Q3 2025 Piedmont Realty Trust Earnings Call

Speaker #3: Greetings and welcome to the Piedmont Realty Trust , incorporated . Third quarter 2025 Earnings Conference Call . At this time , all participants are on the listen only mode .

Speaker #3: And 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 .

The broader leasing data continues to validate, what people bought has been experiencing on the ground.

Pinup demand is resulting in record levels of leasing across the pimont portfolio.

In fact, 5 of our operating markets experienced positive, absorption, with Washington, DC, and Boston being the exceptions.

In addition, new tenant leasing velocity has materially strengthened in 2025.

The third quarter's total square footage least on new agreements. In the United States excluding renewals is estimated to have reached about 105, million square feet and is now within 10% of the 2015 to 2019 National quarterly. Average of about 150 million square feet

No doubt after a challenging 4 years, the office sector is turning the corner.

1 explanation for this sector. Shift is a surge in large tenant Leasing.

The Limited availability of large blocks of Premium space typically sought by major occupiers and corporate tenants.

Is accelerating the decision-making process.

Despite generally, slow hiring, and an uncertain economic Outlook, the upward Trend in leasing volume signals. That tenants still have a strong appetite for Office Space.

With the supply pipeline Contracting and Prime availabilities becoming scarce more demand continues to chase a rapidly reducing Supply landscape.

According to JL the cycle of footprint, reductions is tapering off as today's users of over 25,000 square feet.

Are cutting just 2.2% of the footprint at renewal.

Inventory for high-quality space, either new or renovated, is increasingly scarce in the office sector. Construction has been reduced by an additional 20% from Q2. With new supply not being a factor in most of our markets.

These market dynamics of limited, high-quality Supply, and growing demand are allowing people to materially increase rental rates across its portfolio.

And with asking rents still ranging from 25 to 40% below the rates required for new construction.

We Believe existing high-quality office has a long long runway for rental rate growth.

Within the Piedmont portfolio, which comprises newly renovated. Highly amenitiz buildings paired with our Hospitality driven service model,

Providing the backdrop for P to increase rental rates and our projects by as much as 20% during the year.

Now, to 48 dollars per square foot.

Across our portfolio. Our Hospitality driven environments have allowed us to increase rental rates, to such an extent that we now estimate, that more than half the portfolios in place. Rents are at least 20% below Market.

Our strategy to strengthen the Piedmont brand within the tiny Community, is the landlord of choice is driving more than our fair share of leasing demand. And it's been reflected on our transactions.

Having now lost over 10% of the portfolio over the last two quarters.

More than a third of the portfolio in the last 2 years and then an astounding 80% of the portfolio since the beginning of 2020.

According to almost 12 million square feet. Since the pandemic.

Delving into the numbers.

We are thrilled with our third quarter results, exceeding consensus ffo by 3% and achieving record levels of Leasing.

Most exciting. Is that all the leasing in the team is accomplished this year. It's positioning pedmont for sustainable earnings growth.

Our backlog of uncommon leases has reached almost $40 million on an annualized basis and is substantial. All of those leases will commence by the end of 2026.

Puma executed, approximately 724,000 square feet of total leasing during the quarter including over. Half a million square feet of new tenant, leases.

This new tenant leasing represents the largest amount of new tenant leasing we've completed in a single quarter in over a decade and brings our total year-to-date leasing to approximately 1.8 million square feet.

Importantly, over 900,000 square feet of our 2025, new leasing relates to currently vacant space.

And it's likely this number will reach over 1 million square feet by the end of the year.

That level of absorption equates to 10 to 15 cents per share of incremental annualized earnings.

An indication of the growth, we believe our portfolio is poised to experience.

Of note, the 3 largest leases completed during the third quarter related to our out of service Minneapolis portfolio where we're experiencing incredible demand as George will talk more about in a moment.

Our leasing success during the third quarter, pushed our inservice lease percentage up another 50 basis points quarter over quarter. Now to 89.2%,

Bolstering our confidence in achieving our year-end goal of 89 to 90% least.

While not reflected in our lease percentage are out of service portfolio. Again, a comprised of 2 projects in Minneapolis and 1 in Orlando, has experienced astounding Market receptivity as differentiated amenitiz. Workplaces continue to Garner, the majority of leasing in the market.

At the end of third quarter pedmont out of service portfolio stood at over 50% leased and is approaching 70% leased including those that are in legal stage today.

