Piedmont Office Realty Trust Inc

Good day, everyone. Welcome to Piedmont Realty Trust Inc's second quarter 2026 earnings call. At this time, all participants have been placed on a 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, Laura Moon. Please go ahead.

Thank you, Operator, and good morning, everyone. We appreciate you joining us today for Piedmont's second quarter 2026 earnings conference call. Last night we filed our 10-Q and an 8-K that includes our earnings release and unaudited supplemental information for the second quarter of 2026. Both of these documents are 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 supplemental information 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 in today's call, representatives of the company may refer to certain non-GAAP financial measures such as FFO, Core FFO, AFFO, and SafeStore NOI. The definitions and reconciliations of these non-GAAP measures are contained in the supplemental financial information which was filed last night. At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments regarding second quarter 2026 operating results. Brent?

Thanks, Laura. Good morning, and thank you for joining us today as we review our second quarter 2026 results. In addition to Laura, on the line with me this morning are George Wells and Alex Valente, our Chief Operating Officers, Chris Kollme, our EVP of Investments, and Sherry Rexroad, our Chief Financial Officer. We also have the usual full compliment of our management team available to answer your questions. Piedmont had a strong quarter, beating consensus by a penny due to operational outperformance and raising our 2026 outlook for the second quarter in a row, which Sherry will touch on more in a moment. Our Piedmont places are generating meaningful earnings and cash flow growth, as office using demand continues to strengthen for high quality, well-located, amenitized assets. The U.S. office market is no longer defined by excess space, but rather by increasingly constrained supply at differentiated office buildings, driving higher occupancy, accelerating rent growth, and reducing tenant concessions. Leasing activity has reached post-pandemic highs as availability continues to decline across most major markets and is now broadening to more metros and submarkets. While the development pipeline remains at historically low levels with demand recovering and new supply scarce, our Piedmont places are benefiting from a more favorable operating environment and meaningful pricing power. As I noted on our last earnings call, Piedmont has materially increased asking rates across a substantial portion of the portfolio. In most cases, more than 15% over the past 12 to 18 months. Those rate increases implemented across the portfolio in early 2026 are now being reflected in our quarterly lease metrics. During the quarter, we signed 460,000 square feet of leasing with rental rate increases of 14% on a cash basis and over 32% on an accrual basis. And in fact, over the last four quarters, the average rental rate increase on a cash basis has been 12%, which is representative of the rental mark to market and embedded growth in the portfolio. Having renovated 90% of the portfolio since 2020, our amenity-rich, hospitality-driven Piedmont places are among the best assets in their respective sub-markets and are leasing at record high rental rates. During Q2, we achieved the highest quarterly average net effective rent after CapEx in the company's history, now reaching the mid-20s per square foot, up more than 20% over the prior trailing 12-month average. Even more encouraging is that our rents still remain 35% to 40% below new construction pricing, providing further runway to increase rental rates. Additionally, Piedmont has leased over 80% of the portfolio since the pandemic, meaning the vast majority of our customers have already right-sized and upgraded their office space for the modern workforce. Our average tenant size across the approximately 16 million square foot portfolio is now just under 17,000 square feet, with customer and industry diversification providing insulation against potential workforce disruption from AI implementation. Tiedemont customers with lease expiration several years out are also recognizing that the market for premium office space is tightening, particularly for tenants that occupy a full floor or greater. As a result, we are seeing customers approach us about renewals of their space well in advance of the expiration. In the coming quarters, we anticipate early renewal discussions with existing tenancy to accelerate. which should bolster client retention ratios above our 60 to 70% historical average with the ability to reduce free rent and tenant capital concessions. At Piedmont, we recognize the most effective way to reduce capital expenditures on leases is to retain our existing customers. That's why we continue to invest in our team and technology to create the best office experience for our clients. This year, the team's hard work culminated in Piedmont being recognized by Kingsley as a top five national office platform, the highest ranking among all public office companies. For those who may not be familiar, Kingsley is a third party research firm that conducts a national survey of office consumers to evaluate their landlord. Most of our public peers participate in the survey, so we couldn't be more proud to be recognized as a top five world-class operator. Additionally, during the second quarter, nine projects throughout the portfolio won the Building Owners and Managers Association, or BOMAs, Outstanding Building of the Year Award in their respective size categories, a tangible testament to the quality of our product and service offerings. The strategic reposition of the Piedmont portfolio, along with the substantial leasing we've accomplished over the past 12 months, is translating into improved operating metrics, including higher economic occupancy, now over 80% for our in-service portfolio, with continued improvement in the coming quarters. Same-store cash and OI growth, 10% on a cash basis for the first half of the year, and meaningful earnings growth. Two cents for the first half of 26 when compared to the first half of 25. Further, the portfolio is approaching 90% leased, and as of June 30th, inclusive of our out-of-service portfolio, had an executed pipeline of leases that have not commenced equal to approximately $39 million of annualized cash rents. That's the equivalent of 570 basis points of occupancy that will flow into earnings over the next several quarters. The investment thesis in Piedmont is straightforward. Demand for differentiated office product is increasing while supply is shrinking. Return to office mandates are becoming more common and more enforceable. Companies recognize that the office is critical to the four C's, building culture, Creativity, Collaboration, and Connectivity. At the same time, new office construction remains near zero, older buildings continue to be removed from inventory through conversion or demolition, and many financially constrained owners lack the capital to compete. Piedmont is uniquely positioned for success in the marketplace. We're generating the highest earnings and cash flow growth in the office sector. and traded a very compelling valuation with net effective rents after CapEx of $25 per square foot on a stock price that equates to a gross asset value of approximately $220 per square foot. Furthermore, we currently have an outsized earnings backlog, great opportunities for occupancy absorption, 10 to 15% of embedded rental rate growth, and opportunities for accretive debt refinancings, which will all drive core FFO higher in the near term. With that, I'll hand it over to George for further details on second quarter operational performance. George?

