Summary of SL Green Realty Conference Call Company Overview - **Company**: SL Green Realty Corp (NYSE:SLG) - **Industry**: Real Estate, specifically focused on office leasing in Manhattan - **Key Projects**: One Vanderbilt, 346 Madison Avenue development site - **Market Position**: Largest office owner in Manhattan, public since 1997 [2][5] Core Points and Arguments Leasing Activity - **Leasing Volume**: Over 1.5 million square feet leased to date, with an expectation of 500,000 square feet in Q3 [5] - **Pipeline**: More than 1.1 million square feet in the pipeline, with 700,000 square feet in active negotiations [5] - **Market Recovery**: Notable recovery in the Midtown South market, particularly driven by tech and AI tenant requirements [5][6] - **Rising Rents**: Increased demand leading to rising rents, especially in upper mid-price point buildings [6][15] Investment and Transactions - **Investment Strategy**: Focused on acquiring stakes in key buildings and new development sites, including 346 Madison Avenue [7][9] - **Transaction Market**: Recovery in the CMBS market and increased investor interest, driven by fundamentals rather than speculative capital [8][21] - **Debt Fund Opportunities**: Identifying opportunities in purchasing loans and portfolios, with a focus on newly capitalized deals [27][31] Market Dynamics - **Availability Rates**: Decreasing availability rates across Manhattan, with Park Avenue at approximately 5% and total Midtown at 11% [49][50] - **Tenant Demand**: Significant increase in tenant searches, with 5 million square feet more than the previous year [51] - **Concessions**: Some ability to reduce tenant incentives (TIs) and free rent in select cases, indicating a tightening market [12][82] Future Outlook - **Rent Increases**: Anticipation of material rent increases due to supply-demand dynamics, with a potential spike expected [15][50] - **Development Timeline**: New development at 346 Madison Avenue expected to follow a similar timeline to One Vanderbilt, approximately two years before moving forward [11][9] - **Occupancy Goals**: Targeting over 93% leased occupancy by year-end, currently at 91.7% [68] Additional Important Insights - **International Capital Return**: Notable return of international capital to the office market, particularly from Asian investors [19][20] - **Impact of Conversions**: Ongoing office-to-residential conversions could remove up to 40-50 million square feet from the office market [17][50] - **Market Sentiment**: General bullish sentiment regarding the Manhattan office market, with confidence in rising rents and decreasing vacancies [48][56] Conclusion SL Green Realty Corp is experiencing a robust recovery in the Manhattan office market, characterized by strong leasing activity, rising rents, and a favorable investment environment. The company is strategically positioned to capitalize on these trends through targeted acquisitions and developments.

Demand and Market Trends - Demand for premium office spaces in North Sydney is strong, with a net absorption of 80,690 sqm leading to a decrease in vacancy rates from 17.8% to 15.7% as of mid-2025[13] - The average prime net rental rate in North Sydney increased by 2.3% year-on-year to $930/sqm[7] - The vacancy rate for premium assets tightened to 0.9%, highlighting a significant market performance differentiation[14] Supply and Development - North Sydney's total office stock stands at 912,690 sqm, with premium assets now comprising 43% of the total, up from 27% a decade ago[16] - The next major supply addition in North Sydney is the Victoria Cross OSD, expected to be completed in Q1 2026, with an additional 55,000 sqm[17] - Macquarie Park's overall vacancy rate reached a historical high of 22.2% as of July 2025, with a net absorption of -30,890 sqm in H1 2025[25] Incentives and Rental Rates - Average incentives in the North region have risen to 40%, impacting effective rental rates, which have decreased by 1.4%[19] - In Chatswood, the average prime net rental rate increased by 2.5% to $647/sqm, while secondary net rental rates remained stable at $520/sqm[48] - The average effective rent for premium assets in Chatswood decreased by 6.7% to $328/sqm due to rising incentives[48] Investment Activity - The North Shore market has seen limited transaction activity since 2023, with only two significant deals in 2024, indicating a shift in investor focus towards core CBD assets[57] - Current premium yields in North Sydney are reported at an average of 7.25%, with a yield spread of 122 basis points compared to Sydney CBD, the highest on record[58] - Investor confidence is increasing as financial markets stabilize, with various groups seeking to deploy capital for attractive entry points[59]

