Q2 2024 Piedmont Office Realty Trust Inc Earnings Call
Good day and welcome to the Piedmont Office Realty Trust Incorporated second quarter 2024 earnings call.
Operator: Piedmont Office Realty Trust, Inc. 2nd quarter, 2024 earnings call. At this time, all participants are in a listen-only mode.
Operator: After management's prepared remarks, there will be a question-and-answer session.
After managements prepared remarks, there will be a question answer session I would now like to turn the call over to your host Laura Moon. The floor is yours.
Operator: second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the call over to your host, Laura Moon. The floor is yours.
Laura Moon: I would now like to turn call over to your host, Laura Moon. The floor is yours. Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont 2nd quarter 2024 earnings conference call.
Laura Moon: Thank you, operator, and good morning everyone. We appreciate you joining us today for Piedmont's 2nd quarter 2024 earnings conference call. Last night, we filed our form 10-Q and an 8-K that includes our earnings release and our unaudited supplemental information for the 2nd quarter of 2024, which is available for your review on our website at piedmontreit.com under the investor relations section. During this call, you will hear from senior officers at Piedmont.
Laura Moon: Last night, we followed our form 10-Q and an 8-K that includes our earnings release and our unobited supplemental information for the 2nd quarter of 2024 that is available for your review on our website at piedmontread.com under the Investor Relations section. During this call, you will 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.
Laura Moon: 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 that 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 in our SEC filings. We encourage everyone to review the more detailed discussion related to risks associated with forward-looking statements in our SEC filings.
Laura Moon: 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 and our SEC violations. Examples of forward-looking statements include those related to Piedmont's 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 are made.
Laura Moon: Examples of forward-looking statements include those related to Piedmont's 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, which are based upon the information and estimates we have reviewed as of the date the statements are made. Also, on today's call, representatives of the company may refer to certain non-gap financial measures, such as FFO, core FFO, AFFO, and same store NOI.
Laura Moon: Also on today's call, representatives of the company may refer to certain non-GAAP financial measures such as FFO, CoreFFO, AFFO, and St. Dore NOI.
Laura Moon: The definitions and reconciliation of these non-GAAP measures are contained in the earnings release and in the supplemental financial information, which were filed last night.
Speaker Change: In the supplemental financial information, which were filed last night.
Laura Moon: The definitions and reconciliations of these non-gap measures are contained in the earnings release and in the supplemental financial information, which were filed last night. At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments regarding second quarter operating results.
Brent Smith: At this time, our president and chief executive officer, Brent Smith, will provide some opening comments regarding second-quarter operating results. Brent. Thanks, Laura. Good morning, everyone, and thank you for joining us today as we review our second-quarter results. In addition to Laura, on the line with me this morning are George Wells, our chief operating officer, Chris Colme, our EVP of investment, and Bobby Bowers, our chief financial officer. We also have the usual full complement of our management team available to answer your questions. Piedmont had an exceptional quarter, and we're very pleased with the results thus far this year.
At this time, our president and Chief Executive Officer, Brent Smith will provide some opening comments regarding second quarter operating results Brent.
Brent Smith: Thanks, Laura good morning, everyone and thank you for joining us today as we review our second quarter results.
Laura Moon: Thanks, Laura. Good morning, everyone, and thank you for joining us today as we review our second quarter results. In addition to Laura, on the line with me this morning are 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 complement of our management team available to answer your questions.
Speaker Change: In addition to Laura on the line with me. This morning are George Wells, our Chief operating Officer, Chris <unk>, our EVP of investments and Bobby Bowers, our Chief Financial Officer.
Brent Smith: We also have the usual full complement of our management team available to answer your questions.
Piedmont had an exceptional quarter and we're very pleased with the results thus far this year.
Brent Smith: Piedmont had an exceptional quarter, and we're very pleased with the results thus far this year. As we released last night, Piedmont completed over 1 million square feet of leasing, the largest quarterly volume the company has reported in over a decade, when, at that time, the portfolio was approximately 35% bigger than it is today, and we operated in 18 markets. As you all know, we will be a very different and far more focused company in 2024.
