Q1 2023 Piedmont Office Realty Trust Inc. Earnings Call
Speaker 2: And welcome to the Piedmont Office Realty Trust in Corporate is 1st quarter, 2023 earnings call. At this time, all participants are in a list-none mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press.
Speaker 2: star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host Mr Eddie Gilbert. Eddie you may begin.
Speaker 3: Thank you operator and good morning everyone. We appreciate you joining us today for Piedemont's first quarter 2023 earnings conference call Last night we filed our form 10Q and an 8K that includes our earnings release and our unaudited supplemental information for the first quarter
Speaker 3: It's available for your review on our website at pdmontread.com under the investor relation section. During this call you'll hear from senior officers at Piedmont. Their prepare remarks followed by answers to your questions will contain four looking statements as defined in the private securities litigation reform act of 1995. These four looking statements address matters which are subject to risks and uncertainties.
Speaker 3: And therefore, actual results may differ from those we anticipate in this webinar today. The risks and uncertainties of these forlooking 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 forlooking statements in our SEC filings.
Speaker 3: Examples of forward-looking statements include those related to Piedmont's feature revenues and operating income, dividends and financial guidance, feature releasing and investment activity, and the impacts of this activity on the company's financial and operational results. You should not place any under-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.
Speaker 3: At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments regarding the first quarter's operating results.
Speaker 3: Our President and Chief Executive Officer, Brent Smith, will provide some opening comments regarding first-quarters operating results. Brent?
Speaker 4: Thanks Eddie and good morning everyone. Thank you again for joining us on today's call as we review our first quarter results.
Speaker 4: In addition to Eddie, I'm the line with me this morning or other members of the senior management team. Following me, you'll hear from George Wells, our chief operating officer, Chris Colmy, our EVP of investments, and Bobby Bowers, our chief financial officer. The first quarter of 2023 demonstrated continued resiliency and leasing.
Speaker 4: With Piedmont's prospective tenant pipeline holding steady, a meaningful tenant lease volume is executed during the first three months of the year. In total, we executed almost 550,000 square feet of leasing with approximately half of that to new tenants.
Speaker 4: The greatest amount of new tenant leasing on a quarterly basis since 2018.
Speaker 4: This leasing was comprised of mostly long-term deals generating an average lease term of eight years and delivering attractive cash rental rate roll-ups of almost 6%.
Speaker 4: Operational metrics were generally positive, and while Piedmont did generate strong new leasing activity, the success was somewhat mitigated by roughly 80,000 square foot known tenant move out in our suburban Boston market. Roll-ups on cash renewal rental rates were in line with past years where we have consistently generated positive roll-ups of 5 to 10 percent. However, cash same story in OI was down slightly this quarter due to the timing of lease commitments and expiration. The market for office tenancy is highly competitive.
Speaker 4: Particularly considering the economic and secular headwinds facing the industry.
Speaker 4: That said, Piedmont continues to demonstrate that high quality, amenitized work environments operated by well-capitalized, service-minded landlords continue to generate demand from small and medium-sized businesses as well as larger, non-tech corporate tenants.
Speaker 4: The flight to quality occurring in the market is playing the Piedmont strategy.
Speaker 4: providing premier workspaces at meaningfully lower rental rates versus new construction. In fact, Piedmont has achieved over 200,000 square feet of new tenant leasing 5 out of the last 7 quarters.
Speaker 4: which is higher than our average pre-pandemic leasing metrics, a testament to the success of our customer strategy.
Speaker 4: As in recent quarters, companies requiring a full floor or less continue to drive our leasing demand. Building on this theme, our average lease size in the first quarter was approximately 12,000 square feet. We are deliberately focused on attracting this key customer segment through our sales approach, property amenities, and host facility-minded service model. Its bid-efinning Piedmont is the small and medium businesses continue to grow and hire new employees while we see larger corporate tenants generally reducing headcount and office space requirements.
Speaker 4: In short, our leasing formula is working and we continue to be optimistic about the value proposition for our customers and the opportunity to continue our leasing success, particularly in today's capital constrained market. The flight to quality buildings and owner operators is favoring landlords like Piedmont.
