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Operator: Good day and welcome to the Piedmont Office Realty Trust Incorporated First Quarter 2024 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Chief Accounting Officer, Laura Moon. The floor is yours.

Laura Moon: Thank you, operator and good morning everyone. We appreciate you joining us today for Piedmont’s first quarter 2024 earnings conference call. Last night, we filed our Form 10-Q and an 8-K that includes our earnings release and our unaudited supplemental information for the first quarter of ‘24 that is available for your review on our website at piedmontreit.com under the Investor Relations section. During this call, you will hear from senior officers at Piedmont. 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 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. 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 earnings release and in the supplemental financial information, which were filed last night. At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments regarding first quarter operating results. Brent?

Brent Smith: Thanks, Laura. Good morning, everyone and thank you for joining us today as we review our first quarter results. In addition to Laura, on the line with me this morning, are George Wells, our Chief Operating Officer; Chris Kollme, our EVP of Investments; and Bobby Bowers, our Chief Financial Officer. We also have the usual full complement of our management team available to answer your questions. We also have the usual full complement of our management team available to answer your questions. We had a strong start to the year at Piedmont, achieving significant levels of new tenant leasing as well as completing meaningful financing and capital markets transactions to improve the company’s balance sheet and liquidity position.

Looking ahead to the remainder of the year, we continue to be optimistic about the secular trends that are driving our leasing momentum, benefiting from the continued population migration to the Sunbelt in the suburbs, the flight to quality and capital within the office sector, and the continued differentiation between obsolete product and the well located amenitized environments that we provide and operate. No doubt, our sector has challenges remaining as commodity office space is rationalized and repurposed. That said, return to the office mandates continue to be the norm and groundbreakings for new developments are at all time lows. We are seeing space demand accelerate for our top of submarket assets in cities like Atlanta, Dallas, Orlando, New York and Minneapolis, giving us the expectation that Piedmont can continue to drive leasing momentum and rental rate growth at our buildings.

With regard to the capital markets, transaction activity remains at all-time lows, but pricing is starting to firm as deals occur. We don’t anticipate a meaningful number of opportunities will present themselves until later this year or more likely in 2025. As debt and equity for office assets remains extremely difficult to source inhibiting transactions. That said, the public unsecured debt markets are more constructive and liquidity and investor interest continues to improve. As a point of reference, our credit spreads have tightened roughly 250 basis points over the last year. Piedmont is well positioned as the credit cycle improves. We have a very manageable $275 million of maturing debt in 2025 and no debt maturities in 2026. With demonstrated access to the public debt markets, we will continue to seek out attractive sources of capital to strengthen the balance sheet and lower our cost of funds.

Turning to the highlights from the first quarter, as has been the case for the last several quarters, leasing volume remained strong. We completed approximately 500,000 square feet of total leasing with two-thirds of that related to new tenancy, pushing the lease percentage of our in-service portfolio up to 87.8% and continuing the occupancy gains that we have experienced over the last several quarters. I would note that during the quarter we dispose of our 257,000 square foot One Lincoln Park asset in Dallas to an end user. And as discussed in last quarter’s call, we gave our 9320 Excelsior building in Minneapolis and out of service designation as we commence redevelopment activities to upgrade the building to accommodate multiple tenants following the expiration of a full building lease at the end of last year.

George will delve into market specifics and details on the leasing pipeline in a moment. But our operational strategy is continuing to resonate with numerous customer segments, small and medium-sized businesses as well as larger corporate enterprises as they seek to upgrade their workplace environments. As a result of the leasing activity we have accomplished, Piedmont has continued to drive operational growth despite market headwinds. For the first quarter, our same-store NOI increased approximately 5% on a cash basis. And I would point out that this is a consistently strong metric for Piedmont, where we have generated positive same-store NOI cash growth 7 of the last 8 years, with the only exception being in 2020 due to COVID. In addition, rental rate roll-ups on a cash basis continued their positive trend, increasing roughly 8% for the quarter and adding to Piedmont’s track record of 8 straight years of positive cash rental rate roll-ups.