Financial Data and Key Metrics Changes - The company reported $0.70 per share in FFO, exceeding consensus by $0.01 [8] - Same property net operating income increased by 1.2% on a cash basis and 1.6% year to date [8] - The midpoint of the full-year guidance was increased to $2.82 per share, representing a 4.8% growth rate over the previous year [10][38] Business Line Data and Key Metrics Changes - Leasing activity was strong, with 334,000 square feet of leases completed, 80% of which were new or expansion leases [9][19] - Cash rents on second generation space increased by 10.9% in the quarter and 5.4% year to date [9][20] - The average net rent for the quarter was $40.95, a 14% increase over the previous quarter [21] Market Data and Key Metrics Changes - The office market in Atlanta saw a significant reduction in inventory, with a decrease of 2.9 million square feet, marking the largest quarterly reduction recorded [23] - In Austin, market leasing volume reached 1.2 million square feet, up 11.4% from the three-year quarterly average [22] - The Tampa market experienced a 50 basis point drop in total vacancy, with leasing velocity 12.5% ahead of last year [26] Company Strategy and Development Direction - The company aims to grow earnings, cash flow, and NAV by increasing occupancy and reducing CapEx [13] - There is a focus on upgrading the quality of the lifestyle portfolio and enhancing geographic and industry diversification [13] - The company plans to recycle capital from older properties with lower occupancy and higher CapEx profiles to fund new acquisitions [14] Management's Comments on Operating Environment and Future Outlook - Management noted that while uncertainties over tariffs and interest rates remain, there are encouraging signs in the Sunbelt lifestyle office market [11] - The investment sales market is opening up, with more private investors actively pursuing office acquisitions [12] - Management expressed confidence in the ability to grow earnings both organically and externally while improving the portfolio [15] Other Important Information - The company completed the acquisition of The Link in Uptown Dallas for $218 million, which is expected to be immediately accretive to earnings [28][31] - The company has executed transactions totaling $2.3 billion in lifestyle office properties since 2019, while also selling $1.3 billion of non-core assets [14] Q&A Session Summary Question: Can you provide more context around the underwriting of The Link acquisition? - Management highlighted the opportunity due to significantly below-market rents and a strong rent roll with minimal CapEx needs [42][43] Question: How much are you looking at in terms of potential acquisitions? - Management is continuously evaluating market and off-market opportunities and expects more compelling opportunities in the second half of the year [44] Question: Which market saw a decline in leasing spreads? - The only market that did not see roll-ups was Phoenix, attributed to a tough comparison with limited leasing activity [47] Question: Can you discuss the leasing pipeline and trends? - The leasing pipeline remains strong across all markets, with financial services being the heaviest contributor [71] Question: What are the trends in net migration to your markets? - There is an increase in new to market requirements, particularly in Atlanta and Charlotte, as companies expand their presence in the Sunbelt [73] Question: How is the demand from Big Tech in Austin trending? - There are tangible signs of improving demand, with some companies starting to grow their footprint again [97]

Financial Data and Key Metrics Changes - The company reported core FFO of $0.17 per share for Q2 2025, exceeding consensus estimates by $0.03 [6][26] - The company raised full year guidance for core FFO to a range of $0.55 to $0.59 per share, representing a $0.03 increase from prior guidance [27] - The same store lease occupancy guidance was increased to a range of 86.9% to 88.9%, reflecting continued strength in the New York portfolio [28] Business Line Data and Key Metrics Changes - The company executed over 400,000 square feet of leases in Q2 2025, with a year-to-date total of approximately 690,000 square feet [7][18] - The weighted average term for leases signed during the quarter was 12.9 years, with starting rents above $90 per square foot [18][26] - The New York portfolio was 88.1% leased, up 70 basis points quarter over quarter, while the San Francisco portfolio was 75.1% leased, down 720 basis points due to a scheduled lease expiration [22][25] Market Data and Key Metrics Changes - In New York, leasing activity excluding renewals was 3.8 million square feet, 10% ahead of the five-year quarterly average [20] - San Francisco's