Thanks, Brent, and good morning, everyone. The operating environment for high-quality office remains constructive, and the Piedmont platform continued to perform well during the second quarter. Leasing velocity continued at strong pace with 42 transactions completed for approximately 460,000 square feet. New business activity was slightly more than half of that volume with a large portion of that expected to translate into 2027 gap rent recognitions. Average new deal size was approximately 11,000 square feet, reflecting a good mix of small, medium, and large clients. And the weighted average lease term for new transactions was approximately 11 years, reflecting continued customer commitment to high-quality workplace environments. For the ninth consecutive quarter, expansions exceeded contractions in the portfolio. That is an important signal. It shows that our customers are not simply maintaining space, but many are expanding to support growth, return to office requirements, and a renewed focus on collaboration. During the quarter, we completed nine expansions for 22,000 square feet with no contractions. Lease economics remain strong. As Brent noted, cash rents of space vacated one year or less increased by 14%, while accrual rents increased by 32%. Overall weighted average starting cash rent of $43.79 per square foot rose 5% from last quarter's $41.59 per square foot and we anticipate more rental increases in the near term. Leasing capital spent for the quarter was stable at $5.83 per square foot per year and in line with our trailing 12-month average of $5.97 per square foot. Tightening conditions for high quality space are leading to stronger pricing powers. Net effective rent surged this quarter to $25.56 per square foot, up over 20% from the prior 12-month average, and we anticipate maintaining NERs in the mid-20s per square foot or higher, supported by persistent demand for high quality space and little to no new development in our submarkets. Equally impressive, the portfolio generated 9% same-store cash NOI growth We believe these very encouraging second quarter metrics will likely continue into the second half of the year. In Northern Virginia, the RBC Corridor has been experiencing an uptick in demand over the past few months with the defense sector leading the way. Our local team captured the company's largest new deal of the quarter with a defense contractor for 73,000 square feet at our 4250 North Fairfax building. This 12-year deal commences as soon as the space can be built and boasts a healthy, annualized NER of $27 per square foot. Our NOVA assets are well located within dense, highly amenitized, walkable environments and sit adjacent to metro rail stations. The portfolio here is currently 80% leased and we're projecting strong net positive occupancy and FFO growth over the near term. Atlanta was our most active market with 11 deals for 130,000 square feet. A majority of that was new business and landed in each of our three vibrant submarkets of Central Perimeter, Cumberland, and Midtown. Most noteworthy, we signed a 57,000 square foot 15-year new lease at 1155 Perimeter Center West, preemptively backfilling a large portion of Broadcom space. We continue to experience strong customer interest in our remaining Central Perimeter space. Our Dallas team closed eight deals for 107,000 square feet with Epsilon's 11-year extension driving most of that deal flow and yielded a hefty cash roll-up of 42%. Our pipeline for backfill and the balance of that space and pushing rate is deep with multiple tenants competing at improving rents. Over in the lower tollway sub-market, the Dallas Mavericks announced plans to develop a multi-billion dollar arena and entertainment district at the 100-acre Valley View site, which sits a half a mile from our Galleria project. As we've experienced with the Braves Battery Development Atlanta, being adjacent to such a massive entertainment venue, we'll likely see private, public reinvestments toward the neighborhood's infrastructure and elevates the desirability of an already healthy office sub-market. Today, Galleria Towers asking net rent is $50 per square foot, up 40% from just two years ago when we completed the renovation, and we're excited for this 1.4 million square foot asset trajectory and future earnings growth. At 60 Broad, we previously announced that we had agreed to terms that the new administration of the City of New York for substantially all of the space and that a lease of this size will require other internal city reviews and a public hearing process before the transaction can be fully executed. The city is steadily progressing to conclude the lease renewal. However, it is likely the process will not be wrapped up until the fourth quarter. Our redevelopment projects posted another strong quarter deal flow with over 60,000 square feet of new transactions signed, increasing the out-of-service lease percentage from 76% to 83%. During the second quarter, we placed 222 and Orange Avenue back into service, and we're confident that the remainder of the out-of-service portfolio will reach stabilization around the end of 2026. Looking ahead, our leasing pipeline remains stout and now has over 700,000 square feet in a legal stage for the third quarter. Outstanding proposals continue to hold steady at approximately 2 million square feet. Our supplemental report shows 927,000 square feet or 6% of our operating portfolio expiring in the second half of 2026, which is very manageable and even less exposure when you back out the pending New York City extension. Assuming a typical run rate of 175,000 square feet of new transactions in each quarter and concluding known renewals, we're on a path to achieve our previously released guidance with overall lease volume projected to reach the high end of that range or 2 million square feet. We've never been more excited about the outlook for our businesses. Tenants are choosing Piedmont because our buildings provide the right combination of location, amenities, service, and value that today's dynamic companies require. Our formula is working, and we believe it will continue to drive leasing, rent growth, and occupancy gains. I'll now turn the call over to Chris Kollme for investment activity. Chris?

