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 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 Second Quarter 2024 Earnings Conference Call. Last night, we filed our Form 10Q and an AK 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 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 and 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've 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 SameStore 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 Colmi, our EVP of Investments, and Bobby Bowers, our Chief Financial Officer. We also have the usual full compliment 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 were 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 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 commence. Likewise, during the quarter, same story in AI 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 .3% leased compared to .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 an 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 wanna 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 sum 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. We'll go into more details on second quarter operational results.

Thanks, Brent, and good morning, everyone. Exceptional leasing momentum for new space and multiple existing tenant renewals during the second quarter led to strong operational results on several of our key metrics. All of our core markets experienced subtle leasing demand dominated by small to medium sized businesses that are attracted to our modern, well-amendtized projects. Having the right blend of amenities is crucial for today's office customers, and our portfolio is well equipped with a wide range of food and beverage options, hospitality infused, collaborative work spaces, training rooms, fitness centers, outdoor meeting spaces, and event program designed to bring people together. This quarter, we added two more food and beverage operators, one at our Clareden Asset in Northern Virginia, and the other in our downtown Minneapolis tower, further enhancing the range of our offerings and vibrancy in our common areas. Overall, this quarter, we completed a record 65 lease transactions for over a million square feet of total overall volume, twice our quarterly average. With nearly 40% of that volume was related to new tenant lease activity, accounting for 38 transactions for 400,000 square feet, which is more than twice our pre-COVID quarterly leasing average of 165,000 square feet. The average size of new leasing activity was approximately 11,000 square feet, consistent with previous quarters, with a weighted average term achieved at nearly 11 years. Once again, our focus on small and medium sized enterprises continues to yield excellent results with a record 31 new tenant leases, each less than 10,000 square feet, totaling almost 130,000 square feet, with many having lease commencement dates later in 2024. As Brent mentioned earlier, this quarter's rent rollup metrics were quite impressive, and as a continuation of strong rollup trend the company has achieved over the past 10 quarters, including double digit accrual increases in each quarter. As we've previously forecasted, and despite record breaking leasing success, which will commence in subsequent quarters, our lease percentage has drifted down slightly quarter over quarter to end the second quarter at 87.3%. As we have experienced in several quarters now, most of our new tenant lease activity, or 85%, occurred in our Sunbell portfolio, where the majority of our in-service vacancies reside. Excluding two unusually large move-outs, the quarterly retention rate for the remaining for the portfolio was in line with our typical historical average of 70%. Leasing capital spent was a little over $6 per square foot per lease year during the second quarter, slightly higher than our average for the past several quarters, primarily driven by several large lease renewals in Dallas with a commission structure for renewal is higher than most other markets. Some lease activity remains flat at around 5%, and none of that space is expiring in 2024. Next, I'd like to highlight a few key accomplishments and announcements which occurred in some of our operating markets this quarter. Starting with Orlando, our fourth largest market by annualized lease revenue, our local team made headlines with the relocation of travel and leasures headquarters to our downtown project on Church Street, and secured another nine deals, bringing the total amount of leasing volume in this market to 220,000 square feet. T&L is completely backfilling all of our leasing and all of the space the single user vacated at 501 West Church in the second quarter, and was attracted to the vibrancy and amenity of this location, including ease of accessibility, above average parking ratio, and significant building top signage easily visible from the most travel thoroughfare in Orlando. Additionally, Piedmont worked closely with city officials and travel and leaser to land city-funded incentives that will be realized over the 15th year lease term. Kudos to our skillful local property and leasing team for such a significant win. Our Dallas portfolio realized the most overall leasing volume with 13 deals for 370,000 square feet. Renewal activity drove 87% of that volume with Ryan tax and a global e-commerce retailer extending sizable leases at Galleria office towers. As an aside, our interconnected neighbor, the Dallas Galleria, continues to reinvest and modernize its powerhouse experiential retail center, broadening its retail mix and F&B offerings, and soon to be the second location in the US where Netflix's permanent experiential venue called the Netflix house. Extensive renovations were also on the way at the interconnected Galleria Westin. The Galleria Dallas is an exceptional mixed use environment with its centralized easily accessible location. Its commercial uses drive retail, hotel, and office customers from a wide radius, reinforcing our confidence in more leasing success here. Another market notable is Atlanta, our largest market, completed 18 transactions for 133,000 square feet, of which 63% were new leases. And our DC Metro team extended lease for two of our large customers in this region, applied predictive technologies and international food policy to 2034 and 2035 respectively. Coming back to our overall portfolio, we remain positive about our future near term leasing trends that we may not be able to replicate the second quarter record leasing volume. That said, our leasing pipeline activity is quite good with over 250,000 square feet of leases in late state negotiation or executed. And we are on pace to reach our norm of around three to 400,000 square feet of executed leases per quarter. Outstanding proposals sit at well over 2,000 square feet on par with our trailer 12 months. Given the strong pipeline and the limited amount of lease expirations through the remainder of the year, we are increasing our year end projected lease percentage approximately 50 basis points to the 87.5 to .5% range. I'll now turn the call over to Chris for his comments on investment activity.

