Piedmont Realty Trust, Inc. (PDM) Q2 2026 Earnings Call Transcript

Good day, everyone. Welcome to Piedmont Realty Trust Inc. Second Quarter 2026 Earnings Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Laura Moon. Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's second quarter 2026 earnings conference call. Last night, we filed our Form 10-Q and an 8-K that includes our earnings release and unaudited supplemental information for the second quarter of 2026. Both of these documents are 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. 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. The risks and uncertainties of these forward-looking statements are discussed in our supplemental information 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. 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. Also on today's call, representatives of the company may refer to certain non-GAAP financial measures such as FFO, core FFO, AFFO, and same-store NOI. The definitions and reconciliations of these non-GAAP measures are contained in the supplemental financial information which was filed last night. At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments regarding second quarter 2026 operating results. Brent?

Thanks, Laura. Good morning, and thank you for joining us today as we review our second quarter 2026 results. In addition to Laura, on the line with me this morning are George Wells and Alex Valente, our Chief Operating Officers; Christopher A. Kollme, our EVP of Investments; and Sherry L. Rexroad, our Chief Financial Officer. We also have the usual full complement of our management team available to answer your questions. Piedmont had a strong quarter, beating consensus by a penny due to operational outperformance, and raising our 2026 outlook for the second quarter in a row, which Sherry will touch on more in a moment. Our Piedmont PLACEs are generating meaningful earnings and cash flow growth as office-using demand continues to strengthen for high-quality, well-located, amenitized assets. The U.S. office market is no longer defined by excess space but rather by increasingly constrained supply of differentiated office buildings, driving higher occupancy, accelerating rent growth, and reducing tenant concessions. Leasing activity has reached post-pandemic highs as availability continues to decline across most major markets and is now broadening to more metros and submarkets. While the development pipeline remains at historically low levels, with demand recovering and new supply scarce, our Piedmont PLACEs are benefiting from a more favorable operating environment and meaningful pricing power. As I noted on our last earnings call, Piedmont has materially increased asking rates across a substantial portion of the portfolio, in most cases greater than 15% over the past 12 to 18 months. Those rate increases implemented across the portfolio in early 2026 are now being reflected in our quarterly lease metrics. During the quarter, we signed 460,000 square feet of leasing with rental rate increases of 14% on a cash basis and over 32% on an accrual basis. In fact, over the last four quarters, the average rental rate increase on a cash basis has been 12%, which is representative of the rental mark-to-market and embedded growth in the portfolio. Having renovated 90% of the portfolio since 2020, our amenity-rich, hospitality-driven Piedmont PLACEs are among the best assets in their respective submarkets and are leasing at record-high rental rates. During Q2, we achieved the highest quarterly average net effective rent after capex in the company's history, now reaching the mid-twenties per square foot, up more than 20% over the prior trailing 12-month average. Even more encouraging is that our rents still remain 35% to 40% below new construction pricing, providing further runway to increase rental rates. Additionally, Piedmont has leased more than 80% of the portfolio since the pandemic, meaning the vast majority of our customers have already right-sized and upgraded their office space for the modern workforce. Our average tenant size across the approximately 16 million-square-foot portfolio is now just 17,000 square feet, with customer and industry diversification providing insulation against potential workforce disruption from AI implementation. Piedmont customers with leases expiring several years out are also recognizing that the market for premium office space is tightening, particularly for tenants that occupy a full floor or greater. As a result, we are seeing customers approach us about renewals of their space well in advance of the expiration. In the coming quarters, we anticipate early renewal discussions with existing tenants to accelerate, which should bolster tenant retention ratios above our 60% to 70% historical average, with the ability to reduce free rent and tenant capital concessions. At Piedmont, we recognize the most effective way to reduce capital expenditures on leases is to retain our existing customers. That is why we continue to invest in our team and technology to create the best office experience for our clients. This year, the team's hard work culminated in Piedmont being recognized by Kingsley as a top-five national office platform—the highest ranking among all public office companies. For those who may not be familiar, Kingsley is a third-party research firm that conducts a national survey of office consumers to evaluate their landlord. Most of our public peers participate in the survey, so we could not be more proud to be recognized as a top five world-class operator. Additionally, during the second quarter, nine projects throughout the portfolio won the Building Owners and Managers Association, or BOMA, Outstanding Building of the Year award in their respective size categories—a tangible testament to the quality of our product and service offering. The strategic repositioning of the Piedmont portfolio along with the substantial leasing we have accomplished over the past 12 months is translating into improved operating metrics, including higher economic occupancy now greater than 80% for our in-service portfolio, with continued improvement in the coming quarters; same-store cash NOI growth of 10% on a cash basis for the first half of the year; and meaningful earnings growth of $0.02 for the first half of 2026 when compared to the first half of 2025. Further, the portfolio is approaching 90% leased, and as of June 30, inclusive of our out-of-service portfolio, had an executed pipeline of leases that have not commenced equal to approximately $39 million of annualized cash rents—that is the equivalent of 570 basis points of occupancy that will flow into earnings over the next several quarters. The investment thesis in Piedmont is straightforward: demand for differentiated office product is increasing while supply is shrinking. Return-to-office mandates are becoming more common and more enforceable. Companies recognize that the office is critical to the four C's: building culture, creativity, collaboration, and connectivity. At the same time, new office construction remains near-zero, older buildings continue to be removed from inventory through conversion or demolition, and many financially constrained owners lack the capital to compete. Piedmont is uniquely positioned for success in the marketplace. We are generating the highest earnings and cash flow growth in the office sector and trade at a very compelling valuation, with net effective rents after capex of $25 per square foot on a stock price that equates to a gross asset value of approximately $220 per foot. Furthermore, we currently have an outsized earnings backlog, great opportunities for occupancy absorption, 10% to 15% of embedded rental rate growth, and opportunities for accretive debt refinancings, which will all drive core FFO higher in the near term. With that, I will hand it over to George for further details on second quarter operational performance. George?