We couldn't be more excited that the leasing pipeline and continued tenant demand for our buildings positions, both the in-service and out-of-service portfolios, to achieve 90% leased next year.

Furthermore, we anticipate the out of service assets will reach stabilization by the end of 2026,

in addition to the overall volume third quarter, leasing as expected resulted in favorable, economics with rail rates for space, beckon less than a year reflecting almost 9% and just over 20% Roll-Ups on a cash and acrel basis respectively,

In fact as a result of the repositioning of the portfolio in the past 2 years, pemmont least over 5 million square feet with rental rate Roll-Ups of approximately 9% and 17% on a cash and a cruel basis respectively.

Finally cash bases, same story in oi also turned positive this quarter as some previously, executed, leases began to reach the end of their abatement period.

With over 35 million of annualized Revenue, currently in abatement and due to start paying cash in 2026.

We expect same Store Cache metrics to continue to improve?

As George will touch on leasing momentum, remains strong, including over 150,000 square feet of leases signed during the month of October and a robust Pipeline with approximately 400,000 square feet currently in the legal stage.

Positioning and elevated service model has and should continue to drive pedmont ability to grow ffo, organically.

We're still on track to meet or exceed our 2025 financial and operational goals with confidence in our ability to deliver mid single digit, ffo growth or better in 2026 and 2027.

Before I hand the call over to George, I want to mention that we have 1 again achieved a 5-star rating in GreenStar recognition from gresb.

Placing Us in the top decile of all participating listed us companies for this prestigious recognition.

I hope that you'll take a moment to review our recently published corporate responsibility report highlighting the team's hard work and many accomplishments that went to achieving this record. The report is available on our website under the corporate responsibility section.

With that, I will now hand the call over to George, who will go into more details on the leasing pipeline and third quarter operational results.

Thanks Brent, strong demand for Pam's, well-located Hospitality inspired workplace environments, generate exceptional operating results. For the third quarter, a record 75 transactions were completed for over 700,000 square feet. Well above our historical average with a second quarter in a row.

New Deal activity, surged accounting, for 75% of total volume, and Topping last quarter's record amount.

Like last quarter, large users are driving New Deal activity to record-breaking levels with 9 full floor or large releases executed. This quarter with another 6 large deals in late stage,

Around 15% of new lease assigned. The score will begin recognizing gaap Revenue this year with the remaining 85% throughout 2026. I weighted average lease term for New Deal activities, taking consistent as a proximately, 10 years.

As we've experienced now, for 5 straight quarters. Expansions exceeded contractions, largely to accommodate customers organic growth.

Atlanta Dallas was a driving force is behind strong economics. As Brent mentioned, we posted a 9% and 20% roll up for the quarter on a cash and a cruel basis respectively. Our overall weighted average starting cash rent of nearly $42 per square. Foot was essentially unchanged from the previous quarter, though. We do anticipate more rental growth as our portfolio crosses into the no low 90s lease percentage.

Leasing Capital spent was 6.76 per square foot of slightly compared to our trailing, 12 months, as this quarter is leasing, volume was dominated by new tenant activity. Releasing, concessions are generally higher than renewals net effective rents came in at 2126 per square foot, reflecting a 2 and a half percent increase from the previous quarter.

So these availability Health steady at 5% with a modest amount of expiring over the next 4 quarters.

Atlanta was our most productive market during a third quarter. Closing on, 27 deals for 215,000 square feet or a third of the company's overall volume with new lease, transactions, accounting, for 75% of that amount. Most notable our local team mitigated, large fourth quarter 2025, expiration at Medi with a 35,000 square foot headquarter, requirement and achieve the highest cash role of the quarter at 30% Medi is uniquely located within a luxury mixed-use development catering to wealth managers and ultra high net worth family offices. We anticipate additional cash flow up there at 20% or more as another 40,000 square feet is expiring soon and our pipeline remains strong at. 9.99 Petri in Midtown, we continue to experience, encouraging activity to backfield, leverages remaining 150,000 square foot expiration in May of 2026, we currently have 4 proposals outstanding, which total 125,000 square feet at significantly, higher rental rates.

9.99 P3 has set a new standard for repositioning assets in Midtown Atlanta, and we remain confident in our ability to backfill this known vacancy at very favorable economic terms.

Minneapolis once again was our second most active market, capturing 8 deals totaling almost 200,000 square feet, the vast majority of which was new deal flow into our redevelopment portfolio.