We firmly believe that these two operational metrics demonstrate the portfolio’s ability to deliver cash flow growth through real estate cycles. The leasing success over the last several quarters has generated a backlog of 1.3 million square feet of leases yet to commence or in a rent abatement. This equates to approximately $42 million in future annualized cash rents once the leases commence and abatements burn off. Over time, this lease backlog will more than offset the lost rental revenue from the previously disclosed expirations at Meridian Crossing and 9320 Excelsior Boulevard in Suburban Minneapolis. And as far as an update on those projects, we are executing a repositioning program at both buildings. And despite the disruption from construction and having marketed the buildings for only a few months, we are pleased to see strong receptivity from the market and have already executed 4 new leases for approximately 33,000 square feet at this point with more that’s in advanced documentation potentially following.

In fact, the leasing pipeline across the portfolio remains robust and thus far in the second quarter of 2024, we have already executed 22 leases for approximately 180,000 square feet. Lastly, before I turn it over to George, I wanted to note that we were recently once again named an ENERGY STAR Partner of the Year for 2024. However, this time, we received the highest designation, adding the sustained excellence distinction, which is awarded to organizations, who have earned Partner of the Year for several consecutive years and have gone beyond the criteria, needed to qualify for recognition. We are the only office REIT headquartered in the southeast to receive this premier designation. And we remain steadfast in our commitment to our employees, customers, stockholders and local communities to be a market leader in commercial building operations.

And we believe ENERGY STAR’s Sustained Excellence award recognizes our longstanding efforts to reduce energy consumption across our portfolio. I would encourage all our stakeholders to view our sustainability program and the quantifiable results achieved that are outlined in our annual environmental, social and governance report located on our website. With that, I’ll hand the call over to George, who will go into more details on first quarter operational results. George?

George Wells: Thanks, Brent. Good morning, everyone. Our regional teams were once again very productive this quarter, delivering strong operational results. All of our core markets experienced solid demand, dominated by small to medium-sized businesses that had a clear vision for the long-term workplace strategy, desiring to operate in modern, highly amenitized workplace environment, which is a crucial element for these customers seeking more in-person attendance and interaction. According to JLL’s March 11th Snapshot Report, highly amenitized buildings, which are defined as assets with 10 or more amenities and at least 1 differentiated offerings like a rooftop terrace or a full-service fitness center have resisted the broader downsizing trend impacting much of the U.S. office market.

Piedmont is certainly experiencing this positive trend, and I’m optimistic we can continue to deliver strong leasing results in 2024. As Brent mentioned in his remarks, during the quarter, we completed 54 lease transactions for 500,000 square feet of total overall volume in line with our quarterly averages. And majority of that volume was related to new tenant lease activity accounting for 30 transactions for 328,000 square feet, which is substantially above our pre-COVID quarterly average of 165,000 square feet and representing roughly 13% of our overall direct in-service vacancy. The average lease size of new tenant leases completed as approximately 11,000 square feet consistent with the previous quarters with the weighted average lease term achieved in over 9 years.

Continuing with operational metrics, lease economics were quite favorable as well with 8% and 18% roll-up or increased rents for the quarter on a cash and accrual basis respectively. The leasing success contributed to the increase of our lease percentage for our in-service portfolio to end the quarter at 87.8%. As we have experienced for several quarters, most of our new tenant lease activity or 80% occurred in our Sunbelt portfolio where 63% of our vacancies reside. Leasing capital spend for the quarter was approximately $6 per square foot per lease year in line with our average for the past several quarters, although competition, inflation and supply chain logistics continue to put pressure on this capital metric. During the quarter, we did have 7 tenant lease expansions that were largely offset by 3 contractions and sublease availability has continued to hover on the last quarter’s average of approximately 5%.

