Q4 2024 Piedmont Office Realty Trust Inc Earnings Call
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Speaker Change: Greetings. Welcome to the Piedmont Office Realty Trust, Inc. Fourth Quarter 2024 Earnings Call.
At this time, all participants are in a listen-only mode.
Speaker Change: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Laura Moon. You may begin.
Laura Moon: Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's fourth quarter 2024 earnings conference call. Last night, we filed an AK that includes our earnings release and our unaudited supplemental information for the fourth quarter of 2024 that is available for your review on our website at piedmontreit.com under the investor relations section.
Laura Moon: 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.
Laura Moon: 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: The risks and uncertainties of these forward-looking statements are discussed in our press release as well as our SEC filings. We encourage everyone to review the more detailed discussion related to risks associated with forward-looking statements in our SEC filings.
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.
Laura Moon: 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 these statements were made.
Laura Moon: At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments regarding fourth quarter and annual 2024 operating results. Brent?
Brent Smith: Thanks Laura. Good morning everyone and thank you for joining us today as we review our fourth quarter and annual 2024 results.
Speaker Change: 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 Sherry Rexroad, our Chief Financial Officer.
Speaker Change: We also have the usual full complement of our management team available to answer your questions.
Speaker Change: Before I get into Piedmont's specific results, I'd like to take a moment and discuss the continuing improvement in the office market fundamentals and the near-term growth opportunities for our business.
Speaker Change: No doubt, the perception around office space turned the corner in 2024, with many major employers and Piedmont tenants, such as Salesforce, Amazon, UPS, AT&T, and Starbucks, just to name a few, continuing to prescribe greater in-office attendance.
Speaker Change: We've witnessed this dynamic for companies, small and large, implementing a workforce strategy that utilizes office space to build corporate culture, foster collaboration, push the boundaries of creative thinking, and to communicate most effectively.
Speaker Change: The need for well-located, amenitized, and differentiated office space has never been more important for a company.
Speaker Change: And as a result, demand continues to grow for well-priced, high-quality, high-service operators and buildings.
which is very much aligned with Piedmont's strategy.
Speaker Change: And with virtually no new construction and supply growth at historic lows for the next two to three years,
Speaker Change: We believe the market for high-quality office space will tighten in 2025 and for the years following, providing the backdrop for strong increases in rental rates across the portfolio, but particularly our Sunbelt markets.
Speaker Change: The fourth quarter witnessed positive yet modest net absorption according to JLL's national office report. Levels not seen since 2021 with three of Piedmont's markets, Dallas, Orlando, and New York included in the list of those reflecting these positive trends.
Speaker Change: In addition, on a national basis, gross leasing volumes have improved each of the last three quarters.
Speaker Change: reaching post-pandemic highs with the fourth quarter coming in at 92% of pre-COVID averages.
Speaker Change: However, I'd note that this demand is more concentrated than ever at the top end of the market. As we've discussed before, 90% of the vacancy resides in the bottom 30% of the office stock.
Speaker Change: As a result, we're starting to see demand at the top of the market outpace supply.
Speaker Change: In addition, the uncertainty regarding tariffs and labor costs further validates Piedmont's strategy of acquiring existing assets in desirable locations and bringing them up to today's standards.
Speaker Change: and the recent announcements regarding the federal government's rationalization of its office space.
Speaker Change: By disposing of two properties, which generated approximately $77 million of gross proceeds.
Speaker Change: His office fundamentals continue to improve that but everything is becoming more readily available and spreads continue to tighten for high quality assets.
Speaker Change: As Chris will touch on in his remarks, this bolsters our expectations to dispose of select noncore immature assets in 2025.
Speaker Change: As expected our refinancing activity continued in full force and with a top strategic goal for 2024.
Speaker Change: The team did an outstanding job to complete a $400 million bond offering in June and a significantly improved credit spread compared to our 2023 offering.
Speaker Change: Just this week, we completed some additional transactions that Sheri will go into in more detail about in a moment.
Speaker Change: The headline being that we now have no debt with a final maturity until 2028.
Sheri: Finally core <unk> for the year was $1 49 per diluted share and reflected an approximately 22 million or 17 cents per diluted share of increased net interest expense as compared to the previous year.
Sheri: Additionally, our 2024 results reflected the sale of two properties and the downtime between the exploration of a few large leases during the year before newly executed leases commence late in 2024 or will commence in 2025.