Thank you, George. From an investment perspective, our focus remains on optimizing the portfolio, preserving capital discipline, and Positioning Piedmont to benefit from strengthening liquidity in the transaction market. The office investment market is improving driven by the steady increase in leasing demand coupled with a dwindling supply of high quality space. That said, buyers remain cautious and we see only limited institutional investors in the market. The majority of transactions are being awarded to local operators, family offices, and Private Capital with a focus on transactions less than $80 million. With limited well-capitalized operators in the market, Piedmont is well-positioned to compete for value-added acquisitions. We're focused on opportunities within our existing markets which are accreted to our earnings and growth trajectory. A quick update on dispositions and process, specifically the two land parcels that we have mentioned previously. Our Royal Lane land parcel in Dallas remains under contract and we're feeling optimistic that it will close during the third quarter, generating approximately $12 million in net sale proceeds. The planned development will provide about 20,000 square feet of retail directly adjacent to our Connection Drive assets. The other land parcel in Orlando continues to move forward, albeit slowly, as rezoning takes time and will likely be amid 2027 closing. Similarly, the land will be redeveloped into a mixed-use project containing multifamily, over 40,000 square feet of retail space, as well as several restaurants, all of which will benefit the environment next door at our town park assets in Lake Mary. Aside from those two known sales, we continue to actively weigh the disposition of mature and or non-core assets, which lack the growth profile of the balance of our portfolio. In short, Piedmont's opportunity to recycle capital is improving as liquidity returns to the sector and our capital allocation priorities remain focused on high return leasing capital, improving balance sheet flexibility, and acquisitions which improve our portfolio quality are accretive and are consistent with our long-term growth strategy. With that, I'll pass it over to Sherry to cover our financial results.

