Piedmont Office Realty Trust Inc

Good day, ladies and gentlemen, and welcome to the Piedmont Office Realty Trust, Inc., second quarter 2021 earnings call. All lines have been placed in listen-only mode, and the floor will be open for your questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero on your telephone keypad to reach a live operator. At this time, it's my pleasure to turn the floor over to Mr. Eddie Gilbert. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you for joining us today for Piedmont's second quarter 2021 earnings conference call. Last night, we filed our Form 10Q and a Form 8K that includes our earnings release and our unaudited supplemental information for the quarter ending June 30, 2021, which is available on our website at piedmontreat.com under the investor relations section. During today's call, you'll hear from senior executives at Piedmont, and they may 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. Also, during the 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. These 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 in our press release as well as in 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 PMOT's future revenues and operating income, dividends and financial guidance, future leasing and investment activity, and the impacts 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 only 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 second quarter results and accomplishments. Brent?

Good morning, everyone, and thank you for joining us on today's call as we review our second quarter financial and operating results. On the call with me this morning are George Wells, our Chief Operating Officer, Eddie Gilbert, our Executive Vice President of Finance and Treasurer, and Bobby Bowers, our Chief Financial Officer as well as other members of the senior management team. I would like to begin today by expressing our hopes that all of you and your families are well. The second quarter really marked the country's reemergence from the economic shadow that COVID cast over us all for a year, along with the related concerns around the long-term outlook for the office industry. Office utilization by tenants has improved across the portfolio, and fears of a continued large amount of space being pushed out for sublease have subsided. While still nowhere near pre-COVID levels, tenant utilization of space seems to be improving, roughly 5% a month across the portfolio, and this trend is expected to continue into the fall, with several tenant return to office announcements coinciding with the beginning of the new school year. That said, our building utilization varies by tenant and by market, with the Sunbelt markets leading the way, with several locations having over 50% utilization. The lowest utilization rates in our portfolio are generally in our few northern markets and perhaps best described as being a couple of months behind the Sunbelt markets in recovery. As I focus upon the second quarter of 2021, we are very pleased with this quarter's achievements from many perspectives. Financial results were solid, with core FFO of $0.48 per diluted share, along with almost a 5% increase in both cash and accrual, same store NOI. We were particularly encouraged by our leasing accomplishments, with 664,000 square feet of completed leasing coming from across our entire portfolio. Approximately one quarter of that total leasing was executed with new tenants. And notably, we achieved significant double-digit roll-ups in both cash and accrual rents on the leases signed during the quarter. The weighted average lease term for our activity was about six years, reflecting long-term commitments from our tenants and not just short-term solutions. In our opinion, another indication of the health of our completed leasing activity. As we mentioned on the first quarter's earnings call, we were very close to completing a five-year extension with the City of New York for their entire 313,000 square feet at 60 Broad Street. The public hearing and formal documentation processes were officially completed during the second quarter, and a new lease with the City has been executed and commenced in June. The rental rates during the term are in the mid to high $40 per square foot, and there is very limited capital associated with this lease. Clearly, this large renewal had a favorable impact for the second quarter's lease rule of metrics that I just highlighted. While we are pleased to have the extension in place, we are continuing to work with the city on a much longer-term renewal, which would include a significant capital outlay to rebuild their space. As you've seen with both the city's five-year extension, as well as the process for the state of New York's 20-year renewal completed last year, negotiations with larger government entities are complex, involving multiple agencies, the Department of City Administrative Services, and with numerous departmental approvals and detailed build-out plans. Therefore, well-intended negotiation schedules have a tendency to become protracted, primarily to accommodate the internal processes and timelines of these multiple constituents. We will work to complete the longer-term renewal as expeditiously as possible, and we will continue to keep you updated as we pass significant milestones in the process. Once completed, the long-term lease should result in a significant straight-line FFO roll-up. Looking at our overall leasing activity, I would note that the number of leasing prospects and volume of our property tours has improved steadily throughout the year, particularly in our Sunbelt markets, which continue to lead to U.S. recoveries. A detail of significant leases executed during the quarter is included in both our earnings release and the quarterly supplemental information for your reference. I would characterize the majority of our prospects as having per-employee space needs similar to pre-pandemic levels, but with more focus on collaboration space and the availability of employee amenities necessary for our customers to attract and retain their workforces in today's very competitive labor market. With the majority of the millennial cohort now in the family formation stage, and with that significant portion of today's workforce migrating to suburban areas for affordable housing, ample space, and strong school systems, we believe we are well-positioned, owning nodes of well-amortized, high-quality office buildings in mixed-use environments located in walkable urban infill areas or along a city's primary ring road. These types of properties have been in high demand, and we believe they will continue to benefit from the population migration trends taking the United States. Looking forward, based on our current prospect pipeline and our tour activity, we anticipate the current leasing momentum to continue into the fall. Importantly, for Piedmont and others in the office sector, the improving leasing volumes have stymied the decline in occupancy resulting from the pandemic, which brought most new office leasing activity to a virtual halt during 2020. Our lease percentage was essentially flat, changing one-tenth of a percent during the just-completed quarter. For Piedmont, with low expirations for the next 24 months, we expect our leasing percentages to improve by the end of the year and to reach approximately 87%. I will note that since we tend to sell our 100% lease properties and to acquire properties with some earnings growth and lease-up potential, our occupancy baseline changes constantly due to these capital transactions. Regardless of that changing baseline, we are working aggressively to grow our occupancy. Moving to capital transactions activity. As I mentioned in last quarter's call, with the completion of Raytheon's long-term 440,000 square foot renewal at our 225 and 235 Presidential Way buildings in Boston, and with 10 years of lease term remaining with a creditworthy tenant, We believe the value potential for the assets has been maximized under our ownership, and we therefore began marketing the buildings for sale. I'm pleased to report that during the second quarter, we entered into a binding contract to sell these 100% leased assets for $129 million, or approximately $293 per square foot to an investment-grade buyer. A sizable gain is anticipated, and we currently expect the transaction to close around the end of this year. As we've been doing over the last several years, we will continue to focus our portfolio expansion in Sunbelt markets. To that end, we're looking to recycle the Presidential Way proceeds into a strategic Sunbelt acquisition, but we have nothing to announce at this time. Finally, I want to mention that our annual ESG report is now available on our website. This year's report has a broader scope, including all sustainability accounting standards board metrics, and information which aligns with the recommendations of the Task Force on Climate-Related Financial Disclosure. In addition to these environmental issues, the report covers our various diversity initiatives, including our financial scholarship program for need-based students and employee training programs, along with details on our first green bond issuance and corporate governance policies. We are extremely proud of the progress that we continue to make on the environmental, social, and governance areas of the company, And I hope that you would take time to review this important report, which covers matters that should concern us all as we strive to make our communities and the planet better places to live and work. With that, I'll turn it over to Bobby to walk you through the financial highlights of the quarter and updated guidance for 2021. Bobby?