Piedmont Office Realty Trust, Inc. Class A Aktie

Good day, everyone. Welcome to Piedmont Realty Trust, Inc. Second Quarter 2026 Earnings Call. [Operator Instructions]

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 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 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 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 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 complement of our management team available to answer your questions.

Piedmont had a strong quarter, beating consensus by $0.01 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 4 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 submarkets 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 rightsized 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.

Piedmont's customers with lease expirations 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 OpEx experience for our clients. This year, the team's hard work culminated in Piedmont being recognized by Kingsley as a top 5 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 5 world-class operator.

Additionally, during the second quarter, 9 projects throughout the portfolio won the Building Owners and Managers Association or BOMA's Outstanding Building of the Year Award in their respective size categories, a tangible testament to the quality of our product and service offering. The strategic repositioning 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 NOI growth, 10% on a cash basis for the first half of the year and meaningful earnings growth, $0.02 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 30, 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 4 Cs: building culture, creativity, collaboration and connectivity. At the same time, new office construction remains near 0, 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 trade at 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 its 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 GAAP rent recognition. 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, returning to office requirements and a renewed focus on collaboration. During the quarter, we completed 9 expansions for 22,000 square feet with no contractions. Lease economics remain strong. As Brent noted, cash rents of space vacated 1 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 spend 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 power as net effective rents 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, driven by both burn off of free rent and higher rental rates. 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 boast 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 3 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 8 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 backfilling the balance of that space and pushing rate is deep with multiple tenants competing and improving rents. Over in the Lower Tollway submarket, the Dallas Maverick announced plans to develop a multibillion-dollar arena and entertainment district at the 100-acre Valley View site, which sits half a mile from our Galleria project. As we've experienced with the Braves battery development in Atlanta, being adjacent to such a massive entertainment venue will likely see private, public and reinvestments toward the neighborhood's infrastructure and elevates the desirability of an already healthy office submarket.

Today, Galleria Towers asking net rent is $50 per square foot, up 40% from just 2 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 with 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 of 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 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 the 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 business. 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 the 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-add acquisitions. We're focused on opportunities within our existing markets, which are accretive to our earnings and growth trajectory.

A quick update on dispositions in process, specifically the 2 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 a mid-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 to our TownPark assets in Lake Mary. Aside from those 2 known sales, we continue to actively weigh the disposition of mature and/or noncore 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 $0.38 per diluted share, $0.01 ahead of consensus and $0.02 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 ending June 30, 2026. AFFO 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 principal to pay off the balance outstanding under our line of credit. Consequently, we have 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 7x 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, an increase of $0.025 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 GAAP guidance range to 5% 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 the leasing success will start to improve our balance sheet, providing the flexibility to efficiently recycle capital in 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, Piedmont 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?

[Operator Instructions] Your first question is coming from Dylan Burzinski with Green Street.

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 2Q 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?

Dylan, this is George. Thank you for joining us. Listen, I think the leasing engine really continues to fire on all cylinders, right? And employers are looking for space, want to move into a more compelling and vibrant environment. We can see a lot of collaboration, and space is being made for employees to reconnect from a culture perspective. That trend is there, that trend continues. And when you look at overall demand today, I mentioned earlier that we're around 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 submarkets. And there's an overbalance of activity looking at -- for Atlanta and Dallas, that's kind of where most of our exposure is in the near term.

I would layer on 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 gains 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 the sweet spot in terms of industry demand in the professional services realm, financial services, insurance. We've talked about in the past our designs, our floor plates, how we operate the buildings and service them are all geared 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, fit the Piedmont strategy greatly. There are a lot of 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 in segment that we strive to, and we're seeing increased demand, particularly for that thing.

That's very helpful. Maybe just one more, if I could. Sherry, you mentioned getting to that sort of sub-7x net debt-to-EBITDA range here shortly. Do you guys sort of have a longer-term leverage target goal in mind as you sort of think about '27, '28 and beyond?

So getting below 7 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 6. So somewhere in the '27 to '28 time frame is what I'm kind of calling the intermediate term of that 6.5 turns.

Your next question is coming from Daniella De Armas Rosales with JPMorgan.

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. 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. First one would be that we continue to see less and less lots of space available as there has been a good bit of absorption, particularly for professional services. And then as we noted as well, the components of the increased funding for, I guess, defense contractors continues as well as the difficulties in the Middle East and the war in the Middle East continue to fund growth in those companies that really focus on advanced warfare.

This submarket 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 create the environment and provide the necessary funds to build out unique space and in some instances, space, you are familiar 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.

That's really helpful insight. And I guess a second question for 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 and the focus areas that we'd like to grow the business, that being primarily, as we've talked about in the past, Dallas and Northern Virginia, 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 heights and the right ground plane interaction, we really look for assets that are, call it, 70%, 80% leased. 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 expertise to work and drive what would probably going in yields in the, call it, 8.5% to 9.5-ish range that would stabilize well north of 10.5% into the 11s in terms of yield on cost. We're looking, again, other profiles of those buildings would have the existing occupancy would be longer term and durable. And we would consider those assets building to recondition and bring back to a trophy level quality and demand the highest in the submarket. So very much what you've seen us accomplish here over the last 5 years in our strategy and portfolio.

Your next question is coming from Michael Lewis with Truist.

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 are the improving fundamentals causing any changes in pricing? I know the New York asset is reliant on a lease, but may still have some upside on some upper floors. I saw the Enclave won a TOBY award. I saw 2 assets in Minnesota did as well. Any change there on potential disposition pricing?

Michael, thanks for joining us. This is Brent. Great question. As I think Chris alluded to in his prepared remarks, we are continuing to see more debt availability in the market as well as good leasing to get better underwriting, better rental rates, absorption, et cetera. So we are seeing the transaction market continue to thaw, if you will.

If you think about our dispositions and what we think about in a framework around that, as we've always said, we really want to cull kind of the most mature top 10% of our assets as well as what we would consider the bottom 10% in terms of quality and continuing to harvest value and continuing to grow the overall part of the portfolio and earnings stream. So as we think about not only dispositions here and now in terms of cap rate, but what is the growth profile of those assets going forward.

Our dispositions, because those are 2 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 will 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 6 months for most of our markets, but Dallas would be one that we've seen a material move, I would say, otherwise. Everything else has been pretty stable. So we think that still is an environment where with more transactions, we can start to recycle more capital. In the past pre-pandemic, we did $300 million to $400 million of recycling. I don't think that's achievable today, but it is positive to see that that is starting to unlock more transactional activity overall.

Okay. Great. And then my second question is a capital allocation question. So the last time you paid a quarterly dividend, it was $0.125 in the first quarter of '25. Your FAD this quarter was $0.24. You haven't been below $0.13 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, right? You could bring the dividend back, you could -- I know you still have some TIs to pay, but again, this is extra cash flow. The bond repurchases, those 9.25% 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've 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 of things I'd point out. One, we're doing a lot of construction across the portfolio. As we talked about, we're going to have a lot of commitments really take shape here in the third and fourth quarter. So we're spending capital today in those spaces. That capital will be lumpy through the remainder of the 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 we would 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 7x 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 and the Board will discuss [indiscernible] determination as to when we would turn back on a dividend.

When it comes to debt paydown, I would say bond repurchases of those 9.25% would be the most impactful. So we continue to have a specific eye towards that as our debt paydown instrument more near term. The ability to use the 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 are potentially investing or buying back stock, and we would not want to do so and lever up the company buying back stock. So it obviously would have to be fair to disposition proceeds or excess cash flow that we knew we were going to remain. And as I've noted before, this year is still going to be a little choppy in terms of excess cash flow through the quarter as we finish constructing a lot of space.

Michael, the AFFO number doesn't deduct all CapEx. And so 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 if the Board is going to evaluate reestablishing a dividend that would be in '27 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. And 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 in '27.

Your next question is coming from Nick Thillman with Baird.

Maybe you wanted 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 just New York City broadly. You guys mentioned fourth quarter. I think in the past, you've mentioned you're not -- you have -- they did go into holdover rent this quarter, but you didn't expect to be charging holdover rate on the near term as you work through discussions. So more clarity there and then just mixture on the remaining pipeline of signed to date.

Yes. Nick, thank you for joining us. This is George here. Listen, we talked about the 700,000 square feet is either signed or in legal stage and my office is weighted right now a little heavy towards renewals, right, because of the cities. 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 quarters 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 is pretty consistent with what we've seen historically. The sector has been pretty consistent. We constantly see legal, accounting, financial banking, insurance prospects and those continue to look at all of our space. 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. Brent, would you like to touch on New York City?

Yes. In terms of New York City, it is a live transaction. So we want to be careful in giving too much detail. But given the delay in execution of the new lease, as you know, the New York City did enter a holdover. Piedmont retained all our rights for the existing lease, which does include some financial penalties among other remedies. But obviously, as we've noted, continue to be very engaged on a long-term renewal with DCAS, the Department of Citywide Administrative Services. Documentation is progressing, and they have communicated they expected us to completed in the fourth quarter.

Deal 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. As we've noted, they 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 holdover does 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.

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 characteristics 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 just to continue to get to those low 90s from an occupancy standpoint?

Great. Thanks, Nick. So really, the embedded upside from early renewals kind of it's an interesting story. We've started to see those '28 and '29 tenancy come to us early. So there is embedded cash roll-ups within that. I think our 12% is a pretty decent guide overall across the portfolio. There will be some that are obviously much better in Atlanta and Dallas and some that will struggle. But that's a fair average to say in terms of embedded upside and have 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 concessions that we provide our tenancy, still giving them great space because they've already built it out, but leveraging better economics on the renewal in that process. So we still think we can achieve those great cash flows that we've been generating in the 10% to 15% range and start to reduce capital spend as we get further into '27, particularly.

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 would 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 lease percentage into the 90s, low 90s -- like 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 expirations. It 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 2 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 1/3 of that really is coming to the Atlanta market, which bodes well, right, because we already have some exposure right now currently to 999, although we've leased well over 100,000 square feet there for the past 12 months. And we have good activity there to take away at that block is remaining. And again, deals that we'll do there will show something close to a 40% cash roll up. So we're pretty excited about the opportunity there.

The other one you alluded to 2027 is in the Central Perimeter market are 2 assets, Glenridge Highlands and Glen 55. And I think we mentioned already that we preemptively took away some of that exposure at Glen 55. But Glenridge Highlands, I think it's really important to share with you the competitive features that this asset has, right? It's going to be the top part of very prominent towers well located off an interchange. The vacancy is at the higher end of the marketplace in the high-rise bank. It also have an opportunity on the first floor to create a beautiful landing visitor space for that large user that could come into the market.

We also have top building sites to offer. And why that makes a lot of sense is Central Perimeter has historically been that particular submarket that generates a lot or attracts a lot of corporate relocations 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 the '27. I mean we talked on Minneapolis last time. That exposure is largely in the suburbs. It's on our one asset, Norman Pointe. The asset shows really well. It's already been renovated. It's been stabilized for several years.

We're in conversation with that user today to retain some of that space, and we have few 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 2 buildings that were totally vacant in Meridian Crossings and Excelsior and leased up to 83% over an 18-month horizon, and we think we can duplicate that at Norman Pointe as well.

[Operator Instructions] Your next question is coming from Everest Schipper with Cantor Fitzgerald.

I know you guys mentioned that you wanted to reduce debt while also selling noncore assets to reinvest in the Sunbelt. So I was wondering if you could just kind of walk through your thought process there and like what you're prioritizing these new assets?

Sorry, say that last bit again, 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 we -- I guess, in terms of capital allocation, as we've talked about, right now, near term, we have the ability to pay down 9.25% bonds that, frankly, if we were to refinance today, it would probably be around a 6% interest rate. So that provides certain accretion and deleveraging in the process. We are very focused on taking our debt to EBITDA down below 7x. 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 acquisitions, that would be accretive to those dispositions and add also to the EBITDA and earnings stream and also helps 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 paydown to drive earnings growth, to improve the balance sheet and improve the quality of the portfolio.

