Q1 2024 Piedmont Office Realty Trust Inc Earnings Call
Good day and welcome to the Piedmont Office Realty Trust incorporated first quarter 'twenty 'twenty four earnings call. At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments. After the presentation. It is now my pleasure.
Or to turn the floor over to your host Chief Accounting Officer, Lori I'm in the floor is yours.
Lori: Thank you operator, and good morning, everyone. We appreciate you joining us today for Piedmont's first quarter 2024 earnings Conference call last night, we filed our Form 10-Q, and 8-K that includes our earnings release and our unaudited supplemental information for the first quarter at 24 that is available for your review on our website at Piedmont REIT Dotcom under.
The Investor Relations section. During this call you will hear from senior officers that 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.
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. 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.
Lori: In our FCC filings examples of forward looking statements include those related to Piedmont future revenues and operating income dividends and financial guidance future financing leasing and investment activity and the impacts of this activity on the company's financial and operational results you should not place any undue reliance on any of these forward.
Looking statements and these statements are based upon the information and estimates we have reviewed as of the date. The statements were made also on todays call references I noticed that the company may refer to certain non-GAAP financial measures such as <unk> core <unk>.
Lori: <unk> 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 last night.
Lori: At this time, our president and Chief Executive Officer, Brent Smith will provide some opening comments regarding first quarter operating results Brent.
Christopher Brent Smith: Thanks, Laura.
Christopher Brent Smith: Good morning, everyone and thank you for joining us today as we review our first quarter results.
Christopher Brent Smith: We also had the usual full complement of our management team available to answer your questions.
Christopher Brent Smith: We had a strong start to the year at Piedmont, achieving significant levels of new leasing as well as completing meaningful financing and capital markets transactions to improve the company's balance sheet and liquidity position.
Christopher Brent Smith: Looking ahead to the remainder of the year, we continue to be optimistic about the secular trends that are driving our leasing momentum.
Christopher Brent Smith: If anything from the continued population migration to the sunbelt in the suburbs.
Christopher Brent Smith: Flight to quality in capital within the office sector and the continued differentiation between obsolete product and the well located and monetized environments that we provide and operate.
Christopher Brent Smith: No doubt our sector has challenges remaining as commodity office space is rationalized and repurposed.
Christopher Brent Smith: That said return to the office mandate continue to be the norm and Groundbreakings for new developments are at all time lows.
Christopher Brent Smith: We are seeing space demand accelerate for our top of Submarket assets in cities like Atlanta, Dallas, Orlando, New York and Minneapolis.
Christopher Brent Smith: Yes, the expectation the Piedmont can continue to drive leasing momentum and rental rate growth at our buildings.
Christopher Brent Smith: With regard to the capital markets transaction activity remains at all time lows, but pricing is starting to firm as deals occur.
Christopher Brent Smith: We don't anticipate a meaningful number of opportunities will present themselves until later this year or more likely in 2025.
Christopher Brent Smith: As debt and equity for office assets remains extremely difficult to source inhibiting transactions.
Christopher Brent Smith: That said the public unsecured debt markets are more constructive.
Christopher Brent Smith: Quiddity Investor interest continues to improve there's.
Christopher Brent Smith: As a point of reference our credit spreads have tightened roughly 250 basis points over the last year.
Christopher Brent Smith: Piedmont is well positioned as the credit cycle improves we are a very manageable $275 million of maturing debt in 2025 and no debt maturities in 2026 with.
Christopher Brent Smith: With demonstrated access to the public debt markets, we will continue to seek out attractive sources of capital to strengthen the balance sheet and lower our cost of funds.
Christopher Brent Smith: Turning to the highlights from the first quarter.
Christopher Brent Smith: As has been the case for the last several quarters leasing volume remained strong.
Christopher Brent Smith: We completed approximately 500000 square feet of total leasing with two thirds of that related to new tenancy.
Christopher Brent Smith: Pushing the lease percentage of our in service portfolio up to 87, 8% and continuing the occupancy gains that we've experienced over the last several quarters.
Christopher Brent Smith: I would note that during the quarter, we disposed of our 257000 square foot one Lincoln Park asset in Dallas to an end user.
Christopher Brent Smith: And as discussed in last quarter's call. We gave our 90 320 Excelsior building in Minneapolis, and auto service designation as we commenced redevelopment activities to upgrade the building to accommodate multiple tenants. Following the exploration of a full building lease at the end of last year.