Next, I’d like to highlight for you a few key accomplishments and announcements occurring in some of our specific operating markets this quarter. Atlanta, our largest market, captured the most activity this quarter with 15 deals accounting for 142,000 square feet, of which 75% were new tenant leases. Most noteworthy, Assurance America, a national insurance operator, relocated its headquarters to a full floor in Galleria on the Park for 10 years of term. Securing another corporate headquarters in Galleria, our 9th since 2022, continues to support the flight to quality theme or more aptly as Piedmont sees it, a flight to place-making experience, which builds upon well-located, high-quality real estate, which include hospitality design common areas here with high-quality service.

We believe our modern aftermarket amenity set at 999 Peachtree will be a very compelling option for existing tenant retention and for attracting new tenants. And along with our 1180 Peachtree asset gives us the two best assets in Midtown. Elsewhere in the submarket, another major employer, NCR Voyix, whose 14-storey towers near our two Midtown trophy assets has announced that all pay-produced personnel will report to the office 5 days a week beginning May 6, reinforcing the trend of more in-office work. Our Dallas portfolio captured the second most leasing volume with 7 deals for 128,000 square feet, almost 90% of the volume was for new space, and completed in each of our four submarkets of Uptown, Las Colinas, Lower Tollway and Preston Center.

We anticipate this broad-based demand to continue, which bodes well for addressing our Dallas exposure over the next 4 quarters, the largest of our select markets. Notable and subsequent to the first quarter, we amended [indiscernible] to accommodate an expansion of 8,000 square feet, an extension of a full floor from 2025 to 2029 and another extension of 54,000 square feet for 14 months. Along with other ongoing extension negotiations, we feel good about mitigating a majority of the lease maturities in Dallas over the next 12 months or put another way, we’ll achieve retention rates in line with our historical average. Switching to New York. Our 60 Broad Street tower located in Lower Manhattan, attracted 3 new tenant deals for 28,000 square feet.

Prospects here have been attracted to this highly amenitized city block and a recently completed Morris Adjmi design lobby renovation with CoStar now rating our 60 Broad location with a top Walker’s Paradise score. We’re seeing very good activity here with some customers coming to several nearby office to resi conversions such as 55 Broad Street, 80 Pine and others. Extension discussions with the City of New York continue at a predictably slow governmental pace, but are still ongoing and are positive. Coming back to our overall portfolio, we remain positive about our future near-term leasing trends. As Brent previewed, our leasing pipeline activity is quite good with over 700,000 square feet in late-stage activity, considerably higher than our norm of around 300,000 to 400,000 square feet.

Outstanding proposals sit at well over 2 million square feet comparable to our trailing 12 months and tour activity was the strongest we’ve seen since early 2020. That said, as we noted in our last call when discussing the outlook for 2024, we project that the lease percentage should dip below our current level during the second quarter, mostly due to U.S. bank suburban expiration, but then recover back to today’s in-service percentage of around 87% to 88% by year end. I’ll now turn the call over to Chris Kollme for any comments on investment activity. Chris?

Chris Kollme: Thank you, George. As I’ve mentioned over the last several quarters, we continued disposition discussions on a select number of non-core assets with mostly local operators or owner-occupiers who are targeting our smaller assets, generally those less than 250,000 square feet. As Brent mentioned, this quarter, we closed one transaction of this nature, selling our One Lincoln Park asset in Dallas for $54 million or $210 per square foot in an all-cash transaction to a financial institution who plans to use the building as its new headquarters location. One Lincoln Park is a 10-storey, approximately 257,000 square foot building, which was 59% leased as of December 31, 2023. While this asset is located in one of our core Sunbelt markets and not one that we would have necessarily targeted for disposition, this was an opportunity to sell at what we consider to be fair value given the estimated capital required to lease-up the balance of the building.