Chris. Thank you, George. As Brent mentioned earlier, subsequent to quarter end, we closed on the sale of 750 West John Carpenter in the Los Colinas sub market of Dallas. The asset is a 12 story, approximately 315,000 square foot office building, which was 46% leased as of June 30, 2024. While we remain highly committed to the Dallas market and our team there, we were approached by a local investor who expressed an interest in the asset. We firmly believe in maintaining total objectivity around each of our assets. And as we evaluated the competitive positioning, the lack of walkable retail offerings, the persistent vacancy, and importantly, the significant amount of time and capital required to elevate the asset to today's standards, we simply felt our resources are better spent elsewhere. So we sold the asset in July in an all cash transaction. We continue to have preliminary dialogue around potential dispositions of non-core assets throughout our portfolio, but it's premature to speculate on any of those at this time. As for new investments, we continue to be highly engaged across our operating markets, with an eye towards refining and enhancing our existing portfolio. We are tracking several opportunities across the sunbelt, but we will be disciplined and patient on the acquisition front. As always, we will keep you informed of any material acquisition or disposition activity as appropriate. With that, I'll turn the call over to Bobby to review our financial results.

Thank you,

Chris.

While we will be discussing some of this quarter's financial highlights today, please review the entire earnings release, the 10Q and the accompanying supplemental financial information, which were filed yesterday for more complete details. Core FFO per diluted share for the second quarter of 2024 was 37 cents per share versus 45 cents per diluted share for the second quarter of 2023. I do wanna note that same store property NOI increased on both a cash and accrual basis during the second quarter of 2024 as compared to the same period a year ago. Core FFO for the second quarter of 2024 reflects this property level income, but is offset by approximately six cents per share of increased net interest expense, as well as decreased operating income as a result of the sale of one Lincoln Park during the first quarter of 2024. And as we've discussed on this call over the last several quarters, the expiration of two large leases during the first six months of this year. AFFO generated during the second quarter of 2024 was approximately $28 million, providing ample coverage of the current $15 million quarterly dividend and funding our foreseeable capital needs. CAPEX for the quarter, however, remained elevated as we worked to complete this year four major building redevelopment projects, which today have a total of only approximately $10 million of remaining capital expenditures to complete. Turning to the balance sheet, as Brent has already mentioned, we issued in June 400 million in senior unsecured notes at a .875% coupon, a marked improvement compared to our 2023 issuance, which we believe demonstrates an increased appetite for office paper, and particularly Piedmont's high quality portfolio. The bulk of the proceeds from the issuance of the notes were used immediately to pay off the $230 million balance on our $600 million revolver, as well as the remaining $25 million balance on an unsecured bank term loan that was scheduled to mature early next year. The remaining debt proceeds, along with funds received from any dispositions and our unused line of credit, are earmarked to repay a $250 million, .8% fixed rate term loan that matures late in the first quarter of next year. Until its maturity, we currently intend to invest the unused portion of the bond proceeds accretively at higher interest rates. We currently have no other remaining final debt maturities until 2027. As a result of the $400 million refinancing activity, net interest expense will increase about 1 cent per share per quarter beginning in the third quarter of this year. This increase, along with the sell of 750 West John Carpenter in Dallas subsequent to the end of the quarter, will impact our guidance for the rest of the year. Therefore, we announced yesterday that we're narrowing our 2024 annual core FFO guidance to a range of $1.46 to $1.52 per share, moving the midpoint to $1.49 per share. I encourage you to review the earnings release for more specific metrics on guidance, but I will note we are increasing guidance for same store NOI on both a cash and accrual basis to between 2 and 3% for the current year, up from our previous guidance of a flat to 2% increase. As we indicated on our last few earnings calls, the third quarter of this year is expected to be our FFO earnings trough, due primarily to the timing of two large lease expirations. With that said, with relatively low lease expirations over the next few quarters and strong leasing results to date, plus the continuing leasing momentum that George mentioned, we anticipate FFO growth per share to begin improving later this year, followed by growing cash generation later next year. Now, our confidence in this growth is due to the difference between our current reported lease percentage of .3% and the percentage of leases that have commenced and begun paying full cash rents. This difference is now 850 basis points. The widest that gap has been in over eight years. The gap is due to a backlog of 1.6 million square feet of executed leases yet to commence and related rent abatements not yet burned off. This backlog of executed leases represents over $50 million annually of future rents yet to commence. Our current analysis of this timing difference between the executed lease percentage and what we refer to as cash paying economic lease percentage is included for your view on page 37 in our quarterly financial supplement, which was furnished last night, along with an analysis of major leases yet to commence for vacant space and larger leases and abatement, which are set forth on page 38 of the supplement. In keeping with our normal practice, due to the uncertain nature of the capital markets environment, the revised guidance we've provided does not have any speculative acquisitions or dispositions, nor does it currently contemplate any additional refinancing activity this year. Of course, we will adjust and communicate to you the impacts on guidance if any of these transactions occur. With that, I'll turn the call back over to Brent for closing comments.

