Piedmont Realty Trust, Inc. Q2 FY2025 Earnings Call

Greetings, and welcome to the Piedmont Realty Trust, Inc. Second Quarter 2025 Earnings Call. Please note that this conference is being recorded. I will now hand it over to your host, Laura Moon, Chief Accounting Officer for Piedmont Realty Trust.

Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's Second Quarter 2025 Earnings Conference Call. Last night, we filed our 10-Q and an 8-K that includes our earnings release and unaudited supplemental information for the second quarter of 2025 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 supplemental information 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 of 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 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 second quarter 2025 operating results. Brent?

Thanks, Laura. Good morning, and thank you for joining us today as we review our second quarter 2025 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 Sherry Rexroad, our Chief Financial Officer. We also have the usual full complement of our management team available to answer your questions. Before I delve into the quarter, I want to highlight three macro trends that bolster growth for Piedmont in the near term. One, the flight to quality means that demand for the best office buildings is accelerating and Piedmont is well-positioned having invested to create a modern work environment at every asset; two, large tenants are making more leasing commitments, driving meaningful absorption at the top end of the market; three, given the lack of new office construction for the foreseeable future, today's differentiated buildings have a long runway for meaningful rental rate growth. Now getting back to the quarter. We were very pleased with our leasing success, totaling 712,000 square feet and bringing total year-to-date leasing to over 1 million square feet. Importantly, approximately two-thirds of our Q2 activity related to new tenant leases, marking the most new tenant leasing we've executed in a single quarter since 2018. Further, the new activity included numerous full floor or greater leases, which will meaningfully backfill several blocks of space in the portfolio, including at three Galleria Tower in Dallas and our currently out-of-service Minneapolis portfolio as George will talk about more in a moment. Our leasing success during the second quarter pushed our in-service lease percentage as of the end of the quarter, up 140 basis points year-over-year to 88.7%. Tracking well to our year-end goal of 89% to 90% leased. While not reflected in our lease percentage, our out-of-service portfolio comprised of two projects in Minneapolis and one in Orlando, is also performing extremely well as differentiated amenitized workplaces continue to garner the majority of leasing in the market. At the end of the second quarter, the out-of-service portfolio stood at over 30% leased, but is approaching 60% leased based on the activity in July. We anticipate these assets will reach stabilization by the end of next year. In addition to the overall volume, second quarter leasing also resulted in favorable economics with rental rates for space vacant less than a year, reflecting just over 7% and almost 14% roll-ups on a cash and accrual basis, respectively. As JLL Research noted this quarter, rents for trophy offices and new construction are reaching new highs. Asking rents for developments have grown by 27% year-over-year and stand at $92 a square foot, the highest on record by a substantial margin. We believe the underlying effects of high interest rates, cumulative inflation on labor and materials, and potential tariff impacts will continue to diminish new office supply and push construction costs higher and by extension, the required rents for new buildings, providing Piedmont with more runway to materially increase our rental rates across the portfolio. Leasing momentum remains strong, including over 300,000 square feet of leases signed during July and the pipeline remains robust with another approximately 300,000 square feet currently in late-stage documentation. Demand for our buildings from full floor and larger tenants is particularly evident in Minneapolis and our Sunbelt markets with ten transactions for a full floor greater increasing our backlog of annual revenue from leases yet to commence or in their free rent period to $71 million, with the gap between lease percentage and economic lease percentage or cash-paying tenants remaining at a historically wide 10%. We anticipate roughly 80% to 90% of this revenue to commence by the end of 2026. From a macro level, JLL research reports that although overall volume for the second quarter was essentially flat as compared to the first, active space requirements grew 5.8%, reflecting the highest level of demand since 2021, and national occupancy held relatively firm during the second quarter as a modest amount of negative absorption was recorded. However, in contrast, Piedmont observed positive absorption in four of our operating markets. To my point earlier, on construction costs, overall inventory remained flat in the second quarter with only 1 million square feet of new projects breaking ground across the country and projected conversions and demolitions expected to exceed new deliveries this year. Given all of this activity, we are bullish about our leasing prospects and as I noted before, are increasing our annual leasing guidance for the second time this year to a range of 2.2 million to 2.4 million square feet, which reflects an increase of more than 800,000 square feet compared to our original 2025 guidance that was established at the beginning of the year. It is important to note, however, that the majority of this new leasing is expected to benefit earnings in 2026 and beyond. Sherry will touch on our bond repurchases that occurred during the quarter in her prepared remarks, but before I hand over the call to George, I want to quickly call your attention to our recent rebranding, including a new website. There are a lot of exciting things happening at Piedmont, and I hope you take a moment to examine for yourself the unique placemaking environments we've cultivated at each of our assets. With that, I now hand the call over to George, who will go into more details on the leasing pipeline and second quarter operational results.