Christopher Brent Smith: George will delve into market specifics and details on our leasing pipeline in a moment, but our operational strategy is continuing to resonate with numerous customer segments small and medium sized businesses as well as larger corporate enterprises as they seek to upgrade their workplace environments.
Christopher Brent Smith: As a result of the leasing activity. We've accomplished Piedmont has continued to drive operational growth despite market headwinds.
Speaker Change: For the first quarter, our same store NOI increased approximately 5% on a cash basis and I would point out that this is a consistently strong metric for Piedmont, where.
Speaker Change: Where we have generated positive same store NOI cash growth seven out of the last eight years with the only exception being in 2020 due to COVID-19.
Speaker Change: In addition rental rate roll ups on a cash basis continued their positive trend, increasing roughly 8% for the quarter.
Speaker Change: And adding to piedmont's track record of eight straight years of positive cash rental rate roll ups.
Speaker Change: We firmly believe that these two operational metrics demonstrate the portfolio's ability to deliver cash flow growth through real estate cycles.
Speaker Change: The leasing success over the last several quarters has generated a backlog of $1 3 million square feet.
Speaker Change: Leases, yet to commence or in a rent abatement.
Speaker Change: This equates to approximately $42 million in future annualized cash rents once the leases commence and abatements burn off.
Speaker Change: Over time this lease backlog will more than offset the lost rental revenue from the previously disclosed explorations at meridian crossing and $93 20, Excelsior Boulevard in suburban Minneapolis.
Speaker Change: And then as far as an update on those projects, we are executing our repositioning program at both buildings.
Speaker Change: And despite the disruption from construction and having marketed the buildings for only a few months. We're pleased to see strong receptivity from the market and have already executed four new leases for approximately 33000 square feet at this point.
Speaker Change: With more that's an advanced documentation potentially following.
Speaker Change: In fact, the leasing pipeline across the portfolio remains robust and thus far in the second quarter of 2024, we've already executed 22 leases for approximately 180000 square feet.
Speaker Change: Lastly, before I turn it over to George.
Speaker Change: I wanted to note that we were recently once again named an energy star partner of the year for 2024.
Speaker Change: However, this time, we received the highest designation, adding the sustained excellence distinction, which is awarded to organizations, who have earned partner of the year for several consecutive years and have gone beyond the criteria needed to qualify for recognition.
Speaker Change: We're the only office REIT headquartered in the South East received this premier designation.
Speaker Change: And we remain steadfast in our commitment to our employees.
Speaker Change: Customers still.
Speaker Change: Talk holders and local communities to be a market leader in commercial building operations and we believe energy Star sustained Excellence award recognizes our long standing efforts to reduce energy consumption across our portfolio.
Speaker Change: I would encourage all of our stakeholders to view, our sustainability program and a quantifiable results achieved that are outlined in our annual environmental social and governance report located on our website.
Speaker Change: With that I'll hand, the call over to George who will go into more details on our first quarter operational results.
Speaker Change: George.
George: Thanks, Brent good morning, everyone. Our regional teams were once again very productive this quarter delivering strong operational results.
George: All of our core markets experienced solid demand dominated by small to medium sized businesses that have a clear vision for the long term workplace strategy desiring to operate a modern eylea monetize workplace environment, which is a crucial element to these customers taking more in person attendance and interaction of.
George: According to the J LLS March 11th Snapshot report hardly a monetized building, which are defined as assets with 10 or more amenities and at least one differentiated offerings like a rooftop terrorists or full service fitness center, a resistance the broader downsizing trend impacting much of the U S office market.
George: While it is certainly experiencing this positive trend and I'm optimistic we can continue to deliver strong leasing results in 2024.
George: As Brent mentioned in his remarks.
George: During the quarter, we completed 54 lease transactions were 500000 square feet of total overall volume in line with our quarterly averages.
George: The majority of that bond was related to new tenant lease activity accounting for 30 transactions with 328000 square feet, which is substantially above our pre COVID-19 quarterly average of 165000 square feet and representing roughly 13% of our overall direct and service vacancy.
George: The average lease size of new tenant leases completed with approximate 11000 square feet consistent with the previous quarters with a weighted average lease term achieve being over nine years.
George: Continuing with operational metrics lease economics were quite favorable as well with 8% and 18% roll up or increase rents for the quarter on a cash and accrual basis, respectively.
