00:03 Good morning, ladies and gentlemen, and welcome to the Piedmont Office Realty Trust Third Quarter Twenty Twenty-One earnings Call. At this time, all participants are in a listen-only mode and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Eddie Guilbert. Sir, the floor is yours.

00:21 Thank you, operator and good morning, everyone. Thank you for joining us today for Piedmont’s third quarter twenty twenty-one earnings conference call. Last night, we filed our Form 10-Q in a Form 8-K that includes our earnings release and our unaudited supplemental information for the quarter, it’s available on our website at piedmontreit.com under the Investor Relations Section. During this call, you'll hear from senior executives of Piedmont and they 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 in the supplemental financial information. 01:02 Also during the 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 nineteen ninety-five. 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 detail in our press release as well as in our SEC filings. 01:28 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 in the impacts of 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. 01:57 At this time, our President and Chief Executive Officer, Brent Smith will provide some opening comments and discuss our second quarter results and accomplishments. Brent.?

02:09 Good morning everyone and thank you for joining us on today's call as we review our third quarter financial and operating results. On the call with me this morning along with Edward Guilbert, our Executive Vice President of Finance; and Treasurer; George M. Wells, our Chief Operating Officer; and Bobby Bowers, our Chief Financial Officer, as well as other members of the senior management team. 2:30 Reflecting upon the third quarter results, This was an outstanding quarter in which we made meaningful progress against several strategic objectives. Financial metrics were strong our highest reported quarterly FFO per share since our IPO as well as a double digit increase in cash basis Same Store NOI along with sizable double digit rent roll-up on both accrual and a cash basis. 02:55 Additionally, we were able to complete another significant debt refinancing extremely attractive spreads. Bobby will touch more on that accomplishment during his comments. Perhaps the accomplishment that we're most pleased with is the return of new tenant leasing activity to pre-pandemic levels. And importantly, our pipeline for the remainder of the year remains strong, giving us confidence that we'll meet most of our targeted annual leasing goals across our seven markets. 03:21 Equally significant was a sizable strategic acquisition that was completed subsequent to quarter end, along with several meaningful ESG milestones that were achieved. I'll go into more detail in each of these topics today, but first, let me start by providing additional color on our third quarter leasing activity. Leasing activity for the third quarter totaled five hundred and nine thousand square feet, bringing total year-to-date leasing to just under one point eight million square feet. Significantly exceeding in three quarters, what we realized for the whole year in twenty twenty. We project that our twenty twenty-one leasing…

11:33 Thanks, Brent. Well, I will 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. As Brent touched on, for the third quarter of twenty twenty-one, we reported zero point five zero dollars per diluted share of Core FFO. A zero point-zero two dollars increase as compared to the third quarter of twenty twenty. This increase is primarily due to rising rental rights coupled with decreased operating expenses, particularly expenses related to lower than budgeted real estate taxes as well as the expiration of operating expense abatement on certain leases. 12:22 These revenue improvements however were partially offset by year-to-date zero-point nine percent reduction and overall lease percentage resulting from the industry wide reduced leasing activity brought on by the COVID pandemic. The good news regarding our lease percentage is that lease expirations for the next twelve months remain relatively low. That is particularly true with minimal expirations in two markets that have been slower to recover. That is the district of Washington DC and in New York City. 13:02 The improvement in new tenant leasing that Brent mentioned is encouraging to evolve leases to be optimistic about growing our overall lease percentage over the next few years. This statistic however is complicated by our strategy of selling fully leased assets that have reached their full value potential during our ownership and then recycling the proceeds into lower leased assets that provide us with more organic growth opportunities. We will update you on our guidance on occupancy as transactions are closed. 13:37 AFFO generated during the third quarter of this year, was approximately forty-one million dollars which is well above our current twenty-six million dollars quarterly dividend level.…

17:18 Ladies and gentlemen, the floor is now open for questions. Your first question is coming from Anthony Paolone. Your line is live.

