Piedmont Realty Trust, Inc. Q3 FY2021 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Piedmont Office Realty Trust Third Quarter Twenty Twenty-One earnings Call. At this time, all participants are in a listen-only mode and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Eddie Guilbert. Sir, the floor is yours.

Thank you, operator, and good morning, everyone. Thank you for joining us today for Piedmont’s third quarter twenty twenty-one earnings conference call. Last night, we filed our Form 10-Q and a Form 8-K that includes our earnings release and our unaudited supplemental information for the quarter, which is available on our website at piedmontreit.com under the Investor Relations Section. During this call, you'll hear from senior executives of Piedmont, and they 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. Also during the call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of nineteen ninety-five. These forward-looking statements address matters that 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 detail in our press release as well as in 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 leasing and investment activity, and the impacts of the company’s financial and operational results. You should not place any undue reliance on any of these forward-looking statements, and these statements speak only as of the date they are made. At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments and discuss our third quarter results and accomplishments. Brent.

Good morning, everyone, and thank you for joining us on today's call as we review our third quarter financial and operating results. On the call with me this morning, along with Edward Guilbert, are George M. Wells, our Chief Operating Officer, and Bobby Bowers, our Chief Financial Officer, as well as other members of the senior management team. Reflecting upon the third quarter results, this was an outstanding quarter in which we made meaningful progress against several strategic objectives. Financial metrics were strong, with our highest reported quarterly FFO per share since our IPO, as well as a double-digit increase in cash basis Same Store NOI, along with sizable double-digit rent roll-up on both accrual and cash basis. Additionally, we were able to complete another significant debt refinancing at extremely attractive spreads. Bobby will touch more on that accomplishment during his comments. Perhaps the accomplishment that we're most pleased with is the return of new tenant leasing activity to pre-pandemic levels. Importantly, our pipeline for the remainder of the year remains strong, giving us confidence that we'll meet most of our targeted annual leasing goals across our seven markets. Equally significant was a sizable strategic acquisition that was completed subsequent to quarter-end, along with several meaningful ESG milestones that were achieved. I'll go into more detail in each of these topics today, but first, let me start by providing additional color on our third quarter leasing activity. Leasing activity for the third quarter totaled five hundred and nine thousand square feet, bringing total year-to-date leasing to just under one point eight million square feet, significantly exceeding what we realized for the whole year in twenty twenty. We project that our twenty twenty-one leasing will affect exceed our average annual results for the four years prior to the Covid pandemic. More importantly, approximately forty-three percent of our third quarter leasing, or two hundred and twenty-one thousand square feet, was executed for new tenant leases, marking a return to pre-pandemic new leasing levels. This quarter's leasing activity also represented the mark-to-market opportunity across our portfolio, generating rent roll-outs of ten-point-five percent on a cash basis and sixteen-point-one percent on an accrual basis, with a weighted average lease term of six point four years and limited levels of committed capital at approximately five dollars per square foot per year of term. Leasing volume was robust and well distributed across all our markets with almost fifty leases executed during the quarter, and only one lease accounting for more than twenty-five thousand square feet. The largest lease completed during the third quarter was an exciting and complex transaction with Microsoft at our 5&15 Wayside property in the Boston Hub of Burlington. On the surface, the ten-year renewal and expansion totals approximately one hundred and fifty-five thousand square feet, but in conjunction with its pending acquisition of Nuance Communications at our adjacent one Wayside property, Microsoft will soon lease three hundred and fifty-six thousand square feet at the Wayside campus, anticipating leasing about one hundred and twenty thousand square feet over time. This makes it a major single-tenant campus for the company in the Boston market. Looking forward, I'm encouraged by the continuing momentum in all our prospective tenant pipeline, particularly in our SunBelt markets of Atlanta, Dallas, and Orlando, where we are witnessing rental rate growth, increased leasing velocity, and confirmation of the population migration trends and major corporate relocations into these areas. Moving to capital markets, as many of you are aware, a purchase and sale agreement was executed a few weeks