Speaker 4: And in fact, I'm pleased to share that over 200,000 square feet of leasing has already been executed in the second quarter of 2023.
Speaker 4: of which over 125,000 square feet is for new tenant space.
Speaker 4: bringing our total new tenant leasing for the year to almost 400,000 square feet.
Speaker 4: That's more than half the new tenant leasing we completed during all of 2022, achieved in just the first four months of 2023. Furthermore, our leasing pipeline remains robust, including 350,000 square feet of leases currently in active negotiation and documentation. As Bobby will delve into further in a moment.
Speaker 4: Our balance sheet and liquidity remains strong, a differentiating factor as prospective tenants scrutinize the capital structure of potential future office buildings and landlords. This differentiation amongst office product is driving increased market share for the highest quality, placemaking assets, and well-capitalized landlords.
Speaker 4: And given the disruption in the broader capital markets, transactional activity remains challenging and new construction starts for office development are virtually nonexistent.
Speaker 4: With limited new development, we do expect that tenant demand will remain focused on the best existing properties within a submarket. Last, I want to publicly congratulate the Piedmont team for once again being designated as an Energy Star Partner of the Year for the third straight year. It takes a firm-wide effort for the Piedmont portfolio to maintain one of the highest percentages of Energy Star designated properties in the industry, and it's gratifying when our commitment to maintain sustainable, wellness-oriented work environments is recognized. Before turning the call over to George, we'd like to thank the Piedmont Group for their
Speaker 4: I want to thank you outstanding employees at P-Mont who provide excellent service to our customers each and every day. Their dedication, resilience, and hard work continue to drive our leasing success.
Speaker 4: With that, I hand the call over to George.
Speaker 4: with Chris and Bobby to follow to provide further details on the quarter and our outlook. George? Thanks, Brent, and good morning, everyone. Flight to quality theme continues as PMOP hosts another quarter of solid operational results. Perspective and existing tenants recognize PMOP's attractive?
Speaker 4: commute-worthy workplace proposition, citing ease of accessibility, vast amenity base, unique tenant engagement programming, and best-in-class conference facilities in conjunction with a sustainability-minded operator. And now we're beginning to hear more about the financial quality of landlords.
Speaker 4: and their capability of meeting mortgage obligations or funding leasing costs. This will give Piedmont another competitive edge in the leasing arena as we currently have no property level debt except for our fully leased 1180 Petri asset in Atlanta.
Speaker 4: Our competitive advantages reinforces our cautious optimism that leasing production trends will continue for 2023. This quarter, we completed 46 lease transactions for approximately 545,000 square feet of total overall volume.
Speaker 4: Of this amount, half of these leases totaling approximately 270,000 square feet were related to new tenant lease activity, a level not seen since 2018, and totaled roughly 12% of our vacant space. As Brent noted,
Speaker 4: This New Deal activity was well over our pre-COVID quarterly average of about 175,000 square feet, and our leasing pipeline activity has remained consistently around 2 million square feet.
Speaker 4: Continuing with operational metrics, our lease economics are very favor with 5.7 and 9.9 percent roll-up or increase in newly executed rental rates for the quarter on the cash and the cruel basis respectfully. Thank you.
Speaker 4: And our weighted average lease term achieved on new lease activity for the quarter was approximately eight years.
Speaker 4: Our lease percentage at the end of the first quarter was 86.1%, down approximately a half of a percent from year end due to previously disclosed about 2% or so lease expirations during the first quarter and a growing backlog of leases yet to commence.
Speaker 4: Quarterly lease expirations dropped to approximately 1% over the next few quarters, averaging 150,000 square feet per quarter, and leading us to believe we will end the year between 87 and 88% lease based on the current leasing pipeline.
Speaker 4: Nearly 90% of our new tenant lease activity occurred in our Sunbell portfolio, which is anticipated given approximately 70% of our available vacancies reside in either Atlanta, Dallas, Orlando, or Northern Virginia.
Speaker 4: Looking now at our specific targeted leasing market, I'd like to highlight for you a few key accomplishments which occurred during the quarter.
Speaker 4: In Dallas, our second largest market with approximately 20% of ALR. We experienced an extraordinary quarter with nearly 250,000 square feet or 46% of our overall lease in volume, including 172,000 square feet of new deals. Most notable was actually getting three new tenant full floor deals are greater.