Now 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 like to drive particularly in submarkets, we see pricing power when we get to about 25% of the market share for that trophy Class A properties.

And when we have those situations, which is kind of what we're targeting, we really have an opportunity to drive rental rate growth, which is ultimately what we want to do because that translates into cash flow growth. We do think that we're on a unique -- and 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 one that we will continue to lean into buying assets, again, that are 70% to 80% leased at higher yields, high single digits and being able to drive that into the low double digits.

That strategy also sometimes lends itself to taking on larger campus style like a Galleria in Atlanta or a Galleria in Dallas. And in those projects that are $200 million plus, we're seeing very little competition. And that's really an opportunity set where we can create the environment, the walkability and the kind of modern workplace that today's companies want. We've done it several times, and we continue to believe that will be a unique opportunity set for us in the coming years. So hopefully, that gives you some idea, Everest.

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. We do want to thank particularly the Piedmont team and congratulate them again on achieving a Kingsley top 5 and the numerous BOMA awards. Piedmont continues to execute at a high level. Our premium Piedmont places are garnering a significant amount of demand, and 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.

Hello, and welcome to the Annual Meeting of Stockholders of Piedmont Office Realty Trust, Inc. Please note that today's meeting is being recorded. It is now my pleasure to turn the meeting over to Piedmont's CEO, Brent Smith, be for is yours.

Thank you, operator, and good morning, everyone. At this time, I'd like to call the 2026 Annual Meeting of Stockholders of Piedmont Realty Trust, Inc. to order.

I'm Brent Smith, Chief Executive Officer and Director of Piedmont, and I will preside at this meeting, which is being conducted via live webcast.

Some of the participants in today's meeting include all of Piedmont's directors and various members of Piedmont's management team, including Sherry Rexroad, Corporate Secretary for Piedmont, who will also act as Secretary for this meeting. Cassandra Shedd from our transfer agent, Computershare, who has taken the oath of office to serve as inspector of this election. Her report will be filed with the minutes of this meeting. Keith Townsend of King & Spalding, our external corporate legal counsel; and Molly Cummings, one of our engagement partners with Deloitte & Touche, Piedmont's external audit firm.

I call your attention to the rules of conduct set forth for this meeting. These have been made available to each stockholder in the documents section, which you should see in the lower left corner of your computer screen.

The Secretary has informed me that copies of the notice of the meeting, including the notice of Internet availability of proxy materials and form of proxy were mailed to stockholders on or about April 1, 2026. The record date for the voting of shares at this meeting was March 4, 2026. If you need a copy of the annual report or the proxy statement, the links are provided online under the option documents located on the right side of your computer screen.

The inspector of this election has informed me that as of the close of business on March 4, 2026, and Piedmont had outstanding and entitled to vote, 125,019,003 shares of common stock. Each share is entitled to 1 vote. There are no other securities entitled to vote at this meeting.

I am also informed that the holders of a majority of outstanding shares of the common stock entitled to vote at this meeting are present by proxy. Accordingly, I recognize the presence of a quorum for the purpose of proceeding with the business of the annual meeting and declare that such meeting is duly organized for the transaction of business subject to verification of a quorum after completion of the vote tabulation.

The first proposal on today's agenda is a proposal to elect nine directors to hold office for terms expiring at our next annual meeting. The Board's nominees are myself, Kelly H. Barrett; Glenn G. Cohen; Daneen L. Donnelly; Jeffrey J. Donnelly; Mary M. Hager; Barbara B. Lang; Stephen E. Lewis; and Dale H. Taysom and their name shall be duly placed in nomination. Any other nominations for director were required to have been submitted to Piedmont in accordance with the advanced notice provisions of Piedmont's bylaws.

Having received no other nominations, I declare the nominations are now closed.

The second proposal on today's agenda is a proposal to ratify the appointment of Deloitte & Touche LLP as Piedmont's independent auditor for fiscal year 2026.

The third proposal is to approve on an advisory basis, the compensation of the named executive officers as disclosed in the proxy statement.

And the fourth proposal is to approve the third amended and restated omnibus incentive plan.

Detailed information concerning all of these proposals and the governance of Piedmont is contained in the proxy statement furnished in connection with this meeting.

Our Board of Directors recommends a vote for each of the nominees for election as director, for the ratification of the independent auditor, for the advisory approval of executive compensation and for, the approval of the third amended and restated Omnibus incentive plan.

The poll for the four proposals to be voted upon is now open. If you've already voted by phone, by Internet or by mail ballot, there is no need to vote again unless you desire to change your vote. If you have not voted or wish to change your vote, you may do so now by clicking on the vote option link on the right side of your computer screen. I will now pause for a moment to give our stockholders the opportunity to submit ballots.

[Voting]

Thank you to all our stockholders for voting and attending today's meeting. I now declare the poll closed.

The inspector will tabulate the vote and the final results will be publicly announced as soon as they are available. However, I am informed on a preliminary basis that all proposals have passed.

With no other business before the meeting, I declare this meeting adjourned. We thank everyone for attending, and we are grateful for your interest and support of Piedmont. Have a good day.

This conclude the meeting. You may now disconnect.

Good day, ladies and gentlemen, and welcome to the Piedmont Realty Trust, Inc. First Quarter 2026 Earnings Conference Call.

[Operator Instructions]

And please note, this conference is being recorded. I will now turn the conference over to your host, Laura Moon, Chief Accounting Officer with Piedmont Realty Trust. Ma'am, the floor is yours.

Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's First 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 first quarter of 2026.

Both of these documents are 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 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 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 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 first quarter 2026 operating results. Brent?

Thanks, Laura. Good morning, and thank you for joining us today as we review our first 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 complement of our management team available to answer your questions.

From a macro perspective, the U.S. office market continued to recover in the first quarter of 2026 as supply-demand fundamentals began to stabilize across markets. JLL reports that leasing activity was up 7.6% year-over-year and net absorption positive for a third consecutive quarter, primarily driven by large occupiers.

The demand for office space continues to be very resilient despite office using employment being down 2% from 2022 levels according to the Bureau of Labor Statistics. The phenomenon of strong leasing amid a stagnant workforce demonstrates what our customers are telling us.

Large businesses are bringing their employees back to a compelling office environment that builds culture, collaboration and creativity, and we continue to believe that demand for the top quartile of the office market will remain resilient despite the prospect of limited growth in office-using jobs.

On the flip side, supply growth remains extremely low compared to historical levels, with total inventory declining by 9 million square feet during the first quarter and the national development pipeline at its lowest level on record. These trends reinforce landlord leverage, particularly in high-quality assets, where rents continue to escalate. Vacancy is increasingly concentrated in aging, financially constrained buildings with 10% of office buildings now comprising more than 60% of national vacancy.

Looking ahead, muted job growth and a higher for longer interest rate outlook remain headwinds for longer-term demand growth. However, structural supply contraction combined with limited new development are expected to underpin rate resilience and intensify competition for high-quality office space.

Against that backdrop, Piedmont is well positioned for the next phase of the office cycle for several reasons. First, portfolio quality. We've renovated 90% of the portfolio since 2020 and our amenity-rich hospitality-driven Piedmont PLACEs are leasing at record high rental rates.

Second, Piedmont has leased over 80% of the portfolio since the pandemic, meaning our customers have already rightsized their office space for the modern workforce.

Third, our service model, recognized in the top 5 by Kingsley, is keeping our customers happy, generating 60% to 70% renewal rates from existing tenancy. More recently, the portfolio is approaching 90% leased and inclusive of our out-of-service assets has generated more than 480 basis points of absorption in the last 12 months, equating to almost 750,000 square feet of absorption during that time period.

Finally, the average tenant size across the approximately 16 million square foot portfolio is 17,000 square feet, which speaks to our customer and industry diversification and provides a mitigant to large corporate downsizing. As a result of the leasing success in 2025, Piedmont has a signed, but not occupied pipeline of leases equating to over $42 million of annualized rent.

The strategic repositioning of the Piedmont portfolio, along with the substantial leasing that we've accomplished over the past 12 months are translating into higher economic occupancy and mid-single-digit same-store cash NOI growth and meaningful earnings growth.

The operational performance of the portfolio has led to an increase in our 2026 outlook. Core FFO by $0.01 and same-store NOI, cash and GAAP by 100 basis points, which Sherry will touch on more in a moment. Also fueling our growth are the leasing spreads we're achieving on second-generation space, regularly double digits on a cash basis and high teens on a GAAP basis, inherently driving cash flow and earnings higher as leases expire.

And finally, our balance sheet continues to strengthen, driven by the aforementioned leasing uplift in cash flow and EBITDA, along with a unique opportunity to refinance our near-term debt maturities at accretive financing spreads relative to the expiring rates.

We believe these factors position Piedmont for consistent annual core FFO per share growth over the next few years. Turning to our quarterly results. We witnessed a continuation of the elevated demand that we've experienced in the latter half of 2025 with tour and proposal activity at levels above historical averages. During the quarter, we executed over 430,000 square feet of leasing and most importantly, 2/3 was related to new tenancy.

Our customer pipeline remains robust with over 700,000 square feet of leases, either already executed or in the legal stage, thus far in the second quarter. As I noted earlier, strong customer demand driven by the flight to quality is giving Piedmont the opportunity to push rents to record levels across our portfolio.

In fact, more than half our portfolio experienced an asking rate increase of 15% or more in 2025. And even more exciting is that our rents still remain 35% to 40% below new construction pricing. So there's little impediment to pushing rental rates further.

Despite strong fundamentals for the office sector, the headlines have been filled with the topic of AI and prognostications of what it will mean to the national workforce. We appreciate the concern that AI could impact office using employment growth over time. But what we're seeing today is that robust demand is concentrating in high-quality, well-located, amenitized space, and that's exactly where our portfolio is positioned.

Even if some roles are redirected as AI adoption evolves over the coming years, companies will still need collaborative environments to build culture, serve clients and innovate.

So we're simply not seeing any cracks in our customers' demand and our leasing pipeline remains incredibly robust. Lastly, before I turn it over to George, I wanted to mention that we're also particularly excited about several operational recognitions during the first quarter. Galleria Towers in Dallas won the CoStar Impact Award for Redevelopment of the Year in Dallas Fort-Worth market. And as I alluded to earlier, Piedmont was recognized as an Elite 5 participant in the annual Kingsley survey for the office sector, which rates landlords on their performance based on tenant feedback.

These accolades serve as further evidence that our modern, redeveloped amenity-rich Piedmont PLACEs, combined with our hospitality-infused service model are recognized by our customers and peers as the premier office experience.

With that, I'll hand it over to George for further details on first quarter operational performance. George?

Thanks, Brent. We've been experiencing persistent demand for several quarters now. And once again, the Piedmont platform delivered exceptional operating results for the first quarter. Leasing velocity continued at a strong pace with 50 transactions completed for over 430,000 square feet.

Like last year, new deal activity was a dominant theme accounting for roughly 70% of total volume and a meaningful portion of that volume is expected to translate into 2026 GAAP rent recognition as commencements occur over the balance of the year.

Average new lease 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 9 years. Expansions exceeded contractions for the seventh straight quarter and largely to accommodate clients' organic growth.

Our retention rate remained high at approximately 70%. The portfolio continues to post robust leasing economics, delivering 11% and 18% roll-ups this quarter on a cash and accrual basis, respectively.

Our average accrual based roll-up over the last 8 quarters is an impressive 17%. Additionally, the portfolio generated an impressive 11% same-store NOI growth, driven primarily by the burn-off of free rent. As Sherry will discuss in a moment, the strong cash flow growth, along with recent leasing success has helped push earnings and same-store cash NOI outlook for the year higher.

Leasing capital spend was $5.18 per square foot per year, materially lower than our trailing 12-month average of $6.20, driven from modest concessions associated with several renewal and sublet to direct deals.

Additionally, leasing commissions were also lower than historical trend this quarter as a result of greater number of leases that were direct deals without a broker. Net effective rents increased to $22.03 per square foot, up almost 5% from the previous quarter, and we anticipate further rental rate growth supported by strong demand for high-quality space and little to no new development in our submarkets.

