Piedmont Office Realty Trust Inc

Good day and welcome to the Piedmont Office Realty Trust Incorporated first quarter 2024 earnings call. At this time, all participants have been placed on the listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Chief Accounting Officer, Laura Moon. The floor is yours.

Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's first quarter 2024 earnings conference call. Last night, we filed our Form 10Q and an 8K that includes our earnings release and our unaudited supplemental information for the first quarter of 24 that is available for your review on our website at piedmontread.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 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 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 the 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 first quarter operating results. Brent?

Thanks, Laura. Good morning, everyone, and thank you for joining us today as we review our first quarter results. In addition to Laura, 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. We also have the usual full complement of our management team available to answer your questions. We had a strong start to the year at Piedmont, achieving significant levels of new tenant leasing as well as completing meaningful financing and capital markets transactions to improve the company's balance sheet and liquidity position. Looking ahead to the remainder of the year, we continue to be optimistic about the secular trends that are driving our leasing momentum, benefiting from the continued population migration to the Sunbelt of the suburbs, the flight to quality and capital within the office sector, and the continued differentiation between obsolete product and the well-located, amenitized environments that we provide and operate. No doubt, our sector has challenges remaining as commodity office space is rationalized and repurposed. That said, return to the office mandate continue to be the norm, and ground breakings for new developments are at all-time lows. We are seeing space demand accelerate for our top of some market assets in cities like Atlanta, Dallas, Orlando, New York, and Minneapolis. giving us the expectation that Piedmont can continue to drive leasing momentum and rental rate growth at our buildings. With regard to the capital markets, transaction activity remains at all-time lows, but pricing is starting to firm as deals occur. We don't anticipate a meaningful number of opportunities will present themselves until later this year, or more likely in 2025, as debt and equity for office assets remains extremely difficult to source, inhibiting transactions. That said, the public unsecured debt markets are more constructive as liquidity and investor interest continues to improve. As a point of reference, our credit spreads have tightened roughly 250 basis points over the last year. Piedmont is well positioned as the credit cycle improves. We have a very manageable $275 million of maturing debt in 2025 and no debt maturities in 2026. With demonstrated access to the public debt markets, we will continue to seek out attractive sources of capital to strengthen the balance sheet and lower our cost of funds. Turning to the highlights from the first quarter, as has been the case for the last several quarters, leasing volume remains strong. We completed approximately 500,000 square feet of total leasing, with two-thirds of that related to new tenancy. pushing the least percentage of our in-service portfolio up to 87.8% and continuing the occupancy gains that we've experienced over the last several quarters. I would note that during the quarter, we disposed of our 257,000 square foot, one Lincoln Park asset in Dallas to an end user. And as discussed in last quarter's call, we gave our 9320 Excelsior building in Minneapolis an out of service designation as we commenced redevelopment activities to upgrade the building to accommodate multiple tenants following the expiration of a full building lease at the end of last year. George will delve into market specifics and details on the leasing pipeline in a moment, but our operational strategy is continuing to resonate with numerous customer segments, small and medium-sized businesses, as well as larger corporate enterprises, as they seek to upgrade their workplace environments. As a result of the leasing activity we've accomplished, Piedmont has continued to drive operational growth despite market headwinds. For the first quarter, our same-store NOI increased approximately 5% on a cash basis. And I would point out that this is a consistently strong metric for Piedmont, where we have generated positive same-store NOI cash growth seven of the last eight years, with the only exception being in 2020 due to COVID. In addition, Rental rate roll-ups on a cash basis continued their positive trend, increasing roughly 8% for the quarter and adding to Piedmont's track record of eight straight years of positive cash rental rate roll-ups. We firmly believe that these two operational metrics demonstrate the portfolio's ability to deliver cash flow growth through real estate cycles. The leasing success over the last several quarters has generated a backlog of 1.3 million square feet of leases yet to commence or in a rent abatement. This equates to approximately $42 million in future annualized cash rents 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. And as far as an update on those projects, we are executing a repositioning program at both buildings, And despite the disruption from construction and having marketed the buildings for only a few months, we're pleased to see strong receptivity from the market and have already executed four new leases for approximately 33,000 square feet at this point. With more that's in advanced documentation potentially following. In fact, the leasing pipeline across the portfolio remains robust. And thus far in the second quarter of 2024, We've already executed 22 leases for approximately 180,000 square feet. Lastly, before I turn it over to George, I wanted to note that we were recently once again named an Energy Star Partner of the Year for 2024. However, this time we received the highest designation, adding the sustained excellence distinction, which is awarded to organizations who have earned partner of the year for several consecutive years and have gone beyond the criteria needed to qualify for recognition. We're the only Office Street headquartered in the Southeast to receive this premier designation. And we remain steadfast in our commitment to our employees, our customers, stockholders, and local communities to be a market leader in commercial building operations. And we believe ENERGY STAR's Sustained Excellence Award recognizes our longstanding efforts to reduce energy consumption across our portfolio. I would encourage all our stakeholders to view our sustainability program and the quantifiable results achieved that are outlined in our annual environmental, social, and governance report located on our website. With that, I will hand the call over to George, who will go into more details on first quarter operational results.