Sheri: No doubt there is still work left to do and George will provide market specifics and details on our leasing pipeline in a moment, but we continue to believe that the investments we've made in our portfolio combined with our relentless focus on best in class service and its sustainability mindset are resonating with the market clients and.
Sheri: The brokerage community.
And the demand for high we have many ties well located work environments operated by a financially stable landlord will continue to grow throughout 2025, we believe our portfolio is well positioned to capture more than our market share of customer demand and we will be able to continue to drive leasing percentage in rental rate growth this year.
Sheri: 2025, contractual expirations are very manageable with roughly half already filled or close to being backfill.
Sheri: We expect our backlog of approximately one 4 million square feet, representing a roughly $46 million of future annual cash flow to benefit our financial results. During the latter half of 2025 as those leases commence have reached the end of their abatement period with that I'll now hand, the call over to George who will go into more.
George: Details on fourth quarter operational results.
George: Thanks, Brent good morning, everyone.
George: Once again, our well located highly or monetize portfolio performed well in the last quarter of the year and the impact of greater in office attendance is being realized.
George: During the fourth quarter, we completed 45 lease transactions were 433000 square feet of total overall volume well within our typical range of 350 to 500000 square feet with renewal transactions dominating the activity.
George: Our 2024 year to date hall of over a million square feet of new leasing is a record amount not seen since 2016, when our portfolio was approximately 20% larger.
George: Lower new leasing volumes in the fourth quarter were reflective abusers, taking longer to make decisions post election, and I'll touch on a robust pipeline in a moment, but we believe the slowdown was related to the economic uncertainty post election, as well as the shortened period between Thanksgiving and the end of the year holiday slowdown.
George: Importantly, we have witnessed a more normalized level of new leasing in the first quarter.
George: New activity for the fourth quarter was predominant focus on smaller users and our retention rate came in at 66% in line with our historical quarterly average trend of 70% new leasing activity moved our lease percentage into the middle of our projected range ending at 88, 4%.
George: These economics were strong with 11, and a half and a 14.7% roll up or increase in rents for the quarter on a cash and accrual basis, respectively.
Leasing capital spend stayed relatively flat at approximately six bucks per square foot per lease year in line with our average over the past several quarters.
George: Sublease availability continues to hover around 5% of the total portfolio with only 25000 square feet expiring in 2025.
George: Dallas was our most active segment this quarter closing on 16 deals for 225000 square feet or 52% of the company's overall volume new transactions were completed in each of our three submarkets here, which consists of las colinas Uptown and lower tollway.
George: Salary of towers continues to experience strong demand from large users due in part to its superior accessibility located at the Nexus of two major highways, the lower Tollway and North pole way and is also conservative on essentially located submarkets in Dallas Kimberly.
George: Kimberly Horn, a national engineering firm extended on all the bits 83000 square feet at the complex for another 10 years.
George: Also our Galleria a large international e-commerce retailer re leased 43000 square feet to accommodate its new five day a week returned to office mandate were also on the legal stage for a large user to backfill a substantial majority of Ryan's lease at three gallery to towers, which is scheduled to expire during the first quarter.
George: Or 2025.
George: Gallery is exceptional location and many rich environment and hospitality infused redevelopment have allowed us to increase net rental rates by 10% over the past year and approximately 30% since acquisition in 2020.
George: This unique one 5 million square foot project has had an incredible success story for Piedmont. The project stands at over 90% leased with an opportunity to push rents even higher now approaching $40.
George: On a net rent basis, resulting in strong economics on Piedmont book basis of approximately 280 Bucks a square foot.
Speaker Change: Moving to suburban Boston, our third largest deal of the quarter was a renewal transaction at our waste side complex in Burlington more weeks than a large technology companies lease for its entire 33000 square foot footprint for a seven year term and box borrow two new deals were completed for 13000 square feet at 80 central.
With one of those deals coming from an existing customer expanding its footprint by 30% for 10 year term.
Speaker Change: The Piedmont formula for attracting and retaining customers, who worked extremely well in 2024 and we're confident of continued success in 2025 today, our leasing pipeline is strong with over 300000 square feet in late stage activity.
Speaker Change: Outstanding proposal stand at 2.6 million square feet or both are in service and redevelopment portfolios, which is higher than our trailing 12 months.