overall leasing volumes are still below long-term averages, but there are signs of stabilization with a decline in availability by 110 basis points quarter over quarter [22][13] - AI-based companies accounted for over 800,000 square feet of leasing year-to-date in San Francisco, indicating a growing demand in that sector [23] Company Strategy and Development Direction - The company is focused on capital allocation strategies that include selective dispositions, joint ventures, and reinvestment into high-conviction assets [15] - The company is committed to enhancing tenant relationships and delivering market-leading hospitality to secure renewals and fill vacant spaces [19] - The company is actively pursuing refinancing opportunities and maintaining balance sheet strength with over $534 million in cash [16][29] Management's Comments on Operating Environment and Future Outlook - Management noted a sustained flight to quality in the New York market, with tenants prioritizing well-located, amenity-rich buildings [10] - In San Francisco, management observed a gradual recovery with increasing tenant interest, particularly from sectors like AI and professional services [14] - Management expressed confidence in the long-term recovery of the San Francisco market despite near-term softness due to lease expirations [28] Other Important Information - The company is undergoing a strategic review to maximize shareholder value, but no further comments were provided during the call [4] - The company completed the sale of a 25% equity interest in 1 Front Street, generating $11.5 million in net proceeds [30] - The company designated Market Center as a non-core asset and has completed its disposal [31] Q&A Session Summary Question: Can you talk about tenant demand for 1633 Broadway? - Management indicated active showings and strong retail performance, with asking rents ranging from $70 to $90 per square foot [34][38] Question: What are your thoughts on concessions and future pricing? - Management noted that concessions have stabilized and expect net effective rents in New York to increase, while San Francisco remains elevated [39][41] Question: Can you provide commentary on large move-outs and renovations? - Management confirmed ongoing improvements at 1633 Broadway and expressed optimism about demand in Midtown [48][50] Question: How is the political situation in New York affecting leasing? - Management reported no hesitation from tenants regarding long-term leases despite political changes [51][52] Question: Is the SEC investigation impacting the strategic review? - Management stated that the SEC inquiry is not expected to significantly impact the strategic review [53][54] Question: How is San Francisco's leasing strategy adjusting to market conditions? - Management noted increased activity across various sectors, not just AI, and a positive trend in tenant engagement [58][61]

Portfolio Overview - Paramount focuses on Class A office properties in New York and San Francisco[10] - The company has ~$7.2 billion in total assets under management across 17 assets[11] - The portfolio consists of 12.3 million square feet of REIT-owned assets and 0.8 million square feet of managed assets[11] - The average lease term is 7.1 years, and the portfolio is 94% leased[16] - The average rent is $90 per square foot[14] Financial Highlights - The midpoint of Cash NOI assumptions used in deriving the Full Year 2025 guidance is $302 million[11] - Net Debt / Enterprise Value is 66.5%[65] - Net Debt / Annualized Adjusted EBITDAre is 9.0x[65] Lease Expirations - The 5-year average lease expiration in San Francisco is 302,000 square feet, or 5.5% per annum[39] - The 5-year average lease expiration in New York is 154,000 square feet, or 12.5% per annum[40] - The 5-year average lease expiration for the total portfolio is 456,000 square feet, or 6.8% per annum[42] Capital Structure - The stock price is $5.75 per share[65] - The company has 220,311,000 common shares and 17,876,000 Operating Partnership Units outstanding[65] - The equity market capitalization is $1,369,578,000[65] - Total debt is $3,248,054,000, including $877,400,000 in notes & mortgages payable and $274,374,000 in unconsolidated joint ventures debt[65]