ago for 999 Peachtree Street in Atlanta. We completed our due diligence for the purchase of this iconic Class A lead platinum twenty-eight story building, seventy-seven percent leased, located at the corner of Peachtree and 10th streets in the heart of midtown Atlanta. I'm pleased to announce that we closed on this asset purchase this past Friday. The property offers spectacular views of the Midtown Skyline and the nearby Piedmont Park, with superior accessibility to the interstate and the city's rail system, MARTA, along with unique outdoor amenities and have close proximity to Georgia Tech and a large technology-skilled millennial workforce with more than thirty thousand residents within a one-mile radius and significantly more walkable multifamily housing under construction nearby. This unmatched corner asset has structured parking and a great window line, making it an ideal strategic acquisition for Piedmont as we establish a material foothold and expand in this high-growth Atlanta submarket. The acquisition of the six hundred and twenty-two thousand square feet 999 Peachtree Street property at three hundred sixty dollars per square foot allows Piedmont to enter this submarket at a basis of approximately forty percent below replacement cost and achieve immediate scale. We plan to revitalize this asset, modernizing the lobby, energizing the outdoor space, creating tenant balcony options, and enhancing existing fitness and conference amenities. We will deliver a differentiated product providing a premier tenant experience at 999, which we believe will attract local and relocating tenants to the market. The acquisition will be primarily funded by the ten thirty-one proceeds from the previously announced sale of our two twenty-five and two thirty-five presidential way assets in Boston, which are scheduled to close early in the first quarter of twenty twenty-two, along with other anticipated non-core asset sales. Our all-in basis will be in a low four hundred dollars per square foot and will competitively position against new products costing six hundred fifty dollars per square foot or more, with gross rental rates asking over sixty dollars per square foot for that new product. With the completion of the 999 acquisition and pending digital wave dispositions, our three SunBelt markets of Atlanta, Dallas, and Orlando are anticipated to provide approximately fifty-five percent of our annualized lease revenues. Our goal over the next two to three years is to continue driving that regional percentage to over seventy percent of ALR. Finally, touching on ESG and property operations, in addition to Piedmont being only one of sixty-nine corporations receiving the Energy Star Partner of the Year award in twenty twenty-one, we are pleased to announce that our entire seventeen million square foot portfolio has submitted for the WELL Healthy – health safety rating from the International WELL Building Institute. The WELL Health and Safety rating is a relatively new evidence-based third-party verified rating for all new and existing building facility types that focus on operational policies, maintenance protocols, tenant engagement, and emergency plans, prioritizing the health and safety of all occupants, including staff, visitors, and stakeholders during the COVID-19 crisis and for long-term health and safety concerns. Additionally, we continue to be a leader in our industry and BOMA 360 Designations, with approximately ninety percent of our portfolio now achieving this recognition of excellence in building operations and management. We prioritized our building operational efficiencies, and during the most recent third quarter, our three lead-certified Dallas Galleria Office Towers that we acquired just last year were awarded the BOMA 360 Designation along with three other buildings, 5 Wall Street in Boston, and Norman Pointe I and US Bancorp Center, both in Minneapolis. All three of these buildings were recognized with awards for being the Outstanding Building of the Year or TOBY award recipients in their respective competitive classes. Lastly, I'm extremely pleased to report that Piedmont has awarded scholarships to two minority students, one at Howard University in Washington, D.C. and the other at Morehouse College in Atlanta, GA. The scholarships were awarded pursuant to the Piedmont Scholarship Program, whereby Piedmont has partnered with two Historically Black Colleges and Universities to provide need-based, scholastic support to selected rising sophomores interested in pursuing a career in a field related to the real estate industry, which we hope will draw much-needed diversity into our industry. The scholarship program also includes opportunities to join Piedmont in summer internship positions and further career opportunities. Initiatives like this, as well as other social programs such as feeding the homeless and sponsoring education and health programs for families and homeless children, are means in which Piedmont looks to give back to the community in which we operate. These are more important corporate responsibilities that our industry needs to be more proactively involved in, and we will continue to pursue. With that, I will turn it over to Bobby to walk you through the financial highlights for the quarter and guidance for the remainder of twenty twenty-one.

