Good day, ladies and gentlemen, and welcome to the Piedmont Office Realty Trust, Inc.'s Third Quarter 2020 Earnings Conference Call. All lines have been on a listen-only mode and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host for today, Mr. Eddie Guilbert. Sir, the floor is yours.

Thank you, operator. Good morning, everyone. We thank you for joining us today for Piedmont's Third Quarter 2020 Earnings Conference Call. Last night, we filed our Form 10-Q and an 8-K that includes our earnings release and our unaudited supplemental information for the third quarter. All of this information is available on our website at piedmontreit.com under the Investor Relations section. During this call, we'll 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 in the supplemental financial information. On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. 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 detail in our press release as well as our SEC filings. We encourage everyone to review the more detailed discussion related to risks associated with forward-looking statements 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 leasing and investment activity and the impact of the COVID-19 pandemic 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 speak only as of the date they are made. At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments and discuss our third quarter results and accomplishments. Brent?

Good morning, everyone, and thank you for joining us on today's call. Despite the challenging operating environment, the third quarter was another solid quarter for Piedmont in terms of operations, financial results and strategic objectives. We saw an increase in new leasing activity, and we are very encouraged by the uptick in leasing tours and proposals. This trend is continuing into the fourth quarter as our leasing pipeline continues to rebuild. But let me be clear, we are not back to levels of prepandemic activity. Operationally, we continue to feel very fortunate that most of our tenants are of investment-grade quality and subject to long-term leases with a weighted average lease term remaining for the portfolio over six years. We continue to collect substantially all of our build rents, 99% for the third quarter. These collections are net of approximately 60 total lease modification agreements year-to-date that we have entered into with our tenants, a majority of whom are retail-related businesses and have experienced disruptions in their operations as a result of the pandemic. As we indicated last quarter, most of these agreements now totaling $6.7 million year-to-date in cash rent billings are deferrals of three to four months of rent, the bulk of which are to be paid back in the fourth quarter of this year or in 2021. I'll remind everyone that during the second quarter, we did establish a $4.9 million general reserve, related primarily to those tenants with whom we've agreed to some form of rental relief, should these businesses be unable to repay the deferred amounts when they become due or should their operations fail. As of today, we still have $4.8 million of this reserve in place, and I imagine we will be well into 2021 before we will know how all these tenants…

Thanks, Brent. I'll discuss some of our financial highlights for the quarter, I encourage you to please review the earnings release and supplemental financial information which were filed last night for more complete details. For the third quarter of 2020, we reported $0.48 per diluted share of core FFO, a $0.03 or 6% increase compared to the third quarter of 2019, reflecting rental rate roll-ups across the portfolio as well as the benefits of accretive capital recycling activity since the third quarter of last year. The company's core FFO earnings have grown year-over-year, however, our top line revenue growth for the year is a little less than we originally anticipated due to reduced transient parking and retail revenues since the onset of the pandemic and slower leasing activity that Brent discussed due to uncertainties, shelter-in-place orders and travel restrictions. There are, however, no unusual income items embedded in our year-to-date revenues, such as large termination fees or settlement income. Although, netted against our total year-to-date revenues are entries totaling $2.6 million for the write-off of specific tenant receivables as well as a reserve of $4.8 million. Partially offsetting these items are lower property operating expenses, resulting primarily from reduced utility charges and janitorial costs. Daily occupancy at our buildings is slowly recovering, but it varies greatly by location and by type of tenancy usage. With all of our buildings remain open and fully operational throughout 2020, we have some tenants associated with government services or defense-related tenancy that are near-normal occupancy, while others have active physical usage still in the 10s or 20% range. The buildings located in Sunbelt do tend to have higher overall occupancy today as shelter-in-place restrictions were lifted earlier than other regions of the country. Turning to cash flow and financing activity. AFFO was approximately $38…