The pemmont Redevelopment strategy underway at Meridian. And Excelsior is generating tremendous interests with another 125,000 square feet in The Proposal stage. Our team has moved asking rental rates up, another 5% from last quarter with rates now in a low 40s of 15% from pre- Redevelopment phase at the beginning of the year and the highest within its sub markets.

We continue to be the clear landlord of choice in the Minneapolis suburbs as many once competitors. Surrounding projects are now either dated uninspiring or financially impaired,

Top 10 employers Target and RBC Wealth Management. Recently increased their mandates of 4 days a week deal. Flow at our US Bank Corp is growing and we're close to signing a new deal that would backfill 1 of the 3, floors being vacated next quarter.

Dallas was quite active for us as well. Is 16 transactions for 156,000 square feet. Most notable was the 56,000 square foot deal with the global data center service provider in 1 of our 1.5 million square feet, Las Colinas portfolio, which has experienced a surge at least in activity for the for the year. Moving up from 82% at the beginning of the year to 91% at the end of the third quarter, with another 35,000 square feet of deals, close to being signed. Additionally, we're exchanging proposals to renew Epsilon and the sub tenants for roughly 50% of its footprint.

Our local team has pushed asking rates there up 15 to 20% over the last 6 months. Overall market conditions in, Los Colinas are improving rapidly, and led all Dallas sub-markets and that observation for the quarter and year to date.

With Wells Fargo's 850,000-square-foot new campus in Los Colinas being delivered this quarter and no other development underway, Piedmont is poised to see additional rental growth here over the next several quarters.

At 60 broad. We continue to work with the Department of Citywide administrative Services regarding New York, City's long-term extension for substantially all of its space. Unfortunately additional delays during the planning process will result in the execution of a potential lease to spill over into early 2026.

Coming back to the overall portfolio. We remain bullish about our near-term, leasing prospects, our leasing pipeline remains robust. Even after 2, Straight quarters of record, new leasing activity. And as Brett mentioned earlier now has over 400,000 square feet in the late stage phase with insurance legal accounting and financial services, driving demand for New Deals.

Outstanding proposals, remain steady, as well, sitting at 2.4 million square feet for both. Our operating and out of service portfolio is incomparable to the last quarter's volume.

As I noted on our last call, we have seen a large uptick in full-force users, ranging from 25,000 to 50,000 square feet, across a wide range of industries and throughout most of our markets. Considering our leasing momentum and a modest number of expirations in the fourth quarter, we remain comfortable in achieving our lease percentage guidance of 89% to 90% for our operating portfolio. Our redevelopment portfolio, which is on track to meaningfully contribute toward 2026 and 2027 FFO growth, saw its lease percentage spike for the second quarter in a row, from 31% to 54%, based on early and late-stage activity. We project this portfolio to reach 60% to 70% by year-end.

I'll now turn a call over to Chris. Call me for his comments on investment activity. Chris,

Thanks George, as we have set for several quarters, we remain focused on pruning, certain non-core assets throughout our portfolio.

We are under contract on 2 of our land, Parcels both are contingent on time consuming resoning. So if these are approved, neither will close in 2025.

We are actively marketing, another small non-core asset that could potentially close around the end of the year.

The rationale for this disposition is entirely consistent with recent sales.

There are no assurances that any of these will close, and as is our custom, acquisitions and dispositions are not included in any of our projections.

On the Acquisitions front. We are certainly seeing elevated interest in the sector among more traditional institutional investors.

The debt markets continue to improve, and differentiated office environments have proven their resilience and durability over the past few years.

High-quality office is no longer redlined and liquidity, is growing in the sector.

Dallas in particular has seen a handful of sizable fully priced transactions over the past 6 months.

We remain active in reviewing opportunities in Dallas and elsewhere.

We will be disciplined in patient.

Rest assured, our team is thinking creatively around compelling opportunities, including evaluating potential transactions, alongside institutional Capital partners.

We do intend to put ourselves in a position to be more active on the transaction front in 2026.

With that, I'll pass it over to Sherry to cover our financial results.

Thank you. Chris while we will be discussing some of this quarter's financial highlights today. Please review the earnings release and accompanying supplemental financial information which were filed yesterday for more complete details.

Third quarter of 2024.

With the penny decrease attributable to the sale of 3 projects during the 12 months, ended September, 30 2025.

and higher net, interest expense as a result of refinancing activity, completed over the past 12 months,

This was offset by growth and operations due to higher, economic occupancy and rental rate growth.