George: Our leasing success contributed to the increase of our lease percentage for our in service portfolio at the end of it.
George: We're at 87, 8%.
George: As we have experienced for several quarters, most of our new tenant lease activity or 80% occurred in our sunbelt portfolio or 63% of our vacancies reside.
George: Capital spending for the quarter was approximately $6 per square foot per lease year in line with our average for the past several quarters although competition.
George: <unk> and supply chain logistics continued to put pressure on those capital metric.
George: During the quarter, we did have seven tenant lease expansions that were largely offset by three contraction.
George: And sublease availability has continued to hover around the last quarters average of approximately 5%.
George: Next I'd like to highlight for you in your key accomplishment now that's occurring in some of our specific operating markets this quarter.
George: Atlanta, our largest market captured the most activity this quarter with 15 deals accounting for 142000 square feet of which 75% were new leases.
George: Most noteworthy assurance America National insurance operator.
George: Securing another corporate headquarters the Galleria the ninth in 2022.
George: To support the flight to quality theme or more rapidly as Piedmont sees that they liked the place making experience, which builds upon well located high quality real estate, which include hospitality design common areas here with high quality service.
George: We believe our modern off the market amenity set at 999, Peachtree will be a very compelling option for existing tenant retention and attracting new tenants.
George: And along with our 11 80 Patria, yes. It gives us the two best assets in Midtown.
George: Elsewhere in the Submarket.
George: Another major employer and see our voyage was 14 story towers nearer to Midtown Trophy asset has announced that all take photos personnel reporting to the office five days a week beginning may six.
George: Of course in the trend of more in office work.
George: Our Dallas portfolio, a pitch and the second most leasing volume was seven deals for 128000 square feet almost 90% of the volume was for new space.
George: And completed in each of our core Submarkets of Alcatel Las Colinas.
George: Lower tollway and prestige.
George: We anticipate this broad based demand to continue which bodes well for addressing our Dallas exposure over the next four quarters.
George: The largest of our select markets.
George: Notable and subsequent to the first quarter, we amended Ryan beliefs to accommodate an expansion debate thousands square feet, an extension of a pool or from 'twenty to 'twenty five to 2020 nine and another.
George: The extension of 54000 square feet for 14 months.
George: Along with other ongoing extension negotiation, we feel good about mitigating a majority of the lease maturities in Dallas over the next 12 months.
George: Or put another way.
George: We'll achieve retention rate in line with our historical average.
George: Switching to New York at 60 Broad Street tower located in lower Manhattan attracted three new tenant deals for 28000 square feet Prosper.
George: Prospects here have been attracted to it was hardly a monetized did he block and a recently completed Morris Adjmi design lobby renovation.
George: With Costar now rating, our 60 broad location with a op Walker's Paradise score.
George: We're seeing very good activity here with some customers coming through several nearby office the resi conversion such as 55 broad Street 80 pine and others.
George: Extension discussions were listed in New York continue to predictably slow governmental pace, but are still ongoing and are positive.
George: Coming back to our overall portfolio, we remain positive about our future near term leasing trends.
George: As Brent previewed our leasing pipeline activity is quite good with over 700000 square feet in late stage activity.
George: Suitably higher than our normal of around three to 400000 square feet.
George: Outstanding proposals sit at well over 2 million square feet.
George: Comparable trailing 12 months and tour activity was the strongest we've seen since early 2020.
George: That said as we noted on our last call when discussing the outlook for 'twenty 'twenty four we project the lease percentage should dip below our current level during the second quarter.
George: Mostly due to the U S bank suburban exploration, but then recover back to the days in service percentage of around 87%, 88% by year end.
George: I'll now turn the call over to Chris Coleman or any comment on investment activity Chris. Thank.
Chris Coleman: Thank you George as I've mentioned over the last several quarters. We continued disposition discussions on a select number of noncore assets with mostly local operators or owner occupiers, who are targeting are smaller assets generally those less than 250000 square feet.
George: As Brent mentioned this quarter, we closed one transaction of this nature.
George: Selling our one Lincoln Park asset in Dallas for $54 million or $210 per square foot.
George: On an all cash transaction to a financial institution, who plans to use the building as its new headquarters location.
George: One Lincoln Park is a 10 storey approximately 257000 square foot building, which was 59% leased as of December 31 2023.