Thank you, George, Chris, and Bobby. We continue to focus on our core business, designing, managing, and leasing great workplace environments. The investments we've made in our portfolio, combined with our leasing strategy, continues to resonate with existing and prospective tenants alike. Piedmont's balance sheet is well-positioned, having effectively addressed all of our final debt maturities until 2027 and having the full availability of our $600 million line of credit. Our dividend is right-sized, and our lease expiration schedule very manageable. We continue to be selective with capital deployment and anticipate being a net seller of assets to continue to leverage the balance sheet and enhance already ample liquidity resources. As indicated, when we originally introduced our 2024 guidance back in February, we expected the impact of increased interest expense and recent tenant vacates to result in an earnings and occupancy trough during this third quarter of 24, and we anticipate a return to growth in subsequent quarters. With that, I'll now ask the operator to provide our listeners with instructions on how they can submit their questions. We will attempt to answer all your questions now, or we will make appropriate, later, public disclosure if necessary.

Certainly. The floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality.

Please hold just a moment while we poll for questions. Your first question is coming from Nick Filman with Baird. Please

pose your question. Your line is live.

Hey guys, appreciate the update on the leasing front. Good momentum there. I guess Amazon lease is done. The next big one, I guess, is the city of New York, so any sort of update on the discussions there, and then maybe plans for that asset longer term.

Morning, Nick. This is Brent. Thanks for joining us today. I think, as you did point out, with the renewal of Amazon, as we discussed last quarter with Ryan as well, that's really put our large lease explorations to bed now, or at least known in the market, all the way up until 2026. So a great runway we feel like in terms of being able to continue to get lease absorption in the portfolio. Looking ahead to 2026, as you point out, New York City is the largest of those explorations. As we noted previously on calls, that dialogue continues to be very favorable in trending towards a renewal. We would expect that we'd like to dispose the asset when we feel like the capital market is stabilized in New York and that lease is consummated, again, likely to be sometime in 25. Just depends on the receptivity and the overall marketplace at that time. But as we've noted, it is our intention to dispose the asset more near term.

And then maybe touching on dispositions, the John Carpenter sort of sale, under-leased asset, I guess, what's the earnings effect of that sale? And then sort of, is there plans for some of these other assets that have a little bit more vacancy to recycle those? Or is this kind of more of a one-off?

Yeah, great question. I think as a platform, we're very adept at evaluating older, call it 80s, 90s, 2000s vintage assets and their viability in the modern kind of office environment. We take a close lens to our own portfolio and frankly, West John Carpenter Freeway had a number of attributes that just didn't fit what we would deem an asset worthy of the Piedmont portfolio. I think if we look at elsewhere in the portfolio where there might be elevated vacancy levels, really resides and call it five assets. One of them we just disposed of, West John Carpenter Freeway. The other being 25 Burlington Mall Road. We feel very good about that asset is positioning in the market as one of the top five assets in that sub-market. Admittedly, it is a little bit slower just given the tech lack of focus on leasing right now. The other one would be our Los Calinas asset where we did have a tenant vacate during the quarter, but we still feel like that is very well positioned at Los Calinas Corporate Center and miniatized, and we have good leasing momentum there. And then the other ones would be in the district, which we've talked about being very challenged overall as a sub-market. So I feel like overall the portfolio, this is probably one of the last ones, if not the last one that we would say needs to be pruned. We feel very good about what we have moving forward. Now specifically to the West John Carpenter Freeway in terms of impact on earnings, that would be extremely limited again, maybe one cent or so impact.

