Release Date: April 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Piedmont Office Realty Trust Inc (NYSE:PDM) completed approximately 363,000 square feet of total leasing during the first quarter, with half related to new tenant leases.
• Leases executed during the quarter reflected double-digit rental rate roll-ups on both a cash and GAAP basis.
• The company successfully refinanced its $600 million line of credit and paid off a $250 million term loan.
• Leasing momentum remains strong, with over 275,000 square feet of leases signed in April alone.
• Piedmont's premium office space continues to attract and retain customers, with expansions exceeding contractions for the third straight quarter.

Negative Points

• Macroeconomic uncertainty caused national gross leasing volume to slow moderately, impacting leasing activity.
• Net absorption turned negative again, driven by federal lease terminations, particularly affecting the DC Metro area.
• The company decided to suspend its dividend to fund growth and reduce leverage, which may concern income-focused investors.
• Core FFO per diluted share decreased to $0.36 from $0.39 year-over-year, partly due to increased net interest expense.
• The gap between leased percentage and economic leased percentage is at its widest in over a decade at 10.6%, indicating a delay in cash flow realization.

Q & A Highlights

• Warning! GuruFocus has detected 8 Warning Signs with PDM.

Q: Hi guys, thanks for taking the question. Just wanted to touch on sort of the leasing pipeline and decision to sort of keep guidance maintained. Is there some conservatism baked in given heightened macro uncertainty today? A: Hi Dylan, it's Brent. The leasing pipeline is strong at roughly 750,000 square feet, with 275,000 executed in April. We expect the remaining portion to be executed in the next 2 to 4 months. While we have a strong leasing pipeline, it won't impact 2025 guidance but will bolster growth for 2026. If the economy holds up, we might revise our leasing volume guidance for the year up in the second quarter.

Q: Awesome, that's great details. I guess there's one more for me. When do you expect the gap between leased percentage and economic leased percentage to close? Is that largely a 2026 event? A: Yes, the suspension of the dividend will provide approximately $60 million of additional cash flow annually. These retained earnings will be earmarked for internal growth and leasing momentum. We might reevaluate and potentially reinstate the dividend in the latter part of 2026, focusing on maintaining liquidity and improving the balance sheet.

Q: Hey, good morning guys. Brent, maybe just circling back on the dividend, can you walk us through some of the thoughts behind it? Was there any pressure from banks regarding lending? A: Great series of questions, Nick. Piedmont has leased over 10 million square feet since the pandemic, with a third in the last 18 months. We have record levels of uncommenced and pre-rent tenancy. While earnings remain strong, cash flow is diminished from rent. We considered dispositions and raising equity but decided on dividend suspension to fund growth. The rating agencies support our proactive approach, and the retained earnings will mainly fund leasing and CapEx.

Q: That was a lot of questions and very helpful answers. Quick one on the 3 million square feet of proposals, any markets seeing a pickup? A: Good morning. Most of our vacancy sits in Dallas, Atlanta, and Minneapolis, so 87% of new activity is heading in that direction. New York and Orlando are stable, while Boston is around 86% but not as active as the first few markets mentioned.

Q: Thanks, that's it for me. A: I really appreciate it.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.