17:43 Thanks. Good morning. My first question is on 999 Peachtree Street, Brent, I think you gave some brackets and I think I caught that you said about four hundred dollars of what is where you think you end up in your basis. So, I guess that means an extra twenty-five million dollars in spending. And so, I'm just wondering if you can kind of go further and give us a little bit more of a sense as to where you think the yield is going to land and timing to lease up?

18:09 Got it. Morning, Anthony, Appreciate you taking the time with us today. Indeed, we are very excited about the 999 strategic transaction to great iconic midtown asset. We've known it well. In fact, I live about seven blocks from the building and really been looking for way into that submarket for some time now. And it's a unique opportunity to get scale and certainly a foothold and will continue to expand. 18:37 As you know, it's got everything we want to buy accessibility, prominent great bones, big window line and the ability for us add value through a repositioning lease up. And so, as you noted, we're going in about three sixty a foot WELL land somewhere around that four hundred of foot call twenty-five million dollars of investment. And that's really to transform the asset. It's got great mechanical systems, but admittedly, it needs to be modernized for today's workforce and you kind of take it into the next and updated for the next generation of workforce. 19:10 And so that's really where a lot of that capital is going to be going towards. We do have some what we think is near term lease up opportunity for some great or any built out space that we think can drive occupancy up into the mid-80s here at more near term. And then longer term, we do think the building stabilizes somewhere the low-90s with additional lease up an opportunity set, it's great and the buildings already in existing rents are about twenty percent below market, so there's a great mark-to-market there. And as we've noted, we're going into the gap, call it six-point five. I think with that near-term lease up it gets quickly to it nearer to a seven and then as we have noted in the materials on the website, which I encourage everyone to take a look at also you will see in the back of the presentation wonderings of what we intend to do. We've been working with now for about two months on that. They are tenant in the building as well. So really excited to kind of bring this asset back to the prominence that it's well known for in the market here in Atlanta. So, hopefully, that gives you some sense, but probably that stabilization will curve a little bit further out. So, again, it's called maybe two years to kind of get to that seven point five.

20:23 Okay. That seven point five million dollars though I'm sorry, GAAP or cash?

20:27 That's all in GAAP. We typically provide again GAAP, but as you know, probably our cash numbers historically have been about one hundred to one hundred and fifty basis points inside of that. Near term due to the fact the rents are so far below market. But we anticipate that as those leases roll and it is a more near-term role within that building, we'll be able to quickly to drive the cash numbers closer to those GAAP numbers I gave you over that kind of two-year horizon.

20:54 Okay. Thank you. Yes. And then second question relates to non-core asset sales sounds like beyond Boston, you still have some other things teed up. Can you give us some sense of order of magnitude there and also if we should expect acquisitions to kind of get paired with that as well?

21:17 As you have known, we do I think a great job of pairing buys and sells, it's a unique differentiator. We think to our business model, and we continue to successfully drive earnings growth in that manner, it's selling well leased long-term stabilized assets for great pricing and buying other assets to higher cap rates, low square foot renovating and leasing them up and driving value creation in that manner. So, we do feel like we've got a great pipeline of potential acquisitions, but more importantly, as you note on the disco side, we do have non-core assets that we've labelled that I've talked about selling in the next six to twelve months and we're an active dialogue around that quote core portfolio that we at label in the supplemental as well as just mature assets that we'll also be disposing of regular way like we've always done. We've got an exciting pipeline like I said, to pair with those dispositions, and we still believe we're able to kind of accretively recycle. I think the 999 acquisition is perfect example of that pairing it with the Boston disposition. 22:21 We're going in day one on an accretive basis on GAAP earnings and then we're able to drive that even meaningfully higher. And I think what you see us continue to do is to leverage that non-core portfolio along with Boston Cambridge, particularly as you've heard me talk about at least to Harvard is an opportunity to monetize a low cap rate asset and redeploy into the SunBelt and that's probably our next big rotation asset as long as the regular way in non-core we have talked about.