Speaker 4: One being a 70,000 square foot lease to an energy company at our redeveloped Las Calinas Center. A second being a 58,000 square foot headquarters deal at our lead gold, one Galleria tower for a global logistics company moving its headquarters from out of state. And the third being a full floor lease to a local law firm at 6031 Connexion Drive.
Speaker 4: According to JLL's first quarter report, Dallas continues to post some of the strongest employment growth rates in the country and our portfolio is well positioned to capture future demand.
Speaker 4: In Atlanta, our largest market of almost 5 million square feet and generating approximately 27% of our company's ALR, our team had a very active quota as well, completing almost 175,000 square feet of leasing, of which 37% were new tenant leases. Of note, was landing another full.
Speaker 4: Lower headquarters requirement at our most recently completed redevelopment Atlanta gallery of 600.
Speaker 4: This lease to the Global Airline Communications Company represents another light to quality example.
Speaker 5: Leading a nearby class building and becoming a gallery of seventh full floor new deals since 2020, five of which are headquarter locations.
Speaker 5: That lease is projected to commence early in the fourth quarter of this year.
Speaker 5: Lisa's projected commence early in the fourth quarter of this year. Moving on to Boston.
Speaker 5: Our 80th Central Avenue asset made another splash this quarter by landing a sizable new tenant deal again.
Speaker 5: It's third in over the last quarter. Our newest tenant is an internationally acclaimed product development firm with specializes in R&D, industrial design and engineering.
Speaker 5: They too are relocating from a Class B building from an adjacent submarket with a modest expansion component.
Speaker 5: As a result, Central Avenue's lease percentages moved up to 86 percent, and our overall Boston portfolio, where a majority of our tech exposure resides, is well leased with minimal expirations over the next two years.
Speaker 5: That said, Salesforce and Microsoft, two tenants in our Boston portfolio, recently announced workforce reductions. As a result, Salesforce has announced that we are replacing some of its space on the sublease market.
Speaker 5: However, I would note that these two large leases don't expire until 2029 and 2031 respectively.
Speaker 5: Coming back to the overall Piedmont portfolio, we remain positive on near-term leasing trends and operational performance. Dena activity is still good. We have more proposal activity than previous trailing 12 months, currently totaling around 2.2 million square feet.
Speaker 5: Our tenant receivables are current and our overall utilization rate is approximately 60%, although it varies greatly by tenant and market.
Speaker 5: Finally, we're also encouraged that the escalating leasing cost that we've seen throughout the last year have flattened, and actual leasing concessions were down slightly from the fourth quarter of last year.
Speaker 5: I'll now turn the call over to Chris Coleman to review investment activity. Chris? Thank you George.
Speaker 3: Given the current constraints in the capital markets, we don't have any significant transactional activity or updates to report today.
Speaker 3: But we do continue to work a handful of mature and or non-core assets that we would like to monetize in 2023. Again, this is nothing new for Piedmont.
Speaker 3: We have received inbound interest in select assets and continue to work creatively and patiently with potential buyers. We remain cautiously optimistic about our ability to dispose of two or three assets during 2023.
Speaker 3: Regarding our two assets in Houston, we are under contract and through diligence with one potential buyer.
Speaker 3: The contract does provide a financing contingency and the buyer is actively pursuing debt.
Speaker 3: Across all cities and real estate sectors, the dislocation of the debt markets has resulted in seller financing often being a necessary instrument to complete transactions.
Speaker 3: At this point in time, we do not intend to offer seller financing on assets.
Speaker 3: However, we will continue to evaluate each potential transaction in light of market conditions.
Speaker 3: We intend to use any disposition proceeds received to pay down debt. With that, I'll turn it over to Bobby to walk you through the quarter's financial results and balance sheet highlights. Bobby.
Speaker 6: Thanks, Chris, as we indicate every quarter while we discuss today some of this period's financial highlights.
Speaker 6: I encourage you to please review the entire earnings release, the 10Q and the accompanying supplemental financial information which were filed last night for more complete details.