We immediately redeployed the proceeds from the sale to pay off our remaining 2024 notes on an earnings-neutral basis. Furthermore, Piedmont has been retained as property manager post-sale. As far as other activity, we do have a couple of other small disposition opportunities that we’re working on, but nothing to specifically comment on at this time. We still do anticipate disposing of an incremental $40 million to $60 million more over the balance of 2024. As always, we will keep you informed of any material activity on this front and we’ll continue to earmark any resulting sale proceeds towards the reduction of debt. And while acquisitions are not a priority at this time, we do remain highly engaged across our operating markets with a very strong bias towards our Sunbelt cities.

With our scale, operational platform and deep local relationships, we believe opportunities may surface by year end or in early 2025, but we will continue to be disciplined and patient, which we think is appropriate in this environment. With that mindset, we will continue to position the balance sheet to take advantage of the conditions if and when compelling opportunities arise. With that, I’ll turn the call over to Bobby to review our financial results. Bobby?

Bobby Bowers: Thank you, Chris. While I will be discussing some of this quarter’s financial highlights today, please review the entire earnings release, the 10-Q and the accompanying supplemental financial information, which were filed yesterday for more complete details. Core FFO per diluted share for the first quarter of 2024 was $0.39 versus $0.46 per diluted share for the first quarter of 2023. Although property NOI increased on both a cash and accrual basis during the first quarter of 2024 as compared to the first quarter of last year, the first quarter of 2024 reflects a little over $0.06 per share of increased net interest expense, which led to an overall decreased core FFO per share results for the quarter. AFFO generated during the first quarter of 2024 was approximately $25 million, providing ample coverage of the current dividend and funding for our foreseeable capital needs.

CapEx for the quarter was elevated due to major redevelopment activities at 999 Peachtree and Galleria on the Park in Atlanta and the exchange of South Orange Avenue in Orlando, which are all scheduled to be completed during the third quarter of this year. Turning to the balance sheet. As we announced in conjunction with last quarter’s call, during January of the first quarter, we completed a $200 million 3-year unsecured term loan with our key banking relationships and used the bulk of these proceeds to repay $190 million of a $215 million term loan that was scheduled to mature in January, extending out the remaining $25 million to a 2025 maturity. In conjunction with that transaction, we also used the remaining proceeds in our line of credit to repay the outstanding $100 million balance of another bank term loan.

Further, in March, as Chris indicated, we used net proceeds from the One Lincoln Park disposition to repay the remaining $50 million balance on our 2024 senior notes that also matured in March. As a result of this quarter’s refinancing activity, we have only $275 million of bank term debt maturing until 2027. And we currently anticipate repaying this debt using a combination of net proceeds from the disposition of select properties, availability on our $600 million line of credit and/or new borrowings from our bank partners or the public debt market. The nature and timing of any of these additional sources of capital is obviously highly dependent on market conditions. However, we’ll strive to address this debt maturity over the next few months, while continuing to preserve our large unencumbered asset pool as we believe this is a clear advantage in the current leasing environment as high-quality, place-making asset owners that are well-capitalized, continue to garner outsized leasing demand.

Finally, at this time, I’d like to also reaffirm our 2024 annual core FFO guidance in the range of $1.46 to $1.56 per diluted share with no significant changes currently anticipated in prior guidance related to interest expense, G&A costs or annual same-store NOI growth. In keeping with our normal practice, due to the uncertain nature of capital markets environment, this guidance does not include any acquisition, disposition or refinancing activity, but we will adjust and communicate to you the impacts on guidance if any of these transactions occur. With that, I’ll turn the call back over to Brent for closing comments.

Brent Smith: Thank you, George, Chris and Bobby. Everyone at Piedmont remains laser-focused on our core business, designing, managing and leasing great office space. Despite the macro challenges, the office sector paces. The investments that we’ve made in our portfolio combined with the best-in-class service model is resonating with existing and prospective tenants alike. And aside from the one large known move-out during the second quarter, we have a very manageable lease expiration scheduled for the remainder of the year, equating to approximately 5% of annualized lease revenues that have not already been backfilled. I would also note that the majority of our vacancies reside in our Sunbelt markets where we see a healthy and growing pipeline of prospects.