These encouraging first quarter metrics signal that Piedmont is off to a strong start for 2026. Next, I'd like to highlight notable market activity and progress on our key expirations. Dallas led all markets during the first quarter, closing on 14 deals for 123,000 square feet with new transactions accounting for a majority of that amount. Also in Dallas, we've agreed to extension terms with Epsilon at our Las Colinas Connection project for roughly half of its current footprint and our pipeline for backfilling the balance of that space is deep and at improving rents.

Atlanta was our second most active market with 12 deals for 88,000 square feet. Our local team signed an 11-year new deal with a global accounting firm to backfill another Eversheds floor at 999 Peachtree in Midtown.

While our supplemental report shows Eversheds having 180,000 square feet expiring this quarter, we have already backfilled roughly half of that space at 40% cash roll-ups and have strong activity for the balance.

At 60 Broad, we announced last quarter that we agreed to terms with the new administration of the City of New York at our 60 Broad Street project for substantially all of that 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 our lease. However, it's likely that the process will not conclude until later this year. Our redevelopment projects posted another strong quarter of deal flow with over 100,000 square feet of new transactions signed, increasing the lease percentage from 62% to 76% at quarter end. Including leases executed in the second quarter or in the legal stage, the out-of-service portfolio is greater than 80% leased.

We anticipate placing 222 Orange Ave back into service in the second quarter, and we continue to be confident that the remainder of the out-of-service portfolio will reach stabilization around the end of the year.

Looking ahead, our leasing pipeline remains robust and now has over 700,000 square feet in the legal stage for the second quarter. Outstanding proposals have jumped from 1.8 million square feet last quarter to 2.4 million.

Our supplemental report shows 9% of leases expiring in 2026 with the vast majority of that occurring in the second quarter and relates to the Eversheds, Epsilon and New York City leases, each of which I just reviewed. Aside from those 3 leases, there are negligible expirations remaining for 2026. As a result, we remain comfortable projecting that we will end the year within our previously released year-end lease percentage guidance of 89.5% to 90.5% for our total portfolio, including both our operating and our out-of-service redevelopment portfolios. I'll now turn the call over to Chris Kollme for his comments on investment activity. Chris?

Thank you, George. Capital markets have shown improving liquidity so far this year as evidenced by the strongest first quarter office sales volume since 2020, and we continue to seek ways to optimize and elevate our portfolio. As I have previously stated, we have 2 land parcels under contract, one of which is in the Las Colinas submarket of Dallas, and that deal went hard this quarter.

The buyer still has several extension options. However, we anticipate this transaction will ultimately close later in 2026 and will generate approximately $12 million in net sale proceeds. The other land parcel is still in the midst of a lengthy rezoning process. So the timing there is much less predictable, and we expect it to close in the first half of 2027.

In addition to the obvious financial benefits of these 2 land sales, we are also excited about the additional retail amenities that these transactions will ultimately provide for our adjacent office projects. We continue to actively evaluate and underwrite potential acquisition opportunities. But over the last couple of years, we have redirected and prioritized our capital towards other accretive uses such as funding our tremendous leasing volume, reinvesting in our core assets and reducing our debt.

We are in the market with some of our other noncore assets. Although it is too early to comment on any specifics, we are optimistic that we will return to a more active capital recycling program later this year. With that, I'll pass it over to Sherry to cover our financial results.

Thank you, Chris. We will be discussing some of this quarter's financial highlights today, but 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 first quarter of 2026 was $0.36, in line with consensus and consistent with the first quarter of 2025 as higher economic occupancy and rental rate growth were offset by the sale of 2 projects during the year ended December 31, 2025.

AFFO generated during the first quarter of 2026 was approximately $23.8 million. From a balance sheet perspective, we had approximately $526 million of capacity on the revolver as of quarter end. And as we've highlighted previously, we currently have no final debt maturities until 2028.

We continue to think creatively as we evaluate balance sheet management options to extend and smooth our maturity ladder and continue reducing our interest costs. Our overall weighted average cost of debt continues to decrease. And based on the current forward yield curve, we expect that all of our unsecured debt maturing for the remainder of this decade could be refinanced at lower interest rates and thus be a tailwind to FFO per share growth.

As Brent noted, we are narrowing and increasing our 2026 annual core FFO guidance by $0.01 to a range of $1.49 to $1.54 per diluted share, an increase of over $0.10 per share at the midpoint over 2025 results. We are also increasing our same-store NOI, cash and GAAP guidance range by a full percent from 3% to 6% to 4% to 7%.

Please note that this guidance does not include any speculative acquisitions, dispositions or refinancing activity. We will adjust guidance if and when those types of transactions occur. With that, I will turn the call back over to Brent for closing comments.

Thank you, George, Chris and Sherry. Despite the ongoing noise in the office sector, Piedmont remains focused on leasing our portfolio of recently renovated, well-located hospitality-inspired Piedmont places with the quality space becoming harder to find and the cost of new development at all-time highs, we believe our portfolio offers a cost-efficient alternative to new construction, and we will be able to continue to drive meaningful leasing volume, rental rate increases and same-store NOI growth as 2026 unfolds.

With that, I will now ask the operator to provide our listeners with instructions on how they can submit their questions. Operator?

[Operator Instructions]

Our first question is coming from Anthony Paolone with JPMorgan.

My first question relates to your comment about half the portfolio seeing a -- I think it was a 15% increase or more in rents, and I think it was 2025. I'm just wondering how specific is that to assets versus markets? Like maybe if you can give us a little bit more depth on like where that all occurred or where it didn't perhaps.

Sure, Tony, and thanks for joining us this morning. So as we talked about, we did move rate materially, particularly from an asset perspective over the course of 2025, driven by a lot of absorption that we talked about earlier in the call as well, about 750,000 square feet.

So markets and assets, certainly from a market perspective, the assets around our projects are not necessarily achieving what we are. I'll take the Northwest submarket in Atlanta, for example, our Galleria project there crossed over $40 a foot.

Today, we're asking over $50 a foot, and that all occurred over the course of '25, while the rest of the submarket relatively stayed flat. And I would say Midtown Atlanta, also an example of where we continue to push rates at those meaningful levels.

Frankly, all of Dallas would also incorporate that. Some of our suburban assets in Minneapolis, where we've renovated would also incorporate a really meaningful uptick in rental rates over the course of the year.

And then finally, our downtown Orlando projects as well, would all encompass that. And we're seeing continued activity now in our Northern Virginia submarket, not nearly to that degree, but we're starting to see the same effects in those markets I just mentioned occur there as well.

And it's really related to, again, that high-quality space, that top quartile market, particularly in which we play in, has continued to have meaningful absorption and seeing large blocks of space continue to be pulled off the market, and that has allowed us to continue to meaningfully move rates across those assets, if you look at the supplemental that are 90% plus or more leased.

And then maybe second question, Chris, I think you mentioned being in the market with a few assets for sale. And I know you don't want to give too many specifics, but maybe any sense of order of magnitude dollar-wise that we could see on the disposition side this year?

I'll take that. This is Brent again, Tony. So as you noted, we do -- as Chris noted earlier, we have about $30 million under contract, $12 million is hard and in the held-for-sale bucket, and we do expect those to close in third quarter and the rest will happen in early '27.

As Chris noted, we're marketing one building and evaluating a few others at the moment. And we're looking really to harvest value from stabilized assets and improve the overall quality of our portfolio.

So looking again to always cull that bottom 10% in an efficient manner. So we'd like to monetize and/or dispose of assets, particularly in the district of Houston are ones we've noted, but also looking a little bit to the future, as we've noted, we'd like to monetize our New York asset upon the conclusion of the New York City lease, although that's likely now in early 2027 event.

And given the profile of the assets we do have in the market and what we would recycle, we think we could take those proceeds and put them in likely to initially pay down debt. But on a longer-term basis, we are seeing opportunities in our Sunbelt market that would stabilize would be redeployed on an earnings neutral to accretive basis. But obviously, anything at this point, transaction-wise is likely to occur late in the year, if at all. And there's going to be a limited impact to 2026 earnings if we were to dispose of an asset at this point given where we are in the year.

Our next question is coming from Nick Thillman with Baird.

Maybe, George, just appreciate the commentary on 2026 and the bulk of them discussing those. But as we look at '27, you alluded to 50% to 60% retention. You guys have highlighted the 2 move-outs in Atlanta, but just curious if there's any other notable ones that we should be highlighting. It looks like a decent amount of concentration in Orlando and Minneapolis. So any large tenants to monitor there as well and just expectations on that front?

Sure. Thanks for joining us. I think before I address that, it's really important to understand the momentum that we saw in 2025 continues to roll into 2026, right? I mean the record leasing that we completed was on the backs of early proposals around 2.4 million to almost 3 million square feet.

And though it dropped in the fourth quarter to 1.8 million, we're excited of the fact that it came back to 2.4 million square feet, and that's just providing the tailwinds with these large expirations that are coming up in our submarkets.

You mentioned 2027. Yes, it's true, Broadcom and Fiserv in Atlanta will be vacating in the third quarter of 2027. But what we've seen here is that we're going ahead and put into place the Piedmont strategy has worked so well over the past couple of years, right? I mean these properties are modern, they're well amenitized. And when those large users leave, we're going to have the opportunity to put up a building signage for the next prospect that comes along, right?

These assets are located in Atlanta. We've had a tremendous amount of success here. Central Perimeter is one of those markets that's the most accessible in all of Atlanta. It's got a long track record of expanding large corporate relocations into the submarket. In fact, we had 3 last year with StubHub, TriNet and AIG, and we expect that to continue. Our pipeline right now is about 300,000 square feet to backfill, those 2 large prospects in Central Perimeter.

I think one of the advantages here is that when you look at the supply of large block space for 150,000 square feet or larger, there's only 4 that really we would call the Tier 1, and we own 2 out of 4 those -- 2 of those 4 supply.

So we feel pretty good about that. And if you look at our overall track record in terms of what we've accomplished in Atlanta, we're 94% leased today. And I think it gives us the confidence we can backfill that space in a pretty short order.

Yes. I understood the Atlanta. I just wanted a little bit of clarity on maybe Orlando and Minneapolis, in particular, those are some of the more concentrated ones at 27. I was just curious if there's any other notable like 50,000 square foot tenants that we need to monitor on that side and if you've had discussions on that front?

Sure. We've got one in Minneapolis, a little over 100,000 square feet. It's in a suburb location. We've got some early looks right now. We have 2 or 3 prospects looking for full [ 4 ] more. We've got a great brand in Minneapolis. We've -- I mean what you've seen what we've done in Meridian Crossing right with [indiscernible] 400,000 square feet, and we've got to all of that over the next 15 months or so.

So we're not overly concerned about it. And then going to Orlando, we've got one project that has about 100,000 square feet expiring. We actually have 2 prospects that can backfill all of that space right now. Proposals are outstanding. I think we're getting close to -- getting a handshake on the deal. So we're looking good there.

That's helpful. And then just on the 700,000 square foot pipeline, 300,000 of that is the renewal with New York, but are there any other chunkier ones within that, that's late stage or signed to date?

I'd say -- Nick, this is Brent, and thanks for joining today. I'd say it runs the gamut. It's consistently what we've seen in the past that small users have been there and large users continue to bring their people back and want great space.

Obviously, we have less and less larger blocks. So we're going to continue to see less, probably 100,000 square footers, except for some of the noted backfills that George mentioned really aren't until '27 in the first place.

And so I'd say it's kind of consistently in 50s and 60s and also the 5s to 15s as well across industries. And I think that is what investors should take away from the robust demand we see is not being impeded from an AI perspective at all.

That's helpful. And then, Brent, just maybe conversations with the Board and status on the dividend. I know there's some talk of potentially starting again to declare dividends next year in '27, but is there any update on that front or sentiment there?

Of course, the Board reviews the opportunity to pay dividend really every quarter. But as you noted, we said at this point with the dividend suspended, the Board would not really evaluate that again until 2027.

