Good day, everyone and welcome to the Piedmont Office Realty Trust Inc’s Second Quarter 2023 Earnings Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Eddie Guilbert. Sir, the floor is yours.

Thank you, operator, and good afternoon, everyone. We appreciate you joining us today for Piedmont's second quarter 2023 earnings conference call. On Tuesday morning we filed our 10-Q and an hour ago we filed an 8-K that includes our earnings release and our unaudited supplemental information for the second quarter that's available for review on our website at piedmontreit.com under the Investor Relations section. During this call, you'll 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 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 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've 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 in the supplemental financial information, which were filed earlier this afternoon. At this time, our President and Chief Executive Officer, Brent Smith, will provide an update on our recent refinancing activity and second quarter operating results. Brent?

Thanks, Eddie, and good afternoon, everyone. As we appreciate all of you for accommodating us for the short notice of this moved up earnings call, given the refinancing activity that we announced Tuesday, we felt it was important to go ahead and get our full quarterly information into the market so that all of our investors have the benefit of the most recent financial and operational information available. First, I'd like to walk you through a rationale for our recent refinancing activities that we've undertaken, and give a brief overview of the quarterly results. Following me as usual, you'll hear from George Wells, our Chief Operating Officer; Chris Kollme, our EVP of Investments; and Bobby Bowers, our Chief Financial Officer. We also have the usual full component of our management team available to answer any questions that you may have. With that, I'll jump right in on the refinancing activity. As we announced Tuesday afternoon, we have closed a $400 million in aggregate principal amount of 9.25% five year unsecured notes. Concurrent with the issuance of the new bonds, we also made a tender offer at par for any and all of our outstanding $400 million unsecured senior notes that are scheduled to mature during the first quarter of 2024. Although we have no way of knowing exactly how many of our current holders will tender their bonds, and given the current interest rate environment, we are projecting that a majority of the 24 holders will participate in the tender, which will close next week. While the coupon rate on the new debt is certainly a high watermark for Piedmont, it is unfortunately reflective of where the market currently is for commercial office properties. Over the last several months, we've gone through an extensive process of exploring and analyzing our…

Thanks, Brent, and good afternoon everyone. Persistent demand for Piedmont’s high-quality assets lead to another quarter of solid operational results. Office users recognize that Piedmont’s attractive workplace proposition can be a key driver for encouraging or supporting mandates for more in-house attendance. CBRE’s Spring 2023 U.S. Occupier Sentiment Survey sites on-site food and beverage cafe after ease of commuting and parking is having the most impact for attracting employees back into the office. At Piedmont we provide a wide range of local to national food and beverage options across our portfolio from custom delivery orders, traditional cafes, full-service restaurants with bar service to white tablecloth high-end establishments. In a moment, I'll highlight three F&B transactions that were completed this quarter and are enhancing our competitive position in the marketplace. Overall, this quarter, we had another strong leasing performance with 49 lease transactions completed for approximately 585,000 square feet of total overall volume. Of this amount, 237,000 square feet or 41% of the total were related to new tenant lease activity, well over our pre-COVID quarterly average of about 175,000 square feet, and our leasing pipeline activity is very strong. Continuing with operational metrics, our lease economics were very favorable with 14.3% and 19.6% roll up or increase in rents for the quarter on a cash and accrual basis respectively. And our weighted average lease term achieved on new lease activity for the quarter was just under 10 years. Our lease percentage at the end of the quarter was 86.2%, slightly up when compared to the previous quarter end. Approximately 90% of new tenant activity occurred in our Sunbelt portfolio where almost 70% of our vacancies reside. Retention rates remain consistent at approximately 70%, no doubt a reflection on both our customer centric service approach and high-quality commute worthy portfolio. Lastly,…

Thank you, George. As you might expect, given the ongoing challenges in the market, I have very little new information to report since the last call. We announced last quarter that our two assets in Houston had gone under contract and we're through diligence, but terms did contain a financing contingency. The potential buyer is working diligently to secure its capital structure, but has not yet been finalized. We expect to have more clarity on their progress in the coming weeks. We will certainly keep you all informed if and when we have additional information to share. As for the balance of our activity, we're in preliminary discussions on select non-core assets but it's far too early to speculate, given the market backdrop. We will continue to work creatively with interested parties on potential dispositions. Any and all sale proceeds will be earmarked towards the reduction of debt. With that, I'll turn the call over to Bobby to review our financial results and to update you on 2023 guidance.