Speaker 6: Core FFO, Purge-Luted Chair for the first quarter of 2023, was 46 cents versus 51 cents Purge-Luted Chair for the first quarter of 2022.
Speaker 6: We're collecting the approximately 7 cents per diluted share increase in interest expense on a quarter over quarter basis partially offset by some operational growth resulting from successful leasing efforts, rising rental rates, and asset recycling over the last 12 months. AFFO
Speaker 6: generated during the first quarter was approximately $37 million. As George noted, rental rate roll-ups on executed leases continued to be strong during the first quarter.
Speaker 6: PASH basis rents were up almost 6% and
Speaker 6: Property NLI increased slightly on both the cash and the cruel basis for the quarter through the acquisition of 1180 peach tree during the third quarter of 2023.
Speaker 6: Same store NOI, however, decreased slightly
Speaker 6: Due to a 580,000 square foot increase in total leases yet to commence or in abatement.
Speaker 6: This total backlog of executed leases is now over 1.3 million square feet as of March 31, 2023.
Speaker 6: Leases expiring during the first quarter represented approximately 2% of our annualized lease revenue.
Speaker 6: in our same store in Hawaii.
Speaker 6: The first quarter of 2023 was the largest quarter with scheduled lease expirations that will impact our year-end lease percentage this year.
Speaker 6: Based upon the current leasing pipeline and outstanding proposals that George mentioned
Speaker 6: we continue to anticipate same store cash NOI will increase approximately 1 to 3 percent on an annual basis, and that our year-end lease percentage will be between 87 and 88 percent.
Speaker 6: Termination fees were immaterial during the first quarter and are not expected to be a contributing factor to our 2023 estimates.
Speaker 6: Turning to the balance sheet, during the first quarter we entered into a new $215 million unsecured term loan priced at SOFR plus 105 basis points.
Speaker 6: with a final extended maturity of January 2025. And we plan to use a majority of the proceeds from this new facility, along with potential proceeds from select non-court dispositions that Chris alluded to.
Speaker 6: along with draws on our $600 million dollar light of credit, which is currently fully available to repay our $350 million dollar ten-year bond that matures in June .
Speaker 6: After the repayment of the bond and receipt of the expected disposition proceeds, we anticipate our debt to gross asset ratio should be between 37
Speaker 6: We have no ground up development projects in 2023.
Speaker 6: and we have the lowest level of outstanding redevelopment tasks in several years, totaling expected spend of approximately $40 million over the next two years. Following this 2023 debt retirement,
Speaker 6: Our next scheduled debt maturity is in March of 2024 for a $400 million 10-year bond. We have already begun addressing this maturity through a number of means.
Speaker 6: by meeting with our investment bankers to evaluate a wide range of public and private capital markets alternatives, by holding a bondholder informational meeting and credit update scheduled for early next week, by engaging our relationship banks...
Speaker 6: to provide additional term loan lending. And since we have only one existing mortgage for an asset and our entire portfolio, we are also working with brokers regarding secured mortgage financing.
Speaker 6: In summary, we are actively pursuing a variety of financing alternatives, including public debt, bank debt, and secure debt.
Speaker 6: Our strong preference continues to be accessing the public and private bond markets for a five to ten year bonds for the entire maturity.
Speaker 6: But with the current debt market dislocation, the likelihood of a combination of the above sources, along with our line of credit availability and potential disposition proceeds,
Speaker 6: will most likely be used to address this 2024 maturity. At this time, I'd like to reaffirm our 2023 Annual Core FFO Guidance.
Speaker 6: in the range of $1.80 to $1.90 per share.
Speaker 6: the range of $1.80 to $1.90 per share. To remind you
Speaker 6: in keeping with our typical practice due to certain, the uncertain nature of estimating the timing of capital markets transactions. Our guidance does not include any disposition or acquisition activity. And we'll adjust and update this guidance.
Speaker 6: if and when such transactions occur. With that, I'll now turn the call back over to Brett for some closing comments.
Speaker 4: Thank you, George, Chris, and Bobby. Despite the macro challenges that the office sector continues to face, I encourage investors to look through the negative headlines and work from home sentiment, and instead focus on those operators and properties which are achieving leasing success like Piedmont. If you follow the leasing...
