Piedmont Office Realty Trust Inc

Good day, everyone, and welcome to the Piedmont Office Realty Trust, Inc. Fourth Quarter 2023 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Chief Accounting Officer Laura Moon. Ma'am, the floor is yours.

Thank you, Operator, and good morning, everyone. We appreciate you joining us today for Piedmont's fourth quarter 2023 earnings conference call. Last night, we filed an AK that includes our earnings release and our unaudited supplemental information for the fourth quarter of 23 that is available for your review on our website at piedmontrete.com under the investor relations section. During this call, you will 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 risk 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 financing, 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 information and estimates we have 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 fourth quarter and overall 2023 operating results. Brent?

Thanks, Laura. Good morning, everyone, and thank you for joining us today as we review our fourth quarter results and reflect a bit on 2023. In addition to Laura, on the line with me this morning are George Wells, our Chief Operating Officer, Chris Colmay, our EVP of Investments, and Bobby Bowers, our Chief Financial Officer. We also have the usual full complement of our management team available to answer your questions. You don't have to search hard to find an article recounting the demise of office. The topics, longevity, and the headlines rival Taylor Swift, and every form of media carries the story. Business websites, social media platforms, and most recently, the godfather of television news, 60 Minutes, even reported on the impending financial calamity from a tsunami of vacant office space as a result of remote work. And it's exactly the fact that despite the overwhelming negative sentiment for office and the press, business leaders and executives continue to denounce fully remote work. And while it may be deeply buried in your news source, in the last four weeks, UPS, IBM, U.S. Bank, and hundreds more American businesses removed tens of thousands of employees from a remote office model. And it is in the face of these sector headwinds that makes the leasing success of the Piedmont team in 2023 all the more impressive. And what gives me the expectation that the continued migration towards a hybrid work model will further fuel the flight to quality and the flight to capital, leading to more demand for Piedmont's assets. I'd like to take a moment and remind investors of several points I've made on prior earnings calls that bolsters the thesis in Piedmont. First, the market statistics can be very deceiving. And despite 30% vacancy, the top five to 10 assets in the submarket are having leasing success. And in reality, as JLL research has noted, 50% of the vacancy resides in the bottom 10% of the office stock. This product is obsolete and will eventually be redeveloped for other uses. Second, quality does not just strictly equate to new buildings. Investors can look at the Piedmont portfolio for validation that higher quality, older vintage assets can find leasing success and generate meaningful rental rate growth. Third, the landscape in the office sector is changing. Fewer institutions are equipped to win in the capital and operational intensive business, resulting in a more favorable competitive environment, And finally, we're witnessing incremental customer demand as more workers come back to the office, including non-technology related businesses that initially seized upon the remote work model, who are now beginning to consider space expansion. And with the best buildings in a given sub-market approaching full occupancy, Piedmont is positioned to continue the occupancy and rental rate trends and gains across our portfolio. Since the pandemic, Piedmont has leased almost half of our 16 million square foot portfolio. And over the last four years, we've helped our customers achieve their business objectives for the built environment. We've continued to perfect how we design, construct, and market a new standard of hospitality-driven office. Today, we're seeing tremendous demand for assets that are non-commodity and offer a hospitality experience with thoughtful design from a well-capitalized, service-oriented, sustainable owner. No doubt, the story of offices' comeback is still being written and Piedmont is excited to help lead the next chapter. Transitioning to our 2023 accomplishments, new tenant leasing totaled 830,000 square feet, which is the largest amount of new tenant leasing that we've completed on an annual basis in the last five years, allowing us to beat our year-end portfolio goal of 87% leased, while achieving 40 basis points of absorption during the year, demonstrating the robust demand for our buildings. George will delve into market specifics and details on a leasing pipeline in a moment, but we believe our operational strategy will continue to garner outsized market share from small, medium-sized businesses, as well as larger corporate tenants that we see starting to return to the market. In fact, thus far in 2024, we've executed over 260,000 square feet of leasing across our markets. For the year ended 2023, Piedmont had an increase in cash same-store NOI of 2.2%, which is an improving trend from a 1.9% increase in 2022, and solid growth despite the challenging market fundamentals. Roll-ups, or the increase in rental rates on executed leases, for the full year on a cash and accrual basis were 4.7% and 12.4% respectively. Furthermore, excluding U.S. banks' sizable renewal, the cash roll-up for 2023 was 7.4%, indicative of the mark-to-market for the portfolio's in-place rents, which stand today at roughly 5% to 10% below current market rates. As a result of the 2023 leasing success, Piedmont has generated a backlog of 1.1 million square feet of leases yet to commence or in abatement, which equates to approximately $35 million in future annualized cash rents and once these leases commence and abatements burn off. Over time, this lease backlog will more than offset the lost rental revenue from the previously disclosed expirations at Meridian Crossing and 9320 Excelsior Boulevard in suburban Minneapolis. In addition, while we're executing our repositionment program at both projects, in the few months that the buildings have been available to lease, we experienced strong receptivity and tour activity, resulting in approximately 25,000 square feet of leases either signed or in legal documentation today. Lastly, I want to acknowledge the Herculean efforts by Bobby and his team that they put forth over the last 12 months to address our 2024 and 2025 debt maturities, despite the challenging credit backdrop. I'll let them walk through the specifics in a moment, but I want to note that we refinanced over a billion dollars worth of debt while significantly improving the liquidity of the company, demonstrating our continued access to the capital markets, and preserving our largely unencumbered pool of assets, a clear operational advantage. Today, we have just $325 million, or roughly 15% of our total debt, expiring over the next three years, at an average interest rate of 4.9%, compared to the weighting average interest rate of all the company's debt at 5.8%. With that, I'll hand the call over to George, who'll go through more details on the quarter's operational results.