George Wells: Out of the headline one million square feet of total leasing, over 400,000 square feet of the quarter's volume was related to new tenant leasing. And importantly, the balance included several sizable renewals, which gives us confidence that we can increase portfolio occupancy through the remainder of 2024. In addition, our customer service and leasing strategy targeting small and medium-sized tenancy is driving portfolio leasing volumes and rental rates to new highs. Piedmont is extremely well positioned to compete and gain market share in this next office cycle. The company's leasing success over the last several quarters has generated occupancy gains in our in-service portfolio.
Brent Smith: As we were released last night, Piedmont completed over 1 million square feet of leasing; the largest quarterly volume the company has reported in over a decade. When at that time, the portfolio was approximately 35 percent bigger than it is today, and we operated in 18 markets. As you all know, we are very different and far more focused company in 2024. Out of the headline, 1 million square feet of total leasing, over 400,000 square feet of the quarter's volume was related to new tenant leasing, and importantly, the balance included several sizable renewals, which gives us the confidence that we can increase portfolio occupancy through the remainder of 2024.
Brent Smith: George will provide market specifics and details on the leasing pipeline in a moment, but we believe that this quarter's leasing success is a testament to the high quality of our portfolio and the unwavering commitment of our teams at the property to provide truly differentiated environments and not just office space. We also continue to be the beneficiaries of tenants demanding not only superior professional space but also that they delivered by well-capitalized, sustainability-minded landlord. In addition, our customer service and leasing strategy targeting small and medium-sized tenancy is driving portfolio leasing volumes and rental rates to new highs.
Brent Smith: We believe these trends will be long-lasting, and Piedmont is extremely well positioned to compete and gain market share in this next office cycle. Furthermore, Piedmont's operating strategy is clearly resulting in positive cash flow performance. During the second quarter, we were able to continue to drive double-digit rental rate growth of 15% roll-ups on cash rent and a 23% increase on a cruel base rents when those respective leases commence. Likewise, during the quarter, same-store in I increased approximately 6% on a cash basis and roughly 4% on a cruel basis as compared to the second quarter of 2023.
Brent Smith: The company's leasing success over the last several quarters has generated occupancy gains in our in-service portfolio. Ending the second quarter at 87.3% leased compared to 87.1% leased at the end of 2023. As a reminder, while we have generated significant leasing volumes, the timing required for these leases to commence and to begin cash paying rents can be up to 12-24 months out. So as a result, we have generated a backlog of 1.6 million square feet of leases that are yet to commence or an abatement, equating to over $50 million of future annualized cash once these leases commence and abatements burn off.
Brent Smith: And we estimate over 30 million of future annualized NOI. And while presidential elections can always be a wild card impacting tenant decision making in the latter half of the year, the leasing pipeline across the portfolio from both a proposal and tour activity standpoint remains robust, as George will explain in a moment.
Brent Smith: And we estimate over $30 million of future annualized NOI.
Brent Smith: And while presidential elections can always be a wildcard impacting tenant decision, making in the latter half of the year.
Brent Smith: The leasing pipeline across the portfolio from both the proposal and tour activity standpoint remains robust.
Brent Smith: As George will explain in a moment.
Brent Smith: Turning to the balance sheet, the Bobby will detail, I want to thank our entire finance team for completing crucial refinancing activity during the first half of this year, including issuing $400 million of new five-year bonds in June that approximately 240 basis points improve credit spread compared to the bond offering only one year ago. This latest bond issuance concludes several significant refinancing transactions over the past year and is expected to address all final debt maturities until 2027. And in the process, meaningfully improves Piedmont's balance sheet and liquidity position.
Bobby: Turning to the balance sheet, the Bobby will detail.
Bobby: I want to thank our entire finance team for completing crucial refinancing activity. During the first half of this year, including issuing $400 million of new five year bonds in June at approximately 240 basis points improved credit spread compared to the bond offering only one year ago.
Brent Smith: And finally, as Chris will discuss, just after the end of the second quarter, we were able to close in another small disposition. across the broader office market. We are witnessing a modest uptick in transactional activity, which gives us the belief that we can begin to recycle capital more efficiently next year. Looking ahead to the remainder of this year and beyond, although challenges reside in the office sector as commodity office space continues to be rationalized and repurposed. We are optimistic about the secular and company-specific trends that are driving our leasing momentum, including continued population migration to the Sunbelt and the suburbs, the flight to quality by office users, improving access to capital within the office sector, and the continued differentiation between obsolete product and the well-located, vibrant environment that Piedmont delivers across our portfolio.