22:53 Okay. So, we'll got for Cambridge, it seems like that's the one that's on deck here. And then last question, can you just give us some updated thoughts on a couple of the larger spaces that come up in the next couple of years like CVS and Ryan and just anything you're doing there proactively updated thoughts on what happens to that space?

23:17 Absolutely. So, I think as most people have known, we've been in dialogue with CVS now for some time. I think that continues to trend well. There will be a modest downsize, but not material. And overall, feel very good about where that transaction headed, other ones that are in the pipe much further out. That's really the most near-term within twelve months. But as you mentioned we do have some latter parts and middle parts of twenty-three. As we've noted, Ryan has been in the press about a potential development. However, think it's going to be and as we've discussed with them very, very difficult for them to be able to complete that development anywhere near where there are lease roles. And so, we will anticipate having some pretty substantial dialogue with them on opportunities to keep them at the building at least longer term, near-term and maybe longer term as they continue to evaluate that opportunity in Plano. When it comes to Cargill, which is really even further out than that twenty-four. 24:19 I'd say it's early, but indications from them are still very positive that this is their overflow and release valve for their headquarters location. And they continue to actively use the building despite being one of the lower utilized markets. We still see a lot of carbs flights than the building and a very active user of it. And they're very fond with the campus away from their existing campus, it’s healthier crossings really provides the unmatched amenity set in the suburban market with a ten thousand square foot fitness center at the complex, huge multi food type cafe and a three thousand square foot, sorry three thousand from an auditorium – sorry, three hundred person auditorium so it's a large great menu that building was light rail coming to it in about two to three years. So, we feel still very good about Cargills and tend to that building. And then is you probably know U. S. Bank is one of our largest tenants, they have a suburban location that will expire in twenty-three and we feel very good again about a long-term relationship with U. S. Bank, both at that location and then in twenty twenty-four, their downtown location, their headquarters building which we own will also come up for lease. I'd say we're being very proactive in those dialogues and so feel very good about, again, that long-term opportunity to keep them and those assets.

25:38 Great. Thanks. Thanks for all that color.

25:40 Yeah.

25:43 Your next question is coming from Dave Rogers. Your line is live. Q - Dave Rogers 25:49 Yeah. Good morning, everybody. I wanted to talk about the lease pipeline into the fourth quarter, Brent, you mentioned that the activity was staying strong. Can you provide additional color on that with regard to kind of small versus larger tenants, some of more of the urban versus suburban activity, would be interested in any thoughts you have there?

26:09 So, I think it's really been consistent and what we kind of shared rather over prior quarters, which is large tenants continue to be active in the market, those being greater than fifty thousand square feet. We're seeing them to make a little bit more decisions along that process. And that's really in our SunBelt markets we're seeing in Boston, like we do with Microsoft along net larger tenant activity. We're seeing what's good news is again, we've talked about the small tenants ten thousand square feet less, I'd say they're back to pre-pandemic levels now in most of our markets. And so, what we've continue to talk about is being more robust and I think the third quarter and going into the fourth quarter is indicative of that. 26:51 Is that twenty five thousand – fifteen thousand to twenty five thousand square foot single floor user middle market type firm and we continue to see that be more us in the SunBelt and what's more positive is now we've seen it starts to pick up in Suburban Minneapolis, but we do and admittedly think a lot of our peers still have a little bit of lower utilization and our CBD assets and then also I think result a little bit lower lease velocity, so we're fortunate to have a lot of role in heather DC proper Downtown, New York and Downtown, Minneapolis, but I would say those are still the markets that are slowest to come back from that perspective. I'm going to hand it over to George Wells here, who also give you a little bit of detail around some of the pipeline that we've seen grow over here in the last year and let's look ahead of him. George?