I would say until we have the need, i.e., positive taxable net income and see our ability to continue to have excess cash flow. Right now, we're putting a lot in the leasing space, which is obviously generating great returns. But until we see both of those, which depends somewhat on leasing velocity and momentum, the Board is not likely to turn on the dividend.

So we will continue to update. Again, probably the first quarter of 2027 will be that opportunity when capital does significantly right now start to wane off and we see excess cash flow. But again, that's up to the Board to evaluate at that point in time.

[Operator Instructions]

Our next question is coming from Dylan Burzinski with Green Street.

Most of mine have been asked, but maybe just sort of looking at portfolio lease percentage and where you guys think that can head over time. Just sort of looking at where you guys -- where you guys were at pre-COVID, call it, in the 91%, low 91% range. Obviously, this year, you guys are guiding to sort of 90% at the midpoint.

I mean, do you think the portfolio is just structurally different today in that not only in terms of the location and the quality but also benefiting from the flight to quality such that lease percentage can get beyond where it has been historically?

Thanks, Dylan. This is Brent, and great question. As you point out, we were about 91% leased pre-pandemic. And of course, that had a shift in the marketplace that was pretty substantial. We've recovered almost all of that back, and we're guiding to 90% leased at the end of this year.

As we look at our own portfolio, we have a substantial number of assets where we push lease percentages that are well into the 90s, sometimes approaching 100%.

So I think to your point, we have seen those assets that perform are generating well in excess of historical 91%, 92% stabilization. And I do believe we can continue to generate roughly 50 to 100 basis points of absorption a year across the portfolio.

And so that's reasonable to assume that we could be in the 91% to 92% leased range in a few years, and potentially drive that higher, particularly at the unique amenitized large-scale projects like both our Galleria project, but even those midsized projects like the Meridian and Minneapolis, which we leased up over about the course of 18 months from 0% leased.

Those environments are proving out that we can take assets to, again, 95% plus, and that will have a meaningful impact on growth in the portfolio longer term.

So I do see, particularly with no construction really coming online to the end of the decade, a good runway push further, but that's just a little too far out to prognosticate. But certainly feel comfortable saying 50 to 100 basis points of absorption over the next few years is achievable.

Okay. Great. That's extremely helpful, Brent. And then I think you mentioned D.C. and Houston being geographies or assets that you guys were looking to monetize. Can we say the same for Minneapolis as some of those assets through stabilization?

I'd say, Dylan, we continue to want to harvest assets that we've created value and are stabilized to redeploy that into accretive opportunities. So regardless of market, I think we take that lens through the portfolio. You know Minneapolis, we do have a couple of assets that have leased up really well there and have long WALTs, 12-year plus weighted lease through those buildings.

We'll let those come online and evaluate the market at that time. Hopefully, it continues to improve. But we have, as you know, created a lot of value with those buildings, and we'll look for ways to either recapitalize or monetize and redeploy those proceeds accretively into another market where we see growth in a similar fashion. So a little too early to tell on Minneapolis, but it's likely that we would reduce our exposure there over time.

As we have no further questions in queue at this time, I'd like to turn the call back over to Mr. Smith for any closing remarks.

I appreciate everyone joining today. I want to take the opportunity to thank my colleagues and fellow Piedmont placemakers for their hard work and efforts over the past really few years that have resulted in the sector-leading growth that we're witnessing this year.

I also want to invite investors to join us at the Wells Fargo Conference next week. If you happen to be attending that and/or in the June NAREIT meeting in New York City, if you want to sit down with management and hear more about the growth story and what's unfolding in the office sector. Thank you, everyone, [indiscernible]. Have a great day.

Thank you. Ladies and gentlemen, this does conclude today's call, and you may disconnect your lines at this time, and we thank you for your participation.

Greetings, and welcome to the Piedmont Realty Trust, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] And please note, this conference is being recorded.

I will now turn the conference over to your host, Ms. Laura Moon, Chief Accounting Officer for Piedmont Realty Trust. Ma'am, the floor is yours.

Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's Fourth Quarter 2025 Earnings Conference Call. Last night, we filed an 8-K that includes our earnings release and unaudited supplemental information for the fourth quarter of 2025 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 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 impact 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 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 fourth quarter and annual 2025 operating results. Brent?

Thanks, Laura. Good morning, and thank you for joining us today as we review our fourth quarter and annual 2025 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 complement of our management team available to answer your questions.

Before I jump into the quarter, I just want to take a minute to reflect on 2025 and Piedmont's leasing accomplishments this past year. Momentum in the national office market clearly shifted in the latter part of 2025 to the point where several independent research reports state we've been -- we've seen peak vacancy for this cycle. Rising office mandates and intended to brought large space consumers back into expansion mode with a hyper focus on best-in-class assets.

The number of Fortune 100 companies that require a 5-day work week in the office has soared to about 55% compared with 5% reported 2 years ago, according to the latest JLL survey. Piedmont has experienced this large user phenomenon as well, having completed 28 full floor or larger transactions in 2025 compared to an average of 9 for the previous 4 years. Demand also appears to be spreading geographically. According to Cushman & Wakefield, absorption was positive for the year in 50 markets, that's up from 33 markets in 2024 and the highest number of markets with positive absorption for a full year since 2019.

On the supply side, sublet availability has declined from its peak in early 2024 and just 4 million square feet of new office space was delivered in the fourth quarter, the lowest since 2012. In fact, CBRE noted that 2025 was the first year that inventory removals, that being demolitions or conversions, outpaced new completions since they began tracking the market in 1988. So there is virtually no construction underway in our markets.

Demand continues to be robust and true trophy assets have little space available. This reduction in supply is beginning to rebalance markets. CBRE noted that even though 2025 net absorption was still meaningfully below the 30-year average, the steep drop-off in new supply more than compensated to drive the first year-over-year decline in vacancy in over 5 years. These tailwinds translated into a record amount of total leasing volume for Piedmont in 2025.

We leased 2.5 million square feet or approximately 16% of the portfolio, the most leasing we have completed in over a decade and 1 million square feet ahead of our original 2025 leasing guidance. In fact, over the last 5 years, we have leased approximately 75% of the portfolio or about 11.6 million square feet, an incredible accomplishment by the team and a testament to the fact that our Piedmont placemaking strategy is working.

Furthermore, over those 5 years, the portfolio has generated positive cash same-store NOI growth each and every year. That is an incredible operational achievement given the challenging office sector. And in 2026, this metric will accelerate as 2025's historic leasing success translates into 2026's meaningful same-store NOI growth, driven by a material increase in commenced occupancy, which Sherry will cover in a moment.

Our portfolio of recently renovated, well-located amenity-rich properties, combined with our hospitality-infused service model has also allowed us to materially increase rental rates across our portfolio. And with asking rents still ranging from 25% to 40% below rates required for new construction, Piedmont is well positioned for sustainable earnings growth in 2026 and beyond.

Turning to fourth quarter results. We completed approximately 679,000 square feet of leasing, almost 70% of which related to new tenants and contributing to a year-end lease percentage of 89.6%, an increase of 120 basis points over the course of 2025. Additionally, our out-of-service portfolio comprised of 2 projects in Minneapolis and 1 in Orlando was 62% leased as of the end of the year, a phenomenal accomplishment by the team as these projects were essentially vacant at year-end 2024.

The majority of leases for these projects will commence during 2026, contributing meaningfully to FFO, and we anticipate that they will reach stabilization and rejoin the normal operating portfolio by the end of 2026 or very early 2027. Rates also continued their upward trajectory during the fourth quarter with rental rates on leases executed during the quarter for space that has been vacant less than a year, increasing approximately 12% and 21% on a cash and accrual basis, respectively.

Our backlog of uncommenced leases remains strong with almost 2 million square feet of leases representing $68 million of future annualized cash rents. Substantially all of those leases will commence by the end of 2026. As George will touch on, leasing momentum remains strong, including over 200,000 square feet of leases already signed in 2026 and a robust pipeline with over 600,000 square feet currently in the legal stage.

Sherry will introduce our 2026 guidance in a moment, but big picture, it is clear that the occupancy trough of Piedmont's portfolio occurred in the fourth quarter of 2025, and we believe the broader macro factors that I discussed along with our successful portfolio repositioning and elevated service model will drive mid-single-digit organic FFO growth in 2026 and 2027.

Last point before I turn it over to George, as we announced last week, Alex Valente has been promoted to Co-Chief Operating Officer and will be working alongside George to lead new operational initiatives across the firm as well as oversee almost all of our Eastern portfolio. I believe most of you have met Alex at some point during his 20-year career with Piedmont, and I share my enthusiasm and congratulations for his new role.

With that, I will now hand the call over to George, who will go into more details on the leasing pipeline and fourth quarter operational results.

Thanks, Brent. Durable demand for Piedmont's modern, highly amenitized workplace environments generate exceptional operating results for the fourth quarter. Leasing velocity continued at a vigorous pace with 60 transactions completed for nearly 700,000 square feet and very close to record levels, which have experienced over the past 2 quarters. New deal activity was the dominant theme again, accounting for 69% of total volume with 54% of that activity filling current vacancy.

As Brent mentioned, large users are driving new deal activity to record-breaking levels with 10 full floor or larger transactions executed this quarter and another 6 either executed or in the late stage. Nearly 90% of new leases signed will begin recognizing GAAP rent in 2026. It's also gratifying to see food and beverage operators appreciate the vibrancy and foot traffic around our well-located assets and within our hospitality-inspired common areas, which this quarter attracted 2 more F&B deals, further strengthening and differentiating our offerings.

Our weighted average lease term for new deal activity was approximately 9 years and consistent with previous quarters. Longer lease terms are essential for justifying the capital investment and upgrading to today's office suite environment. As we've experienced now for 6 straight quarters, expansions exceeded contractions largely to accommodate customers' organic growth.

Our retention rate remained high at 63%, a positive testament to Piedmont's brand. Impressively, our team retained 4 large subtenants on a direct basis for nearly 100,000 square feet with strong NERs and a significant increase in sublet to direct rents of approximately 35%. Once again, Atlanta and Dallas were the driving forces behind strong lease economics as the portfolio as a whole posted a 12% and 21% roll-up or increase in rents for the quarter on a cash and accrual basis, respectively. Notably, our average accrual base roll-up over the past 8 quarters is an impressive 17%.

Our overall weighted average starting cash rent of $42 per square foot was essentially unchanged from the previous quarter, though we do anticipate more rental growth as our portfolio crosses into the low 90s lease percentage. Leasing capital spend was $6.12 per square foot, down $0.46 per square foot from our trailing 12 months. Net effective rents came in at around $21 a foot, in line with the previous quarter. Atlanta is our most productive market by far during the fourth quarter, closing on 23 deals for 336,000 square feet or half of the company's overall volume with new leasing transactions accounting for over half of that amount.

At Galleria on the Park, our local team landed a corporate headquarter relocation requirement for 48,000 square feet and 10 years of term. A new run rate high was achieved on this transaction and along with limited vacancy at this project, serve as a catalyst to push asking rents to $48 a square foot, up from $40 a square foot 12 months ago. Also noteworthy was backfilling another floor, the Eversheds lease at 999 Peachtree that expires in the second quarter of 2026. I'd like to point out that over the course of the past year, 999 has captured 9 new deals for 130,000 square feet, consistently achieving some of the highest economics in our portfolio and is now 93% leased. We remain highly optimistic in addressing the last few Evershed's floors given the level of interest we're seeing.

Orlando also stood out this quarter, capturing 10 deals for 125,000 square feet or 18% of company volume. Three more floors were leased at our 222 Orange redevelopment project, boosting lease percentage up from 46% to 77%. Asking rates are now at $42 per square foot versus $37 per square foot from 12 months ago. One of those deals completed there was a headquarters relocation from the Midwest and the other regional office for a global construction company that moved from the suburbs. Both clients highlighted our vibrant environment as a key differentiating factor in their final decisions.

