Piedmont Office Realty Trust Inc

Good day and welcome to the Piedmont Office Realty Trust Incorporated second quarter 2024 earnings call. At this time, all participants are on a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. I would now like to turn the call over to your host, Laura Moon. The floor is yours.

Thank you, Operator, and good morning, everyone. We appreciate you joining us today for Piedmont's second quarter 2024 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 second quarter of 2024 that is available for your review on our website at PiedmontREIT.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 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 second quarter operating results. Brent?

Thanks, Laura. Good morning, everyone, and thank you for joining us today as we review our second 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. Piedmont had an exceptional quarter. and we're very pleased with the results thus far this year. As we released last night, Piedmont completed over 1 million square feet of leasing, the largest quarterly volume the company has reported in over a decade, when at that time, the portfolio was approximately 35% bigger than it is today, and we operated in 18 markets. As you all know, we're a very different and far more focused company in 2024. Out of the headline, 1 million square feet of total leasing, Over 400,000 square feet of the quarter's volume was related to new tenant leasing, and importantly, the balance included several sizable renewals, which gives us the confidence that we can increase portfolio occupancy through the remainder of 2024. Georgia will provide market specifics and details on the leasing pipeline in a moment, but we believe that this quarter's leasing success is a testament to the high quality of our portfolio and the unwavering commitment of our teams at the property to provide truly differentiated environments and not just office space. We also continue to be the beneficiaries of tenants demanding not only superior professional space, but also that they're delivered by well-capitalized, sustainability-minded landlords. In addition, our customer service and leasing strategy, targeting small and medium-sized tenancy, is driving portfolio leasing volumes and rental rates to new highs. We believe these trends will be long-lasting, and Piedmont is extremely well positioned to compete and gain market share in this next office cycle. Furthermore, Piedmont's operating strategy is clearly resulting in positive cash flow performance. During the second quarter, we were able to continue to drive double-digit rental rate growth of 15% roll-ups on cash rents and a 23% increase on accrual-based rents when those respective leases commenced. Likewise, during the quarter, same-store NOI increased approximately 6% on a cash basis and roughly 4% on an accrual basis as compared to the second quarter of 2023. The company's leasing success over the last several quarters has generated occupancy gains in our in-service portfolio, ending the second quarter at 87.3% leased compared to 87.1% leased at the end of 2023. As a reminder, while we have generated significant leasing volumes, the timing required for these leases to commence and to begin cash paying rents can be up to 12 to 24 months out. So as a result, we have generated a backlog of 1.6 million square feet of leases that are yet to commence or in abatement, equating to over $50 million of future annualized cash rents once these leases commence and abatements burn off. And we estimate over $30 million of future annualized NOI. And while presidential elections can always be a wild card, impacting tenant decision-making in the latter half of the year, the leasing pipeline across the portfolio from both the proposal and tour activity standpoint remains robust, as George will explain in a moment. Turning to the balance sheet that Bobby will detail, I want to thank our entire finance team for completing crucial refinancing activity during the first half of this year, including issuing $400 million of new five-year bonds in June at approximately 240 basis points improved credit spread compared to the bond offering only one year ago. This latest bond issuance concludes several significant refinancing transactions over the past year and is expected to address all final debt maturities until 2027, and in the process, meaningfully improves Piedmont's balance sheet and liquidity position. And finally, as Chris will discuss, just after the end of the second quarter, we were able to close on another small disposition. Across the broader office market, we are witnessing a modest uptick in transactional activity, which gives us the belief that we can begin to recycle capital more efficiently next year. Looking ahead to the remainder of this year and beyond, although challenges reside in the office sector, as commodity office space continues to be rationalized and repurposed, we are optimistic about the secular and company-specific trends that are driving our leasing momentum, including continued population migration to the Sun Belt and the suburbs, the flight to quality by office users, improving access to capital within the office sector, and the continued differentiation between obsolete product and the well-located, vibrant environments that Piedmont delivers across our portfolio. With that, I'll hand the call over to George, who will go into more details on second quarter operational results.