Thanks, Brent. Our local operational teams were exceptionally productive this summer, capitalizing on elevated demand for Piedmont's well-located, hospitality-inspired workplace environments. During the second quarter, we completed 57 lease transactions for 700,000 square feet, which is well above our historical average. New deal activity accounted for the bulk of that volume reaching 470,000 square feet, a regular amount not seen since 2018. As recently highlighted, we've seen a spike in large users with seven full floor or larger new deals executed this quarter compared to one or two per quarter historically. One-third of those new leases signed will generate GAAP revenue in the second half of 2025, with the remaining two-thirds positively impacting the first half of 2026. Our weighted average lease term for new deal activity stayed consistent at ten years. Expansions exceeded contractions cumulatively over the past four quarters. Our trailing 12-month retention rate came in at 78%. As Brent mentioned, lease economics were solid with a 7.3% and 13.6% roll-up or increase in rents for the quarter on a cash and accrual basis, respectively. Atlanta, Dallas, and Minneapolis each contributed meaningfully towards the positive roll-up numbers with an overall weighted average starting cash rent of $43 per square foot. We anticipate further rental rate growth as our portfolio approaches rent stabilization or crosses into the low 90s, driven by a confluence of two market factors. Vacancy at the top end of the market is quite low, and rates will justify new construction or reaching new records. Leasing capital spend was slightly up at $6.73 per square foot per year this quarter compared to a trailing 12 months, reflecting the fact that our quarterly volume was more heavily weighted towards new leasing this quarter. Net effective rents came in at approximately $20.78 per square foot, and sublet availability continues to hover around 5% with no near-term expirations for those spaces over the next four quarters. Dallas was our most productive market during the quarter, closing on 15 deals for over 200,000 square feet, or one-third of the company's overall volume, with the new transactions accounting for 90% of that volume. Most notable was landing two large global companies for a combined 130,000 square feet at three Galleria Tower, which now stands at 94% leased and is asking $55 per square foot, the highest rents in its submarket. Minneapolis was a remarkably close second, capturing nine deals for 190,000 square feet. In addition to our previously disclosed 84,000 square foot new deal at 9320 Excelsior, our team completed two new full or larger headquarter transactions at Meridian. The Piedmont redevelopment strategy underway at Meridian and Excelsior is generating net interest, with another 180,000 square feet executed in July or in a legal stage. Asking rates are now approaching $40 per square foot, up 10% from the pre-redevelopment phase from just a couple of months ago and the highest within its submarkets. Orlando was quite active as well, with eight deals for 175,000 square feet. The key story here was retaining 125,000 square feet of 2026 expirations and achieving record high rental rates for both our downtown and suburban assets. I would like to thank our Orlando team for winning BOMA's Renovated TOBY Award at the international level, quite a Herculean feat. Another international bonding in the 250,000 to 500,000 square foot category was awarded to our 25 Mall Road asset in Boston. Congratulations to both of our teams. Atlanta racked up 19 deals for 110,000 square feet, including new activity in all three of our operating submarkets. Central Perimeter fundamentals at our Glenridge Highlands and 1155 assets are improving as several obsolete office buildings have been demolished. Sublet availability has declined, and recent out-of-state corporate relocations like Mercedes, StubHub, and TriNet have reinforced the attractiveness of this most centrally located submarket in the city. Coming back to the overall portfolio and to reiterate what Brent said, we are bullish about our near-term leasing prospects. Our leasing pipeline is strong with over 300,000 square feet in late-stage activity, including several single floor or larger deals and mostly for vacantly current space. Outstanding proposals stand at a healthy 2.2 million square feet for both our operating and out-of-service portfolios. Our supplemental report shows a manageable 4.2% of our total square footage expiring in 2025. Assuming a stable macro environment, we remain comfortable in achieving our previously released year-end lease percentage guidance of 89% to 90% for our operating portfolio. Our out-of-service portfolio, which is projected to meaningfully contribute to 2026 FFO growth, solid lease percentage by 220 basis points in the second quarter, and based on what we're seeing in the early and late stage activity, we project this portfolio to reach 80% by year-end. I'll now turn the call over to Chris Kollme for any comments on investment activity.