George Wells: With that, I'll hand a call over to George. We'll go into more details on the second-quarter operational results. Thanks, Brent, and good morning, everyone. Exceptional leasing momentum for new space and multiple existing tenor renewals during the second quarter led to strong operational results on several of our key metrics. All of our core markets experience saw the leasing demand dominated by small to medium-sized businesses that are attracted to our modern, well-eminentized projects. Having the right blend of amenities is crucial for today's office customers, and our portfolio is well equipped with a wide range of food and beverage options, hospitality and fused collaborative wood spaces, training rooms, fitness centers, outdoor meeting spaces, and event programs designed to bring people together.
George Wells: All of our core markets experience solid leasing demand dominated by small to medium-sized businesses that are attracted to our modern, well-amenitized product. As Brent mentioned earlier, this quarter's rent roll-up metrics were quite impressive, and as a continuation of a strong roll-up trend the company has achieved over the past 10 quarters, including double-digit accrual increases in each quarter. The outstanding proposals sit at well over 2 million square feet, on par with our trailing 12-month.
Speaker Change: Plan of amenities is crucial for today's office customers and our portfolio is well equipped with a wide range of food and beverage options hospitality infused collaborative workspaces training rooms fitness centers outdoor meeting space and event program designed to bring people together this quarter, we added two more food and beverage operators.
George Wells: This quarter, we added two more food and beverage operators, one at our Clared and Asset in northern Virginia, and the other in our downtown Minneapolis tower, further enhancing the range of our offerings and vibrancy in our common areas. Overall, this quarter, we completed a record 65 lease transactions for over a million square feet of total overall volume, twice our quarterly average. With nearly 40 percent of that volume was related to new tenant lease activity, accounting for 38 transactions for 400,000 square feet, which is more than twice our pre-COVID quarterly leasing average of 165,000 square feet.
Bobby: One at our cleared an asset in northern Virginia, and the other in our downtown Minneapolis Tower further enhancing our range of our offerings and vibrancy in our common areas.
Bobby: Overall this quarter, we completed a record 65 lease transactions for over 1 million square feet of total overall volume twice our quarterly average.
Bobby: With nearly 40% of that volume was related to new tenant lease activity accounting for 38 transaction for 400000 square feet, which is more than twice our pre COVID-19 quarterly leasing average of 165000 square feet.
George Wells: The average size of new leasing activity was approximately 11,000 square feet, consistent with previous quarters, with a weighted average term achieved at nearly 11 years. Once again, our focus on small and medium-sized enterprises continues to yield excellent results, with a record 31 new tenant leases, each less than 10,000 square feet, totaling almost 130,000 square feet, with many having lease commencement dates later in 2024. As Brent mentioned earlier, this quarter's rent roll-up metrics were quite impressive, and as a continuation of the strong roll-up trend the company has achieved over the past 10 quarters, including double-digit accrual increases in each quarter.
Bobby: The average size of new leasing activity was approximately 11000 square feet consistent with previous quarters with a weighted average term achieved nearly 11 years once.
George Wells: As we previously forecasted, and despite record-breaking leasing success, which will commence in subsequent quarters, our lease percentage down slightly quarter over quarter to end the second quarter to 87.3%. As we have experienced in several quarters now, most of our new tenant lease activity, or 85%, occurred in our Sunbelt portfolio, with the majority of our end-service vacancies results. Excluding two, unusually large move out, the quarterly retention rate for the remain for the portfolio was in line with our typical historical average of 70%. It remains flat at around 5%, and none of that space is expiring in 2024.
George Wells: Next, I'd like to highlight a few key accomplishments and announcements which occurred in some of our operating markets this quarter. Starting with Orlando, our fourth largest market by annualized release revenue, our local team made headlines with the relocation of travel and leisure headquarters to our downtown project on Church Street, and secured another nine deals bringing the total amount of leasing volume in this market to 220,000 square feet. T&L is completely backfilling all of the space, the single user vacated at 501 West Church in the second quarter, and was attracted to the vibrancy and the many set of this location, including ease of accessibility, fall average parking ratio, and significant building top signage easily visible from the most travel fare in Orlando.
Bobby: Headlines with the relocation of travel and leisure headquarters to our downtown project contract Street and secured another nine deals, bringing the total amount of leasing volume in this market to 220000 square feet.