Piedmont's other redevelopment projects, both located in Minneapolis, are also attracting a number of additional new clients. Our out-of-service portfolio, which is 62% leased at year-end, is nearly 80% leased, inclusive of legal stage transactions with a substantial majority commencing by year-end. I'd also like to touch on our 2 largest 2026 expirations. In Dallas, we're making good progress on retaining Epsilon and attracting new clients for almost half of that expiration. Epsilon currently leases the entirety of 1 in our 3-building Las Colinas Connection project, which is currently 99% leased. The project is very visible and accessible at the crossroads of 2 major highways, much like the excellent locational qualities of our Galleria towers.

Although we don't intend to take this asset out of service in order to convert it to a multi-tenant environment, we intend to apply the same proven Piedmont renovation strategy that has worked so well in our other markets. Once construction begins, we typically see a spike in interest and demand. With virtually no large high-quality blocks of competitive space available, we're excited about our near-term leasing prospects and achieving new rental highs in that submarket.

At 60 Broad, we're excited to announce that we've recently affirmed deal terms with the new administration for the City of New York lease. A deal of this size will require other internal city reviews and a public hearing process before the transaction can be fully executed, but we are encouraged by this important step and expect that we will have an executed lease by later this year. The Piedmont formula of attracting and retaining clients worked extremely well in 2025, and we're confident of continued success in 2026.

Our leasing pipeline remains robust even after 3 straight quarters of record new leasing activity and is now nearly 600,000 square feet in the legal stage, including 6 single floor or larger new deals. That said, with very few large blocks of space available, outstanding proposals have declined moderately in total at a combined 1.8 million square feet for our operating and redevelopment portfolios. Though demand is strong, the course of 2026 quarterly net space absorption is dependent on the amount and timing of scheduled expirations.

Our supplemental report shows approximately 9% of the portfolio rolling in 2026. The vast majority of the role relates to the Eversheds, Epsilon and New York City leases that I just reviewed with the second quarter, the most impacted. Aside from these 3 leases, there are negligible expirations remaining for 2026. That said, we are still projecting positive net absorption overall and ending the year around 90% for our total portfolio, including both our in-service and our currently out-of-service redevelopment portfolio.

I'll now turn the call over to Chris Colley for his comments on investment activity. Chris?

Thank you, George. 2025 was a pretty quiet year for Piedmont on the transactions front. The team did close on a small disposition outside of Boston, removing an older slow growth and capital-intensive assets from the portfolio. We will continue to seek ways to optimize and elevate our holdings throughout 2026. As I have mentioned, we have 2 land parcels under contract and both are going through very time-consuming rezoning processes.

So the timing is somewhat at the mercy of the city and county officials. We are expecting to close one in the middle part of this year and the other at the end of 2026 or possibly in the first quarter 2027. If both were to close, they would generate a little over $30 million in gross proceeds and will ultimately provide additional retail amenities for our adjacent office projects. We continue to actively evaluate and underwrite potential acquisition opportunities. We are optimistic that we will return to a more active capital recycling program in 2026.

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 fourth quarter of 2025 was $0.35 versus $0.37 per diluted share for the fourth quarter of 2024, with the decrease attributable to the sale of 2 projects during the year ended December 31, 2025, and higher net interest expense as a result of refinancing activity during that same period. These decreases were partially offset by growth in operations due to higher economic occupancy and rental rate growth. AFFO generated during the fourth quarter of 2025 was approximately $18.7 million.

Turning to the balance sheet. We completed some very important refinancing activity during the fourth quarter. We issued $400 million in aggregate principal amount of new bonds and used the net proceeds to repurchase approximately $245 million in principal amount of our 9.25% 2028 bonds. The remaining proceeds from the new issuance were used to pay down the outstanding balance on our revolver.

This refinancing activity, combined with the open market purchases of some of our higher coupon bonds that we completed earlier in the year, will save us approximately $0.04 a year on an annual basis. As a result of this activity, we had approximately $550 million of capacity on the revolver as of year-end. And as we've highlighted previously, we currently have no final debt maturities until 2028.

We continue to think creatively as we evaluate balance sheet management options to extend and smooth our maturity ladder and continue reducing our interest costs. Based on the current forward yield curve, we expect all of our unsecured debt maturing for the remainder of this decade could be refinanced at lower interest rates and thus be a tailwind to FFO per share growth.

At this time, I'd like to introduce our 2026 annual core FFO guidance in the range of $1.47 to $1.53 per diluted share. an increase of $0.08 per share at the midpoint over 2025 results. To summarize, the guidance reflects an increase in property NOI in the range of $0.08 to $0.13 a share and decreased interest expense of $0.01 to $0.02 a share. Note that the $0.04 of interest savings due to the bond refinancing that I previously mentioned is partially offset by the reduction in capitalized interest as our out-of-service portfolio comes online.

In addition, the guidance includes a $0.01 decrease in NOI due to 2025 dispositions and slightly higher G&A and share count. We expect another strong year of leasing activity in the 1.7 million to 2 million square foot range, including, as Brent mentioned, stabilization of our out-of-service portfolio by year-end and resulting in a year-end lease percentage of approximately 89.5% to 90.5% for the entire portfolio and mid-single-digit same-store NOI growth on both a cash and accrual basis.

It is worth noting that our projected commenced/-occupied percentage will increase approximately 400 basis points from 81% at year-end 2025 to 85% at year-end 2026, fueling our earnings growth. Please note that this guidance does not include any speculative acquisitions, dispositions or refinancing activity. We will adjust guidance if and when those types of transactions occur. We have included an annual FFO roll forward and outlined our assumptions in the earnings release section of the supplemental to assist with your modeling and analysis.

And with that, I will turn the call over to Brent for closing comments.

Thank you, George, Chris and Sherry. I am proud of the many accomplishments by the Piedmont team during 2025, and I'm excited to see the hard work of so many start to contribute to FFO growth in 2026. With quality space becoming harder to find and the cost of new development at all-time highs, we believe that our portfolio of recently renovated, well-located hospitality-inspired Piedmont places provides a desirable cost-efficient alternative to new construction and will continue to drive leasing volume and rental rate increases in 2026.

With that, I will now ask the operator to provide our listeners with instructions on how they can submit their questions. Operator?

[Operator Instructions] Our first question is coming from Nick Thillman with Baird.

Congratulations, Alex. Maybe just digging a little bit more on just leasing overall on the 1.7 million to 2 million square feet that's in there. I guess what's embedded in that on renewal versus new leasing? Obviously, the chunkier deals in there, it seems like from a retention standpoint, you're somewhere in between 25% and 80% retention. So maybe thoughts on retention. And then overall, what's embedded there on the new lease assumption as well?

Nick, George here. Thank you for joining us. I mean the quick answer is it's roughly 50-50 between new activity and renewal activity.

I think in regard -- sorry, this is Brent. In regards to retention, as we've noted before, we're going to be retaining New York City for substantially all the space. Evershed is a vacate and Epsilon will renew and we have some additional tenancy that roughly means we'll get about half the space back. If you think about our overall expiries for 2026, it's about 9.5% of the portfolio. And those 3 make up, call it, almost 6% of that. So really, what we're left with is "unknowns", we feel very good about renewal probability. I would say what we've been trending to over the last year, call it, 65% retention would be expected for that remaining portion of the portfolio to give you some perspective around that.

That's very helpful. And then I guess if I look, good momentum overall on the leasing front. Is there somewhat of a cap you guys can do from a lease percentage? I look at some of where the vacancies, but it seems that there's a little bit more structural vacancy. I look at like your D.C. portfolio, for example, is rough 25% of your vacancy in your operating portfolio. How should we think about how far a lease percentage can move with -- given there's still some select pockets of vacancy in some of your weaker markets overall?

Nick, yes, that's a great question and something that we get asked frequently. We have created really unique environments that we believe we can continue to lease up what will be historically challenging space, lower in the building, maybe a few in the parking garage, et cetera. But for instance, our Galleria project, the environment is so unique that we continue to feel that we're going to be able to lease those projects up beyond 95% leased. well into the high 90s. But you do point out that we do have some challenging vacancy elsewhere in the portfolio.

We have a building in Boston that's been a little bit slower for absorption at 25 malls. And D.C. continues to be a challenge in the district. But we are seeing more green shoots in Northern Virginia with good activity there that we think will be an absorption opportunity. And then, of course, our out-of-service portfolio, as we've alluded to, continues to be very well received in the marketplace, and we'll continue to drive absorption there. So if we take that aggregate perspective, we're guiding 89.5% to 90.5% leased this year.

George and I see no reason why we can't take the entire portfolio upwards of 91%, 92% leased, which is where we were prior to the pandemic. And frankly, I'm of the belief that we continue to see the momentum, we could even drive beyond that 92% level in the years ahead. It will take us some time to get there. But our product is uniquely positioned. It's been amenitized. It's well located and its price point is very compelling, and that continues to drive both large and small users of our projects.

I appreciate the commentary, Brent. And then maybe just a final one for Chris on just overall transaction activity, what you guys are targeting for dispose of what type of product you would like to exit in '26 and maybe how the bidder pool on select assets has changed over the last couple of months?

Nick, this is Brent. Chris is a little bit under the weather, so I'm going to pinch hit here on this one. As you know, we do have and have had land parcels in the market that are under contract. Those are continuing to progress well. Otherwise in the disposition bucket, we did note that we had a building in D.C. that we took brought into the market. I would say receptivity was not strong just because I think the challenges of that overall market as a whole. So we're going to continue to hold on to that for the near term.

We do consider our Houston assets noncore, and we'll continue to look to monetize those as well as if we are -- if we conclude the 60 -- sorry, the New York City lease at 60 Broad, that would be a candidate to monetize a part of that asset here towards the end of '26 as well. Again, our guidance does not contemplate any of those potential dispositions, land sales or otherwise, and we'll update accordingly. But we do see that opportunity to rotate some capital in the second half of the year.

[Operator Instructions] Our next question is coming from Dylan Burzinski with Green Street.

Maybe just touching on the demand environment. Obviously, it's very robust across your guys' portfolio. Can you kind of talk about some of the things driving that activity? Just thinking about the job market, things still seem to be a little bit shaky. So just sort of curious what you think is causing this very robust demand environment across your guys' portfolio today?

Dylan George here. Look, I think some of the characteristics that we've seen for the past, I would say, 2 years is certainly intensifying for us in our portfolio. The decision for a lot of these users to come back and upgrade their overall office experience, that seems to be the ones that's driving our large deal flow. Also the conviction around the workplace strategy, right? I think we heard earlier that the number of Fortune 500 companies that are coming back with higher mandates and actually supporting those mandates is causing additional organic growth in our respective submarket.

I would say that when you look at our existing portfolio, the portfolio is quite dynamic. You have a lot of users that continue to expand from a business plan perspective. As I mentioned earlier in this conversation, we had 11 expansions versus 3 contractions, and we're seeing that from a financial services perspective as well as insurance, accountants and law firms just across the board.

I'd add to that. I think as we've talked about, our portfolio is uniquely positioned in that it has been renovated and amenitized and is at a very effective price point for a lot of businesses. So I feel like our addressable market is much wider than those that are just looking for trophy quality space. And that trophy quality space is very full, almost no vacancy.

As we alluded to in our prepared remarks, no development, really, we won't see any new assets until the end of the decade. So we're right in the sweet spot of a lot of demand from both small and big users from across industries. And again, our buildings are also not designed heavily for tech. We've never relied on tech as an incremental lessor absorption in our portfolio. And right now, given the softness in tech expansion and growth, we're not inhibited by that.

And we continue to see all the industries that George alluded to grow and need quality office space, and that's going to help us push rental rates again this year meaningfully across the portfolio, but particularly in our Sunbelt markets.

I guess that's a good segue to my next question. I mean, how much do you think rents can grow across the Sunbelt portfolio over the next, call it, 1, 2 years? Are we talking upwards of potentially 20% rent growth on a cumulative basis? Just sort of curious how we should be thinking about that here given that backdrop you just described.