Financial Data and Key Metrics Changes - The company reported a net income of $18.3 million or $0.17 per share and FFO of $97.7 million or $0.89 per share for Q2 2025 [25][11] - The midpoint of the 2025 FFO outlook was raised by $0.02 to a range of $3.37 to $3.45 per share, reflecting a nearly 2% increase since the beginning of the year [12][28] - The debt to EBITDA ratio was 6.3 times at quarter end, with $106 million left to fund on the development pipeline and over $700 million of available liquidity [27] Business Line Data and Key Metrics Changes - The company achieved 920,000 square feet of second-generation leasing in Q2, including 370,000 square feet of new leasing [6][14] - The leased rate increased by 80 basis points to 88.9%, while occupancy remained flat at 85.6% [11][12] - The company has locked in over $12 million of annual NOI growth potential from its core four properties, with strong prospects for an additional $5 million to $6 million [31] Market Data and Key Metrics Changes - The company noted strong demand in its key markets, particularly in Charlotte, Dallas, and Nashville, which are outperforming the national average [73][72] - Nashville reported the nation's third-highest positive net absorption, with nearly 1 million square feet leased in Q2, the highest since 2021 [20][21] - The Charlotte market is experiencing significant job growth, with a daily net migration count increasing from 117 to 157 [22][76] Company Strategy and Development Direction - The company aims to upgrade its portfolio by rotating out of slower growth properties into higher growth, more capital-efficient assets [5][6] - The development pipeline includes properties like Glenlake III and Granite Park VI, which have over $10 million of NOI growth potential [8][31] - The company is optimistic about the future, citing a strong balance sheet and the potential for capital deployment in new investments [13][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the leasing activity and the potential for occupancy to improve by late 2025 [7][12] - The company highlighted the positive impact of limited supply in the market, which is driving rent growth in high-quality locations [9][10] - Management noted that the current economic environment is favorable for office space demand, with a shift back to in-office work [16][18] Other Important Information - The company received $3 million from the Florida Department of Transportation for roadway improvements, which was included in the FFO outlook [25][26] - The company is actively underwriting potential new investments and has numerous assets in the market for sale [6][5] - The company is focused on maintaining a diverse debt structure to manage interest rate exposure effectively [59][60] Q&A Session Summary Question: Can you discuss the guidance and the factors influencing it? - Management indicated that there were $0.03 of headwinds in the updated outlook due to higher G&A and pushed interest income into future years, offset by $0.05 of NOI upside [34][36] Question: What is the opportunity set for acquisitions in your markets? - Management noted that capital markets are opening up, with more high-quality assets coming to market and narrowing bid-ask spreads [39][40] Question: What are your expectations for concessions and tenant improvements? - Management stated that concessions have generally peaked, and market rents are increasing, which should positively impact net effective rents [44][46] Question: Will there be a spike in building improvements and leasing commissions? - Management expects elevated levels of tenant improvements and commissions to continue, likely higher than previous years [52][53] Question: What are the biggest swing factors in your guidance? - Management highlighted expense timing and potential lease renewals as key factors influencing guidance variability [55][56] Question: How competitive is the process for large RFPs? - Management noted that there is significant competition for headquarter space, with various industries showing interest, particularly in financial services [90][92]

Financial Data and Key Metrics Changes - The company reported net income of $18.3 million or $0.17 per share and FFO of $97.7 million or $0.89 per share for the quarter [24] - The midpoint of the 2025 FFO outlook has been raised by $0.02 to a range of $3.37 to $3.45 per share, reflecting a nearly 2% increase since the beginning of the year [11][27] - The debt to EBITDA ratio was 6.3 times at quarter end, with $106 million left to fund on the development pipeline and over $700 million of available liquidity [26] Business Line Data and Key Metrics Changes - The company achieved 920,000 square feet of second-generation leasing in the quarter, including 370,000 square feet of new leasing [5][10] - The occupancy rate remained flat at 85.6%, while the leased rate increased by 80 basis points to 88.9% [10] - The company has forecasted $25 million of annual NOI upside from stabilizing its core four assets, with 50% of this upside already secured through signed leases [6][30] Market Data and Key Metrics Changes - The company noted strong demand in its key markets, particularly in Charlotte, Dallas, and Nashville, which are outperforming the national average [72] - Nashville