Piedmont Office Realty Trust Inc

Greetings. Welcome to the Piedmont Office Realty Trust first quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Laura Moon. You may begin.

Thank you, Operator, and good morning, everyone. We appreciate you joining us today for Piedmont's first quarter 2025 earnings conference call. Last night, we filed our 10-Q and an 8-K that includes our earnings release and our unaudited supplemental information for the first quarter of 2025 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 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 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 2025 operating results. Brent?

Thanks, Laura. Good morning, everyone, and thank you for joining us today as we review our first quarter 2025 results. 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 Sherry Rexrode, our Chief Financial Officer. We'll have the usual full accompanying of our management team available to answer your questions as well. We are very pleased with our solid start to 2025, completing approximately 363,000 square feet of total leasing during the quarter, with roughly half related to new tenant leases. The overall volume is especially encouraging, given that the first quarter is typically the slowest quarter of any given year. And the leases executed were spread throughout the portfolio, with almost every market executing at least one lease for 10,000 square feet or greater. Further, leases executed during the quarter reflected double-digit rental rate roll-ups on both a cash and GAAP basis. And additionally, as we disclosed on last quarter's call, we completed our last bit of required refinancing activity during the first quarter, including paying off a $250 million term loan that was scheduled to mature in March and extending our $600 million line of credit. As for broader market commentary, the occupier market recovery appears to be continuing to progress as more national employers, such as J.P. Morgan, continue to change their mandate to five days a week, adding to a chorus of large office users like Amazon, realizing the benefits of more in-office interactions. In many cases, these users have discovered they don't have enough space to accomplish this shift and are exploring expansion options, something we've seen in our own portfolio, as George will touch on in a moment. Against the strengthening backdrop, however, macroeconomic uncertainty emerged during Q1, causing national gross leasing volume to slow moderately after reaching post-pandemic highs in late 2024. Net absorption turned negative again, driven in large part by federal lease terminations, mostly impacting DC Metro, and albeit still reflecting a 60% improvement from the first quarter of 2024. Also, a positive new development. Deliveries on a quarterly basis fell to their lowest level in over a decade, and groundbreaking continues to be scarce, but less than 1 million square feet started during the first quarter. As we've seen in our operating markets, The lack of renovations from capital-starved owners suffering from tendency losses and debt-related issues benefits well-capitalized owners like Piedmont as the flight to quality intensifies. While these macro factors should continue to benefit Piedmont's ability to lease space, we're mindful of the current economic volatility and the uncertainty it brings. That said, and certainly bearing a recession, we believe we're on track to meet or exceed our 2025 goals. Over the past 18 months, Piedmont has leased over 3.6 million square feet, or approximately 24% of its operating portfolio, with an additional 1.1 to 1.2 million square feet of leasing budgeted for the remainder of 2025. Leasing momentum remains strong, including over 275,000 square feet of leases signed during the month of April. We're experiencing increased demand for our buildings from full floor and larger tenancy particularly in Dallas, Atlanta, and Minneapolis. As a result of our recent leasing success, our backlog at year end of 46 million is now 67 million of annualized revenue that are from leases yet to commence or in their free rent period. Furthermore, because of the unprecedented level of leasing, the gap between lease percentage and economic lease percentage, or cash paying tenancy, is at its widest in over a decade at 10.6%. We expect Piedmont's leasing success to maintain its current momentum as our legal stage pipeline has faced minimal disruption despite broader economic uncertainties. If leasing activity continues as anticipated and Piedmont maintains its current dividend payments, absent any dispositions which are difficult to forecast in this uncertain environment, the company would need to increase its leverage to fund this future growth. We believe that taking on additional leverage would not be prudent, as it could impede long-term growth and constrain our liquidity and access to capital. Due to this unique period in our corporate life cycle, where Piedmont is experiencing significant capital outlay to fund tenant improvements and leasing commissions, while simultaneously having a sizable percentage of our portfolio not paying cash rent, Management and the board have made the decision to suspend the dividend. This decision aims to fund accretive long-term growth and retain a larger portion of the company's earnings to do so, which are our lowest cost of capital. Additionally, we can utilize any remaining retained earnings to reduce leverage on the balance sheet and enhance our debt metrics. Together, suspending the dividend and subsequent reduction in borrowings is expected to result in up to one penny of accretion in 2025. These actions will position Piedmont with a stronger balance sheet and a clearer path to earnings growth in 2026 when the leases in process commence. In summary, we believe the action to suspend the dividend will be accretive for shareholders in the medium and long term as we deploy our retained earnings generating an average unleveraged return in excess of 25% on this invested leasing capital. Our capital is an extremely precious resource that will be best used to fund growth by leasing our unique, modernized, hospitality-infused properties, and we're experiencing record levels of tenant interest across both our operating and out-of-service portfolios. The market's demand for our assets remains at record levels, in terms of tours and proposal activity, including approximately 300,000 square feet of proposals in the legal stage for our out-of-service portfolio. I'll now hand the call over to George, who will go into more details on the leasing pipeline and first quarter operational results. George?