Thanks, Brent. I will discuss some of our financial highlights for the quarter, and I encourage you to please review the earnings release and supplemental financial information, which were filed last night for more complete details. For the third quarter of twenty twenty-one, we reported zero point five zero dollars per diluted share of Core FFO, a zero point zero two dollars increase compared to the third quarter of twenty twenty. This increase is primarily due to rising rental rates coupled with decreased operating expenses, particularly expenses related to lower than budgeted real estate taxes, as well as the expiration of operating expense abatement on certain leases. These revenue improvements, however, were partially offset by a year-to-date zero-point nine percent reduction in overall lease percentage resulting from the industry-wide reduced leasing activity brought on by the COVID pandemic. The good news regarding our lease percentage is that lease expirations for the next twelve months remain relatively low, particularly true with minimal expirations in two markets that have been slower to recover, namely the District of Columbia and New York City. The improvement in new tenant leasing that Brent mentioned is encouraging, and we are optimistic about growing our overall lease percentage over the next few years. This statistic, however, is complicated by our strategy of selling fully leased assets that have reached their full value potential during our ownership and then recycling the proceeds into lower leased assets that provide us with more organic growth opportunities. We will update you on our guidance on occupancy as transactions close. AFFO generated during the third quarter of this year was approximately forty-one million dollars, which is well above our current twenty-six million dollars quarterly dividend level. Same Store NOI increased to eleven point six percent and five percent on a cash and accrual basis, respectively, with the increase in both metrics primarily attributable to improved rental rates and decreased operating expenses noted previously. Turning to the balance sheet, during the third quarter, we issued a long ten-year bond totaling three hundred million dollars in aggregate principal amount at two point seven five percent. The senior notes are due in twenty thirty-two, and we used the proceeds from the bond to repay without penalty a three hundred million dollar bank term loan that was scheduled to mature next month. Our average net debt to core EBITDA ratio as of the end of the third quarter was five point five times, and our debt-to-growth asset ratio was approximately thirty-four point four percent. After the acquisition of 999 Peachtree Street, we currently have approximately two hundred million dollars of availability on our line of credit. As Brent mentioned, we plan to utilize the proceeds from the sale of our two Presidential Way assets in Boston that are expected to close in January to pay down the line once the reverse ten thirty-one exchange proceeds are received. With no other scheduled debt maturities for a couple of years, we currently plan to renew our five hundred million dollar revolver during twenty twenty-two. Finally, I'd like to update you on our guidance for the rest of the year. Based on our better-than-expected year-to-date operating results and strong leasing activity, as well as the 999 Peachtree Street acquisition, along with almost eight hundred thousand square feet of leases in abatement that are yet to commence for vacant space, we've raised our twenty twenty-one financial guidance to a range of one point nine five to one point nine eight dollars per diluted share of Core FFO. This guidance compares to our guidance last quarter that had been raised to a range of one point nine dollars to one point nine six dollars. This latest twenty twenty-one guidance now includes approximately zero point zero one seven dollars contribution from the just completed acquisition of 999 Peachtree Street, but no other acquisition or disposition activity before the end of the year is contemplated. With the addition of the seventy-seven percent leased 999 Peachtree Street building, we also estimate our overall occupancy will be around eighty-six percent at year-end. Additionally, we believe Same Store cash NOI will end the year twenty twenty-one at the upper end of our previously provided five percent to seven percent guidance range. With that, I'll now ask our conference call operator to provide instructions on how our listeners can submit their questions. We'll attempt to answer all of your questions now. We will make appropriate lighter public disclosure if necessary.

Ladies and gentlemen, the floor is now open for questions. Your first question is coming from Anthony Paolone. Your line is live.

Thanks. Good morning. My first question is on 999 Peachtree Street, Brent. I think you gave some brackets, and I think I caught that you said about four hundred dollars of what is where you think you end up in your basis. So, I guess that means an extra twenty-five million dollars in spending. I'm just wondering if you can kind of go further and give us a little bit more of a sense as to where you think the yield is going to land and timing to lease up.