Thanks, George. I'll just provide a brief update. The transactions market continues to be challenging amid ongoing economic uncertainty. Despite the difficult backdrop, we remain in dialogue with potential buyers of select noncore assets and continue to see a modest increase in groups evaluating the office sector for investment. As we alluded to on last quarter's call, we did dispose of one small noncore project up in suburban Boston during the second quarter, which resulted in gross proceeds of approximately $30 million. This asset located in Boxborough has been on our disposition list for some time, and the decision to sell it is entirely consistent with the portfolio pruning we have completed over the past couple of years. We will continue to do so, and we do have a few other small assets in the market, but it is too early to comment on specifics or speculate on timing. On the acquisitions front, we remain highly engaged in each of our key markets and continue to think creatively about ways to leverage our operating platform while conserving our capital resources. With that, I'll pass it over to Sherry to cover our financial results.

Thank you, Chris. While we will be discussing some of this quarter's financial highlights today, please review the earnings release and accompanying supplemental financial information, which were filed yesterday for more complete details. Core FFO per diluted share for the second quarter of 2025 was $0.36 versus $0.37 per diluted share for the second quarter of 2024, with a $0.01 decrease attributable to higher net interest expense as a result of refinancing activity completed over the past 12 months. Growth in operations due to higher economic occupancy and rental rate growth was offset by the sale of three nonstrategic projects and downtime associated with the expiration of certain leases over the last 12 months. I would reiterate that we anticipate the lease with Travel & Leisure in Orlando will commence in the fourth quarter of this year and provide approximately $5.7 million of additional annualized rent. AFFO generated during the second quarter of 2025 was approximately $16 million. Turning to the balance sheet. During the second quarter, we utilized the proceeds from the small disposition that Chris mentioned, as well as our line of credit, to repurchase approximately $68 million of our 9.25% bonds. As a result of these repurchases, we recognized a $7.5 million loss on early extinguishment of debt, which is included in our second quarter results. However, the repurchase is expected to result in total interest savings of $7.5 million or $2.5 million on an annual basis over the next three years. While this is certainly an opportunistic strategy and highly dependent on market conditions, we will continue to think creatively about ways to refinance these higher interest rate bonds that are currently scheduled to mature in 2028. As we've highlighted before, we currently have no final debt maturities until 2028 and approximately $450 million of availability under our revolving line of credit. Based on the current forward yield curve, we expect all of our unsecured debt maturing for the remainder of this decade will be refinanced at lower interest rates and thus be a tailwind to our FFO per share growth. At this time, I'd like to affirm our 2025 annual core FFO guidance in the range of $1.38 to $1.44 per diluted share with no material changes to our previously published assumptions other than the increase to our anticipated annual executed leasing goal to $2.2 million to $2.4 million that Brent mentioned. Please refer to Page 26 of the supplemental information filed last night for the details of major leases that have not yet commenced or are currently in abatement. As of June 30, 2025, the company had approximately 2 million square feet of executed leases yet to commence or under abatement, representing approximately $71 million of future additional annual cash rent, which consists of $28.6 million of leases yet to commence and $41.9 million of leases in abatement. This future cash flow is evidence of the leasing success of the team and will fuel future earnings growth, although it does demand additional capital spend in the short term. Finally, I'd like to draw your attention to Page 25 of the supplemental, which includes new disclosure for the calculation of the portfolio's net effective rents for the previous five quarters. I'd highlight that Piedmont's five-quarter average is a gross rental rate of more than $46 per square foot, with a net effective rent after CapEx of $21.83. We believe the current share price presents a compelling entry point for investors with Piedmont's portfolio trading at roughly a $200 per square foot valuation while generating an implied yield on cost after CapEx of more than 10%. With that, I will turn the call over to Brent for closing comments.

Thank you, George, Chris, and Sherry. We continue to focus on designing, leasing, and managing best-in-class work environments, and believe that our recent leasing success is a testament to our strategy. The recent investments that we've made in our portfolio combined with our customer-centric placemaking mindset continue to set us apart from the office sector. We will continue to be selective with capital deployment, concentrating our resources on driving lease percentage and increasing rental rates, which we believe will result in FFO and cash flow growth. With that, I will now ask the operator to provide our listeners with instructions on how they can submit their questions.

Our first question is from Nick Thillman with Baird.