Speaker 4: It will identify the top 20% of buildings in a submarket, which on a relative basis are more successful today than they were pre-pandemic. We believe you can see this demonstrated in our 2023 lead seam metrics to date.
Speaker 4: Throughout 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 deliver the balance sheet and enhance our liquidity resources.
Speaker 4: But as we previously outlined, increased interest expense will weigh on earnings in FFO for the year. I will now ask our conference call 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. Operatorhas already contested for this year.
Speaker 2: Thank you very much. At this time we are opening the floor up for questions. If you would like to ask a question, please press star one on your phone keypad. A confirmation tone will indicate your line is in the queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be...
Michael, your line is live.
Great, thank you. It looks like TI's were up a bit in the quarter, and I know one quarter doesn't tell a whole story and it's specific to certain leases, but are you saying continued pressure on the CAPEX and when do you think net effective could ultimately stabilize or grow?
Michael, I was Brent, morning thanks for joining us. I think as you did know, TI's were up a little bit this quarter year over year, actually down a little bit quarter over quarter. So I do believe that we are seeing basically a leveling off of hard costs. So I think as you did know, TI's were up a little bit, we are seeing basically a level of hard costs.
Relief, sorry, leveling off and maybe in some instances a little bit of a decline in terms of hard cost around development, redevelopment, sorry, intended buildouts. I'd also note that we did a fair amount of new leasing this quarter as well, which generally tends to be a little bit more elevated than renewal leasing in terms of that TI capital. So overall I think we are seeing, I guess,
call it three years, we've averaged around 7% on a cash roll basis. So rents have been moving. Now in terms of net effective growth, I think we continue to believe that that may be difficult in this overall environment, particularly this year. So I think it's more reasonable to think we'll have a flattening of net effective.
maybe a potential for a growth into 24, 25 as some of, I think, the news and headlines and general negative sentiment, hopefully around office, start to dissipate.
Yes, thanks. You know, we're right in our burning note last night and we're typing in some of the valuation metrics for the stock, which I'm sure you're very familiar with, right? Three and a half times FFO, five times FAD, nine and a half times enterprise value, but almost a 12 percent implied cap rate. And I know Brent, I've asked you this off-line, but this kind of lack of interest from private equity or buyers. You know, buyers, I guess it's true and ind-
this deep deep discount. So I don't know kind of an open-ended question but I don't know if you have any thoughts there.
I think it's a very good observation, Michael, and I think in Piedmont, not alone in just how heavily the stock itself has been beat up. And I think really it is difficult for investors private equity or otherwise to really be able to discern in this environment what's successful and what's not. It varies greatly by market.
been successful in leasing and that has continued to be our answer in terms of trying to prove out the success of the portfolio and the strategy that we've been accomplishing and we continue to reiterate to investors that I think that's the most accurate way of discerning a successful portfolio. What's been unique to Piedmont is our focus on I'd say small or medium businesses.
So from a pricing standpoint, at a 12-cap, there just is a lack of interest overall in the sector, particularly in our name. And I think that will continue for some time because it is very difficult, again, for people to discern what's a successful portfolio and what's not. We'll continue to focus on the components that we can affect.
and what we can control and continue to then rely on those metrics and let the market make the decision for themselves. But I think we feel very good on an operational level where the portfolio is headed, but I do think overall fundamentals and the lack of financing in the sector has weighed on our name more so than it should.
Great, and then just lastly for me, I wanted to ask about the dividend because some office REITs have cut, some have talked about potentially cutting, some have even raised the specter of a cut just to say that they can if they need access to some extra capital. Your stock had a 13% dividend yield. It looks like good coverage.
What's your view of the dividend, are you committed to continuing to pay that, even if you had a 13% yield?
Yeah, Michael, you know, the board and management, we do review the business plan quarterly and our progress against that and throughout the year and how that relates to the dividend level. You know, we currently pay about 84 cents. We pay 84 cents annually. Global income levels would be roughly in that 50 to 60 percent range.