Thank you, Chris. While we will be discussing some of this quarter's financial highlights today, please review the earnings release and accompanying supplemental financial information which were filed yesterday for more complete details. Core FFO per diluted share for the second quarter of 2026 was 38 cents per diluted share, a penny ahead of consensus and two cents ahead of the second quarter of 2025. Growth was largely driven by higher rental rates and higher economic occupancy, Partially offset by the sale of one project during the 12 months ended June 30th, 2026. ASFO generated during the second quarter of 26 was approximately $31 million. Turning to the balance sheet, I'm pleased to report that during the second quarter, we successfully refinanced our term loan that was scheduled to mature in January of 27. We increased the principal from $325 million to $400 million. pushed out the maturity to May of 2031 and tightened the spread by 15 basis points. So we are very pleased with this execution. We used the net proceeds from the increase in principle to pay off the balance outstanding under our line of credit. Consequently, we had the full 600 million capacity under the line as well as around 17 million in cash available as of June 30. As we've highlighted previously, We currently have no debt maturities until 2028 and our maturity ladder is now very smooth at roughly 20% per year from 2028 to 2033. Our overall weighted average cost of debt continues to decrease and is now at 5.5%. It's important to note that as the impact of the team's leasing success over the last 12 months ramps up in the second half of this year, Our net debt to EBITDA ratio will trend below seven times by the end of the year. This trend will continue in 2027 as the balance of the nearly 900,000 square feet, or $39 million of lease revenue, commences. The current 570 basis point spread between leased and commenced occupancy will also compress to approximately 400 basis points by year end. We continue to think creatively as we evaluate balance sheet management options and look for opportunities to further reduce our interest costs and or extend our maturity ladder. As Brent noted in his remarks, with year-to-date performance and visibility into second half lease commencements, we are increasing our 2026 annual core FFO guidance to a range of $1.50 to $1.55 per diluted share, and increase of two and a half cents per share at the midpoint when compared to our original 2026 guidance and equating to an earnings growth rate of over 8%. We are also increasing our same store NOI cash and gap guidance range to five to 8%, a 200 basis point increase from original 2026 guidance. Please note that consistent with our standard practice, This guidance does not include any speculative acquisitions, dispositions, or refinancing activity. We will adjust guidance if and when those types of transactions occur. The most important financial takeaway is that Piedmont's leasing activity is now converting into earnings and cash flow growth. The $39 million of lease revenue still to commence that we discussed earlier will support higher same-store NOI higher core FFO, lower net debt to EBITDA, and continued progress toward a more normalized economic occupancy level. With that, I will turn the call back over to Brent for closing comments.

Thank you, George, Chris, and Sherry. To summarize, Piedmont is entering the next phase of the office cycle from a position of increasing strength. The portfolio has been repositioned. Leasing demand remains broad and durable. Signed leases are converting into cash flow. Rents are moving higher with more room to run. New supply is limited and leasing success will start to improve our balance sheet, providing the flexibility to efficiently recycle capital and improving transactions market. We recognize that the office sector continues to face skepticism, but the data in our portfolio tells a different story. Companies are returning to the office. They are prioritizing high-quality, amenitized environments and making long-term leasing commitments. They're choosing Piedmont because our buildings offer the experience and service they demand at a compelling value relative to new construction. Our focus for the remainder of the year is to grow occupancy, increase rents, convert our leasing pipeline into cash flow, and continue to optimize the portfolio. If we execute on these priorities, Feedmont is positioned to generate consistent organic FFO and cash flow growth for the remainder of 2026 and beyond. With that, I will now ask the operator to provide our listeners with instructions on how they can submit their questions. Operator?

Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 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 for just a few moments while we poll for questions. Your first question is coming from Dylan Brzezinski with Green Street. Please pose your question. Your line is live.

Hey, guys. Thanks for taking the question. Maybe if you can just sort of talk a little bit or expand a little bit on the demand environment. Obviously, things continue to remain strong evidenced by PT Leasing and Leasing to Date in July. Maybe you can just talk about sort of, in your guys' mind, what is sort of causing this to continue to accelerate here, given the sort of, I would say, more uncertainty over the macro backdrop.

Good morning, Dylan. This is George. Thank you for joining us. Listen, I think the leasing engine really continues to fire in all cylinders, right? And employers are looking for space want to move into a more compelling, inviting environment where you can see a lot of collaboration, space to be made, and for employees to reconnect from a cultural perspective. That trend is there. That trend continues. And when you look at overall demand today, I mentioned earlier that we're on 2 million square feet overall volume. But when you take a look at what's actually new deal activity, that's around 75% of that, or 1.5 million square feet. And it's really great to see how that demand permeates over all of our sub-markets. and there's an overbalance of activities looking at Portland and Dallas because that's kind of where most of our exposure is in the near term.