Thank you, Chris. While we'll be discussing some of this periods financial highlights today, I encourage you to please review the entire earnings release, the 10-Q, and the accompanying financial information, which we filed over the last few days for more complete details. Core FFO per diluted share for the second quarter of 2023 was $0.45 versus $0.50 per diluted share for the second quarter of 2022, reflecting approximately $0.08 per share of dilution from increased interest expense comparatively, but this increase was partially offset by operational growth during the second quarter of this year, resulting from successful leasing efforts, rising rental rates and asset recycling over the past year. AFFO generated during the second quarter of 2023 was $44 million and $81 million on a year-to-date basis. Our property operating costs and general and administrative expenses were in line with budget with no unusual variances. As George and Brent noticed, leasing has been strong throughout the year, with over 1.1 million square feet of executed leases completed during the first six months of the year. Year-to-date, cash rent roll ups for these newly completed leases are up 10% over expiring rates and accrual rents are up over 14%. Same-store NOI, however, is relatively flat thus far for the year compared to the previous year but this is a timing issue with 60% more leases yet to commence or in abatement at the end of this quarter. That's a total of 1.3 million square feet versus less than 800,000 square feet that we began the previous year with. With several leases set to commence or begin paying rent, we still project cash NOI growth to be positive between 1% and 3% for the year. Turning to the balance sheet. During the second quarter, we repaid $350 million in maturing unsecured…

Thank you, George, Chris, and Bobby. In summary, for the remainder of the year, we anticipate modest space absorption and operational growth. We will continue to be a net seller of assets as we deleverage the balance sheet and enhance our liquidity resources but, as we've previously outlined, increased interest expense will continue to weigh on earnings and FFO in the near term. Finally, I want to thank the outstanding employees at Piedmont who provide excellent service to our customers each and every day. Their dedication, resilience, and hard work continues to drive our leasing success despite the challenging market. With that, I will now ask the 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 will make appropriate later public disclosure if necessary. Operator?

Certainly. Everyone at this time, we will be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Nick Thillman from Baird, your line is live.

Hey, good afternoon or good evening, guys. Maybe just a little bit on the decision to do the debt offering here instead of waiting maybe a little bit. Is this more of a matter of the debt markets were open so we're just going to get it rip the band aid off here or like maybe walk through it sounds like there's still potential for some dispositions. So, just kind of wondering around the timing of this transaction?

Sure, Nick. Great questions. This is Brent and, again, thanks for joining us this evening and being flexible having moved this up a week of our earnings call. And a very reasonable question; we continue to canvass a number of different alternatives, as we outlined in the earnings call, including asset dispositions but, as we noted, it's been very difficult in this environment, even though we've found a reasonable price. From an equity standpoint, that debt has just been very difficult to achieve. We've continued to evaluate secure debt within our own portfolio having hired a broker to help us canvass both the insurance kind of bank lending market if you will, as well as the CMBS market. And of course, we looked at various forms of unsecured talking to our own bank lending groups, which we did utilize in early part of this year for a sizable term loan and a number of different structured alternatives as well getting – looking at creative situations around convertible preferred or other super structures, if you will, from a capital perspective. But when it boils down to it, there are a couple of things that kind of weighed in our mind. First and foremost, there is a large wall of commercial debt coming due the remainder of this year and next year and thinking about that overall implication and available funds, there's a lot of basically need and not a lot of supply. So wanting to try to address the 2024 maturities earlier rather than later was our mindset. We continue to kind of evaluate, it's been a very challenging market, certainly at the unsecured side, but more broadly, just a lot of concerns around recession and the rates. And we had a window here where the general economic malaise had kind…

Very helpful. And then maybe just going back to what you were saying about non-encumbering the portfolio, what was like the rate differential between the secured and unsecured options?