Thanks, Brent, and good morning, everyone. The operating environment for high-quality office remains constructive, and the Piedmont platform continued to perform well during the second quarter. Leasing velocity continued its strong pace with 42 transactions completed for approximately 460,000 square feet. New business activity was slightly more than half of that volume with a large portion of that expected to translate into 2027 GAAP rent recognition. Average new deal size was approximately 11,000 square feet, reflecting a good mix of small, medium, and large clients. And the weighted average lease term for new transactions was approximately 11 years, reflecting continued customer commitment to high-quality workplace environments. For the ninth consecutive quarter, expansions exceeded contractions in the portfolio. That is an important signal. It shows that our customers are not simply maintaining space, but many are expanding to support growth, return-to-office requirements, and a renewed focus on collaboration. During the quarter, we completed nine expansions for 22,000 square feet with no contractions. Lease economics remain strong. As Brent noted, cash rents of space vacated within one year increased by 14%, while accrual rents increased by 32%. Overall, weighted average starting cash rent of $43.79 per square foot rose 5% from last quarter's $41.59 per square foot, and we anticipate more rental increases in the near term. Leasing capital spend for the quarter was stable at $5.83 per square foot per year and in line with our trailing 12-month average of $5.97 per square foot. Tightening conditions for high-quality space are leading to stronger pricing power as net effective rents surged this quarter to $25.56 per square foot, up over 20% from the prior 12-month average, and we anticipate maintaining net effective rents in the mid-twenties per square foot or higher supported by persistent demand for high-quality space and little to no new development in our submarkets. Equally impressive, the portfolio generated 9% same-store cash NOI growth driven by both burn-off of free rent and higher rental rates. We believe these very encouraging second quarter metrics will likely continue into the second half of the year. In Northern Virginia, the Route 1/Richmond-Beale corridor—RBC corridor—has been experiencing an uptick in demand over the past few months with the defense sector leading the way. Our local team captured the company's largest new deal of the quarter with a defense contractor for 73,000 square feet at our 4,250 North Fairfax building. This 12-year deal commences as soon as the space can be built and boasts a healthy annualized NER of $27 per square foot. Our NOVA assets are well located within dense, highly amenitized, walkable environments and sit adjacent to metro rail stations. The portfolio here is currently 80% leased, and we are projecting strong net positive occupancy and FFO growth over the near term. Atlanta was our most active market with 11 deals for 130,000 square feet. A majority of that was new business and landed in each of our three vibrant submarkets of Central Perimeter, Cumberland, and Midtown. Most noteworthy, we signed a 57,000-square-foot, 15-year new lease at 116 Perimeter Center West, preemptively backfilling a large portion of Broadcom space. We continue to experience strong customer interest in our remaining Central Perimeter space. Our Dallas team closed eight deals for 107,000 square feet with Epsilon's 11-year extension driving most of that deal flow and yielding a hefty cash roll-up of 42%. Our pipeline for backfilling the balance of that space and pushing rate is deep with multiple tenants competing at improving rents. Over in the Lower Tollway submarket, the Dallas Mavericks announced plans to develop a multibillion-dollar arena and entertainment district at the 100-acre Valley View site, which sits a half-mile from our Galleria project. As we have experienced with the Braves Battery development in Atlanta, being adjacent to such a massive entertainment venue will likely spur private, public, and reinvestments toward the neighborhood's infrastructure and elevate the desirability of an already healthy office submarket. Today, Galleria Tower's asking net rents of $50 per square foot are up 40% from just two years ago when we completed the renovation, and we are excited for this 1.4 million-square-foot asset's trajectory and future earnings growth. At 60 Broad, we previously announced that we had agreed to terms with the new administration of the City of New York for substantially all of the space and that a lease of this size will require other internal city reviews and a public hearing process before the transaction can be fully executed. The city is steadily progressing to conclude the lease renewal; however, it is likely the process will not be wrapped up until the fourth quarter. Our redevelopment projects posted another strong quarter of deal flow with over 60,000 square feet of new transactions signed, increasing the out-of-service lease percentage from 76% to 83%. During the second quarter, we placed 222 Orange Ave back into service and we are confident that the remainder of the out-of-service portfolio will reach stabilization around the end of 2026. Looking ahead, our leasing pipeline remains stout and now has over 700,000 square feet in a legal stage for the third quarter. Outstanding proposals continue to hold steady at approximately 2 million square feet. Our supplemental report shows 927,000 square feet, or 6% of our operating portfolio, expiring in the second half of 2026, which is very manageable and even less exposure when you back out the pending New York City extension. Assuming a typical run rate of 175,000 square feet of new transactions in each quarter and concluding known renewals, we are on a path to achieve our previously released guidance with overall lease volume projected to reach the high end of that range, or 2 million square feet. We have never been more excited about the outlook for our business. Tenants are choosing Piedmont because our buildings provide the right combination of location, amenities, service, and value that today's dynamic companies require. Our formula is working, and we believe it will continue to drive leasing, rent growth, and occupancy gains. I will now turn the call over to Christopher A. Kollme for investment activity. Christopher?