I would layer on to that. We just continue to see a constructive environment for our clients to continue to grow their business. Yes, interest rates are elevated but the investment in what seems to be productivity gained out of AI are not cannibalizing jobs and in actuality we're starting to see it help companies grow in that component. George noted in our prepared remarks the number of expansions we're seeing versus contractions. I think that's generally fueled by that, but also that our portfolio in particular is geared towards right now this sweet spot in terms of industry demand in the professional services realm, financial services, insurance, as we've talked about in the past, our Our designs, our floor plates, how we operate the buildings and service them are all here to provide an elevated experience for those types of users. We don't have a lot of tech exposure in the company where you have seen less job growth. So I think all in all, those factors put the desire to be in the most premium product at a very reasonable price fits the Piedmont strategy greatly. There are a lot of, you know, Great buildings at high price points, but that can't be afforded by every tenant. But a Piedmont building can, and that is really a unique point in the market or place and segment that we strive to, and we're seeing increased demand particularly for that segment.

That's very helpful. Thanks, guys. Maybe just one more if I could. Sherry mentioned getting to that sort of sub-seven times net debt to EBITDA range. I hear shortly, do you guys sort of have a longer term leverage target goal in mind as you sort of think about, you know, 27, 28 and beyond?

So the getting below seven should happen by the end of this year. And then in the intermediate term, we'd like to get closer to the 6.5 range. And in the longer term, closer to six. So somewhere in the 27 to 28 time frames. is what I'm kind of calling the intermediate term of that six and a half target.

Great. That's it for me. Thanks so much.

Your next question is coming from Daniela de Armas Rosales with JP Morgan. Please pose your question. Your line is live.

Hi, it's Daniella here. Thank you for taking my question. On the demand pickup in Northern Virginia, how competitive is it to get deals done there? And do you think the activity there will persist?

This is Brent. Good morning, Daniella. Thank you for joining us. As you point out, NOVA has seen an uptick in transactional activity. We did complete a larger, call it about 70,000 square foot lease with a defense contractor tenant. What we continue to see in that market are a couple of factors which give us the belief that we can continue to execute uniquely in the market. That first one would be that we continue to see less and less blocks of space available as there has been a good bit of absorption, particularly from professional services. And then as we noted as well, the components of the increased funding for Defense Contractors, as well as the difficulties in the Middle East, the war in the Middle East, continue to fund growth in those companies that really focus on advanced warfare. This sub-market has a large presence of companies that are also in that industry, and so therefore we continue to see a lot of demand. Very few landlords have the capital right now in that market to really fund create the environment and provide the necessary funds to build out unique space. And in some instances, gift space, if you're familiar with what that means. They also really see a lot of demand for the young millennial workforce that resides in the RV corridor in Northern Virginia. So there's a couple of factors. We think that demand continues to play out and bodes well for continuing to drive absorption in our buildings in the RV corridor overall. So I think you'll continue to hear us share positive news in the coming quarters.

Thank you. That's really helpful insight. And I guess a second question from me on the acquisition side. What opportunities are you guys seeing there and what did those deals look like?

Great question. We continue to canvas the market for off-market transactions. There have been a few assets brought to market as well. The focus areas that we'd like to grow the business, that being primarily, as we've talked about the past, Dallas and Northern Virginia, which are the reasons we just went through. We do like our other exposure in the Sunbelt, but Atlanta is already our largest market, and we see really good opportunities in Dallas. We continue to focus on assets that are great bones, slightly older vintage, but are really well located. We feel like location is the first amenity But if it has the air and light, the ceiling clearance height, and the right ground plane interaction, we really look for assets that are, you know, call in 70 to 80% lease. They haven't been put through our program, so we can create value either through lease up, roll up in rental rates, and putting our Piedmont Place expertise to work and drive what would probably going in yields in the, call it, We're looking, you know, again, other, you know, profiles of those buildings would have the existing occupancy would be longer term and durable. And we would consider those assets building to reposition and bring back to a trophy level building. Thank you so much. That's it for me.

Your next question is coming from Michael Lewis with Truist. Please pose your question. Your line is live.