Brent, at a high level, there's clearly been good success from a leasing perspective. It seems that the portfolio is set to start stabilizing in 2026, and you've indicated plans to resume a dividend in 2027. Looking at the portfolio and your market positioning, I know there’s an effort to reach 60% in the Sunbelt. What are the longer-term goals for market exposure, and how do you see this evolving over the next two to three years?

Thank you, Nick. I was just taking notes while you asked your question. I appreciate you joining us this morning. We have achieved significant leasing success in both our in-service and out-of-service portfolios, and we expect both to be nearly 90% leased by the end of the year for the in-service and around 80% for the out-of-service. This success is driven by our teams' efforts in creating a favorable environment, investing in our assets, and enhancing our service. The return of large tenants to the market has also contributed to this progress. As we consider stabilization, we agree that 2026 will be a time to focus on growth and aim to maintain occupancy above 90%. Regarding the dividend, we likely won't see its return until 2027. In the meantime, we will continue to invest in highly accretive leasing capital, which is yielding returns over 25%. We're experiencing growth across all our markets in leasing velocity and absorption. The Sunbelt is performing exceptionally well, and we are also seeing solid growth in Minneapolis and Northern Virginia. New York remains strong as well, while Boston is one of the few markets that is still lagging behind our overall strong portfolio. We will continue to reposition and trim our portfolio by selling noncore assets and land in the short term, aiming to increase our exposure to the Sunbelt from about 70% to over 80%. We have discussed a couple of transactions in the north that could aid this effort, particularly in Minneapolis and Boston. We may also explore options for monetizing our New York asset. Overall, our focus will remain on the Sunbelt market, with modest pruning in the near term as we shift resources towards that region.

No, that's very helpful. And then maybe, George, just wanted to touch on some of the larger pending vacancies and kind of the activity you're seeing and then also the progress on the New York City lease as well. So maybe you have the Piper space in the U.S. building in Minneapolis, the City of New York, and then also maybe talk about the Upsilon building in Dallas and kind of activity there. I guess we could make it the last one, two, as well on 999 Peachtree Street space as well, but those four spaces in particular.

Certainly, Nick. When we examine our overall pipeline and the sources of activity, we feel confident about filling some of those large vacant spaces. Currently, we have approximately 2.2 million square feet in outstanding proposals, with 65% coming from new developments. Notably, 55% of the new space activity is concentrated in Atlanta, addressing a significant expiration for us in early 2026 related to Eversheds. We have about nine deals in progress for that project, which would fulfill that requirement. We don't expect that every deal we pursue will fill the space right away, but we are experiencing a healthy flow of opportunities for that project. Importantly, we anticipate robust roll-ups once we finalize the transactions we're pursuing. Regarding Dallas, I'm referring to the Upsilon, which is not related to Eversheds. Thank you. In Minneapolis, we're seeing about 10% of our new activity coming from Piper. There's a lot of enthusiasm in the area due to our renovations. Piper has around 120,000 square feet expiring at the end of the fourth quarter at our downtown property, but we have some positive news coming soon that we expect will help fill about 30% of that space. Additionally, we have other deals in the works there. Overall, we are quite satisfied with this situation. Looking at the bigger picture, it's important to note that we are encountering larger transactions, with around 15 proposals for spaces of 25,000 square feet or more, totaling approximately 800,000 square feet. This level of activity reinforces our confidence that the momentum will continue beyond the second and third quarters of this year.

Sorry to interrupt there, George. It's the Upsilon, not Eversheds related to Dallas. Excuse me. Thank you. Go ahead both in 2026.

We're seeing about 10% of our new activities happening in Minneapolis, where there's a lot of excitement surrounding our renovations. Piper has around 120,000 square feet expiring at the end of the fourth quarter at our downtown property, but we expect to announce some positive news in the coming weeks to fill about 30% of that space. Additionally, we have other deal activities in the area, which we're pleased about. On a broader scale, I want to highlight that the transactions we're observing tend to be larger full-floor deals. Currently, we have approximately 15 proposals in progress for spaces of 25,000 square feet or more, totaling about 800,000 square feet. This level of activity gives us the confidence that our momentum will carry beyond the second and third quarters of this year.

I would also like to mention that the renovation of the Piper building is set to be completed this month, which is very exciting. It is already the top asset in terms of amenities in downtown Minneapolis and is only improving. Additionally, in New York City, we are finalizing a lease by the end of the year. We anticipate this will be a renewal for almost all the space on a long-term basis. We will provide more details as we get closer to execution, likely around the third quarter earnings call, but more probably towards the end of the year.

