Piedmont Office Realty Trust(PDM) - 2020 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q4 2020, the company reported core FFO of $0.46 per diluted share, consistent with Q4 2019, while annual core FFO for 2020 was $1.89, up from $1.79 in 2019, reflecting a $0.10 increase [31] - AFFO for Q4 was approximately $36 million, exceeding the current quarterly dividend level [31] - Same-store net operating income (NOI) was slightly down on a cash basis and relatively flat on an accrual basis, with cash-based same-store NOI impacted by rental payment deferrals [32][33] Business Line Data and Key Metrics Changes - The company executed over 1.1 million square feet of leasing in 2020, primarily renewals, with a cash roll-up of 3.5% on second-generation leases [11] - Approximately 190,000 square feet of leasing occurred in Q4, with notable activity in Atlanta, Washington, D.C., Minneapolis, and Dallas [12] - The weighted average lease term for the entire portfolio is now over six years [11] Market Data and Key Metrics Changes - Utilization of the portfolio remains at approximately 25% to 40% on average, varying by city and tenant profile [8] - Smaller tenants (less than 10,000 square feet) are making leasing decisions, while larger tenants (over 50,000 square feet) are also executing leases to take advantage of favorable rates [13] - The company is witnessing increased leasing activity in Sunbelt markets and Boston, driven by corporate relocations and expanding technology companies [15][17] Company Strategy and Development Direction - The company aims to focus on lower-cost, higher-quality life markets, emphasizing amenity-rich workplaces and robust tenant engagement [17] - Plans include recycling capital from non-core markets into healthier markets, with an expected recycling of $200 million to $400 million in 2021 [43] - The company is also focused on redevelopment projects, including the Galleria in Atlanta and the 200 South Orange Avenue campus in Orlando [45] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the vaccine rollout and its impact on business operations, expecting a gradual return to normalcy in 2021 [7][16] - The company anticipates core FFO for 2021 to be in the range of $1.86 to $1.96 per diluted share, with same-store NOI growth expected between 3% and 5% [35][37] - Management noted that the current portfolio's overall occupancy is expected to improve by 1% to 2% by year-end [38] Other Important Information - The company collected 99% of its billed receivables during Q4 2020, indicating strong credit quality among tenants [20] - Approximately 70 tenant workout agreements were entered into, deferring about $7 million in rent, which is less than 1% of total annual revenues [21] - The company repurchased approximately 2.2 million shares of common stock at an average price of $14 per share, totaling about $30.6 million [29] Q&A Session Summary Question: Can you provide additional color on the mix between renewals and new leasing for the 500,000 square feet of leasing? - Management indicated that the split between new and renewal leases is consistent with prior quarters, with activity spread across various markets including Boston, Dallas, and Atlanta [40] Question: What industries or tenant sizes are returning to the office more than others? - Smaller tenants have returned more forcefully, while larger national corporates are more hesitant [41] Question: What are the plans for monetizing assets in stronger markets? - The company plans to continue monetizing mature assets, with potential recycling of $200 million to $400 million in 2021, focusing on Sunbelt and Boston markets [43][44] Question: How does the 500,000 square feet of leasing affect the expiration schedule? - Very little of the leasing activity reduces the 2021 expirations, which remain at about 5.8% [48] Question: What are the net effective rents compared to pre-COVID levels? - Net effective rents have declined by 5% to 10% due to increased concessions, while rates have held steady [50][51] Question: Is the $2.6 million termination fee from WeWork included in the guidance? - Yes, it is included in the guidance and is expected to be recognized primarily in the first quarter [53] Question: What is the G&A guidance for 2021? - The total G&A is estimated to be around $28 million for the year [56]