As I have mentioned on the last several calls or lease with travel and Leisure in Orlando, commenced in September and will contribute meaningfully to our fourth quarter results.

Afo generated during the third quarter of 2025 was approximately 26.5 million.

It was a relatively quiet quarter from a financing perspective. However, as previously announced, we did amend our revolving credit facility and Term Loan during the quarter to remove the credit spread adjustment from the sofa for based interest rates applicable to those 2 facilities.

An all-in rate.

On each Facility by 10 basis points.

4. We currently have no final debt maturities until 2028 and approximately 435 million of availability under our revolving line of credit.

We continue to evaluate balance sheet management options, including traditional bonds and hybrid instruments to smooth our maturity ladder and reduce our interest costs.

Based on the current forward yield curve, we expect all of our unsecured debt maturing for the remainder of this decade could be refinanced at lower interest rates and thus be a tailwind to FFO per share growth.

To illustrate how powerful this Tailwind could be. I'll use the example if we were to refinance, the remaining 532 million of our outstanding 9 and 1/4 bonds at current rates.

We would generate approximately $21 million of interest savings and be $0.17 accretive to FFO per share.

this time, I'd like to narrow our 2025, annual core, ffo guidance, from a range of 1.38 to a144

2.40 to 1.42 per diluted share with no material changes. To our previously published assumptions.

Please refer to page 26 of the supplemental information filed last night for details of major leases. That have not yet commenced or currently in abatement.

As of September 3025, the company had just under a million square feet of executed leases yet to commence.

And an additional 1.1 million square. Ft of leases under abatement. That combined represent approximately 75 million of future additional annual cash rent, which will fuel the mid single digit future earnings growth that Brent mentioned earlier.

Although it does demand additional Capital spend in the short term.

With that, I will turn the call over to Brent for closing comments.

Thank you, George, Chris, and Sherry.

Our portfolio of recently renovated, well-located hospitality-inspired point places continues to set the standard for the office market, helping us to drive leasing volumes to all-time highs.

on that point, you may recall that we started 2025 with an operational goal to lease, a total of 1.4 to 1.6 million square feet, which was inclusive of approximately 30 hundred thousand square foot, Renewal by the New York City agencies,

Today, we reiterated our revised guidance of 2.2 to 2.4 million square feet. But note, that that does not anticipate the completion of the New York City lease this year.

In effect, we're on pace to lease 1 million more square feet than we anticipated at the start of the year. Much of that leasing was for currently vacant space.

and astounding accomplishment, I want to commend the Piedmont team for

with office, vacancy declining for the first time in years.

Quality space is becoming harder to find, and new developments are becoming more expensive for occupiers.

We believe that the recent Investments that we've made in our portfolio,

Combined, with our customer Centric.

Placemaking mindset.

Will continue to set us apart in the office sector. Enabling us to push rents to all-time highs across the portfolio and generate consistent earnings growth.

We will continue to concentrate our resources on driving lease percentage above 90%.

Opportunistically refinancing above market rate, debt to further drive, ffo and cash flow growth.

With that, I will now ask the operator to provide our listeners with instructions on how they can submit their questions.

Operator.

Thank you, ladies and gentlemen. At this time, we'll be conducting our question-and-answer session.

If you would like to ask a question, please press *1 on your telephone keypad.

A confirmation tone. Will indicate your line is in the question key?

You may press star 2 if you would like to remove your question from the queue.

And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

1 moment, please while we pull for questions.

Thank you.

Our first question is coming from Nick filmon with beard. Your line is live.

Hey, good morning. Uh, maybe for Brent or uh, George, you commented a little bit on just expansion versus contraction. I just wanted to clarify, is that within the Piedmont portfolio, um, when you're quoting those numbers? And then as you look at the new leasing and the strength there, has that been more new-to-market requirements, or has that been market share gains and flight to the Piedmont portfolio? Uh, just a couple, a little bit of color there would be helpful. Thank you.

And my repair remarks. Good morning, Nick. I was referring that 2.2% with the JL report noting that large users 25,000 square feet or greater on the US data set was reducing footprint, substantially less. Uh, so that's that comment, not specific to our portfolio but George can talk a little bit more to that. We are seeing more expansions and contractions for sure.