Got it. Morning, Anthony. I appreciate you taking the time with us today. Indeed, we are very excited about the 999 strategic transaction to get this iconic Midtown asset. We've known it well. In fact, I live about seven blocks from the building and have really been looking for a way into that submarket for some time now. It’s a unique opportunity to get scale and certainly a foothold, and we will continue to expand. It’s got everything we want to buy: accessibility, prominent structure, great bones, big window line, and the ability for us to add value through repositioning and leasing up. So, as you noted, we're going in at about three hundred sixty a foot and will land somewhere around that four hundred a foot mark, call it twenty-five million dollars of investment. That investment is to transform the asset. It’s got great mechanical systems, but admittedly, it needs to be modernized for today's workforce and to take it into the next generation of workplace. So that's really where a lot of that capital is going to be allocated. We do have some near-term lease-up opportunities for some great built-out space that we think can drive occupancy into the mid-eighties here in the near term. And then longer term, we do think the building stabilizes somewhere in the low nineties with additional lease-up opportunities. The current rents for the building are about twenty percent below market, so there’s great mark-to-market potential there. We anticipate that with the near-term lease-up, rent will quickly move this closer to seven dollars. We've been working with tenants for about two months on this and look forward to bringing this asset back to the prominence that it’s known for in the market here in Atlanta. Hopefully that gives you some insight, but the stabilization may curve a little further out, probably around the two year mark to reach that seven-point-five million dollar target.

Okay. That seven-point-five million dollars though, I'm sorry, is that GAAP or cash?

That's all in GAAP. We typically provide again GAAP, but as you know, our cash numbers historically have been about one hundred to one hundred fifty basis points inside of that. In the near term, due to the fact that the rents are so far below market, we anticipate that as those leases roll, and it is a more near-term role within that building, we'll be able to quickly drive the cash numbers closer to those GAAP numbers I gave you over that kind of two-year horizon.

Okay. Thank you. Yes. And then the second question relates to non-core asset sales. It sounds like beyond Boston, you still have some other things teed up. Can you give us some sense of the order of magnitude there and if we should expect acquisitions to kind of get paired with that as well?

As you know, we do a great job of pairing buys and sells; it's a unique differentiator we think in our business model, and we continue to successfully drive earnings growth in that manner. We're selling well-leased, long-term stabilized assets for great pricing and buying other assets at higher cap rates, using low square foot renovations and leasing them up, driving value creation that way. So, we do feel like we've got a great pipeline of potential acquisitions, but more importantly, as you noted on the disposal side, we do have non-core assets that we've labeled that I've talked about selling in the next six to twelve months, and we're in active dialogue around that quote core portfolio that we've labeled in the supplemental, as well as just mature assets that we will also be disposing of in regular fashion as we've always done. We have an exciting pipeline, as I said, to pair with those dispositions, and we still believe we're able to recycle accretively. The 999 acquisition is a perfect example of that pairing with the Boston disposition. We’re going in on day one on an accretive basis on GAAP earnings and are able to drive that even higher. You will see us continue to leverage that non-core portfolio along with the Boston Cambridge assets, particularly as I’ve noted, at least to Harvard, which is an opportunity to monetize a low cap rate asset and redeploy into the SunBelt. That’s probably our next big rotation asset as long as the regular way in non-core has been discussed.

Okay. So, we've got Cambridge, it seems like that's the one that's on deck here. And then last question, can you just provide some updated thoughts on a couple of the larger spaces that come up in the next couple of years like CVS and Ryan and just anything you're doing there proactively?

