Piedmont Realty Trust (NYSE:PDM) reported third-quarter results marked by higher leasing volumes, rising rental rates, portfolio recycling activity and a refinancing that reduced its weighted average debt cost. The office real estate investment trust also raised and narrowed its full-year core funds from operations outlook for the third consecutive quarter.
Core FFO was $0.39 per diluted share in the third quarter, up $0.04 from the prior-year period, Chief Financial Officer Sherry Rexroad said. The increase was primarily driven by higher rental rates and increased commenced occupancy as leases executed during the past 12 to 18 months began contributing to results. The company generated approximately $30 million of adjusted funds from operations during the quarter.
Leasing Activity and Rental Growth
Piedmont completed 43 leases totaling more than 400,000 square feet during the quarter, roughly evenly split between new leases and renewals. Nearly half of total leasing involved new tenants, while the average lease size was about 9,000 square feet and the weighted average lease term was approximately 10 years.
President and CEO Brent Smith said tenant demand for the company’s amenity-rich office properties remained strong as new construction and office conversions reduced the availability of high-quality space. He said customers were increasingly pursuing expansions and early renewals, including some with expirations as far out as 2030.
Cash leasing spreads were 26% during the quarter, while accrual leasing spreads were 35%, representing the company’s second-highest quarterly levels. Net effective rent after capital expenditures reached $29 per square foot for the first time, more than 30% above the trailing 12-month average, according to Smith.
Chief Operating Officer George Wells said cash rents on space that had been vacant for one year or less increased 26%, while accrual rents rose 35%. Leasing capital expenditures were $5.21 per square foot per year, slightly below the company’s nine-month average of $5.44.
Same-store net operating income rose approximately 8% on a cash basis and 7% on an accrual basis in the third quarter. Piedmont also reported a signed-but-not-yet-commenced leasing pipeline equal to about $29 million in annual revenue, or 410 basis points of portfolio occupancy, that is expected to enter results over the next several quarters.
Wells said tenant expansions exceeded contractions for the 10th consecutive quarter. Demand has been supported by legal, accounting, insurance, finance, engineering, cybersecurity and defense-related users, management said. The company cited strong activity in Dallas, Atlanta, Northern Virginia, Orlando and suburban Minneapolis, while describing Boston and Washington, D.C., as comparatively less robust markets.
Portfolio Recycling
During the quarter, Piedmont acquired 4075 Wilson Boulevard, a 186,000-square-foot Class A office building in the Ballston submarket of Arlington, Virginia, for approximately $52 million, or $280 per square foot. The building was 83% leased at acquisition and had a weighted average lease term of five and a half years.
Executive Vice President of Investments Chris Kollme said the company sees potential to lease vacant space and reset in-place rents that are roughly 10% below current market rates. Piedmont now controls about 25% of Ballston’s 3.2 million-square-foot Class A office inventory, according to management.
On the disposition side, Piedmont sold a 10.6-acre undeveloped land parcel in Las Colinas, Texas, for $12 million, generating an approximately $9 million gain. The company also entered into a binding agreement to sell Enclave Place, one of its two remaining Houston assets, for $81.75 million. The transaction is expected to close in the fourth quarter, subject to customary conditions.
Management reiterated its intention to exit the Houston market. It also said an Orlando land parcel remains under contract, with a projected late-2027 closing. Piedmont has additional assets in the market, including properties in Washington, D.C., and suburban Boston, though management said any potential sales of those properties would be 2027 events.
Debt Refinancing and Updated Outlook
Piedmont issued $230 million of 2.875% exchangeable senior notes due in 2031 during the quarter and used the proceeds to redeem its remaining 9.25% unsecured senior notes due in 2028. Rexroad said the transaction reduced the company’s weighted average cost of debt by more than 70 basis points to 4.8% and extended weighted average remaining debt maturity to 4.3 years. The company has no final debt maturities until October 2028.
The company also issued 4.1 million shares through its at-the-market program at an average price of $9.72 per share, while repurchasing about 5.4 million shares at an average price of $9.20 in connection with the exchangeable-note offering.
Piedmont ended the quarter with a $152 million balance on its line of credit. It expects to use roughly $80 million of net proceeds from the Enclave Place sale to reduce that balance and return net debt to pre-transaction levels. Management expects net debt-to-EBITDA to fall below 7 times by year-end and to improve further in 2027 as recently signed leases commence.
The company raised and narrowed 2026 core FFO guidance to $1.55 to $1.57 per diluted share. The midpoint is $0.06 above Piedmont’s original annual outlook and implies growth of more than 10%, Rexroad said. Full-year same-store NOI is expected to increase 7.5% to 8.5% on a cash basis and 5% to 6% on an accrual basis.
Management revised projected year-end in-service lease percentage to 87.5% to 88.5%, reflecting property additions, the expected Houston disposition and its strategy of retaining certain larger available spaces for potential premium leasing opportunities.
Addressing questions about artificial intelligence and office employment, Smith said Piedmont had not seen tenants reduce requirements, withdraw from lease negotiations or slow touring activity. He said the company’s focus on small and midsize users, along with continuing tenant expansion activity, helped mitigate potential effects from workforce reductions at larger corporations.
About Piedmont Realty Trust (NYSE:PDM)
Piedmont Realty Trust, formally known as Piedmont Office Realty Trust, Inc (NYSE: PDM), is a self-managed real estate investment trust that owns, develops, acquires, leases and manages office properties in the United States. The company primarily focuses on high-quality office buildings serving corporate tenants and other organizations.
Piedmont’s portfolio has historically been concentrated in major office markets across the Sun Belt and eastern United States, including Atlanta, Boston, Dallas, Washington, DC, and other metropolitan areas.