George: While this asset is located in one of our core sunbelt markets and not one that we would have necessarily targeted for disposition.
George: This was an opportunity to sell at what we consider to be fair value given the estimated capital required to lease up the balance of the building.
George: We immediately redeployed the proceeds from the sale to pay off all remaining 2024 notes on an earnings neutral basis.
George: Furthermore, Piedmont has been retained as property manager post sale.
George: As far as the other activity, we do have a couple of other small disposition opportunities that we're working on but nothing to specifically comment on at this time we.
George: We still do anticipate disposing of an incremental $40 million to $60 million more over the balance of 2024.
George: As always we will keep you informed of any material activity on this front and we will continue to earmark any resulting sale proceeds towards the reduction of debt.
George: And while acquisitions are not a priority at this time, we do remain highly engaged across our operating markets with a very strong bias towards our sunbelt cities with our scale operational platform and deep local relationships. We believe opportunities may surface by year end or in early 2025, but we will.
George: We need to be disciplined and patient, which we think is appropriate in this environment.
George: With that mindset, we will continue to position the balance sheet to take advantage of the conditions, if and when compelling opportunities arise.
George: With that I'll turn the call over to Bobby to review our financial results Bobby.
Bobby: Thank you Chris will be discussing some of this quarter's financial highlights today.
Bobby: Please review the entire earnings release, the 10-Q and the accompanying supplemental financial information, which were filed yesterday for more complete details.
Bobby: Core <unk> per diluted share for the first quarter of 2024 was 39 subs versus 46 cents per diluted share for the first quarter of 2023.
Bobby: Although property NOI increased on both a cash and accrual basis during the first quarter of 2024 as compared to the first quarter of last year. The first quarter of 2024 reflects a little over six cents per share of increased net interest expense, which led to an overall decrease.
Bobby: Raised core <unk> per share results for the quarter.
Bobby: <unk> generated during the first quarter of 2024 was approximately $25 million, providing ample coverage of the current dividend and funding.
Bobby: Finding for our foreseeable capital needs Capex for the quarter was elevated due to a major redevelopment activities at night.
Bobby: Peach tree and gallery on the park in Atlanta, and the exchange of South Orange Avenue, and Orlando, which are all scheduled to be completed during the third quarter of this year.
Bobby: Turning to the balance sheet as we announced in conjunction with last quarters call. During January of the first quarter, we completed a $200 million three year unsecured term loan.
Bobby: With our key banking relationships and use the bulk of these proceeds to repay 190 million of a $215 million term loan that was scheduled to mature in January extending out the remaining 25 million to 2025 maturity.
Bobby: In conjunction with that transaction. We also use the remaining proceeds and our line of credit to repay the outstanding 100 million dollar balance of another bank term loan.
Bobby: Further in March as Chris indicated we use net proceeds from the one Lincoln Park disposition.
Bobby: We repaid the remaining $50 million balance on our 2024 senior notes that also matured in March.
Bobby: As a result of this quarter's refinancing activity, we have only $275 million of bank term debt maturing until 2027.
Bobby: And we currently anticipate repaying this debt using a combination of net proceeds from the disposition of select properties.
Bobby: Well below to you on our $600 million line of credit.
Bobby: The nature and timing of any of these additional sources of capital is obviously highly dependent on market conditions. However, we will strive to address this debt maturity over the next few months, while continuing to preserve our large unencumbered asset pool as we believe this is a clear advantage in the current leasing environment.
Bobby: As high quality place, making asset owners that are well capitalized.
Bobby: Turning to garner outsized leasing demand.
Bobby: Finally at this time I'd like to also reaffirm our 2024 annual core <unk> guidance in the range of $1 46 to $1.56 per diluted share.
Bobby: With no significant changes currently anticipated in prior guidance related to interest expense G&A costs or annual same store NOI growth.
Bobby: In keeping with our normal practice due to the uncertain nature of capital markets environment.
Bobby: This guidance does not include any acquisition disposition or refinancing activity, but.
Bobby: But we will adjust and communicate to you the impacts on guidance if any of these transactions occur.
Bobby: With that I'll turn the call back over to Brent for closing comments.
Christopher Brent Smith: Thank you George Chris and Bobby.
Christopher Brent Smith: Everyone at Piedmont remains laser focused on our core business designing managing and leasing great office space.