Absolutely. So, as most people are aware, we've been in dialogue with CVS for some time. That continues to trend well. There will be a modest downsize, but not material, and I feel very good about where that transaction is headed. Other ones that are in the pipeline are much further out. That's the most near-term within twelve months. But as you mentioned, we do have some latter parts and middle parts of twenty-three coming up. Ryan has been in the press about a potential development, but that’s going to be very difficult for them to complete that development anywhere near where their lease rolls. We'll anticipate having some substantial dialogue with them on opportunities for them to remain in the building long term and potentially even near term as they continue to evaluate that opportunity in Plano. Regarding Cargill, which is even further out than twenty-four, I'd say it’s early, but indications from them are still very positive; this is their overflow and release valve for their headquarters location. They continue to actively use the building despite being one of the lower utilized markets. We see a lot of activity in the building, and they're very fond of the campus away from their existing campus. It’s a healthier option, offering unmatched amenities in the suburban market, with a ten-thousand square foot fitness center and a large multi-food type café and a three hundred-person auditorium. So, we feel good about Cargill's tenancy there. I'd also point out that U.S. Bank is one of our largest tenants, with their suburban location expiring in twenty-three. We also feel very good about a long-term relationship with U.S. Bank, both at that location and in twenty twenty-four, when their downtown headquarters building will also come up for lease. We’re being very proactive in those dialogues and feel very good about the long-term opportunity to retain them in those assets.

Great. Thanks. Thanks for all that color.

Your next question is coming from Dave Rogers. Your line is live.

Yeah. Good morning, everybody. I wanted to talk about the lease pipeline into the fourth quarter. Brent, you mentioned that the activity was staying strong. Can you provide additional color on that with regard to kind of small versus larger tenants, and some of the urban versus suburban activity? I would be interested in any thoughts you have there.

I think it's really been consistent with what we've shared over prior quarters, large tenants continue to be active in the market, those being greater than fifty thousand square feet. We're seeing larger tenants make more decisions along that process, especially in our SunBelt markets. We're also seeing some good news with small tenants, ten thousand square feet or less; they’re back to pre-pandemic levels in most of our markets. What we've observed is that small tenants are part of a robust uptrend, which we believe is representative of industry normalization. The third quarter and going into the fourth quarter is indicative of that growth. We're continuing to see a surge in fifteen thousand to twenty-five thousand square foot single-floor users, particularly in the SunBelt markets, and we’re even noticing a pick-up in suburban Minneapolis. However, I must admit that many of our peers still report lower utilization in our Central Business District assets, which also contributes to a slightly lower lease velocity. Therefore, while we're fortunate to have a lot of roll in the District of Columbia proper, Downtown New York, and Downtown Minneapolis, those are still the markets lagging in overall recovery. I will now hand it over to George Wells, who can provide additional detail around some of our pipeline growth over the past year and let’s look ahead.

Thank you. I appreciate it. We're really optimistic about what we're seeing for the fourth quarter here. We are twenty-eight days into October, and as we are looking at transactions already agreed upon at the legal stage, that gives us a lot of comfort regarding the ongoing optimism you've seen from us in the second and third quarters, extending into the fourth. Additionally, when looking at the kind of proposals we’re seeing rise rapidly over the past couple of quarters: starting in the first quarter with around sixty proposals for about nine hundred thousand square feet, popping up to seventy-five transactions for one point one million square feet in the second quarter, and in this past quarter, we're at eighty-seven transactions for one point five million square feet. Taking a step back and looking at the tours, they’ve also increased from mid-nineties in the first quarter to over one hundred with around twenty-five percent growth in the third quarter. We feel good about this; we believe our portfolio resonates with market demand and feel confident about continuing to chip away at our vacancy.

That's great detail, guys. I really appreciate it. I wanted to circle back to the asset sales. You mentioned seventy percent of ALR from the SunBelt. I want to clarify, did you include New York in that number; is that yet another kind of nine percent to ten percent that we can expect beyond this initial wave that you're doing in the next year or so?

Dave, it's very skewed of you. That is exactly part of that component, as we've talked about. New York City continues to progress. We’re still very much engaged in the twenty-year renewal. Last quarter, we completed a great five-year renewal, and the market continues to improve day by day. We’re excited that New York City is back in its space, and utilization rates are improving, making us feel that New York is returning to par with some of our SunBelt markets, in addition to Boston concerning economic activity broadly. I think we’re very encouraged by that. As part of that overall rotation, we’re looking into the possibility of potential monetary events for mid-to-latter part of twenty-three, and I think we foresee a billion-dollar rotation opportunity over the next two to three years.

Very helpful. And as for the larger assets that come up in the next couple of years like Houston and Chicago, do you have any specific progress to report?

