Piedmont Realty Trust, Inc. 2026 Q3 Earnings Call

Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's third 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 third 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 third quarter 2026 operating results.

Brent? Thanks, Laura. Good morning, and thank you for joining us today as we review our third 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 phenomenal third quarter in operations, portfolio repositioning, and capital markets activity. First, customer demand for Piedmont places remained robust, fueling record-level leasing metrics. Second, capital recycling activities improved the quality and strategic positioning of the portfolio. Last, the $230 million exchangeable notes offering and subsequent redemption of the company's outstanding 2028 unsecured notes were accretive to earnings and cash flow. Diving into the quarter's results. Leasing was strong. We executed over 400,000 square feet of total leasing, with almost half related to new tenants.

As we've noted for the past several quarters, quality office space, especially large blocks, is becoming increasingly scarce as historically low construction deliveries and ongoing conversions have reduced total office inventory, creating increasingly tight availability for high-quality space and supporting broader landlord pricing power. Piedmont's portfolio is directly benefiting from a scarcity of unique, differentiated premium office environments. Some trends we are witnessing in our portfolio that emphasize the dwindling availability of high-quality office space. First, the number of lease expansions is increasing. Existing customers with renewal dates as far as 2030 are seeking early renewals. More existing customers are exercising their ROFO rights to block new tenants leasing so they may expand.

These are indication that customers are recognizing the current and forecasted conditions, that quality office is in high demand, supply is shrinking, and economic terms are shifting to the owner's benefit. Piedmont is taking advantage of these market dynamics, pushing net effective rents after CapEx to all-time highs, reaching $29 a foot for the first time during the third quarter, an increase of more than 30% over the trailing 12-month average. The growth is top-line driven as we continue to achieve higher rental rates across our properties. Piedmont's differentiated assets achieved cash and accrual leasing spreads for the third quarter of 26% and 35%, respectively, the second highest in the company's history, and are a further testament to the positive rental rate growth embedded in the portfolio.

With our current asking rents and our markets still 40% below those required for new construction, we think the growth in rental rates will continue for the foreseeable future. As a result of the leasing completed over the last 12 months at substantially higher rental rates and the subsequent burn-off of the associated free rent, same-store NOI continued to trend positively, growing by approximately 8% on a cash basis and 7% on an accrual basis during the third quarter. Today, the signed but yet-to-commence pipeline equates to approximately $29 million of annual revenue. Equivalent to 410 basis points of portfolio occupancy that will flow into earnings over the next several quarters. The third quarter was also active for asset recycling with the acquisition of 4075 Wilson Boulevard and the disposition of a land parcel. 4075 is an outstanding building and a strategic addition to the Piedmont portfolio.

Please check out the investor relations section of the website for transaction presentation, and Chris will share additional details in a moment. During the quarter, we also placed one of our two Houston assets under contract for disposition, with closing expected before year end. Looking ahead, we continue to track a number of acquisition opportunities, which we would anticipate funding with proceeds from dispositions. Finally, we executed on impactful financing activity during the quarter that Sherry will review. The headline is this: we refinanced the last of our high coupon bonds, significantly improving our weighted average cost of debt and lengthening our remaining debt maturity profile with no maturities until late 2028. All of this momentum has led us to raise and narrow our annual outlook for the third quarter in a row, with a midpoint now six cents ahead of our original 2026 outlook.

Sherry will provide the specifics, but I did want to note that we have adjusted our projected year-end in-service lease percentage to a range of 87.5% to 88.5% to reflect the introduction of our Meridian project, along with our 222 South Orange Avenue building earlier this year, placing both projects back into the in-service population by year end. The recent acquisition of the 83% leased 4075 Wilson Boulevard property and the anticipated sale of the 100% leased Enclave Place asset during the fourth quarter. In addition, we are deliberately preserving our larger blocks of space as we believe our amenity-rich, hospitality-driven Piedmont places are among the best assets in their respective submarkets, and these spaces will command a premium as availability in our markets continue to tighten. In summary, the investment thesis in Piedmont is simple. Demand for our differentiated office products is increasing while supply is shrinking.

Leasing fundamentals continue to improve, and it is quickly becoming a landlord's market. With our portfolio of well-located assets designed for the modern workforce, Piedmont is uniquely positioned for success in the marketplace. We are generating among the highest earnings and cash flow growth in the office sector and trade at a very compelling valuation. With recent net effective rents after CapEx of $29 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, and 10% to 15% of embedded rental rate growth, which will continue to drive core FFO higher in the near term. With that, I will hand the call over to George for further details on third quarter operational performance.

George? Thanks, Brent, and good morning, everyone.

We are pleased to see how durable demand for our amenity-rich workplaces has translated into another very productive quarter. We completed 43 leases totaling over 400,000 square feet, with volume evenly split between new business and renewals. Average lease size was approximately 9,000 square feet, and the weighted average lease term was approximately 10 years. Since the beginning of 2024, our executed leasing activity, encompassing both new and renewal transactions, has carried a weighted average lease term of approximately nine years, generating long-term reliable future income. For the 10th consecutive quarter, the number of tenant expansions exceeded contractions in our portfolio. Financial, engineering, and law firms are experiencing substantial organic growth. This quarter, we had seven firms expand by 100,000 square feet.