Our next question comes from Ray Zhong with JPMorgan.

I have two questions. First one on the guidance. You guys opportunistically bought back some debt and it seems like the core is running stronger than expected. We've revised up on the leasing side. Just curious what were there any offsets that we should be thinking about in terms of the guidance, like because at bottom line, it was not revised up. So any thoughts there would be helpful or maybe just conservatism?

Ray, thank you for being on the call. I appreciate your question. On the debt buyback, as we noted in the press release, it's about $0.02 per year on an annualized basis of accretiveness. That is offset primarily by the asset sale, which is about $0.02 as well. In regards to the leasing strength, most of that will translate into growth in 2026 and beyond. The new leases that we signed today aren't really going to hit our income statement until 2026.

And I would just add to that, too, we have seen, as noted, we continue to increase our guidance for lease percentage, 800,000 square feet for the year, and that has been driven a lot by large tenant activity in our out-of-service portfolio as well. So that's something to note. It doesn't get captured immediately in the guidance per se, but setting up again for additional growth in '26.

And my second question is then on capital allocation. You guys mentioned as you soon to wrap up the New York City lease, that's on the deck to be another one to tap in terms of source of funding. Maybe first, can you give us some insights on how you think about the buyer group and potential outcomes dependent on that in terms of pricing? And then on the redeployment side, how should we think about it core value add or I don't know, will we consider debt? Any color on those and maybe targeted cap rates or IRR? Any color on that side would be helpful as well.

Yes, Ray, as we continue to execute on leasing across the portfolio and really see activity come back in all our markets, it is starting to improve the overall sales and transactions market, just giving investors the mindset to not assume that vacant space will remain vacant forever. And so we're starting to see solidification, if that's a word, for pricing in the market, particularly for more core quality assets. We're not seeing that kind of uplift, if you will, in other parts of the value-add and opportunistic spectrum. But certainly, capital started to come back into markets like New York; we're seeing it in Dallas and continued kind of solidifying of high-quality asset valuations. And I think that also then gives us some expectation that if we continue to be patient, the overall sales market will continue to strengthen in our favor. As we think about near-term dispositions, that's really focused on some select noncore assets and land, looking to dispose of that to operators of other uses, primarily retail and residential to augment our existing office that's adjacent to our land. So we almost feel like we're getting paid to amenitize. That will be expected dispositions, maybe one of those parcels this year, another larger parcel next year. And as we think about continuing to rotate capital, we will be focused on dispositions in our northern markets into the Sunbelt markets. That can span a wide range of cap rates in our Boston asset, which we just disposed of was in a low double-digit cap rate. But I would anticipate most of everything else in the portfolio, given that was our lowest quality asset, would price well tied to that. And frankly, most of our assets should probably price somewhere towards an 8 cap or better. So I think that would give some indication as to what the average cap rate in the portfolio might be. Now we have some buildings in the north that we've talked about disposing of or monetizing and potentially looking at cashing in, if you will, a stake in the asset. And we'll continue to evaluate those. Probably pricing we can still be in that 8 to 9 cap range. Right now, buyers we're seeing in the market for core assets. We're starting to see some foreign buyers come back into the market. Certainly, high net worth family offices have been in the market for some time. And we are seeing a little bit of institutional capital, particularly in, again, stronger markets like New York that have come back and continue to give us the belief that both financial buyers and real estate-minded buyers would be interested in that market at the right time when we look to monetize that asset. So hopefully, that gives you some sense of the dispositions. In terms of redeployment of that capital, right now, we continue to look at primarily what I would consider core-plus, less value add if it were to go on the balance sheet. Unfortunately, today, we don't have a cost of capital that really affords us to execute on that right now. But we do also continue to look at more distressed opportunistic deals through a joint venture partnership structure, which would take advantage of that synergy, something that we wouldn't want to put on the balance sheet day one, given it's likely to have a lot of capital needs and/or vacancy as well. But it would be something that we'd eventually want to bring into the portfolio, and that would generate returns, call it, 18% IRRs levered or greater. And in terms of what we were looking at on the balance sheet, again, we don't have a cost of capital to go after that, but probably something that would look like going in cap rates in the 8 to 9 range on a cash basis, better on a GAAP basis, a modest roll profile, but an opportunity for us to do what we do best, which is to improve high-quality older vintage assets into modern, high-performing office buildings.

Our next question is coming from Dylan Burzinski with Green Street.