Speaker Change: So demand is strong the course of quarterly net space absorption is also dependent on the amount and timing of explorations and it remains to be seen whether the uncertainty from the federal administration change usually brings will impact corporate decision, making as we move into 2025.
Speaker Change: Our supplemental report shows seven 4% of our ALR expiring in 2025 with the first quarter, having the most exposure for the year.
As such we project lease explorations for the first half of 'twenty to 'twenty five to moderately exceed our new leasing quarterly average before we resume positive net absorption in the second half of the year, assuming there is no downside surprise for the U S economy, We project our lease percentage for our in service portfolio to end the year between 89 and 90%.
Speaker Change: Now I'll turn the call over to Chris Conway for any comments on investment activity Chris.
Chris Conway: Thank you George I am pleased to report that we are in advanced negotiations for the disposition of two small non core assets one in Dallas and one in Boston that if both are consummated, we will generate approximately $35 million in gross proceeds.
Chris Conway: We have another two to three assets that are currently in price discovery, but given market conditions. The outcomes of these efforts are uncertain, although the strategy for selling these assets is entirely consistent with Piedmont long standing recycling initiatives as.
Chris Conway: As we have done for years, we will continue to elevate and optimize the portfolio and we will look to selectively shed non core assets throughout the year.
Chris Conway: On the new investment front, we remain highly engaged in each of our key markets and we expect to see some interesting opportunities in 2025. These.
Chris Conway: These could materialize in a variety of forms, including joint ventures, no purchases and or our more traditional fee simple acquisition.
Chris Conway: Our core investment strategy of owning high quality differentiated assets located in healthy thriving markets certainly will not change.
Chris Conway: While we are in active dialogue the BARDA transact will be high and there is nothing imminent to report at this time.
Chris Conway: We remained very focused on executing our disposition pipeline and on continuing to position the balance sheet in order to play offense in 2025.
Chris Conway: With that I'll pass it over to Sherri to cover our financial results.
Sherri: Thank you Chris.
While we won't be discussing some of the best quarters financial highlights today. Please review the entire earnings release and the accompanying supplemental financial information, which were filed yesterday for a more complete details.
Sherri: Core <unk> per diluted share for the fourth quarter of 2024 was 37 cents MRSA is 41 cents per diluted share for the fourth quarter of 2023 and in line with consensus.
Sherri: Proximately two cents of the decrease is due to increased interest expense as a result of refinancing activity over the past year with the remaining decrease attributable to lower reported rental income due to the sale of two properties during 2024.
Sherri: As well as the downtime between the exploration of a few large leases earlier in the year before newly executed leases.
Sherri: I thought that was generated during the fourth quarter of 2024 was approximately 28 million, providing ample coverage of our current 15 million quarterly dividend and funding for our foreseeable capital needs.
Sherri: As we've previously mentioned cap ex for 2024 was elevated as we concluded several major building redevelopment projects and we expect lower wait it out and we acquire them in this year.
Sherri: As Brent mentioned, our core <unk> per diluted share was $1 49, outperforming consensus by a penny and below the prior years dollar 74 due to the factors articulated by Brent earlier.
Sherri: Turning to the balance sheet, our liquidity position as of year end was comprised at the full capacity on our $600 million revolving line of credit and approximately $110 million of cash and cash equivalents.
Sherri: I'm pleased to report that yesterday, we amended our 200 million syndicated bank term facility to increase the capacity by $125 million and to.
Sherri: To add two six month extension is extending the final maturity to 2028.
Sherri: We use these proceeds along with cash on hand, and our revolving credit facility to repay the $250 million term loan that was scheduled to mature on March 31st.
Sherri: In conjunction with that transaction, we also recast our revolving credit facility to push the maturity out to 2028.
Sherri: With two one year extension option is for a final maturity of 23.
Sherri: As a result of this activity as Brian indicated we currently have no final debt maturities until 2028.
Sherri: Obviously, the large amount of refinancing activity that took place over the last two years has resulted in a markedly higher interest expense.
Fortunately all unsecured debt maturing for the rest of this decade.
Sherri: That it to be refinanced at lower interest rates given the current forward curve and not to be a tailwind to S. S parish aircrafts.
Sherri: Further our large backlog of executed, but not commenced leases and leases in abatement begins to burn off later this year and should drive improved <unk> results as well as improvement in our credit ratios.