Speaker Change: P&L, it's completely back filling all of the space. The single user vacated at 500 Onewest Church in the second quarter and was attracted to the vibrancy and in many sort of dislocation, including ease of accessibility above average parking ratio and significant building top signage easily visible from the most travel thoroughfare in Orlando.
George Wells: Additionally, PMOB were closely with city officials and travel and leisure, the land city-funded incentives that will be realized over the 15-year lease term. Kudos to our skillful local property and leasing team for such a significant win. Our Dallas portfolio realized the most overall leasing volume with 13 deals for 370,000 square feet. We knew a activity drove 87% of that volume with Ryan Tack and a global e-commerce retailer extending sizable leases and gallery office towers. As an aside, our interconnect the neighbor, the Dallas Galleria, continues to reinvest and modernizes powerhouse experiential retail center, broadening its retail mix and F&B offerings, and soon to be the second location in the U.S.
Bobby: Additionally, Piedmont were closely with city officials and travel and leisure.
Bobby: Land city funded incentives that will be realized over a 15 year lease term.
Speaker Change: Kudos to our skillful local property and leasing team for such a significant win.
Bobby: Our Dallas portfolio realize the most overall leasing volume with 13 deals for 370000 square feet.
Bobby: <unk> activity drove 87% of that volume with Ryan tax and a global ecommerce retailer extending sizable leases at Galleria office towers.
George Wells: where Netflix is a permanent, experiential venue called the Netflix House. Extensive renovations were also underway at the interconnect of Galleria Weston. The Galleria Dallas is an exceptional mixed-use environment with its centralized, easily accessible location. Its commercial uses drive retail, hotel, and office customers from a wide radius, reinforcing a conference to more leasing success here. Another market notable, the Atlanta, our largest market, completed the 18 transactions for 133,000 square feet, of which 63% were new leases. Our DC Metro team extended leases for two of our large customers in this region, applied predictive technologies and international food policy to 2034 and 2035 respectively.
George Wells: Coming back to our overall portfolio, we remain positive about our future near-term leasing trends that we may not be able to replicate the second quarter record leasing volume. That said, our leasing pipeline activity is quite good, with over 250,000 square feet of leases and late-state negotiation were executed, and we are on pace to reach our norm around 300,000 square feet of executed leases per quarter. Outstanding proposals sit at well over two million square feet on par with our trellis 12 months. Given the strong pipeline and the limited amount of these explorations through the remainder of the year, we are increasing our year-end project at least percentage approximately 50 basis points to the 87.5 to 88.5 percent range.
Chris Kollme: I'll now turn the call over to Chris for his comments on investment activity. Chris? Thank you, George.
Chris Kollme: As Brent mentioned earlier, subsequent to the quarter end, we closed on the sale of 750 West John Carpenter in the lost cleanest submarket of Dallas. The asset is a 12th story approximately 315,000 square foot office building, which was 46% least as of June 30, 2024. While we remain highly committed to the Dallas market and our team there, we were approached by a local investor who expressed an interest in the asset. We firmly believe in maintaining total objectivity around each of our assets. And as we evaluated the competitive positioning, the lack of walkable retail offerings, the persistent vacancy, and importantly, the significant amount of time and cap are required to elevate the asset to today's standards.
Chris Kollme: We simply felt our resources are better elsewhere, so we sold the asset in July and an all cash transaction.
Chris Kollme: We continue to have preliminary dialogue around potential dispositions of non-core assets throughout our portfolio, but it's premature to speculate on any of those at this time. As for new investments, we continue to be highly engaged across our operating markets with an eye towards refining and enhancing our existing portfolio. There are several opportunities across the Sun Belt, but we will be disciplined and patient on the acquisition front.
Chris Kollme: As for new investments, we continue to be highly engaged across our operating markets with an eye towards refining and enhancing our existing portfolio.
Chris Kollme: As always, we will keep informed of any material acquisition or disposition activity as appropriate.
Bobby Bowers: With that, I'll turn the call over to Bobby to review our financial results. Thank you, Chris. While we will be discussing some of this quarter's financial highlights today, please review the entire earnings release, the TINQ, and the accompanying supplemental financial information, which were filed yesterday for more complete details. Corrupt FO, per diluted chair for the second quarter of 2024, was $0.37 per share, versus $0.45 per diluted share for the second quarter of 2023. I do want to note that same store property NOI increased on both a cash and a cruel basis during the second quarter of 2024, as compared to the same period a year ago.