Thank you. So you just answered a question about acquisition pricing for the types of assets you're looking at. I wanted to ask about dispositions and, you know, are the improving fundamentals causing any changes in pricing? I know, you know, the New York asset is relying on a lease but may still have some upside on some upper floors. I saw, you know, the Enclave won a Toby Award. I saw two assets in Minnesota did as well. You know, any change there on potential disposition pricing?

Good morning, Michael. Thanks for joining us. This is Brent. Great question, and I think Chris alluded to it in his prepared remarks. We are continuing to see more debt availability in the market, as well as good leasing begets better underwriting, better rental rates, absorption, etc. So we are seeing the transaction market continue to unthaw, if you will. If you think about our dispositions and and what we think about in our framework around that is we've always said we really want to call kind of the most mature top 10% of our assets as well as what we would consider the bottom 10% in terms of quality, continuing to harvest value and continuing to grow the overall part of the portfolio and earning stream. So as we think about not only dispositions of the here and now in terms of cap rates, but what is the growth profile of those assets going forward. Our dispositions, because those are two different buckets, they'll vary, but somewhere between probably the 8 to 10 cap range seems reasonable for most of those assets. The overall desire would be to redeploy those proceeds into the Sunbelt. In terms of pricing, we would say it's probably more stabilized pricing and just getting more transactional activity. I don't think we've seen a material movement in overall pricing in the last six months. Thank you. Thank you. Thank you. Okay, great.

And then my second question is a capital allocation question. So the last time you paid a quarterly dividend, it was 12.5 cents in the first quarter of 25. Your FAD this quarter was 24 cents. You haven't been below 13 cents of FAD since the fourth quarter of 2013. So even though you suspended that dividend, it's continued to be covered, but The stock has done well since you suspended it. So when you think about that $31 million of FAD after CapEx in the second quarter, what's the best use of that? You could bring the dividend back. I know you still have some TIs to pay, but again, this is extra cash flow. The bond repurchases, those nine and a quarter bonds now trade at like 5.5%. Maybe that's not as attractive anymore. You could repurchase stock. I know you trade well below NAV, so I'm listed off options, but what I really want to hear is what you think the options are.

Very good question. And so if you think about that $30 million after CapEx, a couple things I'd point out. One, we're doing a lot of construction this year across the portfolio, as we talked about. We're going to have a lot of commencements really take shape here in the third and fourth quarter. So we're spending capital today in those spaces. That capital... will be lumpy for the remainder of quarters of the year. So we may not achieve that same $30 million level after CapEx every quarter. So as we think about those, typically this quarter, what would we use that excess cash flow for? Plain and simple, continuing to focus on paying down debt near term with an eye towards continuing to drive debt to EBITDA, like Sherry noted, below seven times by the end of the year. Once we get to those levels, I think we would continue to want to drive debt down further before we were in the board would discuss and hopefully their determination as to when we would turn back on a dividend. When it comes to debt pay down, I would say bond repurchases of those nine and a quarters would be the most impactful, so we continue to have a specific eye towards that as our debt pay down instrument more near term. Ability to use those excess proceeds to buy back stock is not a priority at the moment. And in fact, we do see, if anything, better opportunities from an acquisition standpoint for growth and even for near-term accretion over where our potentially investing or buying back stock. And we would not want to do so as lever up the company buying back stock. So it obviously would have to be paired with disposition proceeds or excess cash flow that we knew were going Remain, as I noted before, this year is still going to be a little choppy in terms of that cash flow through the quarter as we finish constructing a lot of space.

I think, Michael, the ASFO number doesn't deduct all capex. And so, you know, it's not a true measure of cash flow. So some of those TIs that we spent are in addition. So the actual free cash flow number is lower.

I would think, you know, if the board is going to evaluate reestablishing a dividend that would be in 2077, as we talked about at the earliest, and they would take the framework of really first needing to have positive net income and showing that there's a need to pay a dividend, then we obviously want to make sure we have a significant cash flow after CapEx that would support turning on that dividend and being able to increase it over time. And so that really will, again, start to evaluate and 27.

Okay, your next question is coming from Nick Fillman with Baird. Please post your question. Your line is live.