How much capital do you think you would have had to put in that space to actually basically lease that one up?

Great question. That would have been approaching probably $100 a foot and base building capital as well as a tenant-related lease up capital. Unique to that asset, it was built actually to have two towers adjoined for most of the common areas. So if you think about a refresh, there's a lot of extra ground to cover for a 300,000 square foot building. And then once you add in carrying costs, that number probably would approach or exceed $100 additional capital per square foot on the building.

And then maybe last one for George, just on the leasing pipeline overall, can you basically break down renewal versus new leasing within that and then kind of the average size of the tenants you're kind of seeing and if anything between the markets, that commentary would be appreciated as well.

Certainly, Nick, good morning. As we mentioned in our recent release, we just spoke about 250,000 square feet in late stage activity being legal or executed. About half of that is for new activity and in that new activity realm, it's really happening in every one of our markets. Digging deeper into the proposal stage, we mentioned again, 2 million square feet and just recently 70% of that is for new activity. I would say that the bulk of that activity is happening in Minneapolis, Dallas, and Atlanta. I mean, Minneapolis is a new market that we're starting to see a lot more demand. I mean, it's pretty obvious as a result of US Bank vacating a large percentage of their assets in that marketplace. And then looking a little further out in terms of tour velocity, we've been seeing the third quarter, what we've been seeing for past several quarters and then if you even look at what's happening in July, we're really happy about that at the high end of our tour velocity range. So when you combine that early stage with late stage recovery, early stage with late stage activity, we feel pretty good about why we went ahead and bumped out these percentage guides by the end of the year between 87.5 to

88.5%. That's it for me, very helpful. Thank you guys.

Your next question is coming from Dylan Barwinski with Green Street. Please pose your question, your line is live.

Hi guys, thanks for taking the question. Most might have been answered by now, but just sort of trying to think through, obviously a great quarter on the leasing front, great to hear you guys increasing leasing guidance for the year. Can you guys just talk about some of the drivers of that pickup and leasing activity? Is it sort of a return to a more normal and normalized leasing environment? Is it more certainty on the macro, or less, I guess, less uncertainty on the macro front? Can you guys just give us some further details as to what you guys think is sort of driving that pickup?

Morning Dylan, and thank you for joining us. You know, I think it's a couple of different factors. One, unique to our own portfolio, I think our focus on amenities and having the right level of service has continued to benefit us in a retention ratio on average, you know, at or exceeding 70%. But I'd also say from a new tenant leasing activity, as we've noted on prior calls, our focus and our leasing strategy around small, medium enterprises, and those that take, generally call it a half a floor or less in terms of space, has been incremental in strength, both in depth, but also in overall leasing velocity to backfill what has been historically these larger tenants that are giving back, you know, larger being 50,000 square feet or greater, on average about 30% of their space. Now if we want to delve into specific industries, that would vary by market in terms of some of what we're seeing. But historically now over the last year, we've seen really professional services come back in a meaningful way, fire, so financial as well, and I'd say including consumer goods, as well as retail and industrials. So I think it has been a continued robust U.S. economy, and frankly, non-tech and non-large tech, sorry, non-large corporate have been continuing to be those drivers, depending on which market you're in.

That's helpful, Nikhil, thank you.

Once again, if you do have any remaining questions or comments, please press

star one at this time. Your next question is coming from Michael Lewis with Truist Securities. Please pose your question, your line is live.

Thank you. So this signed but not commenced sometimes, you know, ties my head up and not. So you talked about the 50 million, you know, of rent associated with those leases. You know, 30 million of NOI is about 24 cents per share, but you're obviously, you know, over the next several quarters and ongoing, we'll be signing new leases that have new free rent periods. I guess, you know, that spread between signed and not commenced versus, you know, rent paying occupancy as wide. And should we think about, you know, what a normalized level would be and what that 24 cents of upside ultimately evens out to? I'm just trying to think about what the real earnings power that's built up in that leasing you've done over the last several quarters, what that really is.

Hey, Michael, it's Bobby. I'm gonna address part of that. If you look back over the last 10 years, that gap between economic leased percentage and the reported leased percentage is about 4% to 5%. So we picked up about 3% gap here, which should close over time. That is what makes us optimistic about earnings. Yes, you do have some dispositions that will, I mean, I dispositioned some expirations that will take place, but we have low expirations here over the next few quarters. So we think it'll be accreted to us as that gap closes back towards 4%.