Thank you, Bobby. In April this year, we withdrew our annual 2020 guidance due to the vast number of uncertainties created by the pandemic. Still today, the longer-term consequences on the economy and on our tenants continue to be unknown, especially as it relates to the future occupancy trends and tenant usage within the office sector. That said, as we help our clients evaluate their commercial real estate requirements, discussions of densification of office space are virtually nonexistent. Instead, CEOs are turning their focus towards the impact work-from-home has had on productivity, operating efficiently and corporate culture, which are being balanced against trends for more flexibility and work schedules. Notwithstanding these uncertainties and economic ramifications, I believe Piedmont is well-positioned for the future. We have a strong diversified tenant base, a majority of which is investment-grade quality with long-term leases and with little near-term expiration. And the company has a prudent balance sheet with excellent liquidity, and we consider adequate and appropriate reserves. We also believe that Piedmont's portfolio of assets will be attractive locations for future tenants, located in many rich urban and suburban locations that do not on mass transit and are more convenient to workforce housing. When I became CEO a little over a year ago, I laid out four key strategic objectives for Piedmont that I believe would best serve our investors. First, to accelerate the transition of our portfolio of properties into targeted high-growth amenity-rich office nodes within a few select markets. Second, accomplish this portfolio transition, while improving the overall quality of our properties and to do so accretively to financial earnings. Third, commit to maintain the highest quality of tenant experience and satisfaction through the ongoing redevelopment and repositioning of our properties and amenities. And finally, that Piedmont further bolster our best-in-class ESG platform, focusing enhancing our market-leading social and environmental practices while maintaining our accountability with the highest governance standards. I could not be more proud of how the Piedmont team has risen to the challenge and continued to execute on these strategic objectives even in the midst of a global pandemic. This fall, we exited the New Jersey market, completed the strategic acquisition of our Orange Avenue asset in Orlando, launched the Piedmont scholarship program for historical black colleges and universities within our operating communities and accomplished our green bond offering. With regards to our financial goals, we're pleased to have a reinstated 2020 earnings guidance 6% above our 2019 operating results. With that I’ll now ask our operator to provide our listeners with instructions on how they can submit their questions. We will attempt to answer all your questions now or we'll make appropriate public disclosure later, if necessary. Operator?

Thank you. Ladies and gentlemen the floor is now open for your questions. [Operator Instructions] We’ll go first to Dave Rodgers with Baird.

Hey good morning guys. Brent maybe I’ll start with you with a couple of questions. I guess, can you talk about the utilization of the portfolio, specifically maybe by asset type or by metropolitan market? And then I wanted to dovetail that in with you had talked about the pipeline is beginning to improve. And so maybe in the utilization comment, also talk about average tenant size and market with the pipeline as well.

Okay, good morning Dave. I appreciate your time today. It's a little bit of a very complex question. We'll try to throw some generalities around that. But I think what we're really seeing from a utilization standpoint is continued occupancy from tenants coming back, particularly over the last couple of months and after Labor Day. But still seeing, I would say, diminished levels in the north, probably in the neighborhood of 10% to 20% of the pre-COVID levels. And then the south, a little bit more activity, depending again on market, but call it anywhere from 15% to 40%, depending on the building in the market. I would say, though, we also have the mission-critical and government-related facilities and/or spaces and buildings that are 80% to 100%. And so it's tough to really draw a general conclusion. But for the tenant mix, I'd say we're also seeing larger national tenants generally, as you've read in the headlines, postponed coming back to the market. But we are seeing smaller tenancy come back faster particularly in the Sunbelt. And we're also seeing actually a number of coworking locations actually even achieving over – well over 50% utilization, in some instance, up to 80-plus at their facilities now. And so I think we're seeing it really vary across the board, and there's really no way to pinpoint one data point. But hopefully, that gives you a little bit of clarity around what we're seeing. When it comes to leasing pipeline, I'd say it went to almost nonexistent during the pandemic, although we kept a few deals alive. So really started in earnest to rebuild to, call it, mid-summer. And we've continued to see that accelerate and rebuild further. And I'd say that, that is generally going to continue to improve. I think if we don't see a meaningful second or a third wave, whatever you want to characterize it this fall. And so I think we're hopeful that we're going to continue that momentum into next year. I will say, when it comes to renewals, we are seeing many tenants decide to try to do a shorter-term renewal. We're fighting for longer terms, and that's generally playing itself out. But I would say we have a few larger national tenants that know their business very well, consider this an opportunity maybe to extend out term on a larger lease and capture a favorable rate. And so we're also seeing some of those larger potential renewals start to take shape at the moment. So we're hopeful, but I think the main message there is the pipeline is continuing to rebuild off of what was a very low level in the summer.