Thank you, George. From an investment perspective, our focus remains on optimizing the portfolio, preserving capital discipline, and positioning Piedmont to benefit from strengthening liquidity in the transaction market. The office investment market is improving, driven by the steady increase in leasing demand coupled with a dwindling supply of high-quality space. That said, buyers remain cautious, and we see only limited institutional investors in the market. The majority of transactions are being awarded to local operators, family offices, and private capital with a focus on transactions under $80 million. With limited well-capitalized operators in the market, Piedmont is well positioned to compete for value-add acquisitions. We are focused on opportunities within our existing markets which are accretive to our earnings and growth trajectory. A quick update on dispositions and process, specifically the two land parcels that we have mentioned previously. Our Royal Lane land parcel in Dallas remains under contract, and we are feeling optimistic that it will close during the third quarter, generating approximately $12 million in net sale proceeds. The planned development will provide about 20,000 square feet of retail directly adjacent to our Connection Drive assets. The other land parcel in Orlando continues to move forward, albeit slowly as rezoning takes time, and will likely be a mid-2027 closing. Similarly, the land will be redeveloped into a mixed-use project containing multifamily, over 40,000 square feet of retail space, as well as several restaurants, all of which will benefit the environment next door at our Town Park assets in Lake Mary. Aside from those two known sales, we continue to actively weigh the disposition of mature and/or non-core assets which lack the growth profile of the balance of our portfolio. In short, Piedmont's opportunity to recycle capital is improving. As liquidity returns to the sector and our capital allocation priorities remain focused on high-return leasing capital, improving balance sheet flexibility and acquisitions which improve our portfolio quality, are accretive and are consistent with our long-term growth strategy. With that, I will pass it over to Sherry to cover our financial results.