I would say too, to add to that, Michael, I appreciate you joining us today. You know, it's gonna take some time for that 51 million to come into the portfolio, as we've talked about. Call it, you know, anywhere from 12 to 24 months. I'd say a fair portion of that is, call it 60% of it, is in that current abatement period, with 40% still and yet to commence. But as that comes into the portfolio, as we talked about, that will backfill what we know have now known vacates at Excelsior crossings and at Meridian crossings. And so that exact timing is always difficult to determine and is also somewhat impacted, as you point out, by the volume of leasing that we achieve going forward. And so, Frank, ironically, that gap staying wide is a good thing, because that will mean that we are continuing to have this excessive leasing velocity and increasing that backlog. As we approach 90% leased, I would imagine that, as Bobby points out, gets to the more normalized level, which historically has been in that, call it .5% zip code. And so, gap, .5% gap between those leased percentage and then economic. And so, if I had to specifically tell you when that would be, it'd somewhat be correlated to when we reach 90% occupancy, and that's probably gonna take us, call it another 18 to 24 months. But we do feel like with the momentum we see, it's possible to exceed that and do it even sooner. And that would, again, make that widened gap remain here in the near term. I hope that gives you a little bit more clarity.

Yeah, I know that's helpful. It's nice to have some revenue in the hopper on the West. You mentioned Excelsior and Meridian. One of the nice things about this is we could stop talking about US Bancorp as a looming move out, and now it becomes redevelopment upside. So, the three redevelopment projects that you have, is there anything to say as far as costs, timetables, potential NOI, all that stuff related to the redevelopment?

Yes, I would say there are three assets in the redevelopment pool. One of them will be coming out of the redevelopment pool sometime next year. It'll go into service or in operation late this year. And as we know, usually it'll stay out of service for either a year or to reach 80% occupancy. The other two we just added into the redevelopment pool. You noted two of Minneapolis, Meridian, and Excelsior crossings. Both of those are under what I would call a more modest but meaningful renovation in terms of cost per square foot. That's for those two buildings running about $15 to $20 a foot of base building. And then we'll have lease up. The reason they're going out of service, there's both were single tenant buildings designed as such. So there's a need to really reposition them, not only in the market, because they haven't been marketed for almost a decade, but also to make them multi-tenant corridors, bathrooms, base building, new lobby, et cetera. But it's an overall capital spend. If you think about the size of those two buildings, you're talking about somewhere in the neighborhood together of around $12 million of base building costs and expense. So not in the grand scheme of our balance sheet meaningful, which is why we like redevelopment opportunities rather than ground up. We can get to the cashflow faster. And frankly, we think mitigate some of that downtime. Receptivity in the market for both those assets has been very good. We've noted on priorities calls, particularly Meridian, which is a little bit further along. We've actually already had a little bit of leasing success now about 10% leased at that asset, with a lot of traction with call it 40 to 50,000 square foot tenancy. And then the Excelsior building, it's underway as well, but a little bit behind in terms of its progress. But both of those will really be able to take tenancy through and actually walk through it towards the end of the year. They are in full construction mode at this point in time. In terms of that cost, again, pretty modest across all three, but I would expect that that capital is completed and spent. Call it by the middle of next year. If you think about most of our larger redevelopment projects, we do think that'll be wrapped up by the middle of 25, and really will be in a more steady state kind of base building capital spend across the portfolio at that time.

Great, thank you.

There appear to be no further questions in queue. At this time, I would now like to turn the floor back over to Brent Smith for any closing remarks.

Thank you very much. I appreciate everybody joining us today. Hopefully you've taken away that we're very excited about the track record that we've created from a leasing and operational growth perspective here over the last, call it 12 months, and looking ahead. And the repositioning of the balance sheet also really giving us an opportunity with no major debt maturities ahead of us that we can now kind of reposition and focus the platform for future growth. We'd love to continue to talk to investors about that. We'll be at the Bank of America conference on September 11th and 12th in New York City. But as I said, on prior calls, we encourage investors to really come down to Atlanta, meet with management, and tour the assets, and spend an afternoon here, and really to be able to appreciate the story and what's really happening on the ground, if you will, within the sub-markets in which we operate, and how we're extrapolating this platform across our other markets. Again, if you have an opportunity, please contact Bobby or Jennifer if you're interested in meeting. And we appreciate everybody joining today. Thank

you. Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.