Good morning, guys. Maybe you want to just talk a little bit more on the lease pipeline. You guys highlighted the 700,000 square feet. Assuming that the 300,000 square feet included in that is the New York City lease, maybe give the composition of that remaining like 400,000 square feet that you guys have signed. And then some updates on this New York City broadly. You guys mentioned fourth quarter. I think in the past you've mentioned you're not... They did go into holdover at this quarter, but you didn't expect to be charging holdover rate on the near term as you work through discussion. So more clarity there, and then just mixture on the remaining pipeline of signed to date.

Yeah, Nick, thank you for joining us. This is George here. Listen, we talked about the 700,000 square feet is either signed or is in legal stage, and obviously it's weighted right now a little heavy towards renewals, right, because of the city. but once you back that out of that particular column you're kind of looking at pretty much an even balance between new and renewals. I know the previous scores were a little bit more new related but I still believe we can get to that number that we've seen historically by hitting about 175,000 square feet of new business between this quarter and next quarter. Some other characteristics about that demand I would say we've got a couple of full floors that are in there which Again, it's pretty consistent with what we've seen historically. The sectors have been pretty consistent. We constantly see legal, accounting, financial, banking, insurance prospects, and those continue to look at all of our states. I would say sales offices is another one that's coming up. I would say, I know you've heard a lot about our defense sector coming back to life in Northern Virginia. We're also seeing that in some of our other cities that we operate in as well. Would you like to touch on New York City?

Yes. In terms of New York City, it is a lot of transactions, so we're going to be careful in giving too much detail. But given the delay in execution of the new lease, as you noted, New York City did interrupt the holdover. Piedmont retained all rights per the existing lease, which does include some financial penalties, along with other remedies. But obviously, as we noted, we continue to be very engaged on a long-term renewal with DCAS, and the Department of Citywide Administrative Services. Documentation is progressing, and they have communicated they expected us to be completed in the fourth quarter. Dual terms remain, as we've discussed in the past, so nothing new there. And as you point out, the penalties under the lease are really meant to accelerate a decision by the tenant, and as we've noted, they've made that decision and they intend to stay at the building. So typically holdover penalties have a short grace period and or escalate over time. So as we know, that factor that they're in holdover did not impact the second quarter and we really do not anticipate holdover is going to materially influence our 2026 earnings. Hopefully that gives you a perspective. Again, we do anticipate it will be executed in the fourth quarter.

Yeah, that's really helpful. And then Brent, you made some interesting commentary on just early renewals and potentially pushing retention above Your traditional 60 to 70% on your in place when you're looking out to 28 and 29. And you've also mentioned the ability to push lease percentage and occupancy into the low to mid 90s. So as we just put those characters together, maybe what you think the embedded upside is as you start locking in these renewals for 28 and 29. And then also with George's comments of what you need to see from the new leasing for a sustainable level or bogey on a quarterly average to just continue to get to those low 90s from an occupancy standpoint.

Great. Thanks, Nick. So really the invented upside from early renewals, it's kind of an interesting story. We started to see those 28 and 29 tenancy come to us early. So there is, you know, embedded cash roll-ups within that. I think our 12% is a pretty decent guide overall across the portfolio. There'll be some that are obviously much better in Atlanta and Dallas and some that will struggle That's a fair average to say in terms of embedded upside and has strong data behind that. Also part of that strategy of having early renewals will be also to leverage the fact that they've already got great space. And so with rates really high, we can offer rates that are modestly high and limited capital in that process. So we're going to really think of it as an opportunity to start to reduce the capital spend and the amount of free rent Thank you for joining us today. Now, in terms of the new leasing, sorry, quarterly average, I think as George alluded to, that 175,000 square feet is the kind of sweet spot in terms of continued leasing of new tenancy. And we still see that in the pipeline, and we expect that to continue given the space that we are having come back to us here in 26 is great, well-located, amenitized, and remodeled. and the ability to, as you point out, drive least percentage into the 90s, low 90s, not quite mid 90s, but low 90s here is still on the horizon. So we feel good about the ability to achieve that getting into the 90% in 2027 as we continue to drive absorption in the portfolio.

No, I really appreciate it. And then maybe just rounding it all out on the 27 large expiration. Sounds like you had some progress in one of the assets in Atlanta, but maybe the coverage on those assets and the remaining larger blocks that you have within the portfolio. It sounded like 100,000 square feet still in the midtown asset at 999, half the Epsilon space, and then those two assets in Atlanta specifically.

