credit Facility, including unsecured term loans and unsecured notes.
Our outstanding 7.55% Guaranteed Notes due 2028 (the "2028 Notes") include an interest rate adjustment provision whereby the interest rate payable on the 2028 Notes is subject to a 25 basis point adjustment if either Moody's Investors Services Inc, and its successors ("Moody's"), or S&P Global Ratings, and its successors ("S&P") downgrades (or subsequently upgrades) its rating assigned to the 2028 Notes. During the third quarter of 2023, Moody's downgraded our senior unsecured credit rating from Baa3 to Ba1. As a result of the downgrade, the interest rate on the 2028 Notes increased 25 basis points to 7.80% in September 2023. In January 2024, S&P downgraded our senior unsecured credit rating from BBB- to BB+. As a result of the downgrade, the interest rate on the 2028 Notes increased 25 basis points to 8.05% in March 2024. During the second quarter of 2024, Moody's downgraded our senior unsecured credit rating from Ba1 to Ba2. As a result of the downgrade, the interest rate on the 2028 Notes increased 25 basis points to 8.30% in April 2024 due to the coupon adjustment provisions within the 2028 Notes. During the first quarter of 2026, S&P downgraded the Company senior unsecured credit rating from BB+ to BB-. As a result of the downgrade, the interest rate on the 2028 Notes increased 50 basis points to 8.80%, effective September 2026.
On September 26, 2025, the Company and the Operating Partnership amended its Unsecured Credit Facility to, among other things, amend the restricted payments covenant to permit the Operating Partnership to pay dividends and make distributions
attributable to any period of four consecutive fiscal quarters that ends (i) on any date that occurs after June 30, 2025 and on or prior to March 31, 2026, in an amount not to exceed, in the aggregate, the greater of (a) 100% of FFO attributable to such period or (b) the minimum amount necessary for the Company to maintain its REIT status and (ii) on April 1, 2026 or any date that occurs thereafter, in amount not to exceed, in the aggregate, the greater of (a) 95% of FFO attributable to such period or (ii) the minimum amount necessary for the Company to maintain its REIT status.
As of March 31, 2026 we were in compliance with all of our debt covenants and requirement obligations.
Our ability to incur additional debt is dependent upon a number of factors, including our credit ratings, the value of our unencumbered assets, our degree of leverage and borrowing restrictions imposed by our lenders. If one or more rating agencies were to downgrade our unsecured credit rating, our access to the unsecured debt market would be more limited and the interest rate under our Unsecured Credit Facility and unsecured term loan would increase.
As of the date of this Form 10-Q, our senior unsecured credit ratings and outlook were as follows:
Moody's
S&P
Long-term debt
Ba2
BB-
Outlook
Stable
Negative
If our credit ratings are lowered further, our ability to access the public debt markets, our costs of funds, and other terms for new debt issuances could be adversely impacted. Each of the credit ratings agencies reviews its ratings periodically and there is no guarantee our current credit ratings will remain the same.
The Parent Company unconditionally guarantees the Operating Partnership's unsecured debt obligations, which, as of March 31, 2026, amounted to $2,393.6 million. The Operating Partnership's secured debt obligations as of March 31, 2026, amounted to $235.3 million.
Capital Markets
The Parent Company issues equity from time to time, the proceeds of which it contributes to the Operating Partnership in exchange for additional interests in the Operating Partnership, and guarantees debt obligations of the Operating Partnership. The Parent Company's ability to sell common shares and preferred shares is dependent on, among other things, general market conditions for REITs, market perceptions about the Company as a whole and the current trading price of the Parent Company's shares. The Parent Company maintains a shelf registration statement that covers the offering and sale of common shares, preferred shares, depositary shares, warrants and unsecured debt securities. Subject to our ongoing compliance with securities laws, and if warranted by market conditions, we may offer and sell equity and debt securities from time to time under the shelf registration statement or in transactions exempt from registration.
See Note 11, "Beneficiaries' Equity of the Parent Company," to our consolidated financial statements for further information related to our share repurchase program. We expect to fund any additional share repurchases with a combination of available cash balances and availability under our Unsecured Credit Facility. The timing and amounts of any repurchases will depend on a variety of factors, including market conditions, regulatory requirements, share prices, capital availability and other factors as determined by our management team. The repurchase program does not require the purchase of any minimum number of shares and may be suspended or discontinued at any time without notice.
Liquidity
As of March 31, 2026, we had $36.2 million of cash and cash equivalents and $535 million of available borrowings under our Unsecured Credit Facility, net of $46.5 million in letters of credit outstanding. Based on the foregoing, as well as cash flows from operations net of dividend requirements, we believe we have sufficient capital to fund our remaining capital requirements on existing development and redevelopment projects and pursue additional attractive investment opportunities. We expect that our primary uses of capital during the remainder of 2026 will be to fund our current development and redevelopment projects.
Cash Flows
The following discussion of our cash flows is based on the consolidated statement of cash flows and is not meant to be a comprehensive discussion of the changes in our cash flows for the periods presented.