Yes. No, I think I would highlight a couple of points around our growth. One, as we alluded to, we have still a lot of lease-up and commencement activity in our portfolio to drive earnings growth. We've also got a pretty incredible mark-to-market. Yes, we've continued to push rental rates, in some cases, 20% in 2025 alone. But all those leasing leases we did in '23 and '24, which was over -- approaching almost 4.5 million square feet are at rates that are now 20%, 25% below current signed rents in our projects. So we think there's a meaningful mark-to-market in that Sunboatelt portfolio, particularly of 20% to 40%.

And then just where we see rents going today with new construction cost rents at $70, $80 gross in many of our markets now, and in-place rents at our projects anywhere from $45 to $60 gross, we think there's still a meaningful 25% movement in our own rental rates here over the next year, given it's very tight trophy level and new development continues to increase in cost. So we think those 3 legs really do provide us a unique path for growth between now and the end of the decade from just lease-up, organic mark-to-market and then pushing our own rental rates.

As we have no further questions in the queue at this time, I would like to turn the call back over to Mr. Brent Smith for any closing remarks.

I want to thank everyone who joined us today on the call, but I also particularly want to thank my fellow Piedmont employees for an outstanding 2025 execution and really over the last 5 years to reposition, rebrand and reinvent Piedmont into the machine -- growth machine that it is today. It sets us up for 2026 and beyond.

For those investors who'd like to meet with us and talk with management, we will be at the Citi Group Conference in Hollywood, Florida, March 2 through the 4. And I want to wish everyone a happy Valentine's Day. Actually, Valentine's Day is the week we have the most engagement in our portfolio. We'll show our clients the love, if you will. And I hope everyone has an enjoyable week ahead. Thank you. Have a good day.

Thank you. Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's third quarter 2025 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 third quarter of 2025 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 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 revenue 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 third quarter 2025 operating results. Brent?

Thanks, Laura. Good morning, and thank you for joining us today as we review our third quarter 2025 results. In addition to Laura, on the line with me this morning are George Wells, our Chief Operating Officer; Chris Kollme, our EVP of Investments; and Sherry Rexroad, our Chief Financial Officer. We also have the usual full complement of our management team available to answer your questions.

After nearly 4 years of steady losses, U.S. office demand turned around in the third quarter. According to CoStar's data, about 12 million more square feet of office space was occupied than returned to landlords in the third quarter, the first positive figure since late 2021. More impressive was that it was also the largest total since the second quarter of 2019. The broader leasing data continues to validate what Piedmont has been experiencing on the ground. Pent-up demand is resulting in record levels of leasing across the Piedmont portfolio. In fact, 5 of our operating markets experienced positive absorption with Washington, D.C. and Boston being the exceptions.

In addition, new tenant leasing velocity has materially strengthened in 2025. The third quarter's total square footage leased on new agreements in the United States, excluding renewals, is estimated to have reached about 105 million square feet and is now within 10% of the 2015 to 2019 national quarterly average of about 115 million square feet. No doubt, after a challenging 4 years, the office sector is turning the corner.

One explanation for this sector shift is a surge in large tenant leasing. The limited availability of large blocks of premium space typically sought by major occupiers and corporate tenants is accelerating the decision-making process. Despite generally slow hiring and an uncertain economic outlook, the upward trend in leasing volume signals that tenants still have a strong appetite for office space. With the supply pipeline contracting and prime availability is becoming scarce, more demand continues to chase a rapidly reducing supply landscape.

According to JLL, the cycle of footprint reductions is tapering off as today's users of over 25,000 square feet are cutting just 2.2% of their footprint at renewal. Inventory for high-quality space, either new or renovated is increasingly scarce and office construction has been reduced by an additional 20% from the second quarter with new supply not a factor in most of our markets.

These market dynamics have limited high-quality supply and growing demand are allowing Piedmont to materially increase rental rates across its portfolio. And with asking rents still ranging from 25% to 40% below the rates required for new construction, we believe existing high-quality office has a long, long runway for rental rate growth. Within the Piedmont portfolio, which comprises newly renovated, highly amenitized buildings paired with our hospitality-driven service model, we are experiencing multiple tenants competing for full floor spaces, providing the backdrop for Piedmont to increase rental rates at our projects by as much as 20% during the year.

By way of example, at our Galleria on the Park project in Atlanta, we executed our first $40 per square foot gross rental rate at the end of 2024. In this quarter, we completed numerous transactions in the mid-40s and have increased rents now to $48 per square foot. Across our portfolio, our hospitality-driven environments have allowed us to increase rental rates to such an extent that we now estimate that more than half the portfolio's in-place rents are at least 20% below market.

Our strategy to strengthen the Piedmont brand within the tenant community as the landlord of choice is driving more than our fair share of leasing demand, and it's been reflected in our transaction volumes. Having now leased over 10% of the portfolio over the last 2 quarters, more than 1/3 of the portfolio in the last 2 years and an astounding 80% of the portfolio since the beginning of 2020, equating to almost 12 million square feet since the pandemic.

Delving into the numbers, we are thrilled with our third quarter results, exceeding consensus FFO by 3% and achieving record levels of leasing. Most exciting is that all the leasing the team has accomplished this year is positioning Piedmont for sustainable earnings growth. Our backlog of uncommenced leases have reached almost $40 million on an annualized basis and substantially all of those leases will commence by the end of 2026.

Piedmont executed approximately 724,000 square feet of total leasing during the quarter, including over 0.5 million square feet of new tenant leases. This new tenant leasing represents the largest amount of new tenant leasing we've completed in a single quarter in over a decade and brings our total year-to-date leasing to approximately 1.8 million square feet. Importantly, over 900,000 square feet of our 2025 new leasing relates to currently vacant space, and it's likely this number will reach over 1 million square feet by the end of the year. That level of absorption equates to $0.10 to $0.15 per share of incremental annualized earnings, an indication of the growth we believe our portfolio is poised to experience.

Of note, the 3 largest leases completed during the third quarter related to our out-of-service Minneapolis portfolio, where we're experiencing incredible demand, as George will talk more about in a moment. Our leasing success during the third quarter pushed our in-service lease percentage up another 50 basis points quarter-over-quarter now to 89.2%, bolstering our confidence in achieving our year-end goal of 89% to 90% leased.

While not reflected in our lease percentage, our out-of-service portfolio, again, comprised of 2 projects in Minneapolis and 1 in Orlando has experienced astounding market receptivity as differentiated amenitized workplaces continue to garner the majority of leasing in the market. At the end of third quarter, Piedmont's out-of-service portfolio stood at over 50% leased and is approaching 70% leased, including those that are in legal stage today.

We couldn't be more excited that the leasing pipeline and continued tenant demand for our buildings positions both the in-service and out-of-service portfolios to achieve 90% leased next year. Furthermore, we anticipate the out-of-service assets will reach stabilization by the end of 2026.

In addition to the overall volume, third quarter leasing, as expected, resulted in favorable economics with rental rates for space vacant less than a year, reflecting almost 9% and just over 20% roll-ups on a cash and accrual basis, respectively. In fact, as a result of the repositioning of the portfolio, in the past 2 years, Piedmont leased over 5 million square feet with rental rate roll-ups of approximately 9% and 17% on a cash and accrual basis, respectively.

Finally, cash basis same-store NOI also turned positive this quarter as some previously executed leases began to reach the end of their abatement period. With over $35 million of annualized revenue currently in abatement and due to start paying cash in 2026, we expect same-store cash metrics to continue to improve. As George will touch on, leasing momentum remains strong, including over 150,000 square feet of leases signed during the month of October and a robust pipeline with approximately 400,000 square feet currently in the legal stage.

I cannot emphasize enough that the broader macro factors, along with our successful portfolio repositioning and elevated service model has and should continue to drive Piedmont's ability to grow FFO organically. We're still on track to meet or exceed our 2025 financial and operational goals with confidence in our ability to deliver mid-single-digit FFO growth or better in 2026 and 2027.

Before I hand the call over to George, I want to mention that we have once again achieved a 5-star rating and Green Star recognition from GRESB, placing us in the top decile of all participating listed U.S. companies for this prestigious recognition. I hope that you'll take a moment to review our recently published corporate responsibility report, highlighting the team's hard work and many accomplishments that went to achieving this record. The report is available on our website under the Corporate Responsibility section.

With that, I will now hand the call over to George, who will go into more details on the leasing pipeline and third quarter operational results.

Thanks, Brent. Strong demand for Piedmont's well-located hospitality-inspired workplace environments generated exceptional operating results for the third quarter. A record 75 transactions were completed for over 700,000 square feet, well above our historical average for the second quarter in a row. New deal activity surged, accounting for 75% of total volume and topping last quarter's record amount. Like last quarter, large users are driving new deal activity to record-breaking levels with 9 full floor or larger leases executed this quarter with another 6 large deals in late stage.

Around 15% of new leases signed this quarter will begin recognizing GAAP revenue this year with the remaining 85% throughout 2026. Our weighted average lease term for new deal activity stayed consistent at approximately 10 years. As we've experienced now for 5 straight quarters, expansions exceeded contractions largely to accommodate customers' organic growth. Atlanta and Dallas were the driving forces behind strong economics. As Brent mentioned, we posted a 9% and 20% roll-up for the quarter on a cash and accrual basis, respectively.

Our overall weighted average starting cash rent of nearly $42 per square foot was essentially unchanged from the previous quarter, though we do anticipate more rental growth as our portfolio crosses into the low 90s lease percentage. Leasing capital spend was $6.76 per square foot, up slightly when compared to our trailing 12 months as this quarter's leasing volume was dominated by new tenant activity where leasing concessions are generally higher than renewals.

Net effective rents came in at $21.26 per square foot, reflecting a 2.5% increase from the previous quarter. Sublease availability held steady at 5% with a modest amount expiring over the next 4 quarters. Atlanta was our most productive market during the third quarter, closing on 27 deals for 250,000 square feet or 1/3 of the company's overall volume with new lease transactions accounting for 75% of that amount.

Most notable, our local team mitigated a large fourth quarter 2025 expiration at Medici with a 35,000 square foot headquarter requirement and achieved the highest cash roll-up for the quarter at 30%. Medici is uniquely located within a luxury mixed-use development catering to wealth managers and ultra-high net worth family offices. We anticipate additional cash roll-ups there, 20% or more as another 40,000 square feet is expiring soon, and our pipeline remains strong.

At 999 Peachtree in Midtown, we continue to experience encouraging activity to backfill Eversheds's remaining 150,000 square foot expiration in May of 2026. We currently have 4 proposals outstanding, which total 125,000 square feet at significantly higher rental rates. 999 Peachtree has set a new standard for repositioning assets in Midtown Atlanta, and we remain confident in our ability to backfill this known vacancy at very favorable economic terms.

Minneapolis once again was our second most active market, capturing 8 deals totaling almost 200,000 square feet, the vast majority of which was new deal flow into our redevelopment portfolio. The Piedmont redevelopment strategy underway at Meridian and Excelsior is generating tremendous interest with another 125,000 square feet in the proposal stage. Our team has moved asking rental rates up another 5% from last quarter with rates now in the low 40s up 15% from pre-redevelopment phase at the beginning of the year and the highest within its submarkets.

We continue to be the clear landlord of choice in the Minneapolis suburbs as many once competitors surrounding projects are now either dated, uninspiring or financially impaired. Meanwhile, downtown is experiencing noticeably more foot traffic as 2 of Minneapolis' top 10 employers, Target and RBC Wealth Management recently increased their mandates to 4 days a week. Deal flow at our U.S. Bancorp is growing, and we're close to signing a new deal that would backfill 1 of the 3 floors being vacated next quarter.

Dallas is quite active for us as well with 16 transactions for 156,000 square feet. Most notable was a 56,000 square foot deal with a global data center service provider in one of our 1.5 million square feet Las Colinas portfolio, which has experienced a surge of leasing activity for the year, moving up from 82% at the beginning of the year to 91% at the end of the third quarter with another 35,000 square feet of deals close to being signed.