reported the highest dollar-weighted average lease term at nine years, with GAAP rent growth of 23.8% and cash rent spreads of 12.4% [19] - The Tampa market has seen its fifth consecutive quarter of positive net absorption, with a healthy pipeline of future tenant move-ins [22] Company Strategy and Development Direction - The company aims to upgrade its portfolio quality by rotating out of slower growth properties into higher growth, more capital-efficient assets [4] - The development pipeline includes significant NOI growth potential, with over $10 million at Glenlake III and Granite Park VI, and over $20 million at 23 Springs and Midtown East [7][30] - The company is confident in the Ovation mixed-use development project, which is expected to create significant value for shareholders [9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the leasing environment, noting a return to office trends and a reduction in competitive supply [14] - The company anticipates steady occupancy growth through 2026, supported by signed leases and a strong development pipeline [85] - Management highlighted the importance of maintaining a strong balance sheet and liquidity to capitalize on future opportunities [12] Other Important Information - The company received $3 million from the Florida Department of Transportation for roadway improvements, which was included in the FFO outlook [24] - The company wrote off nearly $1 million of predevelopment costs at sites where office use is no longer deemed optimal [25] Q&A Session Summary Question: Insights on guidance and other income items - Management indicated that there were $0.03 of headwinds in the updated outlook due to higher G&A and pushed interest income into future years, offset by $0.05 of NOI upside [34][35] Question: Acquisition opportunities in current markets - Management noted that capital markets are opening up, with more high-quality assets coming to market and narrowing bid-ask spreads [40][41] Question: Expectations for concessions and tenant improvements - Management stated that concessions have generally peaked, with net effective rents increasing, although variability exists by submarket [44][46] Question: Future leasing commissions and tenant improvements - Management expects elevated levels of leasing commissions and tenant improvements to continue, likely higher than previous years [50][52] Question: Factors affecting guidance range - Management highlighted expense timing and potential lease renewals as swing factors affecting the guidance range [56] Question: Competitive landscape for large RFPs - Management noted strong competition for headquarter space, with demand coming from various industries, including financial services and manufacturing [90][92]

Financial Data and Key Metrics Changes - The company reported funds from operations (FFO) of $1.71 per share, which is $0.05 above the midpoint of guidance and $0.04 above consensus estimates for the quarter [41][42] - The midpoint of the full-year earnings guidance for 2025 has been raised by $0.02, reflecting strong operational performance [7][46] - The total portfolio occupancy for the second quarter ended at 86.4%, a decline of 50 basis points [26] Business Line Data and Key Metrics Changes - The company completed over 1,100,000 square feet of leasing in the quarter, bringing total leasing in 2025 to 2,200,000 square feet [7] - The leasing volume over the last four quarters was 5,700,000 square feet, which is 18% higher than the prior four quarters [7] - The development portfolio lease percentage increased by 500 basis points to 67% [31] Market Data and Key Metrics Changes - Office sales volume increased to $14.2 billion, up 80% from the prior quarter and 125% from the second quarter of last year [11] - The vacancy rate for premier workplaces in core CBD markets is 6.3%, significantly lower than the broader market [17] - In San Francisco, there has been a reduction in rental rates, with deals now being done in the mid-threes per square foot [75] Company Strategy and Development Direction - The company is proceeding with the development of a premier workplace at 343 Madison Avenue, with a total development cost of just under $2 billion [15][16] - The company is exploring the sale of non-income producing assets to generate nearly $300 million in net proceeds over the next two years [18] - The strategy focuses on high-quality assets in gateway markets, with a strong emphasis on tenant quality and long-term leases [60][62] Management's Comments on Operating Environment and Future Outlook - Management noted that corporate confidence is improving, driven by favorable economic conditions and a pro-growth tax bill [8] - The return to office behavior is more advanced in East Coast