Christopher Brent Smith: Despite the macro challenges the office sector faces the investments that we've made in our portfolio combined with a best in class service model is resonating with existing and prospective tenants alike.
Christopher Brent Smith: And aside from the one large known move out during the second quarter, we have a very manageable lease exploration schedule for the remainder of the year equating to approximately 5% of annualized lease revenues that are not already been backfill.
Christopher Brent Smith: I would also note that the majority of our vacancies reside in our sunbelt markets, where we see a healthy and growing pipeline of prospects.
Christopher Brent Smith: Piedmont is balance sheet is well positioned with limited outstanding maturities over the next three years and we continue to be selective with capital deployment and anticipate being a net seller of assets to continue to deleverage the balance sheet and enhance our already ample liquidity resources.
Bobby: However, as indicated when we originally introduced our 2024 guidance back in February we expect the impact of increased interest expense and known Vacates resulted in an earnings in vacancy trough in the third quarter with an anticipated return to quarterly episode growth thereafter.
Speaker Change: With that I will now ask the operator to provide our listeners with instructions on how they can submit their questions.
Speaker Change: We will attempt to answer all of your questions now or we make appropriate later disclosure if necessary operator.
Speaker Change: Certainly the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
Operator: So while posing your question. Please pick up your handset if listening on a speaker phone to provide optimum sound quality. Please hold Justin on that while we pull for questions.
Operator: Your first question is coming from Anthony Powell with J P. Morgan. Please pose your question your line is live.
Anthony Powell: Oh, great. Thank you. My first question is with regards to dispositions I think you said $40 million to $60 million and I was wondering if you can give us a sense as to whether that's operating assets or it looks like you've got some land parcels.
Anthony Powell: Contract as well, so just trying to understand what might be in that mix.
Speaker Change: Good morning, Toni I appreciate you joining us.
Speaker Change: Went out we were very pleased to get the Dallas just accomplished.
Speaker Change: Accomplished but we did it lead to another 40 or $60 million or so.
Toni: Later this year, that's comprised of potential both land and operating parcels I think as you know our model for some time, we always say everything is for sale.
Speaker Change: And we've used that as a means to grow earnings.
Speaker Change: But in this market. It is very challenging from a disposition standpoint, it seems like everything prizes opportunistically, even if it's a core profiled asset in nature.
Speaker Change: But we continue to find as we've noted in our prepared remarks and user groups that are well capitalized as well as a smaller local private equity shops and no high net worth individuals who.
Speaker Change: Recognize a market opportunity you see the value in certain assets and we continue to engage with them on some of these potential dispositions as I've noted in the past Houston is still a non core market and we are engaged with several potential buyers or acquirers of those assets were hopeful that one of the two will get.
Speaker Change: And then other than that and the other just kind of a smaller asset and or potential landfall and parcels. So it's a combination of both although I think it's probably more likely this year to be assets not land those do take quite some time to accomplish and as we think about those land parcels, where we're looking probably more towards creating an immediate need that in our name.
Speaker Change: During office buildings, so theyre likely other uses to go on that land would there be typically residential hotel or retail.
Speaker Change: Okay got it so it was I mean, it looks like a couple of parcels you've got under contract or subject to zoning or those being like a is it likely to go residential is that would.
Speaker Change: You know the hold up is or what's going on that very very keen exactly is likely to grow residential and includes retail that we would also utilized.
Speaker Change: You see more of that quote amenity to the office.
Speaker Change: Tony This is Chris I think those are highly unlikely to close in 2024.
Tony: Oh, Okay, so probably not in that 40 to 60 then for this year.
Speaker Change: Yes, Okay got it.
Speaker Change: And then any update on a.
Speaker Change: The city of New York, and just for <unk>, but we used their end.
Speaker Change: Any risk of that just getting downsized or are there sort of picture changing.
Speaker Change: Well I think.
Speaker Change: No.
Speaker Change: Tony Nothing's done until it's done.
Speaker Change: We feel very good and we've always continued to reiterate that <unk> is very much engaged on a renewal.
Speaker Change: That probably it's wrapped up sometime later part of this year is what we're thinking from a timing perspective. It doesn't have to go through a lot of internal processes and as we've talked about on prior calls they waffled back and forth on which groups would be in this space the ability to focus on.
Speaker Change: At renewal at that point in time, given the difficulties of the agencies and what's been going on with city from a migrant housing crisis homeless crisis in a budget crisis.
