Piedmont Office Realty Trust Highlights Record Leasing

Piedmont Office Realty Trust ((PDM)) has held its Q4 earnings call. Read on for the main highlights of the call.

Piedmont Office Realty Trust’s latest earnings call struck a cautiously optimistic tone, highlighting record leasing, solid rent growth, and a clearer path to mid‑single‑digit FFO growth in 2026–2027. Management acknowledged modest 2025 Core FFO pressure, soft spots in certain markets, and concentrated 2026 lease expirations, but argued that leasing momentum and balance‑sheet moves outweigh these headwinds.

Record Annual Leasing Volume Resets the Baseline

Piedmont leased about 2,500,000 square feet in 2025, roughly 16% of its portfolio and the highest annual volume in more than a decade. This figure exceeded the company’s original 2025 target by around 1,000,000 square feet, signaling stronger‑than‑expected demand across its core office markets and setting a higher bar for future leasing performance.

Quarterly Momentum Fuels a Growing Leasing Backlog

In Q4 2025 alone, the REIT executed roughly 679,000 square feet of leases across 60 deals, with about 70% coming from new tenants. Piedmont also reported a sizeable pipeline, including a backlog of around 2,000,000 square feet tied to about $68,000,000 of future annualized cash rent and more than 200,000 square feet already signed for 2026, with another 600,000 square feet in legal.

Portfolio Occupancy Trend Bends Higher

Year‑end 2025 leased percentage improved to 89.6%, up 120 basis points for the year and showing tangible progress in filling space. For 2026, management expects the portfolio leased rate to hold around 89.5%–90.5% and projects the commenced or occupied percentage to climb roughly 400 basis points, from 81% to 85%, as signed leases begin contributing cash flow.

Rent Roll-Ups Highlight Mark-to-Market Upside

Piedmont reported Q4 rental increases of about 12% on a cash basis and roughly 21% on an accrual basis for leases that were vacant less than a year. Over the past eight quarters, accrual‑based roll‑ups have averaged around 17%, and management still sees 20%–40% mark‑to‑market upside in many Sunbelt assets as older leases reset to today’s stronger rent levels.

Redevelopment Leasing Makes Out-of-Service Assets a 2026 Driver

The out‑of‑service redevelopment portfolio, consisting of two Minneapolis projects and one Orlando asset, reached 62% leased at year‑end 2025. Including leases in the legal stage pushes that figure close to 80%, and the company expects most of these leases to commence during 2026, with stabilization anticipated by late 2026 or early 2027, turning current drag into a cash‑flow tailwind.

Same-Store NOI Strength Underpins 2026 Growth Outlook

Piedmont has posted positive cash same‑store NOI growth for five consecutive years, an impressive outcome in a challenged office backdrop. Looking ahead, 2026 Core FFO guidance of $1.47–$1.53 per diluted share implies an $0.08 increase at the midpoint versus 2025, with management targeting mid‑single‑digit organic FFO growth in both 2026 and 2027.

Debt Refinancing Lowers Interest Costs and Extends Runway

The company tapped the bond market for $400,000,000 of new debt and used the proceeds to repurchase about $245,000,000 of high‑coupon 9.25% notes maturing in 2028 and to pay down its revolver. These moves are expected to generate around $0.04 per share of annual interest savings, leave roughly $550,000,000 of revolver capacity at year‑end, and push final debt maturities out beyond 2028.

Disciplined Capital Spend Supports Leasing Economics

Leasing capital averaged $6.12 per square foot in the quarter, down $0.46 per square foot relative to the trailing twelve‑month run‑rate. Despite this reduced spend, starting cash rents on new leases held essentially flat at about $42 per square foot, while net effective rents were approximately $21 per square foot, reflecting stable deal economics and careful capital allocation.

Core FFO Decline Reflects Dispositions and Refinancing

Core FFO per diluted share fell to $0.35 in 2025 from $0.37 in 2024, a decline of roughly 5.4% that management tied mainly to strategic actions. The sale of two projects reduced income, while higher net interest expense from refinancing activity weighed on near‑term earnings, even as those steps are expected to enhance the balance sheet over time.

AFFO Remains Modest as Dispositions Trim NOI

Adjusted funds from operations for 2025 totaled about $18,700,000, underscoring that cash earnings remain subdued relative to nominal leasing strength. Dispositions during the year shaved approximately $0.01 per share off NOI, and current guidance assumes a similar $0.01 NOI reduction from the 2025 sales continuing into the 2026 run‑rate.

Market and Asset Pockets Face Persistent Headwinds

Not all markets are contributing equally to Piedmont’s momentum, with certain locations still lagging broader leasing trends. Management called out Washington, D.C. and a specific Boston property, 25 Mall, as slower to absorb space, and also noted softer demand for some planned D.C. dispositions, reflecting localized weakness in those submarkets.

Concentrated 2026 Lease Expirations Add Execution Risk

Roughly 9% of the portfolio is scheduled to roll in 2026, creating a meaningful near‑term leasing test for the company. Three large leases alone, including Eversheds, Epsilon, and a New York City tenant, represent about 6% of the portfolio, and with Eversheds already set to vacate, renewal timing and replacement demand will heavily influence occupancy and net absorption.

Proposal Volume Moderates After a Strong Run

Despite the robust executed leasing, the volume of outstanding proposals across both operating and redevelopment assets eased to about 1,800,000 square feet. Management framed this as a modest cooling from recent peaks rather than a sharp reversal, but it does hint at some normalization of demand and underscores the importance of converting the existing backlog.

Guidance Built on Organic Drivers With Offsetting Factors

Piedmont’s 2026 Core FFO outlook of $1.47–$1.53 per share is anchored by a projected $0.08–$0.13 per share lift from property NOI and $0.01–$0.02 per share in lower interest expense. That benefit is partly offset by a $0.01 NOI drag from 2025 dispositions, slightly higher G&A and share count, and less capitalized interest as redevelopments come online, while guidance assumes 1.7–2.0 million square feet of leasing and explicitly excludes any new transactions.

The earnings call portrayed a landlord steadily strengthening its fundamentals, even as office markets remain uneven and 2026 brings outsized lease rollover risk. Record leasing, improving occupancy, and lower interest costs provide a constructive setup for mid‑single‑digit FFO growth in 2026–2027, but investors will be watching execution on large expirations and weaker markets to see whether Piedmont can fully translate its leasing momentum into sustained cash‑flow gains.