markets, particularly New York City, compared to the West Coast [10] - The company expects to gain occupancy, revenue, and FFO in the coming years, supported by limited rollover in 2026 and 2027 [21] Other Important Information - The company has a strong pipeline of leases in negotiation, totaling 1,800,000 square feet, with additional letters of intent at 343 Madison [25] - The upcoming Investor Day is scheduled for September 8, 2025, in New York City [48] Q&A Session Questions and Answers Question: Outlook for the unlevered return on 343 Madison - The expected unlevered cash yield upon delivery is between 7.5% to 8%, with a potential mid to high teens IRR on a levered basis [52] Question: Impact of AI on space needs - Management believes AI will create jobs at the top of the intellectual pyramid, leading to increased demand for high-quality office space in gateway markets [56][60] Question: Clarification on capitalized interest for 343 Madison - The capitalized interest is based on a blended rate of around 7.5% for the four-year development period, with actual capitalized interest potentially being lower [67] Question: Mark to market report for the quarter - The mark to market was slightly up in Boston and New York, but down in Washington, DC, and the West Coast, reflecting varying demand conditions [72][75] Question: Terms of the MTA ground lease for 343 Madison - The ground lease is a 99-year lease with known increases in payments, making it attractive for underwriting [78][80] Question: Guidance and timing of earnings - The bottom end of the annual range was increased due to strong portfolio performance, but higher expected expenses in the third quarter tempered the overall guidance increase [82][85]

Financial Data and Key Metrics Changes - The company reported funds from operations (FFO) of $1.71 per share, which is $0.05 above the midpoint of guidance and $0.04 above consensus estimates for the quarter [38] - The midpoint of the full-year 2025 earnings guidance has been raised by $0.02, reflecting strong operational performance [6][41] - The total portfolio occupancy for the second quarter ended at 86.4%, a decline of 50 basis points [24] Business Line Data and Key Metrics Changes - The company completed over 1,100,000 square feet of leasing in the quarter, bringing total leasing in 2025 to 2,200,000 square feet [6] - The leasing volume over the last four quarters was 5,700,000 square feet, which is 18% higher than the prior four quarters [6] - The development portfolio lease percentage increased by 500 basis points to 67% this quarter [28] Market Data and Key Metrics Changes - Office sales volume increased to $14.2 billion, up 80% from the prior quarter and 125% from the second quarter of last year [11] - The vacancy rate for trophy buildings in Midtown remains very low at 6.3%, with office rents growing at rates well above inflation [16] - The overall mark to market of leases signed this quarter was flat, with modest increases in Boston and New York, and slight decreases on the West Coast and DC [29] Company Strategy and Development Direction - The company is proceeding with the development of a new office building at 343 Madison Avenue, with a total development cost of just under $2 billion [14] - The company is exploring the sale of non-income producing assets to generate nearly $300 million in net proceeds over the next two years [16][17] - The strategy focuses on high-quality assets in prime locations, with a strong emphasis on tenant quality and long-term leases [55] Management's Comments on Operating Environment and Future Outlook - Management noted that corporate confidence is improving, driven by favorable economic conditions and a pro-growth tax bill [7] - The return to office behavior is advancing, particularly in East Coast markets, which is expected to enhance leasing activity [9] - The company anticipates occupancy, revenue, and FFO growth in the coming years, supported by limited rollover in 2026 and 2027 [19] Other Important Information - The company has executed a letter of intent with an anchor client for approximately 30% of the new building at 343 Madison Avenue [14] - The company is actively engaged in discussions for additional leasing opportunities, with 1,800,000 square feet of leases in negotiation post-Q2 [23] - The upcoming Investor Day is scheduled for September 8, 2025, in New York City [44] Q&A Session Summary Question: Outlook for the unlevered return on 343 Madison - The expected unlevered cash yield upon delivery is between 7.5% to 8%, with a potential mid to high teens IRR on a levered basis [48] Question: Impact of AI on demand for office space - AI is expected to drive job creation at the top of the intellectual pyramid, with companies in