Piedmont Office Realty Trust Inc

Good day, ladies and gentlemen, and welcome to the Piedmont Office Realty Trust, Inc.' 's third quarter 2020 earnings conference call. All lines have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host for today, Mr. Eddie Gilbert. Sir, the floor is yours.

Thank you, operator. Good morning, everyone. We thank you for joining us today for Piedmont's third quarter 2020 earnings conference call. Last night, we filed our Form 10-Q and an 8-K that includes our earnings release and our unaudited supplemental information for the third quarter. All this information is available on our website at piedmontrete.com under the Investor Relations section. During this call, we'll refer to certain non-GAAP financial measures such as FFO, Core FFO, AFFO, and Same Store NOI. The definitions and reconciliations of these non-GAAP measures are contained in the earnings release and in the supplemental financial information. On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters which are subject to risks and uncertainties and therefore actual results may differ from those we anticipate and discuss today. The risks and uncertainties of these forward-looking statements are discussed in detail on our press release as well as our SEC filings. We encourage everyone to review the more detailed discussion related to risks associated with forward-looking statements in our SEC filings. Examples of forward-looking statements include those related to Piedmont's future revenues and operating income, dividends and financial guidance, future leasing and investment activity, and the impact of the COVID-19 pandemic on the company's financial and operational results. You should not place any undue reliance on any of these forward-looking statements, and these statements speak as of the date they are made. At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments and discuss our third quarter results and accomplishments. Brent?

Good morning, everyone, and thank you for joining us on today's call. Despite the challenging operating environment, the third quarter was another solid quarter for Piedmont in terms of operations, financial results, and strategic objectives. We saw an increase in new leasing activity, and we were very encouraged by the uptick in leasing tours and proposals. This trend is continuing into the fourth quarter as our leasing pipeline continues to rebuild. But let me be clear, we are not back to levels of pre-pandemic activity. Operationally, we continue to feel very fortunate that most of our tenants are of investment-grade quality and subject to long-term leases, with that weighted average lease term remaining for the portfolio over six years. We continue to collect substantially all of our billed rents, 99% for the third quarter. These collections are net of approximately 60 total lease modification agreements year-to-date that we have entered into with our tenants, a majority of whom are retail-related businesses and have experienced disruptions in their operations as a result of the pandemic. As we indicated last quarter, most of these agreements now totaling 6.7 million year-to-date in cash rent billings are deferrals of three to four months of rent, the bulk of which are to be paid back in the fourth quarter of this year or in 2021. I'll remind everyone that during the second quarter, we did establish a $4.9 million general reserve related primarily to those tenants with whom we've agreed to some form of rental relief. Should these businesses be unable to repay the deferred amounts when they become due, or should their operations fail? As of today, we still have $4.8 million of this reserve in place, and I imagine we will be well into 2021 before we will know how all these tenants will perform. In addition to the availability of general receivables reserve, I will note that we did recognize $700,000 of specific account bad debt expense during the third quarter. bringing our total specific bad debt expense for the year to 2.5 million, or about 0.5% of ALR. While COVID has affected leasing demand, we do feel fortunate to have completed 229,000 square feet of leasing during the third quarter, with over a third related to new tenants. These leasing results exclude the 172,000 square foot lease that is backfilling most of the space related to first data. which was acquired earlier this year by Fiserv. The new tenant, Deluxe Corporation, will be investing over $10 million to establish a technology innovation center in our 5565 Glen Ridge Highlands II building. And according to the Georgia governor's office, it will create over 700 new jobs for the Atlanta community. With a significant investment in workforce and the innovation center, we believe it bodes well for a longer term tenancy at our headquarters location at Glen Ridge Highlands. Aside from this lease, the most significant new tenant lease that was executed during the quarter was for approximately 56,000 square feet at 400 Virginia Avenue in Washington, D.C. with the district's Department of Employee Services. A more detailed list of these leases executed during the quarter is included in our quarterly supplemental information that was filed last night. With regards to leasing activity in our markets, those where we are currently seeing the strongest activity taking place are in the Washington, D.C. area, Boston, and our Sunbelt markets. We have concerns regarding the pandemic's impact on lease rental rates and concessions, but with approximately a million square feet of leasing completed through the third quarter of 2020, we are encouraged that rents have held relatively steady, with cash rent rolls for the year increasing approximately 5% and accrual-based rents up over 11%. Looking at renewals, other than the New York City lease at 60 Broad Street, we have no other significant expirations until the end of 2022. We continue to make progress on the City of New York's 300,000-square-foot lease that is currently in holdover, as we are diligently working with them toward executing a renewal. We still anticipate a shorter-term renewal to be executed around the end of the year, with a longer-term deal still expected sometime in the latter half of 2021. There are no development projects currently underway, and all of our redevelopment projects and tenant build-out programs are relatively modest in scale and are on budget and on schedule. Our lease occupancy percentage has declined this year, largely due to the slowdown in leasing activity attributable to the pandemic. Likewise, our same-store cash and OI comparison, which is basically flat on a year-to-date basis, has been impacted approximately 2% by the $6.7 million of tenant lease modification agreements we've entered into. Turning to capital transactions, obviously as the economy slowed from the pandemic, transactional activity did as well. We did not complete any acquisitions or dispositions during the third quarter, but after the quarter end, we completed a portfolio sale allowing us to dispose of our final three remaining New Jersey properties. The sale consisted of 600 corporate drive located in Lebanon, New Jersey and two and 400 Bridgewater Crossing located in Bridgewater, New Jersey for approximately $130 million or $176 per square foot. The sale completes our exit from the New Jersey office market and refines our New York portfolio to our position in lower Manhattan. Also after September 30th, Piedmont acquired 222 South Orange Avenue for $20 million or approximately $157 per square foot. 222 South Orange is approximately 127,000 square foot office building located at what we believe is the pin corner location for downtown Orlando, Florida at Orange Avenue and Church Street. and the building is directly connected to our 200 South Orange Avenue asset, physically sharing several connection points, including a large atrium lobby, and this actual acquisition provides our property with direct frontage now on Orange Avenue. Piedmont plans to immediately begin a redevelopment of the property to reposition the asset to a standard consistent with the 200 South Orange Trophy Tower. Finally, one of the accomplishments this past quarter that I'm most pleased with was the issuance of our first green bond. We use the proceeds from this $300 million bond issuance to provide the long-term funding for the LEED-certified acquisition that we completed earlier this year of the Galleria Office Towers in Dallas, Texas. Bobby will talk more specifics about the terms of the bond in a moment, but at Piedmont, we're dedicated to providing the highest quality office properties while responsibly managing our impact on the environment. We strive to own and manage workplaces that are environmentally conscious, productive, and healthy for our tenants and employees. To that end, I hope you'll take a moment to review our latest Environmental, Social, and Governance, or ESG report that was also issued during the third quarter and is available on our corporate website. You will see that Piedmont is not only environmentally sensitive, but we are also serious about serving our local communities and schools, and we're committed to treating fairly and equally all individuals we engage, including our tenants, employees, and vendors. Furthermore, we are proud of our top social score provided by our proxy advisory service. And I will add, we do this all because we believe passionately that this is truly fighting for the right thing to do. Together, we are all stronger and better. At this point, I will turn the call over to Bobby to walk you through the financial highlights of the quarter and guidance for 2020. Bobby? Thanks, Brent.