Piedmont’s balance sheet is well positioned with limited outstanding maturities over the next 3 years. And we continue to be selective with capital deployment and anticipate being a net seller of assets to continue to deleverage the balance sheet and enhance our already ample liquidity resources. However, as indicated when we originally introduced our 2024 guidance back in February, we expect the impact of increased interest expense and known vacates to result in earnings and vacancy trough in the third quarter with an anticipated return to quarterly FFO growth thereafter. 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 of your questions now or we will make appropriate later disclosure if necessary.

Operator?

Operator: [Operator Instructions] Your first question is coming from Anthony Paolone with JPMorgan. Please pose your questions. Your line is live.

Anthony Paolone: Great. Thank you. My first question is with regards to dispositions, I think you said $40 million to $60 million. And I was wondering if you can give us a sense as to whether that’s operating assets or it looks like you’ve got some land parcels under contract as well? So I’m just trying to understand what might be in that mix.

Brent Smith: Good morning, Tony, I appreciate you joining us. As you point out, we were very pleased to get the Dallas disposition accomplished, but we did allude to another $40 million or $60 million or so later this year. That’s comprised of potential both land and operating parcels. I think as you know our model for some time, we always say everything is for sale. We’ve been historically prolific recyclers and we’ve used that as a means to grow earnings. But in this market, it is very challenging from a disposition standpoint. It seems like everything prices opportunistically even if it’s a core profile asset in nature. But we continue to find, as we’ve noted in our prepared remarks, user groups that are well capitalized as well as smaller local private equity shops and the high net worth individuals who recognize the market opportunity, see the value in certain assets and we continue to engage with them on some of those potential dispositions.

As I’ve noted in the past, Houston is still a non-core market and we are engaged with several potential buyers or acquirers of those assets. We’re hopeful that one of the two will get completed by the end of the year. And then other than that, into other just kind of smaller assets and/or potential landfill parcels. So it’s a combination of both, although I think it’s probably more likely this year to be assets not land. Those do take quite some time to accomplish. And as we think about those land parcels, we’re looking probably more towards creating an amenity set at our neighboring office buildings. So they’re likely engaged on other uses to go on that land, whether it be typically residential, hotel or retail.

Anthony Paolone: Okay. Got it. So it looks like the couple of parcels you’ve got under contract are subject to zoning. Are those being – like is it likely to go residential? Is that what the hold-up is or what’s going on there?

Brent Smith: Very keen exactly. It’s likely to go residential and includes some retail that we would also utilize and we see more of the, call it, amenity to the office.

Chris Kollme: And Tony, it’s Chris. I think those are highly unlikely to close in 2024.

Anthony Paolone: Okay. So probably not in that $40 million to $60 million then for this year?

Chris Kollme: Yes.

Anthony Paolone: Okay. Got it. And then any update on City of New York and just the lease there or any risk of that just getting downsized or the sort of picture changing?

Brent Smith: Well, I think as you know, Tony, nothing is done until it’s done. But that said, we feel very good and we’ve always continued to reiterate that the city is very much engaged on a renewal. I think that probably gets wrapped up some time latter part of this year is what we’re thinking from a timing perspective. It does have to go through a lot of internal processes. And as we’ve talked about on prior calls, they waffle back and forth on which groups would be in the space, their ability to focus on at renewal at that point in time given the difficulties of the agencies and what’s been going on in the city from a migrant housing crisis, a homeless crisis and a budget crisis. But they are very much engaged and we still feel very comfortable to say it’s a renewal of substantially all the space.

Anthony Paolone: Okay. And just last one, maybe for Bob, if I could sneak this one in. Just do you know off-hand how much in committed CapEx is outstanding that just hasn’t yet been spent, I guess, for some of these large leases that you’ve gotten done?