Speaker Change: Please refer to page 39 of the supplemental information filed last night for details as major leases that have not yet commenced or are currently in abatement.
Speaker Change: Turning to guidance for 2025, we are introducing 2025 annual core <unk> guidance and the range of $1 38 to $1 44 per share with the following assumptions.
Speaker Change: We expect executed leasing for the year of approximately 1.4 to one 6 million square feet, resulting in an anticipated year end leased percentage for the companies and service portfolio of approximately 89% to 90% ex.
Speaker Change: Exclusive of any speculative acquisition or disposition activity.
Speaker Change: Same store NOI of flat to 3% increase on a cash and accrual basis for the year.
Speaker Change: Net interest expense of approximately 127 to 129 million.
Speaker Change: Person is 119 million in 2024.
Speaker Change: Reflecting a full year of higher interest rates as a result of the refinancing activity completed by the company during 'twenty 'twenty four and early 2025.
Speaker Change: General and administrative expense of approximately 30 to 32 nine.
Speaker Change: As a reminder, this guidance does not include any speculative acquisition disposition or refinancing activity.
Speaker Change: <unk> of the year as such transactions occur we will update this guidance.
Speaker Change: To help everyone understand the year over year change the primary positive contribution can projected core <unk> growth.
Speaker Change: So that's four to eight and from higher property operations.
Speaker Change: It is offset by 78% from a full year interest cost given the refinancing completed in 2024 and early 2025.
Speaker Change: Core F. F. L has further impacted I guess positions and modestly higher G&A and weighted average share count.
Speaker Change: With regard to specific quarterly guidance as noted in previous calls we expect quarterly results to improve the second half of 2025.
Speaker Change: The backlog of newly executed leases commence.
Speaker Change: And with that I will turn the call as I said, Brian for closing comments.
Speaker Change: Thank you George Chris and Sherry.
Speaker Change: As we turned the page on 2024, we were assured that as George said the Piedmont Formula is working the investments that we've made in our portfolio combined with our customer centric place, making mindset continue to resonate with existing and prospective tenants.
Speaker Change: Now that all our refinancing needs have been addressed for the next few years.
Speaker Change: We will continue to be selective with capital deployment and our focus in 2025 will be to drive our lease percentage and generate increased rental rate growth, which will ultimately result in episode and cash flow growth.
Speaker Change: With that I will now ask the operator to provide our listeners with instructions on how they can submit their questions. We will attempt to answer all your questions now or we will follow up with appropriate public disclosure if necessary operator.
Speaker Change: Okay.
Speaker Change: Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker.
Speaker Change: Clinton it it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Speaker Change: Your first question for today is from Anthony Pallone with J P. Morgan.
Speaker Change: Thank you. Good morning first question relates to the leasing pipeline I think last quarter, you talked about something in the maybe mid to millions range can you maybe give an update there and kind of what it looks like tenant wise and.
Speaker Change: Size industry that sort of thing.
Speaker Change: Certainly Tony this is Georgia and good morning to you.
Look I think what we clearly we had a phenomenal year in 2020 for accomplishing about two 4 million square feet in totality.
Speaker Change: And as we look in terms of how we came up with our projections and our guidance for 2025, Oh, Let me break that down in two different buckets from a new deal perspective, we accomplished a million in 2024.
Speaker Change: And I think we really need to back out of the P&L transaction for nearly 200000 square feet out of that total to get to about 800000 square feet, which is kind of the ballpark of where we believe we will we will hit in 2025 and the reason I'm backing out the T N L deal from last year.
Speaker Change: Not able to duplicate that in 2025 is we just don't have another large block of this size and our current in service portfolio. So so I think from that perspective, we're on a reasonable path.
Speaker Change: From a renewal perspective, we accomplished gambler 2.4 in total back out the nine a new one 4 million square feet. We had a couple of large transactions during the year.
Speaker Change: But we really have a much lighter roll in 2025 and in 2025, and so we already know about Ryan who is leaving at the end of the first quarter.
Speaker Change: Which we previously announced and is heading to there and all the development of a little further north.
Speaker Change: From our location so in totality, we feel is.
Speaker Change: It is an assumption as down the middle of the fairway.
Speaker Change: And then getting back to your question of terminals, where whereas is how is our pipeline and what sectors are we seeing well.