Thank you. I, you know, it's amazing. It's been 54 years in a row. We've had expansions, I mean, this past quarter we had 16 expansion versus 2 contractions for a net positive 40,000 square feet. But if you look at it in totality for the past 5 quarters, looking at 55 expansions versus 15 for a net about 120, 130 thousand square feet. So you know, the Dynamics aren't portfolio isn't quite positive and in terms of where new leasing activity is coming from the second part of your question. Nick. I would say that it's mostly intrum Market moves. Uh, in terms of those users wanting to upgrade to a higher quality space.

I think the exception to that might be Dallas where we continue to see a a robust inbound activity, uh, Atlanta that a little less. So, still up from where we were pre-pandemic, but Texas does seem to have a little bit more inbound and particular

Dallas.

And those those larger requirements for uh, 25 to 50,000 square feet are, are those, if you look at what they're currently in place, uh, what's the size change there? Is that a downsize or is it keeping the same sort of footprint, just trying to get a better understanding of kind of, the larger kind of behavior. We're hearing about slowing higher ring. Uh, just it's, I guess how far are we along on the rationalization of just office utilization? Um, as you kind of look within the markets,

For larger users.

Absolutely. Well, let me, let me first hit this, we've had last quarter. We had 15 deals or 25,000 square feet or larger for Aggregates about 800,000 square feet and this quarter, we have in terms of the polls is outstanding 18, that that are fit that size, so continues to grow within our overall portfolio. You know, I would say it's, it's, it's mixed. I mean, in a couple of instances, we're we're hearing about some consolidations. In other words, companies wanting to create a cost and bring their employees back together for increased collaboration. And some other cases, it might be a small deduct which which is which they use to justify, moving to a higher quality space and paying higher rents.

I think that's 1 thing. We've continued to see within the marketplace is the desire to upgrade the quality of your space, to bring your people back and that means having an environment. And a a offering that is compelling and that's where our Renovations and what we've uh implemented across the portfolio in terms of our service model while we're garnering our more than fair share of that lease.

As we kind of look at role over the next 2 years.

I think, you know, from our perspective,

Perspective, the chunky ones. If you will in 2020.

Which does give us the confidence to be able to, to look into 26 given the prior leasing success. Even with those know, move outs to feel

Confirming some growth.

Last year. Unfortunately, you know, office rates were a battleship. It takes a lot to move, but when you do start going the momentum can carry uh, as we look at in the 27. Uh, there are a couple of the larger expiries. It's a little early to tell overall, uh, they're in Atlanta, which is also our headquarters location and where we have the most depth in the market. So I feel very good about where we're positioned with those but it's still, you know, 20, 24 months out for those. And so it's going to still take a little bit of time to get clarity, but we think we are well, positioned for renewal.

That's it for me. Thank you.

Thank you. Our next question is coming from Anthony pollon with JP Morgan. Your line is life?

Yeah, thanks, good morning. Um, Brent just following up on just the conviction level that that earnings will grow next year. I, I know you'll give more specifics when you actually provide guidance. But just wondering,

You know, do you think that comes by way of some of the debt refinancing that, that Sherry talked about, uh, potentially existing, or do you think the core in and of itself can can move higher?

Great question Tony. Uh, and I want to clarify that is organic growth, only within a static portfolio, uh, it assumes no Acquisitions dispositions or refinancing, as you know, we don't have any debt maturities, really, for several years until 2008, but as Sherry noted on the call, we do have a, a pretty large embedded, uh, Mark to Market benefit. If we were to refinance those bonds, which she outlined in her prepared remarks, uh, and we will capture that at some point between now and when those mature in 28, but rest assured from a risk management perspective, with the team is very focused.

On optimizing that transition from high-cost debt to lower-cost debt, and what we've laid out in terms of FFO growth, again, is just from organic lease only. The comments that she made indicate upside on top of what I described as operating growth.

Got it, thanks for that. And then maybe Sherry on the debt refinancing, you know, what I, I guess, what are the gating factors to, to doing something there? Because I mean you kind of laid out the spreads pretty clear just you know what would it take to kind of go do something there.

Well actually.

Before, you know, there are a variety of...

9 and a quarter bonds that are outstanding. You can do as, you know, purchase them in the market, you can do a tender or you can do a main call. There's no gating factors relating to that, but there are processes in place and there are periods of time where you can or cannot be in the market. And so that's really, you know, kind of the variables that we'll be considering as we go forward.

Um, the spread right now between the 9.25 and where we would refinance if we did a long 5 is about 400 basis points, and that's what's behind the math.

Um whenever we said you know, if you hypothetically could buy back all of them that you would achieve of Interest Savings of about 21 million dollars or 17 cents a share.