27:41 Thank you. Thank you. I'll tell you, we're really optimistic about what we're seeing for the fourth quarter here we are twenty-eight days into October and as we're looking at transactions that we've already agreed to on the legal stage, so that's what gives is the comfort that the optimism that you've seen from us or the activities came from us in the second and third quarter continuing into the fourth. I think also behind that when you look at the kind of proposals that we're seeing, has been rising rapidly over the past couple of quarters that we start in the first quarter of around sixty proposals for just around nine hundred thousand square feet pop up in the second quarter with seventy-five transactions for one point one million square feet. And then this past quarter were at eighty-seven one point five million square feet and then if you take a step back and look behind that in terms of what tours, what do they look like across our markets? I'll tell you what has been also increasing from nineties, I would say in the first quarter so mid-nineties from the second quarter, and they jumped up about twenty five percent in the third quarter for one hundred and sixteen to her. So, we feel good. We feel that our portfolio certainly resonates with the market demand that's out this way, we feel pretty confident about continuing to chip away at our vacancy.

28:55 That's great detail, guys. I really appreciate it. Want to go back to. I think it I was going to tell these questions about the asset sales. You said seventy percent of ALR from the SunBelt, and I don't know think you gave a specific timeframe, but New York, Chicago and the presidential way buildings would get you there. So, I guess I wanted to think about what that timing looks like. Did you include New York, and that number is that yet another kind of nine percent ten percent that we can expect beyond this initial wave that you're doing in the next year or so?

29:27 Dave it's very skewed of you, That is exactly part of that component as we've talked about, New York City continues to progress. We are still very much engaged in the twenty-year renewal. We did a great five-year renewal no capital last quarter. And that market continues to improve really day by day, if we're excited the entire New York City is back in their space and utilization rates are up and starting feel like New York is coming on par with some of our SunBelt markets as well as Boston in terms of just economic activity broadly. So, I think we're very encouraged by that. 30:04 And as part of that overall rotation in potential into the SunBelt that doesn't include Cambridge as well as potentially monetizing New York at the right time. If you think about what we said that's probably a potential monetization event and mid-to-latter part of twenty-three. So, I think we see the potential for that billion-dollar rotation over the next two to three years.

30:31 Very helpful. And then maybe specifically, I think you've talked about very much nearer term on assets like Houston and Chicago. Do you have any specific progress to report?

30:44 Not specific. We will share at the right time, but I think the good news is we continue to get leasing made at both of those kind of non-core assets, we will have some availability. And we have got great term and single credit users in Houston, which also positions them well and frankly, with well over eighty-five dollars a barrel – around eighty-five dollars a barrel. We feel pretty good about being able to be able to dispose the Houston in assets in this environment, both continuing to have improving operations.

31:18 All right. Thanks, Brent.

31:20 And I still think at six to twelve in that timeframe.

31:24 That's helpful. Thank you.

31:28 Your next question is coming from Daniel Ismail. Your line is live.

31:35 Great. Thank you. Brent, circling back to the seventy percent goal of SunBelt exposure, you mentioned potential exits of current markets. I'm curious if that goal includes the entrance to any new SunBelt markets. The future acquisition saw you guys enter new submarkets. So curious if there any markets that's in the SunBelt that you guys are currently considering?

32:00 Morning, Danny. Appreciate you joined the call. The point as you makes yes, we continue to really evaluate it these points more new submarkets like the 999 acquisition and now we have a strong talent and we do continue to look for opportunities and have others that we think we could score to continue to gain scale in that submarket and we see there's a good opportunity given a high growth. 32:24 We still feel like right now though between Atlanta, Dallas and some of other existing markets, We've got plenty of product that fits the Piedmont style of having a good bones, you've heard me that plays with great window lines could ceiling heights, but means some TlC, great accessibility walkability and really what we've continue to find as we talk to tenants is they don't care how old the building is, right? They care about all my employees love coming to work here. And so, we will continue to focus right now on those markets we were in. Potential new submarkets. That's not to say though, we don't follow a number of other MSAs, we think are competitive to some of what we are looking at today in terms of population migration and corporate relocation. So, we very much are keeping our pulse on the Charlotte, Nashville, Tampa certainly potentially even Denver and Austin our competitors to some of our other markets. So, data that we would into any of those specifically, but also just to say that we continue to get educated on them from a number of different perspectives in angle.

