Piedmont Office Realty Trust Inc

And welcome to the Piedmont Office Realty Trust Incorporated fourth quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation and if anyone should require operator assistance during the call please press star zero on your telephone keypad. I will now turn the call over to your host Eddie Gilbert, you may begin.

Thank you, Operator, and good morning, everyone. We appreciate you joining us today for Piedmont's fourth quarter 2022 earnings conference call. Last night, we filed an 8K that includes our earnings release and our unaudited supplemental information for the fourth quarter that's available for your review on our website at piedmontreat.com under the investor relations section. During this call, you'll hear from senior officers at Piedmont. Their prepared remarks, followed by 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 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 impacts of this activity 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 are based upon the information and estimates we've reviewed as of the date the statements are made. Also on today's call, representatives of the company 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, which were filed last night. At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments regarding the fourth quarter's operating results and the results for the year 2022. Brent?

Good morning, and thank you again for joining us on today's call as we review our fourth quarter and annual 2022 financial results, provide details on several recent leasing and capital transactions, as well as outline our 2023 business plan. In addition to Eddie, on the line with me this morning are George Wells, our chief operating officer, Chris Colmy, our EVP of investments, and Bobby Bowers, our chief financial officer, as well as other members of the senior management team. Despite the headwinds that the office sector faced during 2022, including remote work, interest rate increases, and recession fears, Piedmont continued to execute on its leasing and capital recycling objectives, ultimately driving our Sunbelt concentration to 67% of our annualized leased revenue at year's end with a goal to reach 70% by the end of 2023. Highlighting a few of 2022's achievements, Piedmont completed approximately 2.2 million square feet of leasing, which was similar to our achievement in 2021. This included 763,000 square feet of new tenant leasing, the largest annual amount of new tenant leasing we've completed since 2018 and the second consecutive year at pre-pandemic levels. Our tenant retention ratio was over 70% among the highest of our peers and a testament to the service and value our in-house property management, construction, and asset management teams are delivering to our customers. So despite the sector's challenges, we leased almost 13% of the portfolio during the year, with an average cash rental rate roll-up of approximately 10%. Atlanta was our strongest leasing market, followed by Dallas. Together, the two markets represented roughly two-thirds of the year's total leasing volume. Our Atlanta Galleria project had the greatest leasing velocity within the portfolio, with approximately 25 new tenant leasing transactions, totaling roughly 250,000 square feet. In a moment, George will provide more additional operational details and fourth quarter performance. In spite of the challenging debt and transactions market, Piedmont completed over $310 million of dispositions, exited our last remaining Chicago asset, and in just over one year, Piedmont went from having no presence in the Midtown Atlanta submarket to becoming its largest office landlord on Peachtree Street with the acquisition of 1180 this past summer. Piedmont was named an Energy Star Partner of the Year for the second year in a row, and all our properties received well-held certified designations in the spring. We also submitted our operating data to Gresby for the initial rating, achieving an overall four-star designation and green star recognition, one of the highest results from Gresby for an inaugural assessment. We also substantially increased our balance sheet liquidity, raising over $575 million in incremental proceeds since our last earnings call, including $160 million through our previously announced Cambridge portfolio sale, which Chris will touch on later, as well as $450 million of unsecured debt raised from seven of our relationship lenders at terms similar to our line of credit. Bobby will provide more color on these financing shortly. I would highlight, as of this call, Piedmont has the full availability of our $600 million unsecured line of credit and over $185 million of cash and marketable securities on hand, which in conjunction with potential asset dispositions will address our 2023 debt maturities. As we look ahead into the new year, we believe several strategic themes will play out. Sunbelt markets will outperform with leasing and operating fundamentals continuing to lead the country as a result of inbound population migration, a more office-minded business culture, and continued pro-business policies. These market characteristics will drive Piedmont leasing volumes in Atlanta, Orlando, Nova, and Dallas during 2023, where approximately 70% of our vacant space resides and where 60% of the year's expirations reside. The broader economic environment will continue to pose challenges for the commercial real estate sector. Despite this, our current leasing pipeline remains healthy, with numerous leases actively in advanced negotiations. And I'm pleased to share that over 230,000 square feet of leasing has already been executed thus far in 2023, of which over 100,000 square feet is for new tenant space. The flight to quality mindset will continue to drive our customers' leasing decisions. Businesses are consistently upgrading from Class B space as well as transitioning away from commodity Class A space to higher quality buildings with a compelling amenity base, placemaking common areas, and hospitality service-minded experience. I would note that we are not seeing the deteriorating fundamentals currently impacting Class B products weigh on compelling Class A office buildings in our core markets, but we will continue to closely monitor this dynamic. Small businesses will continue to drive the market as large corporations and big tech rationalize their real estate footprints. The majority of our absorption over the last two years has come from small businesses seeking less than 15,000 square feet. In fact, transition volumes from this customer segment are up 60% versus pre-pandemic levels. We strategically target this key demographic, utilizing our service-first model, pre-built office suite program, and well-designed collaboration spaces and amenities. Anecdotally, the small customers we're targeting appear to be more resilient to current economic conditions. The Wall Street Journal reported in January that small businesses, establishments with less than 250 employees, have been responsible for all of the net job growth in the United States since the onset of the pandemic, and that larger companies have cut a net 800,000 jobs during that time. I would also remind investors that Piedmont has limited tech tenant exposure and that the recently announced layoffs should impact office demand, primarily in select tech-heavy markets. In addition, while we have seen an uptick in blocks of sublease space in surrounding markets, they generally do not replicate the quality level of a Piedmont building, do not come with landlord capital to improve the space, do not provide the same level of service or amenities, and do not offer extension rights to the subtenant. The capital markets will continue to be challenging with limited availability of secured and unsecured debt. As a result, office transactions will be limited to high-quality buildings with limited near-term risk and or assumable debt. The major lending banks have pulled back substantially from the office market, and along with a select group of regional banks, will only extend debt capital to their highest priority relationships. As a result, we expect very few if any new construction starts within our submarkets. And furthermore, we anticipate that assets with near-term debt maturities will face increased pressure as the year progresses to sell or recapitalize due to a suboptimal capital structure. In this environment, we will remain patient with our capital deployment and continue to focus on ensuring ample liquidity in advance of any strategic acquisitions. Corporate ESG topics, including sustainability, wellness, and ethical practices will continue to influence tenant decision. Related to that, I want to take a moment to publicly welcome Mary Hager to our board as a new member of the Nominating and Corporate Governance Committee. For those of you who don't know Mary, she's an executive director and head of Graystar's commercial real estate business and a member of its global investment committee. Previously, Mary was a co-founder and CEO of Thackery Partners, which was acquired by Graystar in 2021. Mary's based in Dallas, is active in the Urban Land Institute, most recently as a board member and chairwoman of the Investment Committee for the ULI Foundation, and brings to the board a wealth of real estate investment knowledge and contacts. She's the second director that Piedmont has recently added to the board in preparation for the anticipated transition of two longstanding directors reaching their term limits over the next two years. With that, I'll turn this call over to George, with Chris and Bobby to follow, to provide further details on the quarter's operations, capital transactions, and our outlook for 2023. George?