Got it. Okay. And then just, um, last 1, if I could you, you kind of talked about being out in the market, looking at potential deals out there and the liquidity coming back to office and so forth. I mean, what does a typical acquisition that Piedmont might be looking at at this point look like, you know, in terms of cash on cash, you know, type of asset, you know, going in occupancy versus, maybe the opportunity, just kind of what is the type of stuff you're looking at right now.

Great question, Tony. Um,

Uh, and really probably going in with a lower yield higher, vacancies, uh, and a significant amount of capital that needs to go into those. And so that's why we continue to to think about a partner in that situation because it would be a, an earnings drag and a and an ffo drag and an occupancy drag to bring it in in house initially, but we always have a mindset if we're going to put our any Capital to work and our time and effort it would be something we'd want to bring into the re overtime. Uh and so those situations, you know, we have looked at a few to the swung at buying some debt on some situations, didn't work out in that scenario. Uh, but we continue to work with those Partners. I'd say that bucket right now. And, you know, it's

kind of comes and goes or off Market deals. But right now, I'd say it's in the 500 million dollar range in terms of opportunity sets that we're looking in that that bucket. And then the other category would be more on balance sheet. What I would consider more value, add in nature, you know, very similar to what we've done at our, our Galleria projects here in Atlanta or 999 in that, it's, it's going to be on balance sheet. It's uh, going to be a little bit lower irr, probably call it mid teens. Uh, you'd have a an opportunity to go in, that would probably be really close to where we trade, maybe a little bit below, or a little bit above, but with more importantly, the opportunity to grow that yield, by calling it 300 basis points, over a couple of years again, through our leasing model, our service model and leveraging, the platform to drive.

Add value. Uh, so they may start start with gap yields and then 8 and a half to 10 range and drive from there and cash might be. Let's say, 50 basis points less, but those assets are going to be probably 70ish percent leads. Like I said, and give us a good opportunity to lease up. You know, 1 thing that we do think is unique about the pedmont. Story is well. Um other groups may be chasing a particularly private Capital long-term wall brand new assets, we do feel like there is a a dirt of capital chasing well-located good bones but older vintage assets like a gallery. You're in Atlanta where we've had a mint success or a 9999, uh, and so, those campus large, uh, kind of unique ability to create your own environment, interests us, and then highly, uh, you know, accessible walkable mixed juice environments. Also interests us. And there are very good opportunities that around that bucket, I'd say right now we're looking

At roughly 800 million or so, uh, that I would characterize, as that value, add on balance sheet component.

Okay, and unfortunately, right now given our cost of capital, we're not able to move on those immediately, but we can continue to keep them warm and continue to have dialogue. So that when we do feel like, we have a green light from the market to grow externally, we're prepared to do so in pretty short order.

Okay, thanks for all the caller.

Thank you. Our next question is coming from Dillon, brazinski with Green Street, your line is live.

Thanks for taking the question. Most uh, my initial questions have been asked, but I guess just 1 1 quick 1. Uh, I know in the past, he has a sort of talked about taking some non-core assets to Market, just sort of curious where you guys are at in that process. And if you are starting to sort of see Capital markets side of things, clear up a little bit as, as the recovery store in terms of fundamentals, start to pick up here.

Uh, Joe, thanks for joining us today. Um, and, and uh, you know, in regards to this position that's kind of, uh,

It's tough. It's still challenging, honestly, given the mindset in the office sector that everybody deserves a deal. And if it's not 10 years of walls and just build the last 4 years, I would say it doesn't price efficiently which is great if you're buying assets, not optimal if we're trying to sell, but we continue to be focused on pruning as you noted the non-core assets that can sell into this market. And, or just, we don't have conviction that we'll have and be able to drive long-term value. So we do have an asset, uh, in the district that we're in the market with, uh,

We can't seem to grow and, or want to grow. And of course, that would be Houston, which has uh, long-term walls on 1 of the assets. Uh, and then Slumber J great credit and another, we're going to continue to look to expose those in 26 as well. They've been in the market and we'll reintroduce them again, hopefully in a more constructive environment. But on that environment, it takes leasing really to give investors a conviction to underwrite, an asset vacant space role uh in a constructive Manner and so what does give us positive? Uh,

if you will, uh, hope if

That will be able to execute on some of this in 26, is that we are seeing more leasing in our markets. And that should give a better underwriting conviction in terms of rates and, and absorption, and not just underwriting, making space stay there forever. And then finally, we do have our asset in New York City as we've noted. Uh, and that will uh, likely be something we would look to monetize upon a long-term lease at that time.