So we do pay out about $35 to $40 million above taxable levels. And no doubt a 13% dividend yield is unusually elevated. I think though as you point out, we have about 1.4 times AFO coverage of the dividend from cash flow, so it is well supported. So as long as the business is generating a leasing success that we're seeing, we have no ground up development.
warrant a reset, whether it be like an interest expense increase that's, you know, above what we would anticipate, meaningful dispositions that were significant in nature and or diminished cash flow due to expiring leases. But none of that is in the picture right now, and so I think we feel, and the Board feels comfortable where the dividend is today.
Again, we do have ample liquidity to fund the business, and we continue to monitor it closely. Great, thank you. Oh, and I wanna be clear, Bobby noted, I said the taxable levels are 50 to 60 cents a share, not percent if that didn't come through clearly.
and we do have ample liquidity to fund the business, and we continue to monitor it closely. Great, thank you. Oh, and I wanna be clear, Bobby noted, I said the taxable levels are 50 to 60 cents a share, not per cent, but that didn't come through clearly. Gotcha, thanks.
Thank you very much. Your next question is coming from Nick Sealman of Baird. Nick, your line is life. Good morning, guys. Maybe starting with Chris, seems as though activity on some of your nine core assets or strategic sales might have kind of picked up just.
Want to kind of get an update on what you're seeing maybe what markets we should think of as non core I know we talked about Houston, but is it also New York and Minneapolis? Just your thoughts there.
Hey Nick, good morning. You know, the comments on Houston, that is, I'd say we're cautiously optimistic as a sudden prepared comments and we can get a couple, call it two to three deals done in 2023. As you can imagine, it is a very, very difficult backdrop. We are under contract on Houston.
I'll tell you, Nick, if you saw the list of that are non-core assets that we might look to dispose, none of them would surprise you. They're non-strategic assets for one reason or another whether that's billing profile. It's location within a sub-market. It's competitive positioning or maybe it's a lower cash flow growth profile.
to predict, but we're going to certainly try.
Nick, I'd add, this is Brent, you know, in each of these situations, as we've noted in the past, the groups that are looking at assets are generally local operators that know the markets well. Again, we've talked about you've got to discern each submarket and asset or users, and they've mainly been inbound other than the Houston transaction. We're not actively marketing.
then maybe turning the George on the leasing the 350,000 square feet of active negotiations. I mean, what percentage of that's new leases versus renewals, and then what's like the average tenant size or profile of that?
Good morning, Nick. Thanks for joining us. I would say that, you know, we're really good about closing out that 350,000 square feet that's in pipeline today. I would say so far, so I'd say about a bird of that is for new activity. Though I believe that looking at overall proposal pipeline, which is elevated from where it's been in the past several quarters around 2.2 million square feet, we're hopeful some of those converge.
of the 200, so a little bit more in that instance, and it varies almost greatly by quarter, and some of the larger deals we're chasing that are new in nature obviously influence that. In terms of the average tenant size of what we're looking at, I think that very much fits what we've been talking about. Maybe one-
10 1?4, big being 50,000 square feet or more, and lots of full floors or less where we're seeing the most success. So average sinusitis probably still in that 15,000 square foot range is kind of where it works out to right now.
And the last one for me Brent any updates on some of the larger tenants like US Bank or Amazon? Yeah you know we continue to be obviously very close with US Bank given their near-term expiration. I would remind everyone that that is a great lead gold asset downtown in which they're headquartered.
where they occupy about 400,000 square feet. Best amenity package in Minneapolis on the 31st floor with 18-foot windows over the city. In the suburbs, they've got about 350,000 square feet and an asset that has some good walkability to it, but we would look to enhance if they were to renew.
We've continued to work through with them. They've got this merger integration with Union Bank of California that's proceeding well. They should, as we've talked about, have clarity early this summer, but they have kept their cards close to their best, but we still feel like a renewal of some percentage of space in both locations. As we've talked about, I know I've given a wide range of 50 to 100 percent.
in San Lee, etc. I think new development for them is not really a risk given the current timeframe in either location. Overall, I think we still feel positive there. Amazon, you mentioned, they reside now at our LEED Gold Dallas Galleria project that we did have upgraded LEED Gold status.
That project continues to suit their needs very well. I think it's more a decision for them about how much to renew in place. The likelihood of them going to a new development is limited, given there is none constructing in the submarket, and it's our understanding they would like to stay there.