Thank you, Christopher. 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. Core FFO per diluted share for the second quarter of 2026 was $0.38 per diluted share, $0.01 ahead of consensus and $0.02 ahead of the second quarter of 2025. Growth was largely driven by higher rental rates and higher economic occupancy, partially offset by the sale of one project during the 12 months ended 06/30/2026. AFFO generated during the second quarter of 2026 was approximately $31 million. Turning to the balance sheet, I am pleased to report that during the second quarter, we successfully refinanced our term loan that was scheduled to mature in January 2027. We increased the principal from $325 million to $400 million, pushed out the maturity to May 2031, and tightened the spread by 15 basis points, so we are very pleased with this execution. We used the net proceeds from the increase in principal to pay off the balance outstanding under our line of credit. Consequently, we had the full $600 million capacity under the line as well as around $17 million in cash available as of June 30. As we have highlighted previously, we currently have no debt maturities until 2028, and our maturity ladder is now very smooth at roughly 20% per year from 2028 to 2033. Our overall weighted average cost of debt continues to decrease and is now at 5.5%. It is important to note that as the impact of the team's leasing over the last 12 months ramps up in the second half of this year, our net debt to EBITDA ratio will trend below 7x by the end of the year. This trend will continue in 2027 as the balance of the nearly 900,000 square feet, or $39 million, of lease revenue commences. The current 570 basis point spread between leased and commenced occupancy will also compress to approximately 400 basis points by year-end. We continue to think creatively as we evaluate balance sheet management options and look for opportunities to further reduce our interest costs and/or extend our maturity ladder. As Brent noted in his remarks, with year-to-date performance and visibility into second half lease commencements, we are increasing our 2026 annual core FFO guidance to a range of $1.50 to $1.55 per diluted share, an increase of $0.025 per share at the midpoint when compared to our original 2026 guidance and equating to an earnings growth rate of greater than 8%. We are also increasing our same-store NOI cash and GAAP guidance range to 5% to 8%, a 200 basis point increase from original 2026 guidance. Please note that, consistent with our standard practice, this guidance does not include any speculative acquisitions, dispositions, or refinancing activity. We will adjust guidance if and when those types of transactions occur. The most important financial takeaway is that Piedmont's leasing activity is now converting into earnings and cash flow growth. The $39 million of lease revenue still to commence that we discussed earlier will support higher same-store NOI, higher core FFO, lower net debt to EBITDA, and continued progress toward a more normalized economic occupancy level. With that, I will turn the call back over to Brent for closing comments.