33:32 Great. And then a question for Bobby. I it looks like disclosure changed a bit with respect to the increased physical utilization of the buildings to perhaps some savings and operating expenses. I'm just curious that's no longer the case is physical utilization of your office building to pick up. No longer was kind of key operating expense savings that you saw it earlier the pandemic?

34:02 Daniel, I may ask you a question to clarify this, but you're talking about our disclosures though that changed.

34:13 Correct, specifically on the Same Store net operating income page in the supplemental, it just looked like a split was removed discussing the benefit of lower operating expenses as a result of lower utilization. I'm just curious if it is no longer the case going forward?

34:34 Well, now we're still experiencing that. We did make some changes in our disclosures this past quarter, you might have noticed that we've incorporated the press release into the supplement as over the last year or two, the disclosures almost began matching the press release. So, we just went ahead and pulled some of that information out. We also decreased some of the disclosure when we had so many very large leases and stuff like that, but Brent already covered the leases that have come up, but I can't think of anything that would causes right now operating expenses are a little bit lower as a result of the utilization, that primarily is reflected in our janitorial costs and as reflects some extent tax area.

35:27 Got it. And then maybe a bigger picture question for Brent. So, we've mentioned ESG that's on its whole on in prior calls. I'm curious some has now played into your underwriting on acquisitions? Is environmental factors and carbon emissions or energy utilization now explicitly factored into your underwriting when looking at new properties or maybe some good center into?

35:57 I would say absolutely, it's tough to say it's quantifiable, but obviously, we try to identify if there energy efficient savings that we can implement where there's a reasonable payback period going into an acquisition. We obviously, though, I think what we see it right now driving from an underwriting perspective, making sure you have the capital to create the right environment for tenants. 36:19 And ESG is part of that right environment. I think Microsoft is a perfect example. We were in discussions with two other tenants from the space, they took in Boston. And we went to them when the nuance transaction got announced, we knew that they were in the marketplace and recorded them if you will, and what was a key differentiator with our director of sustainability and the team that we can provide to help them think about their space and improving the quality of just their own individual space even above and beyond the actual building. And in terms as we look at new assets, we are still trying to focus on those that more of I'd say, a more modern generation, double window pain. So, we're not having to do major components to it. And also to really think about outdoor space and what you can create, we continue to hear more and more tenants to desire that collaboration space to also include components outside of the building. So it's almost, it is important today, how your lobby and your first floor interacts as much as the area around the base of your building as well. In terms of we have set corporate goals of twenty percent reduction in both water and energy consumption by twenty-six and twenty-eight, respectively. And we also take that into consideration as okay can this building help…

38:50 Got it. Thank you, Brent.

39:01 Your next question is coming from Michael Lewis. Your line is live.

39:07 Thank you. My question is kind of along the lines of rebuilding occupancy and you gave some good color on the leasing pipeline. Bobby talked about selling high occupancy buildings and buying lower ones with some lease opportunity and that'll will move the numbers around. But I kind of grasp down to the seven hundred and seventy thousand square feet that's signed, but not yet an occupancy that you're paying cash rent, yes. You compare that to two hundred and fifty thousand square feet expiring in 4Q about one million square feet next year. Assuming a portion of those expirations renew, you'll be doing some leasing, maybe talk about what you think the opportunity is to grow occupancy cash flow over the next year in this environment where the investors are worried about office occupancy do you have an opportunity here you think that kind of significantly growth from here?