Sure, Nick, I'll take that. I mean, I mentioned a minute ago we had 1.5 million square feet of new leasing activity, and it's across all the markets. So the larger portion of about a third of that really is coming through the Atlanta market, which folds well, right? Because we already had some exposure right now, currently with 999, although we've leased well over 100,000 square feet there for the past 12 months. And we have good activity there to chip away at that 4.5 and the 44 block that's remaining. And again, deals that we'll do there will show something close to 40% cash roll-up. So we're pretty excited about the opportunity there. The other one you alluded to for 2027 is an essential perimeter market or two assets, Glenridge Highlands and LEM 55. And I think we've mentioned already that we preemptively shipped away at some of that exposure at LEM 55. But at Glenridge Highlands, I think it's really important to share with you Thank you for joining us today. and a particular sub-market that generates a lot or attracts a lot of corporate relocation just because of the centrality of the market to the workers around the city. So we're pretty excited about the opportunity there. You also mentioned what else is in 27. I mean, we talked on Minneapolis last time. That exposure is largely in the suburbs. It's in our one asset enrollment point. That asset, it shows really well. It's already been renovated. It's been stabilized for several years. We're in conversation with that use of the data, retaining some of that space, and we have other prospects available to us that need some time to get to conclusion. But look, we've shown a tremendous amount of success in Minneapolis, right? We've taken two buildings that were totally vacant and ridden crossing at Excelsior, at least up to 83% over an 18-month horizon, and we think we can duplicate that at Norman Point as well.

I appreciate it all. That's it for me.

Once again, if you do have any questions or comments, please press star one at this time. Your next question is coming from Everest Shipper with Cantor Fitzgerald. Please pose your question. Your line is live.

Hello, thank you for taking my question. I know you guys mentioned that you wanted to reduce debt also selling non-core assets to really reinvest in the Sunbelt. So I was wondering if you just kind of walk through your thought process there and like what you're prioritizing in these new assets.

I'm sorry, you fell off there again. And what we're prioritizing in terms of...

If you're reinvesting in Sunbelt, what are you prioritizing in these new properties and assets that you're acquiring?

All right, which properties? So I guess in terms of capital allocation, as we've talked about, right now in the near term, we have the ability to pay down nine and a quarter bonds. That frankly, if we were to refinance today, it would probably be around a 6% interest rate. So that provides pretty certain accretion and deleveraging in the process. We are very focused on taking our debt to EBITDA down below seven times. And so that will afford the ability to do that most quickly. We do have some dispositions that are in process or in the market, I would say. We hope to consummate them through the year. And that would immediately help to go pay down debt and drive us towards that debt to EBITDA. That said, we also find some pretty interesting opportunities for acquisition that would be accretive to those dispositions and add also to the EBITDA and earnings stream and also help to reduce debt to EBITDA. So we don't feel like they're necessarily mutually exclusive. There are opportunities on both sides of the acquisition and debt pay down to drive earnings growth, to improve the balance sheet, and improve the quality of the portfolio. Now then, in terms of which assets, as we alluded to, we really like what we're seeing in terms of demand and our positions in Dallas and Northern Virginia where we have a pretty sizable scale in terms of the platform today, but we'd like to drive, particularly in some markets, we see pricing power where we get to about 25% of the market share for that trophy Class A property. And when we have those situations, which is kind of what we're targeting, we really have an opportunity to drive a rental rate growth. We do think that we're on a unique and a unique position at Piedmont is in terms of our ability to start to aggregate assets in this environment. Some of our peers are much more focused on shiny brand new glass buildings that are well leased. We feel that the opportunity set in unloved but once really high quality trophy buildings is Thank you for joining us. and that's really an opportunity set where we can create the environment, the walkability and the kind of modern workplace that state companies want. We've done it several times and we continue to believe that'll be a unique opportunity set for us in the coming years. So hopefully that gives you some idea Everest. Thank you.

Okay, great. Thank you so much.

Thank you. There are no additional 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 everyone for joining us here today. I do want to thank particularly the Piedmont team and congratulate them again on achieving the Kings League top five and the numerous BOMO awards. Piedmont continues to execute at a high level. Our premium Piedmont places are garnering a significant amount of demand We're excited about what the opportunity holds for Piedmont, not only the remainder of this year, but in the several years to come as we continue to execute on our strategy. Thank you, everyone, and have a great day.

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.