Thank you, George, Christopher, and Sherry. To summarize, Piedmont is entering the next phase of the office cycle from a position of increasing strength. The portfolio has been repositioned, leasing demand remains broad and durable, signed leases are converting into cash flow, rents are moving higher with more room to run, new supply is limited, and leasing success will start to improve our balance sheet, providing the flexibility to efficiently recycle capital and improving the transactions market. We recognize that the office sector continues to face skepticism, but the data in our portfolio tells a different story. Companies are returning to the office, prioritizing high-quality, amenitized environments, and making long-term leasing commitments. They are choosing Piedmont because our buildings offer the experience and service they demand at a compelling value relative to new construction. Our focus for the remainder of the year is to grow occupancy, increase rents, convert our leasing pipeline into cash flow, and continue to optimize the portfolio. If we execute on these priorities, Piedmont is positioned to generate consistent organic FFO and cash flow growth for the remainder of 2026 and beyond. With that, I will now ask the operator to provide our listeners with instructions on how they can submit their questions. Operator?

Certainly. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold for just a few moments while we poll for questions. Your first is coming from Dylan Burzinski with Green Street. Please pose your question. Your line is live.

Hey, guys. Thanks for taking the question. Maybe if you can just expand a little bit on the demand environment. Obviously, things continue to remain strong, evidenced by Piedmont leasing and leasing to date in July. Maybe you can just talk about, in your guys' mind, what is causing this to continue to accelerate here given the uncertainty over the macro backdrop?

Good morning, Dylan. This is George. Thank you for joining us. I think the leasing engine really continues to fire on all cylinders. Employees are looking for space they want to move into—a more compelling, inviting environment where you can create collaboration space and for employees to reconnect with culture and purpose. That trend is there and it continues. When you look at overall demand today, I mentioned earlier that we are on two million square feet overall volume. But when you take a look at what is actually new deal activity, that is around 75% of that, or 1.5 million square feet. It is really great to see how that demand permeates across all of our submarkets. There is an overbalance of activity in Portland and Dallas because that is where most of our exposure is in the near term.

I would layer on to that. We just continue to see a constructive environment for our clients to grow their businesses. Yes, interest rates are elevated, but investments in productivity gains from AI are not cannibalizing jobs. In actuality, we are starting to see it help companies grow. George noted the number of expansions we are seeing versus contractions. I think that is generally fueled by that. Also, our portfolio is geared toward the sweet spot in terms of industry demand—professional services, financial services, insurance. Our designs, floor plates, and how we operate the buildings and service them are all geared to provide an elevated experience for those types of users. We do not have a lot of tech exposure in the company where you have seen less job growth. All in all, those factors put the desire to be in the most premium product at a very reasonable price squarely in Piedmont's strategy, and we are seeing increased demand particularly for that segment.

That is very helpful. Thanks, guys. Maybe just one more if I could. Sherry, you mentioned getting to that sub-7x net debt to EBITDA range here shortly. Do you guys have a longer-term leverage target goal in mind as you think about 2027, 2028, and beyond?

So getting below 7x should happen by the end of this year. In the intermediate term, we would like to get closer to the 6.5x range. And in the longer term, closer to 6x. Somewhere in the 2027 to 2028 time frame is what I am kind of calling the intermediate term for that 6.5x target.

Right. That is it for me. Thanks so much.

Your next question is coming from Daniela De Armis Rosales with JPMorgan. Please go ahead. Your line is live.

Hi, it is Daniela here. Thank you for taking my question. On the demand pickup in Northern Virginia, how competitive is it to get deals done there, and do you think the activity there will persist?

This is Brent. Good morning, Daniela, and thank you for joining us. As you point out, NOVA has seen an uptick in transaction activity. We completed a larger, roughly 70,000-square-foot lease with a defense contractor tenant. What we continue to see in that market are a couple of factors which give us the belief that we can continue to execute uniquely in the market. First, there are fewer blocks of space available as there has been absorption, particularly from professional services. Second, increased funding for defense contractors continues as geopolitical developments, including the war in the Middle East, have sustained growth in companies that focus on advanced defense technology, and this submarket has a large presence of such companies. Therefore, we continue to see a lot of demand. Very few landlords have the capital right now in that market to create the environment and provide the necessary funds to build out unique space and, in some instances, SCIF space. They also see a lot of demand from the younger workforce that resides in the RBC corridor in Northern Virginia. These factors lead us to believe demand will continue to play out and bode well for driving absorption in our buildings in the RBC corridor overall. You will continue to hear us share positive news in the coming quarters.