The overall environment, as well as improving, particularly a note for that asset and a debt Capital work. It's uh, it would be a chunkier disposition. And so having the ability and you're seeing the strength right now is the secure. Debt, markets will also improve execution, particularly on that New York City. Yes that if and when we monetize it,

Great, Brent, thanks for that color. I really appreciate it.

Thank you as a reminder, ladies and gentlemen, if you do have any questions or comments, you may press star 1 on your telephone keypad.

Our next question is coming from Michael Lewis with truist Securities. Your line is live.

Uh, thank you. I'm sorry if I missed this but um, did you say why in New York City was pushed back again? And you know, with that that lease expiration now kind of almost right on top of us. Is there any reason for concern there that they might do something? Surprising, you know, give back space or or or anything else.

Michael is Brent, thanks for joining us today. Um, great question, we hadn't touched on any specifics and giving us a live transaction. I don't like to get into a lot of detail but as we've noted on prior calls, uh, and we are still very highly engaged with both decades and departments. So you want administrative Services who run the leasing process for the city, uh, they're working with OMB and then, of course, there's also 3 different agencies within that block. Um, so there are a lot of moving pieces and groups that need to weigh in, uh, as we've noted on prior calls, though, it is a unique envelope. Uh, that is their own interests, their own elevator Bank. A building within a building. If you would add, uh, you would say. And so the other note would be

You know, downtown in Manhattan. They're very now few large blocks the competitive buildings that we could historically have been competing with as some of them have been converted uh to residential as well. And so we feel like it's I guess not as a bunch of concern that they would go elsewhere Lower Manhattan and then the fact that there's an 8 million dollar holdover penalty on top of their current rental rate, uh, that's on an annual basis. Uh, but if they do trip over into hold over, uh, We've reiterated to them, that the public company, we will be uh upholding that in the pandemic. We were a little bit more lenient on that. Of course since they renew we're not going to enforce that uh but it is a free heavy stick. Uh that also goes with the carrot of a building that really suits the agency as well. We do recognize there is a new Administration coming in, however, given the department of homeless and the other agencies, there seem to be more geared towards helping the community. We think there is a strong likelihood that they will.

Continue to stay engaged to this location.

But uh, at that point, that's all I can share. And we still remain very positive on our renewal sometime in the early part of the 26th.

No, that's helpful. Thanks and um, as far as the, you know, the 75 million of of cash or rent. That's kind of, you know, pending sign, but not, but not paying yet. Um, you give a lot of great detail in, in the supplemental package, but there's a lot of detail could you at a high level? You know, how should we think about that 75 million coming online, for example? You know what percentage of that might be, you know, might be paying by the end of the first half of of 26 versus the back half and um could you just kind of at a high level kind of frame how that will flow through?

And it will be within 2026, and note that those numbers are annualized numbers. So, um,

I'm trying to think what other Clarity I can give you. Um.

Does that help?

Yeah, no, that yeah, yeah, that's helpful. Um, and then just my last question, I might add real quick. Sorry Michael. I might add, you know, you think about that 75 million. It's really split into 2 buckets, right? There's 40 million of yet to commit. Uh, and that's uh, you know, pretty wide margin historically that we would say that would be 3% of the portfolio is now, uh, approaching I think almost 5% of the portfolio. Um, and so we're expecting a lot of that. Uh, if you will to 40 million commits next year, more towards the middle of the year to the end, so we might realize roughly about 26 million of that 40 within 2026 itself.

On the cash component, which is about $35 million, that's going to lead in on a similar pace as well. So, again, $35 million is your annualized number. All of that is going to start paying cash next year. But on that same kind of ratio of about 60%, a little bit higher than that, say maybe 70% of it will be realized next year.

Okay, got it. And then, um, lastly for me, this might be, you know, beating a dead horse. You talked about all the office, leasing demands, um, you know, given, you know, the jobs numbers, I guess, back back when we used to get jobs numbers. Um, but what we know about jobs numbers and then AI, you know, there was a headline recently, you know layoffs now at Amazon I saw an article that said, you know, more layoff announcements this year since in any year since 2000, you know, it is some of the leasing velocity. Is it just that reads like yourself you had more space to fill and so that helps explain why there's more new leasing volume or you know it sounds from your comments. Like it's really a stronger demand, just more, you know, more space out there looking for a home.