Not specific. We’ll share details at the right time, but the good news is we continue to get leasing made at both of those non-core assets, and we will have some availability there. We've got good terms and single credit users in Houston, which positions them well. With the price of oil trending around eighty-five dollars a barrel, we feel pretty good about being able to dispose of the Houston assets in this environment, given the continuous improvement in operations.

All right. Thanks, Brent.

And I still think at a six-to-twelve-month timeframe.

Your next question is coming from Daniel Ismail. Your line is live.

Great. Thank you. Brent, circling back to the seventy percent goal of SunBelt exposure, you mentioned potential exits of current markets. I'm curious if that goal includes the entrance to any new SunBelt markets. The future acquisitions saw you guys enter new submarkets, so curious if there are any markets in the SunBelt that you guys are currently considering?

Morning, Danny. I appreciate you joining the call. You're correct; we continue to evaluate potential new submarkets, much like the 999 acquisition, and have a strong talent pipeline. We're constantly looking for opportunities and others that we believe we could explore for scaling into that submarket, given the high growth rates. That said, we still feel, at present, we have plenty of product that fits our Piedmont style in Atlanta, Dallas, and some of our existing markets. However, we continuously monitor new MSA options that are competitive to our current holdings, paying attention to population migrations and corporate relocations. We’re keeping tabs on markets like Charlotte, Nashville, Tampa, and potentially Denver and Austin as competitors to some of what we’re examining today.

Great. And then a question for Bobby. It looks like disclosure changed a bit with respect to the increased physical utilization of the buildings to perhaps some savings on operating expenses. I'm just curious if that’s no longer the case?

Daniel, I might need you to clarify your question about our disclosures that changed.

Correct, specifically on the Same Store Net Operating Income page in the supplemental. It just looked like a split was removed discussing the benefit of lower operating expenses as a result of lower utilization. I'm curious if that is no longer the case going forward?

Well, we’re still experiencing those savings. We did make some changes in our disclosures this past quarter. You might have noticed we've incorporated the press release into the supplement since the disclosures have almost aligned over the last year or two. So, we just took the liberty to remove some redundant information. We’ve also decreased certain disclosures regarding some very large leases, but what I can say is that our operating expenses remain a little lower due to utilization, which is primarily reflected in our janitorial costs and, to some extent, the tax area.

Got it. And then a bigger picture question for Brent. I’ve mentioned ESG; that’s been a priority in prior calls. I'm curious how that has now played into your underwriting on acquisitions? Are environmental factors and carbon emissions or energy utilization explicitly factored into your underwriting when looking at new properties?

I would say absolutely. It’s tough to quantify, but we aim to identify where we can achieve energy-efficient savings that provide a reasonable payback period in an acquisition. What we're currently focusing on from an underwriting perspective is ensuring we have the necessary capital to create the right environment for our tenants. ESG is a critical component of this environment. Microsoft is a prime example; we’re in discussions with two other tenants from the same space in Boston and were keen on our sustainability director and the team to help them enhance their individual spaces beyond just the building. When considering new assets, we still aim for more modern properties that require fewer major renovations and consider outdoor spaces for collaborative work. We continue to observe that tenants desire collaboration spaces, including outdoor options. It's about how your lobby and first floor interact with the area surrounding the base of your building as well. We’ve set corporate goals to reduce water and energy consumption by twenty percent by twenty-six and twenty-eight, respectively, and we take that into consideration in evaluating buildings to help us meet such goals. We're excited that about forty percent of our portfolio is LEED certified; and we continue to pursue this recognition. It presents a significant selling point to tenants seeking eco-friendly operators, so we are mindful of these factors on a case-by-case basis.

Got it. Thank you, Brent.

Your next question is coming from Michael Lewis. Your line is live.

Thank you. My question is kind of along the lines of rebuilding occupancy, and you provided great color on the leasing pipeline. Bobby talked about selling high occupancy buildings and buying lower ones with some leasing opportunities, and that will move the numbers around. To grasp down to the seven hundred seventy thousand square feet that's signed but not yet occupied, you’re paying cash rent on that. If you compare that to two hundred fifty thousand square feet expiring in Q4 and about one million square feet next year, assuming some of those expirations renew, can you talk about what you think the opportunity is to grow occupancy cash flow over the next year in this environment, especially with investors worried about office occupancy? Do you think there’s a significant opportunity to grow from here?