That is really helpful insight. My second question: on the acquisition side, what opportunities are you seeing there and what do those deals look like?

Great question. We continue to canvass the market for off-market transactions, and a few assets have been brought to market as well. The focus areas we'd like to grow in are primarily Dallas and Northern Virginia for the reasons I just discussed. We also like our exposure in the Sunbelt, but Atlanta is already our largest market. We see good opportunities in Dallas. We continue to focus on assets that have great bones—slightly older vintage but are well-located. We feel location is the first amenity. If an asset has air and light, ceiling clearance height, and the right ground-plane interaction, we look for assets that are 70% to 80% leased that have not been put through our program. We create value through lease-up, roll-up in rental rates, and putting our Piedmont PLACE expertise to work, generally buying at yields in the high single digits, say the 8.5% to 9.5% range, and stabilizing well north of 10.5% to into the 11% range on yield on cost. We look for existing occupancies that are durable, and we would consider those assets to reposition to trophy-level quality to demand the highest rents in the submarket. This is consistent with what we have accomplished over the last five years.

Alright. Thank you so much. That is it for me.

Your next is coming from Michael Lewis with Truist. Please pose your question. Your line is live.

Yeah. Thank you. So you just answered a question about acquisition pricing for the types of assets you are looking at. I wanted to ask about dispositions, and whether improving fundamentals are causing any changes in pricing. I know the New York asset is relying on a lease but may still have some upside on some upper floors. Any change there on potential disposition pricing?

Good morning, Michael. Great question. Christopher alluded to this in his prepared remarks: we are continuing to see more debt availability in the market and good leasing begets better underwriting, better rental rates, and absorption. The transaction market is continuing to thaw. In terms of our dispositions and framework around that, we generally look at the most mature, top 10% of our assets and what we'd consider the bottom 10% in terms of quality to harvest value and continue to grow portfolio quality and earnings. Dispositions will vary by bucket, but somewhere between probably the 8% to 10% cap range seems reasonable for most of those assets. The overall desire would be to redeploy proceeds into the Sunbelt. In terms of pricing, I do not think we have seen a material movement in overall pricing in the last six months for most of our markets, although Dallas would be one that has seen more movement. Everything else has been pretty stable. That still gives an environment where more transactions allow us to recycle more capital. Pre-pandemic, we historically recycled $300 million to $400 million; I do not think that level is achievable today, but it is positive to see transaction activity starting to unlock.

Okay, great. And then my second question is a capital allocation question. The last time you paid a quarterly dividend it was $0.2125 in Q1 2025. Your FAD this quarter was $0.24. You have not been below $0.13 of FAD since Q4 2020. Even though you suspended that dividend, it continues to be covered and the stock has done well since you suspended it. When you think about that $31 million of FAD after capex in the second quarter, what is the best use of that? You could bring the dividend back, buy back bonds, repurchase stock, or deploy into acquisitions. What do you think the options are?

Very good question. If you think about that $30 million after capex, a couple of things stand out. We are doing a lot of construction this year across the portfolio and will have a lot of commencements in Q3 and Q4, so capital spending will be lumpy through the remainder of the year and we may not achieve that same $30 million after-capex level each quarter. Typically, this quarter, what we would do with excess cash flow is focus on paying down debt, with a near-term emphasis on getting our net debt to EBITDA below 7x. Once we get to those levels, we would want to drive it down further before reestablishing a dividend; that decision would be made by the board. In the near term, bond repurchases of the 9.25% bonds would be the most impactful way to pay down debt. Using excess proceeds to buy back stock is not a priority at the moment; we see better opportunities from an acquisition standpoint for growth and near-term accretion than buying back stock. Any buybacks would need to be paired with disposition proceeds or excess recurring cash flow, and this year is still a bit choppy in terms of excess cash flow due to construction and TI spending.