Speaker Change: Today, our pipeline is really good and we're looking at late stage activity as I mentioned on my call. It about 300000 square feet. So you know in the context of where we sit today, we are well on our way to meeting our overall goals for 2025 and comparing that to where we were in the first quarter of 2024.
Speaker Change: Sure, it's a similar trajectory.
Speaker Change: And then going even further back into proposals are there are early stage.
Speaker Change: Proposal list, we have $2 6 million square feet in totality, which is above our trailing 12 lots of two 4 million square feet.
Speaker Change: And then when you when you dig further into that which is really what isn't a new bucket. We're looking at 2 million square feet of new activity and three quarters of that is for our in service portfolio.
Speaker Change: Sectors coming back to that we're seeing activity from the insurance sector law accounting engineering firms and we're even starting to see some activities in the technology sector.
Speaker Change: Yes.
Speaker Change: Okay, great. Thank you for that and then just my follow up maybe for Brad just.
Speaker Change: How are you thinking about.
Speaker Change: Acquisitions versus dispositions, because it sounds like on the disposition side.
Mark: Mark It's an art not grades you may not want to execute in this kind of market, but I'd imagine there's there's some similar dynamics on the acquisition side. So you know how do you weigh you know waiting on the dispositions. When you know maybe the acquisition pricing may change on you too.
Speaker Change: Great question, Tony I appreciate the time this morning.
Speaker Change: I'd say first you know, we've really taken a lot of effort to position the balance sheet to where we can focus on the portfolio and growth opportunities and disposition opportunities, but with no maturities or final maturities until 2028, eight we feel like that gives us a really great runway to continue to recycle capital as we think about 2025, Chris.
Speaker Change: Alluded to we've got a couple of dispositions that are in the Hopper a few more behind that doing price discovery I think we take a holistic view to the portfolio. We're always looking to upgrade the quality updated growth profile and so you're going to continue to see us focus on those smaller noncore I'd say not emblematic of the remainder of the portfolio.
Speaker Change: The lowest quality assets.
Speaker Change: Initially to dispose off and we will then continue in throughout this year of testing, what we would call mature well leased assets and.
Speaker Change: And looking to monetize but we're realistic.
Speaker Change: Pricing is in the market, but we're also very mindful to continue to move the strategic needle continue to rotate to look further into the Sun belt.
Speaker Change: So we will look to leverage the Piedmont platform to transfer transform that eighties, 19th 2000 vintage assets that we go after from an acquisition standpoint.
Speaker Change: And we are evaluating call it 200 and $300 million on a gross asset value basis.
Speaker Change: Assets, but we recognize that the key to being able to grow is really raising equity to target those growth opportunities that is accretive.
Speaker Change: We will do so and utilize either public or private capital that will coincide with the risk of the asset so as I talked about that that kind of.
Speaker Change: Evaluation portfolio or deals that were looking at they are predominantly opportunistic in nature.
Speaker Change: So as a result, it really wouldnt facilitate or be what we'd look to bring on balance sheet at least day one.
Speaker Change: So we think of that is probably more likely to be done with a joint venture partner, we own 100% of all our assets and we feel like that doesn't add a lot of complexity to the balance sheet. If we were to go after a few assets in that manner, we'd typically be maybe 10, 20% of the equity in that venture and again, we'd be looking for low basis, 20% higher.
Speaker Change: And those assets were generally take two to three years to reposition so we think about really than that creating a potential pipeline for acquisitions once the markets do start to stabilize and more normalized.
Speaker Change: Environment, but were going to utilize our same recycling strategy.
Speaker Change: Can you recall, the kind of bottom quality, there would be modest dilution potential in some of those dispositions, but I think moving to strategic needle and improving the quality of the overall portfolio and again the growth profile will make up for that and the multiple and again, we feel like there is we can take our time, what we've got in terms of dispositions planned for this year.
Speaker Change: We feel like we'd feel that equity bucket and that joint venture a program. If we find are able to consummate some of those opportunities.
Speaker Change: Is that helpful.
Speaker Change: Yeah, that's great. Thank you.
Speaker Change: Yeah.
Speaker Change: Your next question is from Nick filming with Baird.
Yeah.
Speaker Change: Hey, good morning, everyone, maybe George or Brent commenting on just the acceleration you guys kind of soft in new leasing to start the year, just a little bit more commentary on the markets. The type of users that you're seeing on the pick up of activity and then maybe I know in November you're touching on it that proposal bucket you had a D.