Additionally, we're exchanging proposals to renew Epsilon and the subtenants for roughly 50% of its footprint. Our local team has pushed asking rates there up 15% to 20% over the last 6 months. Overall market conditions in Las Colinas are improving rapidly and led all Dallas submarkets in net absorption for the quarter and year-to-date. With Wells Fargo's 850,000 square foot new campus in Las Colinas being delivered this quarter and no other development underway, Piedmont is poised to see additional rental growth here over the next several quarters.

At 60 Broad, we continue to work with the Department of Citywide Administrative Services regarding New York City's long-term extension for substantially all of its space. Unfortunately, additional delays during the planning process will result in the execution of a potential lease to spill over into early 2026.

Coming back to the overall portfolio, we remain bullish about our near-term leasing prospects. Our leasing pipeline remains robust even after 2 straight quarters of record new leasing activity. And as Brett mentioned earlier, now has over 400,000 square feet in the late-stage phase with insurance, legal, accounting and financial services driving demand for new deals. Outstanding proposals remain steady as well, sitting at 2.4 million square feet for both our operating and out-of-service portfolios and comparable to last quarter's volume.

As I noted on our last call, we have seen a large uptick in full floor users ranging from 25,000 to 50,000 square feet across a wide range of industries and throughout most of our markets. Considering our leasing momentum and a modest number of expirations in the fourth quarter, we remain comfortable in achieving our lease percentage guidance of 89% to 90% for our operating portfolio.

Our redevelopment portfolio, which is on track to meaningfully contribute towards 2026 and 2027 FFO growth, saw its lease percentage spike for the second quarter in a row from 31% to 54%. Based on early and late-stage activity, we project this portfolio to reach 60% to 70% by year-end.

I'll now turn the call over to Chris Kollme for his comments on investment activity. Chris?

Thanks, George. As we have said for several quarters, we remain focused on pruning certain noncore assets throughout our portfolio. We are under contract on 2 of our land parcels. Both are contingent on time-consuming rezonings. So if these are approved, neither will close in 2025. We are actively marketing another small noncore asset that could potentially close around the end of the year. The rationale for this disposition is entirely consistent with recent sales.

There are no assurances that any of these will close, and as is our custom, acquisitions and dispositions are not included in any of our projections. On the acquisitions front, we are certainly seeing elevated interest in the sector among more traditional institutional investors. The debt markets continue to improve and differentiated office environments have proven their resilience and durability over the past few years. High-quality office is no longer redlined, and liquidity is growing in the sector.

Dallas, in particular, has seen a handful of sizable fully priced transactions over the past 6 months. We remain active in reviewing opportunities in Dallas and elsewhere. We will be disciplined and patient. Rest assured, our team is thinking creatively around compelling opportunities, including evaluating potential transactions alongside institutional capital partners. We do intend to put ourselves in a position to be more active on the transaction front in 2026.

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 third quarter of 2025 was $0.35 versus $0.36 per diluted share for the third quarter of 2024, with a $0.01 decrease attributable to the sale of 3 projects during the 12 months ended September 30, 2025, and higher net interest expense as a result of refinancing activity completed over the past 12 months. This was offset by growth in operations due to higher economic occupancy and rental rate growth.

As I have mentioned on the last several calls, our lease with Travel and Leisure in Orlando commenced in September and will contribute meaningfully to our fourth quarter results. AFFO generated during the third quarter of 2025 was approximately $26.5 million. It was a relatively quiet quarter from a financing perspective. However, as previously announced, we did amend our revolving credit facility and term loan during the quarter to remove the credit spread adjustment from the SOFR-based interest rates applicable to those 2 facilities, thereby lowering the all-in rate on each facility by 10 basis points.

As we've highlighted before, we currently have no final debt maturities until 2028 and approximately $435 million of availability under our revolving line of credit. We continue to evaluate balance sheet management options, including traditional bonds and hybrid instruments to smooth our maturity ladder and reduce our interest costs. Based on the current forward yield curve, we expect all of our unsecured debt maturing for the remainder of this decade could be refinanced at lower interest rates and thus be a tailwind to FFO per share growth.

To illustrate how powerful this tailwind could be, I'll use the example, if we were to refinance the remaining $532 million of our outstanding 9.25% bonds at current rates, we would generate approximately $21 million of interest savings and be $0.17 accretive to FFO per share. At this time, I'd like to narrow our 2025 annual core FFO guidance from a range of $1.38 to $1.44 to $1.40 to $1.42 per diluted share with no material changes to our previously published assumptions.

Please refer to Page 26 of the supplemental information filed last night for details of major leases that have not yet commenced or currently in abatement. As of September 30, 2025, the company had just under 1 million square feet of executed leases yet to commence and an additional 1.1 million square feet of leases under abatement that combined represent approximately $75 million of future additional annual cash rent, which will fuel the mid-single-digit future earnings growth that Brent mentioned earlier, although it does demand additional capital spend in the short term.

With that, I will turn the call over to Brent for closing comments.

Thank you, George, Chris and Sherry. Our portfolio of recently renovated, well-located hospitality-inspired Piedmont places continue to set the standard for the office market, helping us to drive leasing volumes to all-time highs. On that point, you may recall that we started 2025 with an operational goal to lease a total of 1.4 million to 1.6 million square feet, which was inclusive of approximately 300,000 square foot renewal by the New York City agencies.

Today, we reiterated our revised guidance of 2.2 million to 2.4 million square feet, but note that, that does not anticipate the completion of the New York City lease this year. In effect, we're on pace to lease 1 million more square feet than we anticipated at the start of the year, and much of that leasing was for currently vacant space, an astounding accomplishment I want to commend the Piedmont team for.

With office vacancy declining for the first time in years, quality space is becoming harder to find and new developments are becoming more expensive for occupiers. We believe that the recent investments that we've made in our portfolio, combined with our customer-centric place-making mindset will continue to set us apart in the office sector, enabling us to push rents to all-time highs across the portfolio and generate consistent earnings growth.

We will continue to concentrate our resources on driving lease percentage above 90% and increasing rental rates while opportunistically refinancing above-market rate debt to further drive FFO and cash flow growth.

With that, I will now ask the operator to provide our listeners the instructions on how they can submit their questions. Operator?[ id="-1" name="Operator" /> [Operator Instructions] Our first question is coming from Nick Thillman with Baird.

Maybe for Brent or George, you commented a little bit on just expansion versus contraction. So I just wanted to clarify, is that within the Piedmont portfolio when you're quoting those numbers? And then as you look at the new leasing and the strength there, has that been more new-to-market requirements? Or has that been market share gains in flight to the Piedmont portfolio? Just a little bit of color there would be helpful.

In my prepared remarks, Nick, I was referring that 2.2% with the JLL report noting that large users, 25,000 square feet or greater on the U.S. data set was reducing footprint substantially less. So that's that comment, not specific to our portfolio. But George can talk a little bit more to that. We are seeing more expansions than contractions for sure.

Thank you. It's amazing. It's been 5 quarters in a row we've had expansions. I mean this past quarter, we had 16 expansions versus 2 contractions for a net positive 40,000 square feet. But if you look at the totality for the past 5 quarters, looking at 55 expansions versus 15 for a net of about 120,000, 130,000 square feet. So the dynamics in our portfolio have been quite positive. And in terms of where new leasing activity is coming from, the second part of your question, Nick, I would say that it's mostly intra-market moves in terms of those users wanting to upgrade to higher quality space.

I think the exception to that might be Dallas, where we continue to see a robust inbound activity. Atlanta, a little less so, still up from where we were pre-pandemic, but Texas does seem to have a little bit more inbound and particularly Dallas.

And those larger requirements, the 25,000 to 50,000 square feet, are those -- if you look at what they're currently in place, what's the size change there? Is that a downsize? Or is it keeping the same sort of footprint? Just trying to get a better understanding of kind of larger tenant behavior. We're hearing about slowing hiring. Just -- I guess, how far are we along in the rationalization of just office utilization as you kind of look within the markets for larger usage.

This is George, again. Absolutely. Well, let me first hit this. We had -- last quarter, we had 15 deals that were 25,000 square feet or larger for aggregately about 800,000 square feet. And this quarter, we have in terms of proposals outstanding 18 that are fit that size. So it continues to grow within our overall portfolio.

I would say it's mixed. I mean in a couple of instances, we're hearing about some consolidations. In other words, companies wanting to create a cost to bring their employees back together for increased collaboration. In some other cases, it might be a small deduct, which is they used to justify moving to a higher quality space and paying higher rents.

I think that's one thing we continue to see within the marketplace is the desire to upgrade the quality of your space to bring your people back. And that means having an environment and an offering that is compelling. And that's where our renovations and what we've implemented across the portfolio in terms of our service model, while we're garnering our more than fair share of that leasing.

That's helpful. And Brent, you alluded to this runway you have for occupancy growth and mid-single-digit FFO growth at a steady state over the next 2 years. You guys touched a little bit on some of the larger expirations of the portfolio and the coverage you have there. But maybe anything over 100,000 square feet, you guys touched on the Piper, you touched on the Epsilon, you touched on 999. Anything else that we should be looking at as we kind of look at roll over the next 2 years?

I think from our perspective, the chunky ones, if you will, in 2026 are well known, which does give us the confidence to be able to look into '26, given the prior leasing success, even with those known move-outs to feel confident that there's going to be earnings growth next year. Unfortunately, office REITs were a battleship. It takes a lot to move. But when you do start going, the momentum can carry.

As we look ahead into '27, there are a couple of larger expiries. It's a little early to tell overall. They're in Atlanta, which is also our headquarters location and where we have the most depth in the market. So I feel very good about where we're positioned with those, but it's still 20, 24 months out for those. And so it's going to still take a little bit of time to get clarity, but we think we are well positioned for renewal.

[ id="-1" name="Operator" /> Our next question is coming from Anthony Paolone with JPMorgan.

Brent, just following up on just the conviction level that earnings will grow next year. I know you'll give more specifics when you actually provide guidance. But just wondering, do you think that comes by way of some of the debt refinancing that Sherry talked about potentially existing? Or do you think the core in and of itself can move higher?

Great question, Tony. And I want to clarify that is organic growth only within a static portfolio. It assumes no acquisitions, dispositions or refinancings. As you know, we don't have any debt maturities really for several years until 2028. But as Sherry noted on the call, we do have a pretty large embedded mark-to-market benefit if we were to refinance those bonds, which she outlined in her prepared remarks.

And we will capture that at some point between now and when those mature in '28. But rest assured, from a risk management perspective, the team is very focused on optimizing that transition from high-cost debt to lower cost debt. And what we've laid out in terms of FFO growth, again, is just from organic lease only. The comments that Sheri made is upside on top of what I described as operating growth.

Got it. And then maybe, Sherry, on the debt refinancing, what -- I guess, what are the gating factors to doing something there? Because, I mean, you kind of laid out the spread is pretty clear. Just what would it take to kind of go do something there?

Well, as we've discussed before, there are a variety of ways in which you can refinance the 9.25% bonds that are outstanding. You can do a purchase them in the market, you can do a tender or you can do a make-whole. There's no gating factors related to that, but there are processes in place and there are periods of time where you can or cannot be in the market. And so that's really kind of the variables that we'll be considering as we go forward.

The spread right now between the 9.25% and where we would refinance if we did alongside is about 400 basis points. And that's what's behind the math whenever we said, if you hypothetically could buy back all of them, that you would achieve an interest savings of about $21 million or $0.17 a share.

Got it. Okay. And then just last one, if I could. You kind of talked about being out in the market looking at potential deals out there and the liquidity coming back to office and so forth. I mean what does a typical acquisition that Piedmont might be looking at, at this point look like in terms of cash on cash, type of assets, going in occupancy versus maybe the opportunity? Just kind of what is the type of stuff you're looking at right now?

Great question, Tony. As we continue to canvass the market, not only the existing markets we're in, but as we've talked about in the past, select other Sunbelt markets where we would consider growing if we took a dot off the map elsewhere. We really see 2 buckets of opportunities within those markets. The first would be, I would call, an opportunistic set.