Brent Smith: Yes. Tony, in our supplemental, where in our disclosure, we do note there’s really just one large project outstanding for the company and that’s really related to the large U.S. bank lease that we just executed last quarter. As a reminder, that was a 10-year transaction with no free rent. And so what that did given it’s a – sorry, 450,000 square foot lease, it does have a sizable capital outlay. Other than that – and I would add, it will take us 2 to 3 years to spend that sizable capital outlay, which as we noted on our previous call, was approaching a triple-digit number from a capital per square foot total amount. So that’s a sizable check. Though that will come in over several years that we’ll be reconstructing the bank space, but again, attached to a great long-term lease and it’s their headquarters building in a lead gold asset.

So, we are going to keep that building top of market which also gives us the expectation will be continuing to get more than our fair share of leasing in Downtown Minneapolis with the best asset in the sub-market. In regards to – sorry, Bobby, is there anything else that you would add in terms of a large tenant, or large CapEx we have not disclosed, but you would highlight?

Bobby Bowers: Yes. I wouldn’t say on the tenant side that there is some. Obviously, this quarter, we had higher than normal redevelopment costs, that’s associated with us finishing up major redevelopment projects being something as $10 million or so in size, that’s at 60 Broad, Manhattan, Peachtree in the Galleria, here in Atlanta, and the exchange of Orlando. I have mentioned that was part of the MD&A. That’s included in our 10 Q. There is a detail $70 million was spent there. In total, what remains for all of those projects is less than that, about $50 million in total over the next couple of quarters.

Brent Smith: And then I would reiterate, Tony, we have no ground up development. So, we fill it – really feel like from a CapEx perspective, there is good cash flow from the assets we are investing in today. And we have proven our ability to drive rents higher post renovation.

Anthony Paolone: Okay. Thank you.

Operator: Your next question is coming from Nick Thillman with Baird. Please post your question. Your line is live.

Nick Thillman: Hey. Good morning guys. Hoping to cut up a little bit of leasing pipeline and kind of just dissect that a little bit. So, just guidance 1.5 million to 2 million for the full year, it looks like at the midpoint, that would be like 1.1 million square feet of leasing for the remainder of the year, you got 800,000 square feet of kind of explorations. And then you mentioned the 700,000 square feet of late stage pipeline. So, just wondering of that pipeline, the breakdown between new and renewal, and then kind of how you think the cadence is for leasing as the year progresses. Thanks.

George Wells: Good morning Nick. This is George. Glad you could join us. Look, I think it’s really important to mention that our field teams are really a key part of this equation, right, where they continue to innovate, refine the workplace proposition which is really essential in today’s hyper competitive environment, right. I mean as a result of that, it’s allowed us to recognize 13 straight quarters of pre-COVID new leasing activity. And also we have some of the highest retention rates in the industry. But coming back to our pipeline that we already mentioned, about 180,000 square feet that’s executed in the month of April, we have got another 700,000 square feet, it’s at legal stage. So, we combine those two numbers, we are looking at 900,000 square feet of overall volume.

That’s really pretty strong compared to our average about a 0.5 million square feet. I would say with that combined pipeline 900,000 square feet, about 30% of that is for new deal activity. And it should be no surprise that a dominant amount of that is related to our Sunbelt market. Though I would just say that activity for new and renewal is pretty strong across all of our markets. And in terms of looking at the industries that are really stepping up the demand elements, I would say insurance, engineering, finance, banking, legal, architects, as well as if I could say a couple of technology companies. If you dig a little further into our proposal stages, where I think I mentioned those 2 million square feet of activity that’s out there that we are hoping to turn into lease documentation stage.

What is really interesting about that is the fact that Minneapolis is emerging with more activity than we have seen in the past and should be no surprise when you consider the fact that Excelsior is now an empty project as well as the impending U.S. – U.S. Bank exploration is coming in May in the suburbs. So, we are seeing about a half a dozen deals in that particular marketplace that range between 15,000 square feet and 50,000 square feet, although it’s new, we do like the fact that the formula that we have used elsewhere in addressing our vacancy seems to have some pretty good early wins in Minneapolis. So, I think with that being said, as I look forward, I feel pretty good that we will continue to provide the kind of results we have seen over the past several quarters.