Brent, you mentioned that 80% to 90% of the lease percentage gap is expected to start by the end of 2026. Can you provide details on what that looks like on a weighted average basis? Will most of this likely begin in the first half of the year, or is it all expected to be more concentrated in the latter half?

Dylan, it's Brent. Thanks for joining the call today. Addressing your question, we expect at least 80% to 90% of that embedded $71 million to begin by the end of next year. A significant portion will actually start in the first quarter, with some also in the fourth quarter of this year, which could be around 40% between the end of this year and the first quarter next year. Currently, there is a slight pause, but we anticipate a good amount to come back in towards the end of the third and fourth quarters as well. It's somewhat structured like a smile, where there's more activity at the beginning and the end, with a lull in the middle.

That's helpful information. Could you share what you believe is driving the renewed leasing activity, especially among some of the larger tenants in your markets? Also, is this new demand in those markets, or are these tenants simply relocating from older buildings to upgrade their space with properties that Piedmont owns?

Dylan, this is George. When we examine demand characteristics, we identify several key factors. Firstly, we signed one of our largest users this quarter, who decided to enhance their office experience following a slight refresh of their building signage. The renovation we are undertaking in Minneapolis is bringing more amenities and upscale finishes, emphasizing a hospitality approach. This upgrade to the office experience is a significant factor. We are also witnessing sustained return-to-office mandates being reinforced and expanded. As noted in my earlier remarks, we recorded a net of 26 expansions totaling 80,000 square feet, but breaking that down further, it was actually 39 expansions against 13 contractions, which has been quite beneficial. Larger users are increasingly confident in their workplace strategies, likely due to our long history of experimenting with hybrid work environments, which has fueled a bias toward returning to the office. Additionally, the balance of power is starting to shift back toward employers. Office conversions and demolitions are picking up speed, allowing us to explore opportunities with users needing to leave their current spaces. We've observed this trend in cities like Atlanta and New York, and it's beginning to develop in Nova as well. We recently signed a lease in Minneapolis with a large user based in a nice, amenity-rich park, but their capital structure was not functioning well. They preferred not to go through a transition to a special servicer. All these factors contribute to the ongoing momentum we see, and we remain open to securing large, long-term leases. Small tenants have consistently been present in the market, while larger tenants paused to assess the environment. Now that they are returning, it has sparked a slight increase in demand, especially for top-tier buildings—there are only a few assets that offer large blocks of space over 50,000 square feet. Larger users, particularly those facing impending lease expirations, recognize the need to act quickly if they desire quality space. This urgency is amplifying decision-making among larger tenants. Overall, we completed 700,000 square feet of leasing this quarter, with approximately 470,000 square feet being new leases. Interestingly, a significant portion of this activity pertains to unoccupied space, though 25% was for occupied space, with the remainder split between our out-of-service and operational portfolios. We've experienced robust leasing across all facets of our business, although not all of it is reflected in the same reporting categories. This accounts for why we have maintained our lease percentage guidance for 2025, despite significant leasing activity, since much is going into categories not captured in our in-service figures. Regarding whether this demand is net new, I would say it's primarily existing within the market. Dallas continues to show momentum, as we've discussed in previous calls, with some activity still in Atlanta. However, Dallas has benefitted from a steady influx of both larger users and smaller ancillary companies over the last three years. Overall, we're capturing more than our fair share of the market due to the quality of our assets, the services we provide, and the environments we are creating.

Thank you. Ladies and gentlemen, as we have reached the end of our question-and-answer session, I would like to turn the call back over to Mr. Smith for any closing remarks.

I want to thank everyone for joining us today. Hopefully, it's come through that we are extremely positive and excited about our track record of leasing and operational growth more recently, but really consistently post the pandemic. And I think it's really starting to show through in terms of the quality of assets and the positioning of our platform for future growth. I'd encourage investors, if you're still trying to understand the Piedmont story and our success and what makes up our secret sauce, come to Atlanta, spend some time with management; we can show you $1.4 billion of assets in about two hours. And if you've got other time, we'd love to host you in Dallas or Minneapolis or any market that you happen to be traveling to. I'd also encourage investors we'll be at NAREIT in Dallas in December. I know that's a ways out, but we will be having a tour of our Galleria Dallas asset at that event. And if you're interested in joining, please let Sherry or Jennifer know. Again, thanks, everyone, for joining. Have a good week.

Thank you, ladies and gentlemen. This concludes today's conference, and you may disconnect your lines at this time, and we thank you for your participation.