AI experiencing growth in demand for office space [51][54] Question: Clarification on capitalized interest for 343 Madison - Capitalized interest is based on a blended rate of around 7.5% for the four-year development period, with actual capitalized interest potentially being lower [61] Question: Mark to market performance this quarter - The mark to market was slightly worse than last quarter, with variations in rental rates across different markets impacting the overall performance [66] Question: Terms of the MTA ground lease for 343 Madison - The ground lease is a 99-year lease with predictable increases in payments, making it attractive for underwriting [73][75] Question: Guidance and earnings cadence for the second half of the year - The company expects a lower FFO in Q3 due to seasonal operating expenses, with a higher impact anticipated in Q4 [80]

Financial Data and Key Metrics Changes - Core FFO per diluted share for Q2 2025 was $0.36, down from $0.37 in Q2 2024, primarily due to higher net interest expenses from refinancing activities [24] - AFFO generated during Q2 2025 was approximately $16 million [25] - The company anticipates annual core FFO guidance in the range of $1.38 to $1.44 per diluted share, with no material changes to previously published assumptions [26] Business Line Data and Key Metrics Changes - Total leasing success in Q2 2025 reached 712,000 square feet, with year-to-date leasing exceeding 1,000,000 square feet [6] - Approximately two-thirds of Q2 leasing activity was related to new tenant leases, marking the highest new tenant leasing in a single quarter since 2018 [6][7] - Rental rates for spaces vacant less than a year reflected over 7% increases, with almost 14% roll-ups on a cash and accrual basis, respectively [9] Market Data and Key Metrics Changes - Demand for office space is increasing, with JLL Research noting a 5.8% growth in active space requirements, the highest level of demand since 2021 [10] - National occupancy remained stable, with Piedmont observing positive absorption in four of its operating markets [10] - The out-of-service portfolio was over 30% leased by the end of Q2 and is expected to reach stabilization by the end of next year [8] Company Strategy and Development Direction - The company is focusing on creating modern work environments and is well-positioned to benefit from the flight to quality in office buildings [6] - The leasing guidance for 2025 has been increased to a range of 2,200,000 to 2,400,000 square feet, reflecting an increase of over 800,000 square feet compared to the original guidance [11] - The company plans to continue selective capital deployment to drive lease percentage and increase rental rates, aiming for FFO and cash flow growth [28] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about leasing prospects, citing strong demand from large tenants and a lack of new office construction [10] - The company anticipates that the majority of new leasing will benefit earnings in 2026 and beyond [11] - Management noted that the current high interest rates and inflation are expected to diminish new office supply and push construction costs higher, which will support rental rate growth [9] Other Important Information - The company repurchased approximately $68 million of its bonds during the quarter, resulting in a $7.5 million loss on early extinguishment of debt, but expected to save $7.5 million in total interest over the next three years [25] - The company has approximately $450 million of availability under its revolving line of credit and no final debt maturities until 2028 [26] Q&A Session Summary Question: What are the longer-term goals for exposures within markets? - Management indicated a focus on increasing exposure to the Sunbelt markets, aiming to raise the current 70% exposure to around 80% [34] Question: Can you touch on some of the larger pending vacancies and activity? - Management highlighted a strong pipeline with about 2,200,000 square feet of outstanding proposals, with significant activity in Atlanta and Dallas [37] Question: What offsets should be considered in terms of guidance? - Management noted that while leasing strength is strong, most of it will translate into growth in 2026 and beyond, which is why the bottom line guidance was not revised up [48] Question: How do you think about the buyer group and potential outcomes? - Management mentioned that the sales market is improving, particularly for core quality assets, and they are focused on disposing of non-core assets [54] Question: What is driving the reinvigoration of leasing activity? - Management identified several factors, including the need for larger tenants to upgrade their office experience and the return-to-office mandates [64]