Speaker Change: The amount of requirements over a 50000 square feet, just a little bit more commentary on the larger users within that pipeline.
Speaker Change: Certainly Nick Good morning, this is George.
Speaker Change: You know as I mentioned, we've got a 2 million square feet and overall new activity.
Speaker Change: And you know when you break it down between the markets. We've the bulk of that 35% of that is in Atlanta.
Speaker Change: And that's no surprise as we've got a large role there in 2026 that were working on the backfill.
Speaker Change: But then you've got Dallas is sitting around 10% from a new activity perspective, the Minneapolis does stick out as well as as we are about 28% is related to our new activity in Minneapolis, and and that's our redevelopment portfolio right. We've got a sales share we got verdean crossings that as you recall, we had some large vacancies.
Speaker Change: But we feel good about it we've got 500000 square feet of transactions amongst those two assets.
Speaker Change: About 10 deals over over 50000 square feet a piece so.
Speaker Change: And in totality, though not just there, but we have 15 transactions that are that are in our proposal stage for over 50000 square feet. That's all.
Speaker Change: By three from last quarter, So and I think I've already on those sectors that we're looking at it. So I don't think I need to touch that again.
Speaker Change: Yes, I would say Charles.
On top of that from a sector standpoint.
Speaker Change: We've seen tech a little bit increase but for the most part it's been more of our bread and butter fire professional services accounting engineering architecture et cetera, again, those higher collaboration.
Speaker Change: Call It maybe a partnership model businesses.
Speaker Change: Thank you.
Speaker Change: That's helpful and one four to one 6 million square feet of leasing that doesn't include any sort of like Chunkier renewal, let's say like a new York city renewal or anything along those lines.
Speaker Change: Well. It does include the expected in New York City renewal within those numbers I think as we've talked about if you would just go ahead and touch on 2026 maturities.
Speaker Change: That's probably what you're alluding to.
Speaker Change: Including the city is still expected to hopefully execute sometime towards the end of the year in the second half of the year and then as we think about Eversheds is also a first half of 2026 exploration.
Speaker Change: Been reported and we have noted that they are going to vacate.
Speaker Change: We have actually very good velocity behind that and we've got about half of their space now back filled as well or are in process that we're in legal stage. So feel very comfortable about continuing to backfill that space before it actually eversheds vacate and then the last larger lease that we have in 2000.
Speaker Change: 26 would be the epsilon lease that to the second half of the year, It's still a little early to tell I think we still feel pretty good about the likely outcome of that and they occupy and utilize the space extensively, but we'll continue to keep those.
Speaker Change: Investors updated on that as well on the next call.
Speaker Change: No. That's helpful. Sherri just last one on the lease percentage for a year and there is no large scale move outs or changes to the pool embedded in that number like in 2024. When you had the two assets going dark about 100 basis point improvement at the midpoint. It's just got a queen apples to apples comparison.
Speaker Change: Correct.
Speaker Change: That's right we will have nothing that I would kind of go into the out of service portfolio. This year again, we only would utilize that if a full building when dark given it was a single tenant like those two that we put in last year and they are deep in renovation and.
Speaker Change: Having a george alluded to really good leasing success. We think we will have some positive news to share on the next call around.
Speaker Change: Those transactions I'm, sorry, those assets Meridian and Excelsior.
Speaker Change: Thank you all.
Speaker Change: As a reminder, if you would like to ask a question. Please press star one.
Speaker Change: Your next question for today is from Dylan Burzynski with Green Street.
Dylan Burzynski: Hi, guys. Thanks for taking the question obviously, you know so it sounds like another.
Speaker Change: Eastern Europe really good year in terms of 2025 being able to push that absorption and not to get too early into how things will shape up for 2020, six, but but to us that that seems like you know that the growth will finally be realized in terms of NOI coming online in 2026, it sounds like there's some larger move out so just trying to get at.
Speaker Change: Sense for I mean, do you guys think there's enough new leasing and the pipeline to continue to be able to push on this on this upward trajectory of lease percentage.
Brent Smith: I know it's Brent.
Brent Smith: I think you kept the well we had a great year in 2024.
Brent Smith: And we did have great net absorption I think we also increased our guidance during the year by 100 basis points in terms of occupancy and we also hit the top end of our range in terms of same store NOI guidance as well actually exceeded that range from the initial point during the year. So.