40:05 I appreciate the question Michael and thank you again for joining. I think we view our strategy of buying vacancy more near-term has been positioning the company to capture a lot of the movement into the SunBelt we've talked about, most of our vacancy role is in really Dallas, Atlanta and Orlando and that is what continues to give us very good optimism about the projections and the opportunity for lease up across portfolio and as you point out really absorption. So, we do have limited amount of roles this year and next year, a pretty modest amount and the fact that we have continued to be able to even during the pandemic track to about a seventy percent retention rate also gives us some pretty good comfort on our ability to not have too much walk out the door. 40:53 And so given that kind of backdrop. I think that's what really drives the occupancy growth. If you want to specific timing, I'd have to say let's freeze the portfolio and say it's static today. Because you just never know what comes in or out, but we already know Boston is technically with the mover assets are going out. And so, we stand roughly call it eighty six. I think there's an opportunity to drive that, call it one hundred to two hundred basis points by the end of next year. But I think there's also material upside potential to that given what we see from some potential big tenant leasing activity in both Dallas and Atlanta. 41:31 I would also point out that our redevelopment is more short-term in nature than a more development focus model, So, we do have some occupancy on the books, if you will in the portfolio where some of our peers are…

43:41 That sounds good. Just one more for me. You could correct me if I'm wrong, but it looks to me like Piedmont, hasn't grown its dividends since twenty fourteen. But today, the coverage looks like your position now to potentially grow the dividend if you chose and where – I realize these are sensitive conversations with these are Board decisions about setting dividend, but maybe from a strategy perspective, where it is growing the dividends as a goal or a priority or signalling that Piedmont is a different companies than at once was or do you have a strategy of you'd rather keep the capital and pay the minimum? I don't know when that would trigger necessary increases, but any comments you could give kind of around that?

44:33 I think your spot-on Michael and that we've been recognized that the last time we raised the dividend was in twenty fourteen. We've got ample AFFO these days and one point ten dollars to one point twenty range. So we've got plenty of room to meaningfully move the dividend I would say, I think we've been conservative in that regard on two points and we've continued to tell the street that we were going to evaluation in twenty two. But with the significant redevelopment, particularly at sixty broad with the New York State and as significant capital outlay there as well as in the onset of the pandemic. We felt it was prudent to reevaluate as I mentioned in twenty-two. So, I would expect the company to have a more – a specific comment towards the middle of the year, But certainly, we recognize there's an opportunity to meaningfully grow the dividend and from a fill topical question. The company has no issue nor the board in that regard. I think we've just been trying to conservative cash and make sure we feel comfortable with where the market stable wise post-COVID and we're starting to feel that clarity come into the picture. We're wrapping up the New York state work as we next year as well probably around that middle of year timeframe. So, the good news is that project is under budget. 45:50 Thankfully, we ordered a lot of that material before at the early onset of the pandemic before the cost overruns and supply chain issues have come into effect. So proportion in that regard and we'll reevaluate it the middle next year.

46:04 Make sense. Thank you.

46:09 There are no further questions from the lines at this time. I would now like to turn the floor back to Brent Smith for closing remarks.

46:16 Thank you. I hope we've conveyed today that we feel like that they opportunities that before Piedmont is a really unique got a differentiated opportunity and strategy and we're extremely excited about our progress on a number of fronts, I would encourage everyone if they want to hear more or learn more about some of the things we've touched on today to visit our website under the Investor Relations section, pull down our 999 acquisition piece with also have renderings of the new space that we've discussed around the outside of the building and what we're doing to really differentiate that product. And I'd also encourage those who are interested in ESG to visit that specific report on our website as well. Again, I think everyone for joining us today. We look forward to continuing a discussion at NAREIT in a few weeks, that will be virtual, but we look forward if you've got an interest in meeting with management reach out to Eddie or Justin and we will happy to get you on the calendar, while we're at that quote virtual conference. And with that, let me say and look forward to further dialogue. Thank you.

47:23 Thank you, ladies and gentlemen, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.