Speaker Change: We are very much engaged in we still feel very comfortable to say the.
Speaker Change: Renewal of substantially all of the space.
Speaker Change: Okay, and just last one maybe for Bob if I could sneak just one in just do you do you know offhand how much in committed Capex is outstanding that just hasnt yet been spent I guess you know for some of these larger leases that you have gotten done.
Bob: Yes, Tony in our supplemental.
Bob: Disclosure, we do know that there's really one large project.
Bob: Standing for the company and Thats really related to the large U S Bank lease that we just executed last quarter. As a reminder, that was a 10 year transaction with no free rent.
Bob: And so but that does give us a 500, I'm sorry, 450000 square foot lease it doesn't have a sizable capital outlay other than that I would add it will take us two to three years to spin that sizable capital outlay, which as we noted on our previous call was approaching a triple digit number from a capital per square foot.
Bob: Total amount.
Speaker Change: So that does cause I will check those it'll come in over several years.
Speaker Change: The reconstructing the bank space, but again attached to a great long term lease and if their headquarters building in a LEED gold asset. So we're going to keep that building top of market, which also gives us the expectation will be continuing to get more than our fair share of leasing in downtown Minneapolis with the best asset in the Submarket.
Speaker Change: In regards to.
Speaker Change: Sorry to bother you if theres anything else you would add in terms of a large tenant or large capex, we've not disclosed but you would highlight.
Speaker Change: I wouldn't say all the tenants there is.
Speaker Change: Obviously this quarter, we had higher than normal redevelopment costs, that's associated with finishing our major redevelopment projects, such as being something it's $10 million or so.
Speaker Change: 60, broad Manhattan's history Galleria here in Atlanta.
Speaker Change: Change in Orlando.
Speaker Change: Mitch.
Mitch: Oh I see.
Mitch: M D and E. That's included in our 10-Q, there is a detailed $17 million was spent there and total work remains for all of those projects is less than that it's about 15 million in total over the next couple of quarters.
Mitch: And I would reiterate Tony we have no ground up development and so we feel it really feel like.
Mitch: From a capex perspective, there's good cash flow from the assets, we're investing in today and we've proven our ability to drive rents higher post renovation.
Speaker Change: Okay. Thank you.
Speaker Change: Your next question is coming from Nick Zelman with Baird. Please pose your question your line is live.
Nicholas Patrick Thillman: Hey, good morning, guys, hoping to cut up a little bit of a leasing pipeline and kind of just dissect that a little bit. So just guidance, one $5 million to $2 million for the full year. It looks like that at the midpoint that would be like $1 1 million square feet of leasing for the remainder of the year, you got 800000 square feet of kind of exploration or so.
Nicholas Patrick Thillman: And you mentioned the 700000 square feet of late stage pipeline. So just wondering of that pipeline the breakdown between new and renewal and then kind of how you think the cadence is for leasing as the year progresses.
Mitch: Yeah.
Mitch: Good morning, Nathan This is George.
George: Joining us look I think it's really important to mention that our field teams are really key part of this equation right, where they continue to innovate refine the workplace proposition, which is really essential in today's hyper competitive environment right. I mean this is a result of that it's allowed us to recognize 13 straight quarters of pretty cool in new leasing eggs.
Mitch: But also we have some of the highest retention rates in the industry, but coming back to our pipeline I think we already mentioned about 180000 square feet executed the month of April we've got another 700000 square feet of legal stage. So we combine those two numbers are looking at 900000 square feet of overall volume.
Mitch: Really pretty strong compared to our average of about a half a million square feet I would say with a combined pipeline. Another 900000 square feet about 30% of that is for new new deal activity and it should be no surprise that a dominant amount of that is related to our sunbelt market.
Mitch: No I wouldn't say that activity for new and renewals is pretty strong across all of our markets.
Mitch: And in terms of looking at the industries that are really stepping up the demand elements I would say is insurance engineering finance banking legal.
Mitch: Legal architects as well if I can say a couple of other technology companies.
Mitch: If you dig a little further into our proposal stages, where I think I mentioned was 2 million square feet of activity there.
Mitch: I'll do that we're hoping to turn into lease.
Mitch: Documentation stage.