Yes, I think even within a secured standpoint, and I noted this on the call, LTVs were very low, so we were encumbering a number of assets, frankly, more than we would have anticipated to. And the pricing was better than the unsecured market but I wouldn't say materially better, particularly if you think about some of the assets that we might have put debt on where our most, I guess, long-term in terms of its wealth and probably candidates for harvesting in terms of value, because they've been maximized and mature under ownership, which would have created prepayment penalties in addition to the interest expense incurred. So, really, we felt like the delta between secured and unsecured was within 100 basis points and we frankly feel like keeping the portfolio unsecured, as we've talked about, is a key component of our leasing strategy today and overall our capital recycling strategy once we're able to continue with that engine of growth when things normalized in the market. So given that lack of material discrepancy in pricing and the benefits of remaining unsecured, we decided to take the window within the market here in the past few days.

Right and then maybe last one. It sounds like discussions for U.S. Bank are moving along here. You guys have traditionally or like in the past have said somewhere between 50% to 100% on the downtown renewal. It sounds like we're trending more to the upper end of that range. Is that that kind of reading into your comments?

That's fair to say yes.

Okay. Thanks, guys.

Thank you.

Thank you. [Operator Instructions] Your next question is coming from Dylan Burzinski from Green Street. Your line is live.

Good evening, guys. Thanks for taking the question here. I guess just touching on dispositions and transaction markets, could you comment on sort of the environment today versus maybe three to six months ago? I think it is improving with regards to liquidity coming back to the private capital markets or are things still tough?

I would say maybe improvement on a very, very small margin but I still think we're going to be in a time period here where there's going to be a lot of headline risk, a lot of defaults and keys being thrown back. Hopefully there's someone there to catch them but, frankly, right now the lenders aren't really interested in taking the assets either, so I think we're going to have a time period here or call it 12 months to 18 months where we're going to continue to deal with some of these issues. And without any debt, there is no equity, so transaction volumes continue to be elusive and, as a result, a sense of pricing and price discovery in the market and, frankly, clarity around underwriting and what an exit cap rate should be is very difficult and that continues to weigh on overall transaction volumes. As we've talked about, those buyers that we've been approached by the market are generally non-institutional, they are local private equity, local family office who understand the nuances of the market, and see opportunities to either not have a competitive bidding pool and/or get a great price. So I think we continue to be very patient in that marketplace, recognizing that we do have some good assets that should garner fair value, once things open back up. Houston is under contract, we are being patient with the buyer to find financing, but we'll continue to look at other alternatives as dispositions as well, and still guide to accomplish somewhere between $100 million to $200 million of disposition in the next six months to 12 months.

Just sort of along those lines, any desire or willingness to offer seller financing, in certain instances?

Very relevant point, Dylan, and I think that's really what's gotten most of the transaction volumes that we're aware of, most of them, not all of them, over the goal line. So we have considered in the past, certainly done in the past. At this point, right now, with the Houston buyer, we've not capitulated. We've had some discussions, but I don't think that we're meeting immediately the leverage specials they would like to. But, overall, I think that's something we will continue to consider in some situations but in the instance of Houston, I think our preference would be to exit the market if possible.

And then just one last one, if I can, assuming U.S. Bank gets sell out here at the high end of sort of the range you guys guided to, is that a potential future disposition candidate or I guess just broadly speaking, how are you guys thinking about your Minneapolis presence over the longer term time horizon?

Yes, Dylan, very relevant question. I think we're certainly very close to U.S. Bank and in discussion, so I don't want to get too much detail or ahead of ourselves. But I think we view the long – the downtown asset is a critical component of U.S. Bank’s operations, we would have a meaningful reposition of their space, if we were to do a long-term lease like we're talking about here, but that's going to take several years to complete. And I think we're very committed overall to our position in Minneapolis, recognizing there may be an opportunity or some buildings to reduce exposure. But near term, I think we're focused on accomplishing those leases and then we'll worry about opportunities overall in the marketplace.

Right, appreciate the comments, Brent. Have a good evening.

Thanks for joining us this evening, Dylan.

Thank you. That concludes your Q&A session. I will now hand the conference back to Brent Smith for closing remarks. Please go ahead.

Well, again, I want to appreciate everyone who's taking the time to get on the call this evening. We certainly have been pleased with the operational performance of the portfolio and look forward to continuing to share that in the quarters to come. I'd like to remind investors as well we'll be attending the Bank of America REIT Conference on September 12th and 13th in New York City. If you'd like to schedule a meeting with management, please reach out to Eddie Guilbert or Bobby Bowers. And again, thank you everyone for joining. Have a good evening.

Thank you everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.