And it’s not just about improving the workplace environment, but in a market as was reputation here that Piedmont can step up and fund the improvements that are needed in our lease commitments, as well as pay the brokers for the deals that are bringing to the table. So, that’s why we continue to be cautiously optimistic. As you have heard Brent mentioned in his prepared remarks, we continue strong deal flow in our portfolio.

Nick Thillman: That’s really helpful. And then maybe just touching a little bit back on dispositions like good execution in Dallas. Do you see any other opportunities here where maybe it’s an under-leased property that might be fit for an owner user, or is it still just kind of a wait and see approach and that was a unique one-off?

Brent Smith: This is Brent, Nick, and thanks for joining us today. I do believe, like I had mentioned, there are a number of smaller sized assets, they may be well leased, but have some near-term vacancy that some of user groups are looking at. They are unique. I don’t want to make it sound like there is a lot of those out there. But I think a number of firms right now recognize the disruption in the private market for really good quality buildings, and are utilizing that as a means of – particularly if they have a public company or a large lease exposure that goes onto the balance sheet and evaluating that, versus just buying an asset at a very discounted price and putting that on the balance sheet. So, I think you will continue to see similar with financial services firms, and high net worth individuals that are looking at it as both a family office and an investment, continue to look at our assets and others in the market that fit that profile.

Nick Thillman: It’s helpful. And then last one maybe for Bobby, what’s the total capital outlay for the redevelopments in Minneapolis?

Bobby Bowers: Large projects that are there, as we talked about vacant projects being $10 million, the total capital outlay may be…

Brent Smith: It’s probably $10 to $15 a square foot range.

Nick Thillman: Okay. Helpful. Thank you.

Brent Smith: Yes. And I would consider those to be more modest refresh, but do recognize they were single tenant assets. So, really, it’s not only a modernizing adding the names that we have talked about, but also making sure that it suits a multi-tenant environment as well.

Nick Thillman: Thanks for the clarification and the time.

Brent Smith: I would note too, that we continued to see strong leasing there. And as I have noted in my prepared remarks, we have already got about 33,000 square feet amongst those two buildings accomplished with a good pipeline as George alluded to behind it.

Operator: Your next question is coming from Dylan Burzinski with Green Street. Please post your question. Your line is live.

Dylan Burzinski: Hi guys. Thanks for taking the question. Just a quick one on sort of leverage and how are you guys thinking about a target for a long-term leverage goal as you guys get dispositions across the finish line.

Bobby Bowers: As we stated, Dylan, our target is between 30% and 40% leverage. Currently, we are around 38%. Obviously, we would like to drive that down closer to the midpoint 35%.

Brent Smith: I think from a debt to EBITDA standpoint as well, we are looking to try to stay in the mid to high-6s, try to continue to drive that to the mid-6s through both cash flow growth, but as we have talked about dispositions, and pay-down of debt here more near-term. So, that will be the two levers that we continue to use to improve the balance sheet and the liquidity. I would note too, that we have very little debt maturing over the next 2 years. And if you think about the cash flow of the portfolio, we are generating roughly around $310 million to $320 million a year of EBITDA. And then you have got interest expense right now around $115 million to $120 million annually, which leaves us with call it $100 million, sorry, $200 million for the dividend and capital expenditures, the dividend today $60 million, so that we got more than ample cash flow to continue regular weighing CapEx. And hopefully, once we are through this period that Bobby has noted, here of its wrapping up a few of these larger projects around the summer timeframe, that will give us cash flow to continue to de-lever as well.

Dylan Burzinski: And then as you guys sort of think about potential acquisition opportunities, do you guys have sort of a yield on cost or unlevered IRR target that will get you really excited about or what are some of the things that you are looking at to actually go out and buy assets in the private market?