As of March 31, 2026 and December 31, 2025, we maintained cash and cash equivalents and restricted cash of $66.3 million and $62.3 million, respectively. We report and analyze our cash flows based on operating activities, investing activities, and financing activities. The following table summarizes changes in our cash flows (in thousands):
Three Months Ended March 31,
Activity 2026 2025
Variance
Operating $ 10,208 $ 6,315 $ 3,893
Investing (54,201) (44,628) (9,573)
Financing 47,987 (26,391) 74,378
Net cash flows $ 3,994 $ (64,704) $ 68,698
Our principal source of cash flows is from the leasing of space at our Properties. Our Properties provide a relatively consistent stream of cash flows that provides us with the resources to fund operating expenses, debt service and quarterly dividends.
Cash is used in investing activities to fund acquisitions, development, or redevelopment projects and recurring and nonrecurring capital expenditures. We selectively invest in new projects that we expect will enable us to take advantage of our development/redevelopment, leasing, financing, and property management skills and invest in existing buildings that meet our investment criteria for additional capital. During the three months ended March 31, 2026, when compared to the three months ended March 31, 2025, the change in investing cash flows was due to the following activities (in thousands):
(Increase) Decrease
Capital expenditures and capitalized interest 11
Capital improvements/acquisition deposits/leasing costs (1,293)
Unconsolidated real estate venture investments
(8,249)
Capital distributions from unconsolidated real estate ventures (42)
Increase in net cash used in investing activities $ (9,573)
We generally fund our investment activity through the sale of real estate, property-level financing, unsecured and secured credit facilities, senior unsecured notes, and construction loans. From time to time, we may issue common or preferred shares of beneficial interest, or the Operating Partnership may issue common or preferred units of limited partnership interest. During the three months ended March 31, 2026, when compared to the three months ended March 31, 2025, the change in financing cash flows was due to the following activities (in thousands):
(Increase) Decrease
Proceeds from debt obligations $ (6,639)
Repayments of debt obligations 71,000
Repurchase and retirement of common shares (2,163)
Dividends and distributions paid 12,101
Debt financing costs paid (250)
Other financing activities 329
Increase in net cash provided by financing activities $ 74,378
Capitalization
Indebtedness
The table below summarizes our secured and unsecured debt at March 31, 2026 and December 31, 2025:
March 31, 2026 December 31, 2025
(dollars in thousands)
Balance: (a)
Fixed rate (b) (c)
$ 2,385,934 $ 2,385,934
Variable rate (d)
243,014 178,014
Total $ 2,628,948 $ 2,563,948
Percent of Total Debt:
Fixed rate 90.8 % 93.1 %
Variable rate - unhedged 9.2 % 6.9 %
Total 100.0 % 100.0 %
Weighted-average interest rate at period end:
Fixed rate 6.3 % 6.3 %
Variable rate - unhedged 6.2 % 6.6 %
Total 6.3 % 6.3 %
Weighted-average maturity in years:
Fixed rate 3.6 3.8
Variable rate - unhedged 0.6 0.6
Total 3.3 3.6
(a)Consists of unpaid principal and does not reflect premium/discount or deferred financing costs.
(b)On November 23, 2022, the $250.0 million unsecured term loan was swapped to a fixed rate. At March 31, 2026, the fixed rate for this instrument was 5.41% and matures on June 30, 2027. The effective date of the swap was January 31, 2023.
(c)On January 16, 2024, the Trust Preferred I Indenture IA was swapped to a fixed rate at 5.14% for the period from March 30, 2024 to December 30, 2026 and Trust Preferred I Indenture IB and Trust Preferred II Indenture II were swapped to a fixed rate at 5.24% for the period from January 30, 2024 to January 30, 2027.
(d)The Company consolidated the $178 million construction loan as a result of the recapitalization of 3025 JFK joint venture during the fourth quarter of 2025. The construction loan has a stated interest rate of SOFR + 3.6%. On July 22, 2025, the Company entered into an interest rate cap agreement of 3% on the loan. With the interest rate cap in-place, the maximum interest rate due is 6.60%.
Scheduled principal payments and related weighted average annual effective interest rates for our debt as of March 31, 2026, were as follows (dollars in thousands):
Period Principal maturities Weighted Average Interest Rate of Maturing Debt
2026 (nine months remaining) $ 178,014 6.6 %
2027 765,000 4.6 %
2028 350,000 8.5 %
2029 900,000 6.9 %
2030 - 6.9 %
Thereafter 435,934 6.1 %
Totals $ 2,628,948 6.3 %
Unsecured Debt
The Operating Partnership is the issuer of our unsecured notes which are fully and unconditionally guaranteed by the Parent Company. The indenture under which the Operating Partnership issued its unsecured notes contains financial covenants, including: (i) a leverage ratio not to exceed 60%; (ii) a secured debt leverage ratio not to exceed 40%; (iii) a debt service coverage ratio of greater than 1.5 to 1.0; and (iv) an unencumbered asset value of not less than 150% of unsecured debt. The Operating Partnership was in compliance with all covenants as of March 31, 2026.