Michael, the AFFO number does not deduct all capex. So it is not a true measure of free cash flow. Some of the tenant improvements we spend are in addition to that, so the actual free cash flow number is lower.

I would think the board will evaluate reestablishing a dividend in 2027 at the earliest. The framework: first, you need to have positive net income and demonstrate the ability to pay a dividend. We obviously want significant cash flow after capex that would support turning on the dividend and increasing it over time. We will start to evaluate that in 2027.

Thanks. That is all I have.

Your next question is coming from Nicholas Tillman with Baird. Please proceed. Your line is live.

Hey, good morning, guys. Maybe you can talk a little more about the lease pipeline. You highlighted the 700,000 square feet in a legal stage. Assuming that the 300,000 square feet included in that is the New York City lease, maybe give the composition of the remaining 400,000 square feet that you guys have signed, and then some updates on New York City broadly. You mentioned fourth quarter. In the past you've mentioned you are not expecting to charge holdover rates in the near term as you work through discussions. Any clarity there and the mixture on the remaining pipeline signed to date?

Thanks, Nick. We talked about the 700,000 square feet being either signed or in the legal stage, and my office is weighted right now a little heavy toward renewals because of the city. But once you back that out of that particular column, you are looking at a pretty even balance between new business and renewals. Historically we've seen a little more new business, but I believe we can get to that number by hitting about 175,000 square feet of new business between this quarter and next quarter. Some other characteristics about that demand: we have a couple of full floors in there, which is consistent with what we have seen historically. The sectors have been pretty consistent: legal, accounting, financial, banking, insurance, and those continue to look at our spaces. Sales offices is another category that is coming up. We are seeing our defense sector coming back to life in Northern Virginia, and we are seeing that in some other cities as well. Brent, would you like to touch on New York City?

Yes. Regarding New York City, it is a large transaction and requires some internal city reviews and a public hearing process, which has delayed execution. As you noted, the tenant went into holdover this quarter. Piedmont retained all of its rights under the existing lease, which does include some financial penalties along with other remedies. We continue to be very engaged on a long-term renewal with DCAS, the Department of Citywide Administrative Services. Documentation is progressing and they have communicated that they expect us to conclude in the fourth quarter. Holdover penalties are meant to accelerate a tenant's decision. The tenant has indicated they intend to stay at the building, and typically holdover penalties have a short grace period or escalate over time. This holdover does not impact the second quarter, and we do not anticipate holdover will materially influence our 2026 earnings. We do anticipate the lease will be executed.

That is really helpful. Brent, you made comments on early renewals and the potential to push retention above your traditional 60% to 70% on in-place leases looking out to 2028 and 2029, and also pushing occupancy into the low- to mid-90s. As we put those characteristics together, what do you think the embedded upside is as you start locking in these renewals for 2028 and 2029? Also, with George's comments on what you need from new leasing to sustain a level or bogey on a quarterly average to continue to get to those low 90s from an occupancy standpoint?

Great question, Nick. The embedded upside from early renewals is meaningful. We are starting to see 2028 and 2029 expirations come in early, so there is embedded cash roll-up in those renewals. I think our 12% average cash roll-up across the portfolio is a decent guide—there will be markets that outperform, like Atlanta and Dallas. Part of the strategy with early renewals is that tenants already have built-out space, so we can offer modestly higher rents with limited capital, which reduces leasing capital spend and free rent concessions. We think we can achieve cash growth in the 10% to 15% range and start to reduce capital spend as we get further into 2027. As for new leasing, George alluded to a 175,000 square foot quarterly run rate of new business as a sweet spot to maintain momentum. We feel that remains achievable given our pipeline, and we believe the ability to drive lease percentage into the low 90s—if not higher—remains on the horizon. We feel good about achieving about 90% occupancy in 2027 as we continue to drive absorption of the portfolio.