Mitch: It was really interesting about that is the fact that Minneapolis is emerging with more activity than we've seen in the past and there should be no surprise. When you consider the fact that Excelsior and MTA projects as well as the impending U S. Broad U S Bank exploration that's coming in May in the suburbs. So we're seeing about half a dozen deals and that particular mark.
Mitch: It plays a range between 15 and 50000 square feet, although it's new we do like the fact that the formula that we've used elsewhere and addressing our vacancy seems to have some pretty good early wins.
Mitch: In Minneapolis.
Mitch: With that being said as.
Mitch: I look forward I feel pretty good that we'll continue to provide the kind of results we've seen over the past several quarters.
Mitch: Not just about improving the workplace environment, but in a market.
Mitch: Reputation here that Piedmont can step up and fund the improvements that are needed in our lease commitments as well as pay the brokers, but the deals that are bringing to the table. So that's why we continue to be cautiously optimistic as you've heard Brent mentioned in his prepared remarks continued strong deal flow in our portfolio.
Speaker Change: That's really helpful. And then maybe just touching a little bit back on dispositions like good execution in Dallas do you see any other opportunities here, where maybe it's an under leased property that might be a fit for an owner user or is it still just kind of a wait and see approach and that was a unique one off.
Speaker Change: This is Brent Nick and thanks for joining us today and I do believe I had mentioned there are a number of smaller sized assets and maybe well leased but have some near term vacancy. Some user groups are looking at they are unique I don't want to make it sound like Theres a lot of those out there, but I think a number of firms.
Mitch: Now recognize the disruption in the private market for real good quality buildings and are utilizing that as a means of particularly as a public company or a large lease exposure that goes onto the balance sheet and evaluating that versus just buying an asset at a very discounted price and putting that on the balance sheet.
Mitch: So I think Youll continue to see similarly financial services firms.
Mitch: High net worth individuals that are looking at it as both a family office in an investment continued to look at our assets and others in the market that fit that profile.
Speaker Change: That's helpful. And then last one maybe for Bobby what's the total capital outlay for the Redevelopments in Minneapolis.
Bobby: There are no large projects that are there as we talked about major project spring 10 million total capital outlay maybe.
Bobby: It's probably 10 to $15 a square foot range.
Mitch: Okay.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thanks for the clarification.
Mitch: And I would note too that we've continued to see strong leasing there and as I noted in my prepared remarks, we've already got about 33000 square feet amongst those two buildings accomplished with a good pipeline as George alluded to behind it.
Mitch: Your next question is coming from Delon Brzezinski with Green Street. Please pose your question your line is live.
Dylan Burzinski: Hi, guys. Thanks for taking the question.
Dylan Burzinski: Just a quick one on sort of leverage and how are you guys thinking about a target for our long term leverage goal as as you guys get dispositions across the finish line.
Dylan Burzinski: As we stated.
Dylan Burzinski: Our target is between 30 and 40% leverage currently we're around 38%, obviously, we'd like to drive that down closer to the midpoint, 35%.
Mitch: I think from a debt to EBITDA standpoint as well.
Mitch: Looking to try to stay in the mid to high sixes tried to continue to drive that to the mid sixes through both cash flow growth, but as we've talked about dispositions and pay down of debt you are more near term. So that'll be the two levers that we can continue to use to improve the balance sheet and the liquidity I would note too that we have very little debt maturing.
Mitch: Over the next two years and if you think about the cash flow off the portfolio, we're generating roughly around $310 million to $320 million a year of EBITDA.
Mitch: And then you've got interest expense right now around 100 $520 million annually, which leaves us with call. It a hunch showing 200 million for the dividend and capital expenditures and dividends at a $50 million to $60 million.
Mitch: We got more than ample cash flow to continue regular way in capex and hopefully once we're through this period. The body's noted here of wrapping up a few of the larger projects in and around the summer timeframe that will give us cash flow to continue to delever as well.
Mitch: And then as you guys sort of think about potential acquisition opportunities do you guys have sort of a yield on cost or unlevered IRR target that would get you really excited about or what are some of the things that youre looking at to actually go out and buy.
Mitch: Assets in the private market.
Speaker Change: Great question Joe.
Speaker Change: Maybe I'll take this as an opportunity to take a step back and really explain how we view and I've been thinking about the market overall.
Speaker Change: When we Covid hit and really a year. After the hybrid model is starting to take shape. We use a firm took a step back really looked at their strengths weaknesses opportunities and threats and customer segmentation in detail we.