Bobby Bowers: Corrupt FO, for the second quarter of 2024, reflects this property level income, but is offset by approximately $0.6 per share of increased net interest expense, as well as decreased operating income as a result of the sale of one Lincoln Park during the first quarter of 2024, and, as we've discussed on this call over the last several quarters, the expiration of two large leases during the first six months of this year. AFFO, generated during the second quarter of 2024, was approximately $28 million, providing ample coverage of the current $15 million quarterly dividend and funding our foreseeable capital needs.
Bobby: Second quarter of 2024 reflects this property level income.
Speaker Change: But it is offset by approximately six cents per share of increased net interest expense as well as decreased operating income as a result of the sale of one Lincoln Park during the first quarter of 2024 and as we've discussed on this call over the last several quarters the exploration.
Speaker Change: Of two large leases during the first six months of this year.
Speaker Change: <unk> generated during the second quarter of 2024 was approximately $28 million, providing ample coverage of the current $15 million quarterly dividend and funding our foreseeable capital needs.
Bobby Bowers: CapEx for the quarter, however, remained elevated as we worked to complete this year four major building redevelopment projects, which today have a tonal of only approximately $10 million of remaining capital expenditures to complete. Turning to the ballot sheet, as Brent has already mentioned, we issued in June 400 million in senior unsecured notes at a 6.875 percent coupon, a marked improvement compared to our 2023 issuance, which we believe demonstrates an increased appetite for office paper, and particularly Piedmont's high-quality portfolio. The bulk of the proceeds from the issuance of the notes were used immediately to pay off the $230 million balance on our $600 million revolver, as well as the remaining $25 million balance on an unsecured bank term loan that was scheduled to mature early next year.
Speaker Change: Capex for the quarter. However remained elevated as we work to complete this year.
Speaker Change: Four major building redevelopment projects, which today have a total of only approximately $10 million.
Speaker Change: Of remaining capital expenditures to complete.
Speaker Change: Turning to the balance sheet.
Bobby Bowers: The remaining debt proceeds, along with funds received from any dispositions and our 0.8 percent fixed rate term loan, that matures late in the first quarter of next year. Until its maturity, we currently intend to invest the unused portion of the bond proceeds accretively at higher interest rates. We currently have no other remaining final debt maturities until 2027. As a result of the $400 million refinancing activity, net interest expense will increase about one cent per share per quarter beginning in the third quarter of this year. This increase, along with the sale of 750 West John Carpenter and Dallas subsequent to the end of the quarter, will impact our guidance for the year.
Bobby Bowers: and our unused line of credit. With that said, our confidence in this growth is due to the difference between our current reported lease percentage of 87.3 percent and our current analysis of this timing difference between the executed lease percentage and what we refer to as the cash paying economic lease percentage is included for your review on page 37 in our quarterly financial supplement, which was furnished last night, along with an analysis of major leases yet to commence for vacant space.
Speaker Change: <unk> 50, West John Carpenter, and Dallas subsequent to the end of the quarter.
Speaker Change: All impact our guidance for the rest of the year.
Bobby Bowers: Therefore, we announced yesterday that we're narrowing our 2024 annual core FFO guidance to a range of $1.46 to $1.52 per share, moving the midpoint to $1.49 per share. I encourage you to review the earnings release for more specific metrics on guidance, but I will note we are increasing guidance for same-store NOI on both a cash and a cruel basis to between 2 and 3 percent for the current year, up from our previous guidance of a flat to 2 percent increase. As we indicated on our last few earnings calls, the third quarter of this year is expected to be our FFO earnings trough due primarily to the timing of two large lease expirations.
Speaker Change: Therefore, we announced yesterday that we're narrowing our 2024 annual core <unk> guidance to a range of $1 46 to $1 52.
Speaker Change: Per share moving the midpoint to $1 49.
Speaker Change: Per share.
Speaker Change: I encourage you to review the earnings release for more specific metrics on guidance, but I will note. We are increasing guidance for same store NOI on both a cash and accrual basis to between two and 3% for the current year up from our previous guidance of a flat to.