You know, any way to kind of reconcile, you know, those two things I just said, you know, the jobs and the layoffs and everything that's happening in the broader economy with this, what feels like a surge in office demand?

You want me? I'll start with that. Good morning Michael. Um, this is George. You know, it's it's interesting we keep seeing announcements with layoffs but as I can kind of reconcile that to what we're seeing in our portfolio we just I'm not seeing that affect just yet and and I get back to the comment that I made earlier. People are still looking to upgrade their space because collaboration and Innovation. Just happens a lot quicker when you working together. So uh, just to give you some statistics to support that theme in terms of

Why we don't see a left out at all, an overall leasing. We talked about overall proposals earned earlier, 2.4 million square feet overall, um, that's quite comparable to what we see for the past, several quarters, but most notable is 2/3 of, that is for new space, right? And so that is amazing considering how much new leasing activity. We've done for the past 2, quarters that we continue to back. So that Pipeline and then looking at even further out you know the tour activity is is an interesting early indicator of what's happening for demand in our portfolio. Uh we did hit a low point in July for 34 tours, but that was kind of more seasonal than anything else. The recovered in August, the 45 tours in September 41, tours. And here we are sitting 27 days in October, at 43, tours of 4 more days to go. So we're just not seeing it right now.

Getting to your point about Amazon, it, it is interesting. It's, it's new information we'd like to absorb, but although we have a large Hub in Dallas for them, uh, they've leased a tremendous amount of space through Wei work and other submarkets, which are more on the short term situation. So, if I were to guess, I suspect that those shorter term contracts, in these co-working operations, would probably be first to go.

And I'd add on that. Um, Michael I really taken a step back. You know, 2 things I think about our portfolio has lint to our success and they're not just because we had more space available. The first is, we don't lean in or have floor plates in building design heavily for just Tech use. Uh, it is much more of a Professional Services, uh fire, uh conducive amenity sets, finished level floor plate, size, Etc. And so as Tech has pulled back from the being kind of the incremental lessor and a lot of markets, our assets have

Is you look at our portfolio and our strategy of having great assets, amenitiz location, but we don't cost as much as new construction. So if you're a firm, it's a national firm or uh, a local kind of regional firm and you want to create a presence Regional headquarters Etc and you want it to be fabulous space to bring your people back. But you don't want to pay 65 to 80 dollars. Gross, will you come to a pond building? And so, we are much more appealing to a larger segment of the market and my opinion. And I think the data set shows that, uh, and that's why we also have had so much uptick into our assets. And then you layer on the fact that a lot of landlords are kind of stuck in the capital structure, that doesn't allow them to think creatively work with the clients and create the environment, and the common areas that are necessary to leave space.

So, you know, trophies full, uh, and are a set of assets are very compelling. I'll give you one last anecdote. We are working at, uh, our buildings in Minneapolis at Meridian, uh, and having great receptivity in the marketplace. A tenant towards that building, before the renovations were completed about four months ago, uh, ended up going to new construction and entering a lease on that new construction. They didn't come back to us. We don't have that deal, but they are very compelled now to see the completed product and the fact that that's a 30% to 40% discount to.

And new construction rents that they are about to enter a lease into and we'll see if we'll get that 60,000 square foot user. But I think there's an opportunity to stag that because our environments are so compelling. We can compete for new construction and we don't have to charge as much. And again, that goes to my point in our ability to push rate across a lot of the portfolio given we've done this investment and we've got a service level that is truly differentiated. And it's not just that we have more available space,

Thank you for that. I can't argue with those leasing results. Thanks.

Thank you, thank you. As we have no further questions on the lines at this time, I would like to turn the call back over to Mr. Brent Smith for any closing remarks.

Anyone joining us this morning, I do want to remind you of 2 important dates. First, this Friday, happy Halloween to all those. And then the second is in December, we are going to be at the event in Dallas, uh, on the 8th. We're going to hold an office tour where we'll be sharing and showing off. Uh, all the success we've had in our Dallas gallery of project. We'll also have additional Brokers and, uh, uh, others from the investment Community, uh, giving their thoughts and insights on the office sector. So, please join us reach out to either Sherry or Jennifer. If you're interested in joining that tour and discussion,

And dinner.

Uh, hope everyone has a great week again. Thank you again.

Thank you, ladies and gentlemen, this does conclude today's call, you may disconnect your lines at this time and have a wonderful day and we thank you for your participation.