Speaker Change: We created a strategy, which was to focus on small and medium enterprises hospitality design and an elevated level of service and then we went out and executed that in here in Atlanta.
Speaker Change: Now that's not necessarily through some acquisitions over the last few years do you think about 999 and $11 80 as well it just before the pandemic, putting the rest of the Galleria in Atlanta, together, but each of those projects, we've really created a unique environment.
Speaker Change: And we've built a track record and I would encourage investors to come to Atlanta, and see what we've accomplished but it has not only been here as well we have started to export that and multiply and amplify that capability in the Dallas Galleria project Exchange project in Orlando, which is 202 to two large as well as 60 broad.
Speaker Change: And in New York, and what we've continued to prove out and build that track record is continuing to have occupancy growth I'll use Atlanta. As example, we drove driven now occupancy over the last few years from 84% across the Atlanta portfolio, which is almost 5 million square feet to 92% and that's why all our direct peers have lost almost.
Speaker Change: 400 basis points of occupancy on potentially or more so we really felt like we've created now a model that we can leverage and that model is really focused on taking older vintage assets.
Speaker Change: Call. It 1980 to 90 is managed product, which is very much the description of what I just described.
Speaker Change: What we've acquired previously and then really rehabilitating that and being very successful at it. So now we are at the point, where really wanted to sell that capability and <unk> were given an opportunity in the public markets or if theres private capital that would consider partnering with us we're going to look for creative ways to grow the asset base now.
Speaker Change: Your point and so that's how we think about funding and positioning and selling our capabilities and raising capital around that if you think about how are we thinking about specific acquisitions, Chris and the team are laser focused on the 10% to 15 assets that we'd like to own and every one of our markets and we know them backwards and forwards who else is on the cash tax the leasing.
Speaker Change: Profile and the opportunity and when it might come to market. We continue to have a sunbelt focus on our existing operating markets, where we have a eight.
Speaker Change: Municipality relationships, great relationships with brokers and the other players in commercial real estate market and we'll leverage that knowledge to target acquisitions that are drilling not gonna be marketed but our of our profile again, a high quality it could be potentially be an older vintage or even something that was built in the early two thousands to now.
Speaker Change: In the teens, but as capex is going to be needed.
Speaker Change: <unk> role that might be creating a very discounted pricing as we talked about previously nothing prices decor, but any opportunistic returns would be what we're looking for so you are thinking about unlevered IRR in the mid teens for challenged real estate, but something that we can continue to drive long term.
Speaker Change: Value add.
Speaker Change: And so we really want to get away from thinking about a cap rate, but we're very focused on basis and as I mentioned Unlevered IRR.
Speaker Change: And driving.
Speaker Change: Moving back towards that prolific BHF recycled $300 million to $400 million of assets a year.
Speaker Change: We're going to take some time for the transaction market. So really I think allow us that opportunity, but we have an eye towards deleveraging and positioning the company for acquisitions latter part of this year more likely 2025, which we think will pair well with a lot of dislocation that might be forthcoming.
Speaker Change: And so we will continue to be creative about how we source capital how we look at deals and what we can bring into the portfolio and grow the asset base again. So thanks for the question.
Speaker Change: No no. Thanks for that answer that that's incredibly helpful to sort of get into the thought process and how you guys are doing there so really appreciate that Brian.
Speaker Change: Yeah.
Speaker Change: Alright, and again, if you do have any remaining questions or comments. Please press star one on your phone at this time. Please hold just a moment for any additional questions.
Speaker Change: There are no additional questions in queue at this time I would now like to turn the floor back over to Brent Smith for any closing remarks.
Christopher Brent Smith: Thank you I appreciate everyone, taking the time to join US today, a few points reminders, we do at the NAREIT Conference in New York City June 4th to the sixth please reach out to Jennifer Laura Bobby If you would like to meet with management.
Christopher Brent Smith: As I noted before I'd encourage investors to take the time come to Atlanta, CBD assets see what we've been able to accomplish here.
Speaker Change: I think it's really a story that we're extrapolating across the rest of the portfolio, but we have been focused here in the last few years and it's paid off.
Speaker Change: And I think it will help investors better understand the office market and the unique segmentation that exist today across assets in that sector.
Speaker Change: With that I appreciate everyone, joining and we look forward to talking to you in New York.
Speaker Change: Thank you everyone. This does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Speaker Change: Okay.