Speaker Change: 2% increase.
Speaker Change: As we indicated on our last few earnings calls the third quarter of this year is expected to be our <unk> earnings trough.
Speaker Change: Due primarily to the timing of two large lease explorations.
Bobby Bowers: With that said, with relatively low lease expirations over the next few quarters and strong leasing results to date, plus the continuing leasing momentum that George mentioned, we anticipate FFO growth per share to begin improving later this year. followed by a growing cash generation later next year. How our confidence in this growth is due to the difference between our current reported lease percentage of 87.3 percent and the percentage of leases that have commenced and begun paying full cash rents. This difference is now 850 basis points. The widest gap has been in over 8 years. The gap is due to a backlog of 1.6 million square feet of executed leases yet to commence and related rent abatements not yet burned off.
Speaker Change: With that said with.
Speaker Change: With relatively low lease expirations over the next few quarters and strong leasing results to date, plus the continuing leasing momentum that George mentioned.
George: We anticipate <unk> growth per share to begin improving later this year.
George: Followed by growing cash generation later next year.
Bobby Bowers: This backlog of executed leases represents over $50 million annually of future rents yet to commence. Our current analysis of this timing difference between the executed lease percentage and what we refer to as cash paying economic lease percentage is included for your view on page 37, and our quarterly financial supplement, which was furnished last night, along with an analysis of major leases yet to commence for vacant space and larger leases and abatement, which are set forth on page 38 of the supplement.
Bobby Bowers: In keeping with our normal practice, due to the uncertain nature of the capital markets environment, the revised guidance we've provided does not have any speculative acquisitions or dispositions, nor does it currently contemplate any additional refinancing activity this year. Of course, we will adjust and communicate to you the impacts on guidance if any of these transactions occur.
Brent Smith: With that, I'll turn the call back over to Brent for closing comments. Thank you, George, Chris, and Bobby. We continue to focus on our core business, designing, managing, and leasing great workplace environments. The investments we've made in our portfolio, combined with our leasing strategy, continue to resonate with existing and prospective tenants alike.
Brent Smith: Piedmont's balance sheet is well positioned, having effectively addressed all of our final debt maturities until 2027 and having the full availability.
Speaker Change: City of New York, So any sort of update on the discussions there and then maybe plans for that asset longer term.
Speaker Change: Good morning, Nick This is Brad thanks for joining US today I think as you did point out with the renewal with Amazon as we discussed last quarter.
Speaker Change: Ryan as well, that's really put our large lease explorations.
Speaker Change: Bed now or at least known in the market all the way up until 2026, so a great runway, we feel like in terms of being able to continue to get the absorption of the portfolio. Looking ahead to 2026 as you point out in New York City, the largest of those explorations as we've noted previously on calls that dialog continues.
Speaker Change: To be very favorable and trending towards a renewal.
Speaker Change: Would expect that we'd like to dispose of the asset when we feel like the capital market to stabilize in New York and that lease is consummated.
Speaker Change: <unk> likely to be sometime in 'twenty five.
Speaker Change: Pins on the receptivity in the overall marketplace at that time, but as we've noted it is our intention to dispose of the asset more near term.
Speaker Change: And then maybe touching on dispositions, the John Carpenter additive sort of sail.
Speaker Change: Under leased asset I guess, what would what's the earnings effect of that sale.
Speaker Change: And then sort of.
Speaker Change: Is there plans for some of these other assets in there a little have a little bit more vacancy to recycle those or is this kind of more of a one off.
Speaker Change: Yeah, Great question, you know I think as.
Speaker Change: Our platform, we're very adept at evaluating older or call. It $8 90 in 2000 vintage assets and their viability in the modern kind of office environment, we take a close lens to our own portfolio.
Speaker Change: Frankly, west John Carpenter freeway had a number of attributes that just didnt fit what we would deem a an asset worthy of the Piedmont portfolio I think if we look at our.
Speaker Change: We are in the portfolio, where there might be elevated leap sorry, your occupancy levels are elevated vacancy levels.
Speaker Change: Really resides in call. It five assets one of them, we just dispose of West John Carpenter freeway.
Speaker Change: Capital as well as tenant related lease up capital.