Great, thank you for that color. I wanted to turn to the asset sales in New Jersey subsequent to the end of the quarter. Can you talk about the pricing, the discussions, any retrade on that kind of why the timing was right now? And any cap rate color that you can provide on kind of discussions and the ultimate disposition of those assets?

Yes, thanks Dave. I think when we began the year, it was really our objective to clean up what I would consider the Mid-Atlantic/Northeast portfolio, in terms of getting out of what we would consider noncore assets. And of course, I think everybody knew and we were pretty vocal around our affiliate execution and wanting to get that off the portfolio and it being noncore. We were left full around New Jersey, but it's always been a goal of ours to continue to refine our New York City holdings to just the Lower Manhattan positions. And so it was really a strategic objective overall. And then we had, had dialogue with a number of parties prepandemic and really had anticipated to actually dispose of the asset maybe a little sooner in the year than what actually transpired. But we felt like we were able to achieve a pricing level that was reasonable relative to where we thought the value was prepandemic and where those discussions were. And overall, generating cash and GAAP cap rate, call it, in the high 7s to 8 zip code, felt pretty good given where we want to focus the rest of the business on and be more strategic longer term. And so we did reach a transaction level – sorry, a transaction with one of the interested parties. We did discuss the deal with a number of parties but went with one that we were comfortable with. And it's about a few earn-outs and/or other leasing components still to play out here over the next, call it, few months. But we look forward to sharing all the final details on the next call. call. Overall, though, I'd say – I'd also point out, we think this is a good example of pricing within our portfolio itself, but you're going to continue to see private market transactions that I think will be well inside on a cap rate basis to where some of either us or our peers trade from an implied cap rate basis. And I think that's just one example. And frankly, I would consider these probably one of our toughest markets and one of our highest cap rates. And I point out that we did trade it inside of, frankly, where we – our stock trades today.

Last for me. On the city of New York, what's the risk that they just pick up and move somewhere else?

We feel like that risk is very low, as we've talked about in the past. It's a pretty unique building. It fits their needs very well from a user group, the size of the space and its access being as a dedicated lobby and elevator bank. Obviously, we recognize that the issues with the municipality, but everything from a leasing process continues to kind of go as we would expect it to in the process. It's slow. It's always slow dealing with government tenants, but nothing's really changed from what we've talked about in the past. We do anticipate having a shorter-term renewal sign somewhere around the end of the year. And then the longer-term deal is still going to take some time to play out and finalize, swing, et cetera. Very similar to what we did with the state last year in 2019, and we'll do that again. And that longer-term lease still tracking to the end of next year.

Okay, thank you.

Thanks, Dave.

[Operator Instructions] With no other questions holding, I'd like to turn the conference back to Mr. Brent Smith for any additional, or closing comments.

Thank you. I appreciate everybody joining us on today's call. I will remind you, we've got NAREIT virtually coming up in a few weeks. We've got a tight schedule, but we'd love to include anybody else that is interested in meeting with management. We're excited about the prospects that we have in leasing pipeline, as you mentioned before. I think we'll continue to see that grow. And we look forward to discussing that more at NAREIT, and then, of course, in January on our fourth quarter call. Everyone, have a great Halloween weekend, and thank you for your time.

Ladies and gentlemen that will conclude today’s presentation. We thank you for your participation. You may disconnect at this time and have a great day.