Brent Smith: Great question, Dylan and maybe I will take this as an opportunity to take a step back and really explain how we view and have been thinking about the market overall. When we – COVID hit, and really a year after the hybrid model started to take shape, we as a firm took a step back, really looked at the strengths, weaknesses, opportunities and threats, and customer segmentation in detail. We created a strategy which was the focus on small, medium enterprises, hospitality design and an elevated level of service. And then we went out and executed that in here in Atlanta. Now, that’s not necessarily true, some acquisitions over the last few years, you think about 999 and 1180, as well as just before the pandemic, putting the rest of the Galleria here in Atlanta together.

But each of those projects, we have really created a unique environment and we have built a track record. And I would encourage investors to come to Atlanta and see what we have accomplished. But it’s not only been here as well, we have started to export that and multiply and amplify that capability at the Dallas Galleria project and the exchange project in Orlando, which is 222 South Orange, as well as 60 Broad in New York. And what we have continued to prove out and build that track record is continuing to have occupancy growth. I will use Atlanta as an example. We drove – driven now our occupancy over the last few years from 84% across the Atlanta portfolio, which is almost 5 million square feet, to 92%. And that’s while our direct peers have lost almost 400 basis points of occupancy, potentially, or more.

So, we really felt like we have created now a model that we can leverage. And that model is really focused on taking older vintage assets, call it 1980s and ‘90s, vintage product, which is very much the description of what I just described, what we have acquired previously, and then really rehabilitating that and being very successful at it. So, now we are at the point where we really want to sell that capability. And whether we are given an opportunity in the public markets, or if there is private capital that would consider partnering with us, we are going to look for creative ways to grow the asset base. Now, your point then – so that’s how we think about funding and positioning and selling our capabilities and raising capital around that.

If you think about then how are we thinking about specific acquisitions, Chris and the team are laser focused on the 10 to 15 assets that we would like to own in every one of our markets. And we know them backwards and forwards, who owns them, the cap stack, the leasing profile, and the opportunity and when it might come to market. We continue to have a Sunbelt focus on our existing operating markets, where we have a municipality relationship, great relationships with the brokers and the other players in the commercial real estate market. And we will leverage that knowledge to target acquisitions that are generally not going to be marketed, but are of our profile, again, a high quality and could potentially be an older vintage, or even something that was built in the early 2000s, 2000 teens.

But as CapEx, it’s going to be needed, and/or role that might be creating a very discounted pricing. As we talked about previously, nothing prices to core, but heavy opportunistic returns would be what we are looking for. So, you are thinking about unlevered IRRs in the mid-teens for challenged real estate, but something that we can continue to drive long-term value at. And so we really want to get away from thinking about a cap rate. We are very focused on basis. And as I mentioned, unlevered IRRs, and driving – moving back towards that prolific recycle $300 million to $400 million of assets a year. It’s going to take some time for the transaction market to really I think allow us that opportunity. But we will have an eye towards deleveraging and positioning the company for acquisitions latter part of this year, more likely 2025, which we think will pair well with a lot of the dislocation that might be forthcoming.

And so we will continue to be creative about how we source capital, how we look at deals, and what we can bring into the portfolio and grow the asset base again. So, thanks for the question.

Dylan Burzinski: No, thanks for that answer, that’s incredibly helpful to sort of get into the thought process and how you guys are viewing this. So, really appreciate that, Brent.

Operator: [Operator Instructions] 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.

Brent Smith: Thank you. Appreciate everyone taking the time to join us today. A few points and reminders, we do have the NAREIT Conference in New York City, June 4th to the 6th. Please reach out to Jennifer, Laura or Bobby if you would like to meet with management. And as I noted before, I would encourage investors to take the time come to Atlanta, see the assets, see what we have been able to accomplish here. And I think it’s really a story that we are extrapolating across the rest of the portfolio. But we have been focused here over the last few years and it’s paid off. And I think it will help investors better understand the office market and the unique segmentation that exists today across assets in that sector. With that, I appreciate everyone joining and we look forward to talking to you in New York. Thank you.

Operator: 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.