Speaker Change: Unique that asset it was build actually to have two towers are joined for most of the common areas. So if you think about our refreshed theres a lot of of extra ground to cover for 300000 square foot building and then once you add in carrying cost that number probably would would approach or exceed $100 of additional capital per square foot.
Speaker Change: On the building.
Speaker Change: And then maybe last one for George just on the leasing pipeline overall can you basically breakdown renewal versus new leasing within that and then kind of the average size of the tenants are kind of seeing and if anything between the markets that commentary would be appreciated as well.
George: Certainly good morning.
Speaker Change: As we mentioned in our in our recent release, we just spoke about 250000 square feet late stage activity of illegal or executed about half of that is for new activity and then that new activity around it's really happening in every one of our markets.
Speaker Change: Digging deeper into the proposal stage, we've mentioned again 2 million square feet. Just recently, 70% of that is for new activity I would say that the bulk of that activity is happening in Minneapolis.
Speaker Change: Dallas and Atlanta, Minneapolis is a new market that we're starting to see a lot more demand I mean, it's pretty obvious as a result of U S Bank vacating a large percentage of their assets in.
Speaker Change: In that marketplace.
Speaker Change: And then looking a little further out in terms of tour velocity, we've been seeing in the third quarter of what we've been seeing for the past several quarters and then if you can look at what's happening in July we're really happy about that is at the high end of our tour velocity range. So when you combine that early stage late stage of recovery.
Speaker Change: Early stage or late stage activity, we feel pretty good about why we went ahead and bumped our lease percentage guys by the end of the year between 87, 5% to 88, 5%.
Speaker Change: That's it from me very helpful. Thank you guys.
Speaker Change: Yeah.
Speaker Change: Your next question is coming from Dillon for Vince <unk> with Green Street. Please pose your question your line of sight.
Speaker Change: Hi, guys. Thanks for taking the question most of mine have been answered by now, but just sort of trying to think through obviously, a great quarter on the leasing front great to hear you guys increasing leasing guidance for the year can you kind of just talk about some of the drivers of that pick up in leasing activity.
Speaker Change: U S economy, and frankly, non tech and non large tech sorry, non large corporates have been continuing to be those drivers, depending on which market you're in.
Speaker Change: That's helpful. Thank you.
Speaker Change: Once again, if you have any remaining questions or comments. Please press star one at this time.
Speaker Change: Question is coming from Michael Lewis with <unk> Securities. Please pose your question your line is five.
Michael Lewis: Thank you.
Speaker Change: This signed but not commenced sometimes ties my head up and not so you talked about the $50 million of rack.
Speaker Change: Associated with those leases $30 million of NOI is about 24 cents per share, but you're obviously.
Speaker Change: Over the next several quarters and ongoing will be signing new leases that have new free rent periods.
Speaker Change: I guess that spread between signed and not commenced versus.
Speaker Change: Rent paying occupancy has widened should we think about what a normalized level would be and what that 24 cents of upsides.
Speaker Change: Ultimately evens out too I'm, just trying to think about what the real earnings power. That's built up in that leasing you've done over the last several quarters what that really is.
Bobby: Hey, Mike It's Bobby.
Mike: Addressed part of that if you look back over the last 10 years that gap between economic lease percentage and the reported lease percentage is about 4% to 5%. So we picked up.
Mike: About 3% GAAP here, which should close over time.
Speaker Change: What makes us optimistic about earnings yes, you do have some dispositions that will not dispositions.
Speaker Change: Exploration that will take place, but we have low explorations here over the next few quarters. So we think it will be accretive to us as that gap closes back towards 4%.
Speaker Change: I would say too to add to that Michael and I. Appreciate you joining us today.
Speaker Change: It's going to take some time for that $51 million to come into the portfolio as we've talked about call. It anywhere from 12 to 24 months.
Speaker Change: I'd say a fair portion of that is call. It 60% of it is in that current abatement period, with 40% still and yet to commence.
Speaker Change: And that comes into the portfolio as we talked about that will backfill. What we now have known now known vacate at Excelsior crossings at Meridian crossings.
Speaker Change: And so that exact timing is always difficult to determine and it is also somewhat impacted as you point out by the volume of leasing that we achieve going forward and so Frank Ironically that GAAP staying why it is a good thing because that will mean that we are continuing to add this.