But overall, it's still very early and too early for us. They have not fully engaged on what their expectations are. We're just trying to make observations about how they're utilizing the space. And more importantly, they've required everyone to come back to their space this week. So that is a big change from Amazon's mindset. And I think that will continue to evolve and influence their decisions on that 2025 expiry.
Very helpful. Thanks, everyone. Thank you very much. Just as a reminder, if you do have any questions or comments, please press star one on your phone keypad now. Our next question is coming from Dylan Biesinski of Green Street. Dylan, your line is live. Good morning, guys. Thanks for taking the question.
You guys touched on just the overall tough debt financing environment that continues to take hold for the office sector. And I know, you know, we hear a lot about the looming debt maturities in the sector over the next few years. So just curious if you guys are expecting to see a large amount of distress in the sector over the next few years and if this may create opportunities for Piedmont. I realize that, you know, obviously near-term capital needs are going towards addressing that 2024 maturity.
some dislocation, I'd say, today in the overall marketplace. I think you have to be mindful though that a lot of what's been truly impacted and is creating distress right now is probably not fit our strategy. It's generally been in West Coast and probably more CBD Northeast than what we currently operate in that has seen.
or continue to have challenges in terms of near-term refinancing that may require, you know, not they can get a new loan, but they may need to pay down or come up with some other slug of MEZ or preferred etc. So we continue to be very engaged on those opportunities with the mindset that it's probably not near-term that that is an issue, but more, you know, call it 12, 18 months out.
So we continue to be very patient. At this point in time, we'll continue to de-lever and put ourselves in a position that should we find that opportunity with one of these groups that we're building those relationships with, we'd be in a position to move on it. And what that might look like would have to wait for me to give you a better understanding of the market at that time. But we do continue to build those relationships around the assets that we would like to own and acquire.
Yeah, Dylan, that's a great question. And you know, I think it's lost on a lot of the market that we've leased 5 million square feet since the beginning of the pandemic. That's 30% of our portfolio today, and an average cash roll up to 7%.
Now, we've seen a lot of tenant build out over the last three years, you can imagine, in five million square feet. And I think it's changed. It's been interesting to see that evolution. But I think where we stand today, we are seeing more space per employee for smaller tenants as they continue to build more, I guess, community space or team building space or conference space, whatever you want to call it. And it has a different vibe.
potentially and or just having groups rotate through more efficiently their space. That's where we have seen maybe the same design as the smaller tenants but that trend of giving back 30% or so on renewals that has been driven really by utilizing the space differently, sorry, more efficiently. Overall space build-out has not, I'd say, materially changed although we see about 30% of the space
on their individual floor. I think as time has gone on, we've continued to see modest utilization in that 60 to 70 percent range, and we're finding that people want community and they want team building, and it may not be with their existing company, and those types of spaces are actually more enjoyed and more utilized when everyone in the building has access to them.
So I think that's a trend that we continue to lean into and design our spaces and our buildings so that there is more community space and it has more of that hospitality feel. And that has led to that 5 million square feet that we've been able to lease. But overall on how tenants build out their space, it's really just kind of more community space, 30 percent, and then what we talked about in terms of large tenants changing their use of space.
I think that's a trend that we've continued to lean into and design our spaces and our buildings so that there is more community space and it has more of that hospitality feel. And that has led to that five million square feet that we've been able to lease. But overall on how tenants split out their space, it's really just kind of more community space, 30 percent, and then what we talked about in terms of our descendants changing their use of space. That helpful?
Yeah, that was incredibly helpful. So, I appreciate that, that thorough overview. Thank you so much. Thank you very much. We appear to have reached the end of our Q&A session. I will now turn the call back over to Brent for any closing comments.
Thank you, operator. I appreciate everyone joining us today. Again, I want to remind investors to follow the leasing, as we say, and continue to focus on those companies that have continued to have leasing success. We would enjoy the opportunity to talk further about this at the New York City June Day Read Conference in about five weeks.
If you're interested in sitting down with management and talking further, please reach out to Eddie. Again, thank you everyone for joining. We'll talk to you next quarter or at NARIC. Thank you.
Thank you everybody. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.