I appreciate the question, Michael, and thank you again for joining. I think we view our strategy of acquiring vacancies in the near term as positioning the company to capture a lot of movement into the SunBelt. Most of our vacancy roles are in Dallas, Atlanta, and Orlando, which gives us significant optimism about the projections and opportunities for lease-up across our portfolio as you pointed out. We have limited roles this year and next year, along with a modest amount overall. The fact that we’ve maintained a seventy percent retention rate during the pandemic also comforts us regarding our ability to retain tenants effectively. With that backdrop, I would say that there's potential to drive occupancy growth, which we expect to be one hundred to two hundred basis points by the end of next year. Additionally, there’s material upside potential when considering some big tenant leasing activity coming up in both Dallas and Atlanta. Our redevelopment projects are short-term in nature rather than a primary development focus. This allows us to capture some occupancy on the books while some of our peers are taking longer on their development timelines. We are finding, through conversations with companies looking into Midtown, Atlanta, that many of them are seeking spaces immediately, but not much ready space exists in Midtown. Given the total deal flow in the market, we are optimistic about driving occupancy at that asset. We have also seen a meaningful uptick in activity at our Galleria Atlanta property, especially with the upcoming World Series. This enhances its value and desirability. Lastly, our Downtown Orlando asset continues gaining momentum, and with the Orlando Economic Development Corporation signing a lease at our building, they will soon take occupancy. They will bring all prospective companies into our building as we're about to complete a major redevelopment there.

That sounds good. Just one more question for me. It seems Piedmont hasn't grown its dividends since twenty fourteen. However, today, your coverage looks like you're positioned to potentially grow the dividend if you choose. I realize these are sensitive conversations as dividends are board decisions, but maybe from a strategy perspective, is growing the dividends a goal or priority for Piedmont? Is there a strategy to keep the capital and pay the minimum, and when might that trigger necessary increases?

I think you're spot-on, Michael, in noting that the last time we raised the dividend was in twenty fourteen. We've got ample AFFO in the range of one point ten to one point twenty dollars, so there’s plenty of room to meaningfully increase the dividend. We’ve been conservative in that regard on two points: we’ve continued to communicate to the street that we are looking to reevaluate in twenty-two. We've been cautious with significant redevelopment projects, particularly at sixty Broad with the New York State efforts, as well as the pandemic’s impact on our capital plans. We felt it prudent to reevaluate during the course of next year. I would expect the company to provide more specific comments around the middle of the year. We certainly recognize there’s a significant opportunity to grow the dividend, and from a high-level perspective, the company and the board are aligned on that. We’ve just prioritized conserving cash until we have clearer market stability post-COVID, and we are beginning to feel that clarity come into play. Additionally, we’re wrapping up the New York State work next year around mid-year, and luckily, that project is on budget. We ordered much of the material early on in the pandemic before issues stemming from cost overruns and supply chain problems arose. Hence our proportion, in that regard, is positive, and we’ll reevaluate by mid-next year.

Makes sense. Thank you.

There are no further questions from the lines at this time. I would now like to turn the floor back to Brent Smith for closing remarks.

Thank you. I hope we've conveyed today that the opportunities before Piedmont represent a truly unique and differentiated strategy. We are extremely excited about our progress on various fronts. I encourage everyone interested in additional details to visit our website under the Investor Relations section. You can find our 999 acquisition information, including renderings of the new space and the enhancements we've discussed regarding the property. I would also encourage those drawn to our ESG endeavors to check out our specific report on our website. Thank you again for joining us today. We look forward to continuing this discussion at NAREIT in a few weeks, though it will be virtual. If you have an interest in meeting with management, please reach out to Eddie or Justin, and we will gladly get you on the calendar during that virtual conference. With that, I thank you again, and we look forward to further dialogue.

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.