Brent Smith: It has been a great 24, as we look through to 'twenty five.
Brent Smith: George alluded to we have very low expiries and a great pipeline. So we feel like we still got plenty of runway to continue to drive absorptions in 'twenty five we feel very comfortable in that 89% to 90% occupancy level.
Brent Smith: And given the where the blocks are coming you noted we have some large blocks coming back that's the Ryan space, which we feel like we've got a backfill tenants.
Brent Smith: Close in that regard and we will share more information on the next call but.
Brent Smith: And if you think about the remainder of 'twenty five Theres really just what other limited larger expiry in the fourth quarter in Minneapolis, So we feel like very manageable.
Brent Smith: So 25% so feel very comfortable with 89% to 90%. If we look at 'twenty six we do have the eversheds lease that will vacate in the second quarter. It will I think be very positively received in the marketplace. When we share some of the leasing activity that we've got the ability it's still a little early but I feel very comfortable.
Brent Smith: Saying that we will have that backfill predominantly at higher rates.
Brent Smith: Meaningful cash roll ups.
Brent Smith: And then also within 26, we've talked about the city, we feel very good about maintaining them and keeping them in the space and occupancy for the substantial majority if not all of the space.
Brent Smith: And then the remainder of 2006 is still a little too early to tell once we get into the second half, but overall, yes, we feel very comfortable where the pipeline is going to feed the known Vacates that we've discussed and continue to drive occupancy higher cash roll ups.
Brent Smith: As well it will be very positive during that time frame.
Brent Smith: Great and then just sort of touching on on prospects for for net effective rent growth I mean, obviously as you guys get closer to that 90% leased it seems likely that when I was just going to depend on the specific submarket of assets, but I mean, do you guys see 'twenty 'twenty, six sort of being an inflection point and being able to.
Brent Smith: So to push net effective rent growth across the portfolio.
Speaker Change: I think we're actually already to the point, where we're pushing net effective rent growth, particularly in our sunbelt markets, where we're at 90% 90, 394% leased in some of those and we continue to have top of market rents for our product, which is still well below replacement cost of new construction rents. So we feel like we.
Brent Smith: Got a great runway when it comes to the Sun belt.
Brent Smith: Say suburban Boston suburban Minneapolis, they've been sluggish, we probably would have said they're flat any ours.
Probably we'd still say, it's flat maybe slightly positive as we head into 'twenty six we are seeing again, Minneapolis, where one of the few well hilde and equipped landlords to frontier and improve and create a modern workplace environment.
Brent Smith: I think we will continue to bode very well there we don't have a lot of vacancy overall in Boston is really just in one asset and that asset is really well positioned.
Brent Smith: For growth so in Boston, we will continue to have net effective rent growth again modestly low single digits.
Brent Smith: Europe, we're pretty full we're just focused on one lease not much to talk about there and unfortunately, northern Virginia doing pretty good I would probably say again flat to slightly positive in <unk>, but the district is.
Brent Smith: Structurally very challenging.
Brent Smith: We would expect there will be probably flat to negative <unk> in that market overall.
Brent Smith: Continue to be very patient and I would remind investors in yourself that theyre getting it represents two projects and very small percentage of the portfolio resides in the district again, it's about call it 5% of the overall AOR and again, our GSA exposure is extremely limited it's less than a half a percent of the portfolio.
Brent Smith: So with some of the.
Brent Smith: Decisions being made out of the new administration.
Brent Smith: We expect a limited impact on the portfolio.
Great. Brian appreciate those comments have a good one.
Brent Smith: Yeah.
Speaker Change: We have reached the end of the question and answer session and I will now turn the call over to Brent Smith for closing remarks.
Brent Smith: Thank you everybody for joining us today happy Valentine's day.
Brent Smith: We are really excited to share his track record of leasing and operational growth that we've been accomplishing we've got the positioning of the platform for future growth. We're excited to share more of this at the Citi Conference. If you happen to be there in March 3rd through the fifth in Florida.
Speaker Change: And I would encourage investors if you haven't had a chance to come to Atlanta in our portfolio and our strategies in person, we'd love to give you a tour. Please contact Sherry you Jennifer and thank you today and if that is if you would like a tour.
Speaker Change: Her chance to sit down with management and thanks for joining today.
Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: Okay.