That's the situation where we've talked about in the past of looking for a partner, which we have identified several partners who would be looking for more like 20% IRRs or greater and really probably going in with a lower yield, higher vacancies and a significant amount of capital that needs to go into those. And so that's why we continue to think about a partner in that situation because it would be an earnings drag and an FFO drag and an occupancy drag to bring it in-house initially. But we always have a mindset if we're going to put any capital to work and our time and effort, it would be something we'd want to bring into the REIT over time.

And so those situations, we have looked at a few to swung at buying some debt on some situations didn't work out in that scenario. But we continue to work with those partners. I'd say that bucket right now, kind of comes and goes or off-market deals. But right now, I'd say it's in the $500 million range in terms of opportunity set that we're looking in that bucket. And then the other category would be more on balance sheet, what I would consider more value-add in nature, very similar to what we've done in our Galleria project in Atlanta or 999 in that it's going to be on balance sheet.

It's going to be a little bit lower IRR, probably call it mid-teens. You'd have an opportunity to go in that would probably be really close to where we trade, maybe a little bit below or a little bit above, but with more importantly, the opportunity to grow that yield by, call it, 300 basis points over a couple of years. again, through our leasing model, our service model and leveraging the platform to drive that value.

So they may start with GAAP yields in the 8.5% to 10% range and drive from there and cash might be, let's say, 50 basis points less. But those assets are going to be probably 70-ish percent leased, like I said, and give us a good opportunity to lease up. One thing that we do think is unique about the Piedmont story is while other groups may be chasing particularly private capital, long-term wall, brand-new assets, we do feel like there is a dearth of capital chasing well-located, good bones, but older vintage assets like a Galleria here in Atlanta, where we've had admit success or a 999.

And so those campus, large kind of unique ability to create your own environment interest us and then highly accessible, walkable mixed-use environments also interest us. And there are very good opportunities set around that bucket. I'd say right now, we're looking at roughly $800 million or so that I would characterize as that value-add on balance sheet component.

And unfortunately, right now, given our cost of capital, we're not able to move on those immediately, but we continue to keep them warm and continue to have dialogue so that when we do feel like we have a green light from the market to grow externally, we're prepared to do so in pretty short order.

[ id="-1" name="Operator" /> Our next question is coming from Dylan Burzinski with Green Street.

Most of my initial questions have been asked, but I guess just one quick one. In the past, you guys have sort of talked about taking some noncore assets to market. Just sort of curious where you guys are at in that process and if you're starting to sort of see capital market side of things clear up a little bit as the recovery story in terms of the fundamentals start to pick up here.

Dylan, thanks for joining us today. And in regards to dispositions, it's kind of -- it's tough. It's still challenging, honestly, given the mindset in the office sector that everybody deserves a deal. And if it's not 10 years of WALT and just built the last 4 years, I would say it doesn't price efficiently, which is great if you're buying assets, not optimal if we're trying to sell. But we continue to be focused on pruning, as you noted, the noncore assets that can sell into this market and/or just we don't have conviction that we'll have and be able to drive long-term value.

So we do have an asset in the district that we're in the market with. I would say we continue to feel like the district remains a challenging market that will not likely turn around in D.C. And so we will hopefully execute on that asset and continue to pair back our exposure in the district itself, still very much have conviction in Northern Virginia, and we're seeing good leasing velocity there and uptick in our assets in terms of absorption.

But the other markets that we would consider noncore are those where we have very few assets and we can't seem to grow and/or want to grow. And of course, that would be Houston, which has long-term WALT on one of the assets and then Schlumberger great credit in another. We're going to continue to look to dispose those in '26 as well. They've been in the market, and we'll reintroduce them again, hopefully in a more constructive environment.

But on that environment, it takes leasing really to give investors the conviction to underwrite an asset, vacant space roll in a constructive manner. And so what does give us positive, if you will, hope that we'll be able to execute on some of this in '26 is that we are seeing more leasing in our markets, and that should give a better underwriting conviction in terms of rates and absorption and not just underwriting vacant space stays there forever.

And then finally, we do have our asset in New York City, as we've noted, and that will likely be something we would look to monetize upon a long-term lease at that asset. The overall environment as well as improving, particularly for that asset in the debt capital markets. It would be a chunkier disposition. And so having the ability and you're seeing the strength right now in the secured debt markets will also improve execution, particularly on that New York City asset and when we monetize it.

[ id="-1" name="Operator" /> [Operator Instructions] Our next question is coming from Michael Lewis with Truist Securities.

I'm sorry if I missed this, but did you say why New York City was pushed back again? And with that lease expiration now kind of almost right on top of us, is there any reason for concern there that they might do something surprising, give back space or anything else?

Michael, it's Brent. Thanks for joining us today. Great question. We hadn't touched on it in specifics. And given it's a live transaction, I don't like to get into a lot of detail. But as we've noted on prior calls, and we are still very highly engaged with both DCAS, the Department of Citywide Administrative Services who runs the leasing process for the city. They're working with OMB. And of course, there's also 3 different agencies within that block. So there are a lot of moving pieces and groups that need to weigh in.

As we've noted on prior calls, though, it is a unique envelope that is their own entrance, their own elevator bank, a building within a building, if you would add, you would say. And so the other note would be downtown in Manhattan, there are very now a few large blocks, competitive buildings that we would historically have been competing with. Some of them have been converted to residential as well.

And so we feel like it's, I guess, not as much a concern as they would go elsewhere in lower Manhattan. And then the fact that there's an $8 million holdover penalty on top of their current rental rate that's on an annual basis. But if they do trip over into holdover, we reiterated to them as a public company, we will be upholding that in the pandemic, we were a little bit more immediate on that. Of course, if they renew, we're not going to enforce that. But it is a pretty heavy stick that also goes with the care of a building that really suits the agencies well.

We do recognize there is a new administration coming in. However, given the Department of Homeless and the other agencies there seem to be more geared towards helping the community, we think there is a strong likelihood that they will continue to stay engaged in this location. But at that point, that's all I can share, and we still remain very positive on a renewal sometime in the early part of '26.

No, that's helpful. And as far as the $75 million of cash rent that's kind of pending signed but not paying yet. You give a lot of great detail in the supplemental package, but there's a lot of detail. Could you -- at a high level, how should we think about that $75 million coming online, for example, what percentage of that might be might be paying by the end of the first half of '26 versus the back half? And can you just kind of, at a high level, kind of frame how that will flow through?

So Michael, thanks for your question. And the -- most of it is going to hit in the middle of the year. I recommend about 70% within 2026. And note that those numbers are annualized numbers. So I'm trying to see what other clarity I can give you. Does that help?

Yes. No, yes, that's helpful. And then just my last question.

I might add real quick -- sorry, Michael, I might add, you think about that $75 million, it's really split into 2 buckets, right? There's $40 million of yet to commence. And that's a pretty wide margin historically that we would say that would be 3% of the portfolio. It's now approaching, I think, almost 5% of the portfolio. And so we're expecting a lot of that, if you will, the $40 million commit next year more towards the middle of the year to the end. So we might realize roughly about $26 million of that $40 million within 2026 itself.

On the cash component, which is about $35 million, that's going to lead in on a similar pace as well. So again, $35 million is your annualized number, not all that's going to start paying cash next year. But on that same kind of ratio of about 60% of it, a little bit higher than that, say maybe 70% of it will be realized next year.

Got it. And then lastly for me, this might be beating a dead horse. You talked about all the office leasing demand. Given the jobs numbers, I guess, back when we used to get jobs numbers, but what we know about jobs numbers and then AI, there was a headline recently layoffs now at Amazon. I saw an article that said more layoff announcements this year in any year since 2000. Is some of the leasing velocity, is it just that REITs like yourself, you had more space to fill, and so that helps explain why there's more new leasing volume?

Or it sounds from your comments like it's really a stronger demand, just more space out there looking for a home. Any way to kind of reconcile those 2 things I just said, the jobs and the layoffs and everything that's happening in the broader economy with this -- what feels like a surge in office demand?

Well I'll start with that. Michael, this is George. It's interesting. We keep seeing announcements with layoffs. But as I kind of reconcile that to what we're seeing in our portfolio, we just -- I'm not seeing that affect us yet. And I get back to the comment that I made earlier, people are still looking to upgrade their space because collaboration and innovation just happens a lot quicker when you were working together.

So just to give you some statistics that supports that theme in terms of why we don't see a letdown at all in overall leasing. We talked about overall proposals earlier at 2.4 million square feet overall. That's quite comparable to what we've seen for the past several quarters. But most notable is 2/3 of that is for new space, right? And so that is amazing considering how much new leasing activity we've done for the past 2 quarters that we continue to backfill that pipeline.

And then looking even further out, the tour activity is an interesting early indicator of what's happening for demand in our portfolio. We did hit a low point in July for 34 tours, but that's kind of more seasonal than anything else. It recovered in August to 45 tours. September, 41 tours. And here we are sitting 27 days in October at 43 tours with 4 more days to go. So we're just not seeing it right now.

Getting to your point about Amazon, it is interesting. It's new information we'd like to absorb. But although we have a large hub in Dallas, for them. They lease a tremendous amount of space through WeWork in other submarkets, which are more on the short-term situation. So if I were to guess, I suspect that those short-term contracts in these co-working operations would probably be first to go.

And I'd add on that, Michael, really taken a step back, 2 things I think about our portfolio have linked to our success, and they're not just because we had more space available. The first is we don't lean in or have floor plate and buildings designed heavily for just tech use. It is much more of a professional services, fire, conducive amenity set, finish level, floor plate size, et cetera. And so as tech has pulled back from the -- being kind of the incremental lessor in a lot of markets, our assets have continued to perform because we were never beholden specifically to that group. As George noted, we do have tech in our portfolio, particularly in Dallas and Boston, but it's buildings that fit well for a law firm as well. And so that would be one factor.

I think the other one is if you look at our portfolio and our strategy of having great assets, amenitized location, but we don't cost as much as new construction. So if you're a firm, a national firm or a local kind of regional firm, if you want to create a presence, regional headquarters, et cetera, and you want it to be fabulous space to bring your people back, but you don't want to pay $65 to $80 gross, you come to a Piedmont building. And so we are much more appealing to a larger segment of the market, in my opinion, and I think the data set shows that. And that's why we also have had so much uptick into our assets.

And then you layer on the fact that a lot of landlords are kind of stuck in the capital structure that doesn't allow them to think creatively work with the clients and create the environment in the common areas that are necessary to lease space. So trophy is full and our set of assets are very compelling.

I'll give you one last anecdote. We are working our buildings in Minneapolis at Meridian and having great receptivity in the marketplace. A tenant toured that building before the renovations were completed about 4 months ago. end up going to new construction and entering a lease on that new construction, they did come back to us. We don't have that deal, but they are very compelled now to see the completed product and the fact that, that's a 30%, 40% discount to new construction rents that they are about to enter a lease into. And we'll see if we'll get that 60,000 square foot user.

But I think there's an opportunity to stag that because our environments are so compelling, we can compete with new construction, and we don't have to charge as much. And again, that goes to my point on our ability to push rate across a lot of the portfolio given we've done this investment, and we've got a service level that is truly differentiated, and it's not just that we have more available space.

I can't argue with those leasing results.

[ id="-1" name="Operator" /> As we have no further questions on the lines at this time, I would like to turn the call back over to Mr. Brent Smith for any closing remarks.

Thank you. I appreciate everyone joining us this morning. I do want to remind you of 2 important dates. First, this Friday, Happy Halloween to all those. And then the second is in December, we are going to be at the NAREIT event in Dallas on the 8th. We're going to hold an office tour where we'll be sharing and showing off all the success we've had in our Dallas Galleria project. We'll also have additional brokers and others from the investment community, giving their thoughts and insights on the office sector. So please join us, reach out to either Sherry or Jennifer if you're interested in joining that tour and discussion and dinner. Hope everyone has a great week. Again, thank you again.

[ id="-1" name="Operator" /> Thank you. Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time, and have a wonderful day, and we thank you for your participation.