Speaker Change: Leasing velocity and increasing that backlog as we approach, 90% leased I would imagine that as Bobby pointed out gets to the more normalized level, which historically has been in that call it 4% to 5% Zip code.
Speaker Change: And so again.
Speaker Change: <unk>, 45% gap between those leased percentage and economic.
Speaker Change: So if I had to specifically tell you when that would be somewhat be correlated to when we reached 90% occupancy and thats probably going to take us.
Speaker Change: Call. It another 18 to 24 months, but we do feel like with him and the momentum we see it's possible to exceed that.
Speaker Change: Do it even sooner than that again makes that widening gap remained here in the near term I hope that gives you a little bit more clarity.
Speaker Change: Yeah, No. That's helpful. It's nice to have some revenue in the hopper on the way. The you mentioned Excelsior and Meridian one of the nice things about this is we can stop talking about U S. Bancorp as a looming move out and now it becomes redevelopment upside.
Speaker Change: So the three redevelopment projects that you have is there anything to say as far as cost timetables potential NOI.
Speaker Change: All of that stuff related to the redevelopment.
Speaker Change: Yes, I would say there are three assets in the redevelopment pool, one of them will be coming out of the redevelopment pool sometime next year. It will go into service or an operation late this year and as we know usually it'll stay out of service for either a year until it reached 80% occupancy.
Speaker Change: The other two we just added into the redevelopment pool, you noted two of Minneapolis, Meridian and Excelsior crossings.
Speaker Change: Are those are under what I would call a more modest but meaningful renovation in terms of cost per square foot for those two buildings running about 15 to $20 a foot in base building and then we will have lease up the reason, they're going out of service there is.
Speaker Change: Both were single tenant buildings designed as such so theres a need to really reposition them not only in the market because additive marketed for almost a decade.
Speaker Change: But also to make them multi tenant corridors bathrooms based building new lobby et cetera.
Speaker Change: Overall capital spend if you think about the size of those two buildings youre talking about somewhere in the neighborhood together of around $12 million of base building cost and expense so not in the Grand scheme of our balance sheet meaningful which is why we like redevelopment opportunities rather than ground up we can get to the cash flow faster and frankly, we see.
Speaker Change: Inc. Mitigate some of that downtime receptivity in the market for both of those assets has been very good.
Speaker Change: As we've noted on prior earnings calls, particularly in Meridian, which is a little bit further along we've actually already had a little bit of leasing success now about 10% leased at that asset with a lot of traction with call it 40% to 50000 square foot tenancy.
Speaker Change: And then the Excelsior building it.
Speaker Change: It's underway as well, but a little bit behind.
Speaker Change: In terms of its <unk>.
Speaker Change: Progress, but both of those would really be able to take tenancy through and actually walk through it towards the end of the year. They are in full construction mode. At this point in time.
Speaker Change: In terms of that cost again.
Speaker Change: Pretty modest across all three but I would expect that that capital is completed and spent call. It by the middle of next year. If you think about most of our larger redevelopment projects. We do think that will be wrapped up by the middle of 'twenty five.
Speaker Change: And really we'll be in a more steady state.
Speaker Change: Kind of a base building capital spend across the developed across the portfolio at that time.
Speaker Change: Great. Thank you.
Speaker Change: There appear to be no further questions in queue. At this time I would now like to turn the floor back over to Brent Smith for any closing remarks.
Brent Smith: Thank you very much I appreciate everybody joining us today, hopefully you've taken away as it were.
Brent Smith: Very excited about the track record that we've created from our leasing and operational growth perspective here over the last call. It 12 months and looking ahead.
Speaker Change: And.
Speaker Change: The repositioning of the balance sheet also really giving us an opportunity with no major debt maturities ahead of us.
Speaker Change: We can now kind of reposition and focused the platform for future growth.
Speaker Change: We'd love to continue to talk to investors about that will be at the Bank of America Conference on September 11th and <unk> in New York City, but as I've said on prior calls we encourage investors to really come down to Atlanta and meet with management at towards the assets and spent an afternoon here and really to be able to appreciate the story.
Speaker Change: And what's really happening on the ground if you will within the Submarkets in which we operate and how we're extrapolating this platform across our other markets.
Speaker Change: Again if.
Speaker Change: You have an opportunity please contact body or Jennifer if youre interested in meeting and we appreciate everybody joining today.
Speaker Change: Thank you.
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.