The charter documents of the Parent Company and Operating Partnership do not limit the amount or form of indebtedness that the Operating Partnership may incur, and its policies on debt incurrence are solely within the discretion of the Parent
Company's Board of Trustees, subject to the financial covenants in the credit agreement for our Unsecured Credit Facility, the indenture for our unsecured notes and in our other credit agreements.
Equity
In order to maintain its qualification as a REIT, the Parent Company is required to, among other things, pay dividends to its shareholders of at least 90% of its REIT taxable income. See Note 11, "Beneficiaries' Equity of the Parent Company," to our consolidated financial statements for further information related to our dividends declared for the first quarter of 2026.
Inflation and Lease Pass-Through Provisions
Substantially all our leases are structured as base year or triple net leases which provide for reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per square-foot basis, or in some cases, annual reimbursement of operating expenses above certain per square-foot allowances. In addition, as of March 31, 2026, approximately 97% of our leases (as a percentage of the aggregate net rentable square feet of our wholly-owned portfolio) contained annual rent escalations that are either fixed (generally ranging from 2.0% to 3.0% per lease year) or indexed based on a consumer price index or other indices. We believe such lease provisions mitigate adverse impacts of inflation on our earnings from real estate operations. However, recent inflation and higher interest rates have caused an increase in our borrowing costs, including on our variable rate debt, and on our operating expenses that are not subject to the lease pass-through provisions.
We have experienced increased inflation, resulting in our Same Store Property Portfolio operating margins decreasing to 61.8% for the three months ended March 31, 2026 from 63.2% for the three months ended March 31, 2025, respectively. The expense reimbursement provisions in our leases resulted in Same Store Property Portfolio operating expense recovery rates of 54.0% and 53.9% for the three months ended March 31, 2026 and 2025, respectively.
Other Contractual Obligations
We provide customary guarantees for certain development projects of our unconsolidated real estate ventures. See Note 15, "Commitments and Contingencies," to our Consolidated Financial Statement for further details on payment guarantees provided on behalf of our real estate ventures and refer to our Annual Report on Form 10-K for the year ended December 31, 2025 for a discussion of our contractual obligations.
Funds from Operations ("FFO")
Pursuant to the revised definition of FFO adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"), we calculate FFO by adjusting net income (loss) attributable to common unit holders (computed in accordance with GAAP) for gains (or losses) from sales of properties, impairment losses on depreciable consolidated real estate, impairment losses on investments in unconsolidated real estate ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated real estate ventures, real estate related depreciation and amortization, and after similar adjustments for unconsolidated real estate ventures. Our calculation of FFO includes gains from sale of undepreciated real estate and other assets, considered incidental to our main business, to third parties or unconsolidated real estate ventures. FFO is a non-GAAP financial measure. We believe that the use of FFO combined with the required GAAP presentations, has been beneficial in improving the understanding of operating results of REITs among the investing public and making comparisons of REITs' operating results more meaningful. We consider FFO to be a useful measure for reviewing comparative operating and financial performance because, by excluding property impairments, gains or losses related to sales of previously depreciated operating real estate assets and real estate depreciation and amortization, FFO can help the investing public compare the operating performance of a company's real estate between periods or as compared to other companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently.
We consider net income, as defined by GAAP, to be the most comparable earnings measure to FFO. While FFO and FFO per unit are relevant and widely used measures of operating performance of REITs, FFO does not represent cash flow from operations or net income as defined by GAAP and should not be considered as alternatives to those measures in evaluating our liquidity or operating performance. We believe that to further understand our performance, FFO should be compared with our reported net income/(loss) attributable to common unit holders and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements.
The following table presents a reconciliation of net loss attributable to common unitholders to FFO for the three months ended March 31, 2026 and 2025:
Three Months Ended March 31,
2026 2025
(amounts in thousands, except share information)
Net loss attributable to common unitholders $ (49,055) $ (27,485)
Add (deduct):
Amount allocated to unvested restricted unitholders 318 429
Net loss on real estate venture transactions 243 106
Net gain on disposition of real estate - (3,059)
Provision for impairment 11,909 -
Depreciation and amortization:
Real property 42,654 38,729
Leasing costs including acquired intangibles 5,704 4,815
Company's share of unconsolidated real estate ventures 8,733 11,436
Partners' share of consolidated real estate ventures (97) (3)
Funds from operations $ 20,409 $ 24,968
Funds from operations allocable to unvested restricted shareholders (386) (305)
Funds from operations available to common share and unit holders (FFO) $ 20,023 $ 24,663
Weighted-average shares/units outstanding - basic (a) 174,272,331 173,431,077
Weighted-average shares/units outstanding - fully diluted (a) 180,721,719 178,473,873
(a)Includes common shares and partnership units outstanding through the three months ended March 31, 2026 and 2025, respectively.
Brandywine Realty Trust published this content on May 01, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 01, 2026 at 18:55 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]