I appreciate it. Maybe rounding out on the 2027 large expirations: sounds like you had some progress in one of the assets in Atlanta. Maybe an update on coverage on those assets and the remaining larger blocks within the portfolio? It sounded like 100,000 square feet still in the Midtown asset at 999, half the Epsilon space, and then those two assets in Atlanta specifically?

Sure, Nick. We had 1.5 million square feet of new leasing activity and it is across all our markets. A larger portion—about a third of that—came through the Atlanta market, which bodes well because we already have exposure there with 999 Peachtree. We have leased well over 100,000 square feet there in the past 12 months and have good activity to take away the remaining four blocks; those deals will show something close to a 40% cash roll. The other 2027 exposure you mentioned in Central Perimeter includes two assets: Glenridge Tower and 116 Perimeter Center West. We preemptively chipped away at some of that exposure at 116 Perimeter Center West. Glenridge, in particular, has competitive features: it is one of the top towers well-located off the interchange, and the vacancy is at the higher end of the marketplace, which gives us opportunity. It also provides opportunity on the first floor to create an attractive lobby and visitor space for a large user. Central Perimeter historically attracts corporate relocations due to its centrality to the workforce around the city. We are excited about the opportunity there. You also mentioned Minneapolis; our exposure there is largely in the suburbs, primarily Normandale Point. That asset shows really well, has been renovated and stabilized for several years. We are in conversations with the existing user to retain some of the space and have other prospects available. We have had tremendous success in Minneapolis, taking vacant buildings in Meridian Crossing and Excelsior and leasing them up to 83% over an 18-month horizon, and we think we can duplicate that at Normandale Point.

No, I appreciate it. That is it for me.

Once again, if you do have any questions or comments, please press 1. Your next question is coming from Evercore ISI with Cantor Fitzgerald. Please state your question.

Hello. Thank you for taking my question. You mentioned that you wanted to reduce debt and are selling non-core assets to reinvest in the Sunbelt. Could you walk through your thought process there and what you are prioritizing in these new assets?

Sorry, you faded out there. In terms of what we are prioritizing for reinvestment in the Sunbelt and our capital allocation: near term, we have the ability to pay down the 9.25% bonds, which if refinanced today might be around a 6% interest rate. That would provide accretion and deleveraging. We are very focused on taking our net debt to EBITDA below 7x as quickly as possible, and dispositions in process or in-market would help us pay down debt and drive toward that target. That said, we are also seeing interesting acquisition opportunities that could be accretive to earnings and improve the balance sheet. So acquisitions and debt paydown are not necessarily mutually exclusive. We like assets in Dallas and Northern Virginia where we have scale and where we see pricing power. We aim to aggregate assets in submarkets where we can gain roughly 25% market share of trophy Class A product. Our peers often chase brand-new glass buildings; we are leaning into well-located, once-high-quality but currently unloved trophy buildings—assets that can be bought at higher yields, repositioned, and driven into lower cap rates. These deals sometimes lend themselves to larger campus-style projects like Galleria in Atlanta or Dallas, where competition is limited and we can create walkable, amenitized environments that today's companies want. We have done this several times and believe this is a unique opportunity set for us in the coming years.

Great. Thank you so much.

There are no additional questions in queue at this time. I would now like to turn the floor back over to Brent Smith for any closing remarks.

Thank you, everyone, for joining us here today. We want to thank particularly the Piedmont team and congratulate them again on achieving a Kingsley top-five ranking and the numerous BOMA awards. Piedmont continues to execute at a high level. Our premium Piedmont PLACEs are garnering significant demand, and we are excited about the opportunity not only for the remainder of this year but for several years to come as we continue to execute on our strategy. Thank you, everyone, and have a great day.

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.