In This Article:
Participants
Laura Moon; Chief Accounting Officer, Senior Vice President; Piedmont Office Realty Trust Inc
C. Brent Smith; President, Chief Executive Officer, Director; Piedmont Office Realty Trust Inc
George Wells; Chief Operating Officer, Executive Vice President; Piedmont Office Realty Trust Inc
Christopher Kollme; Executive Vice President - Investments and Strategy; Piedmont Office Realty Trust Inc
Unidentified Company Representative; Company Representative; Piedmont Office Realty Trust Inc
Anthony Paolone; Analyst; JPMorgan
Michael Lewis; Analyst; Truist Securities
Nicholas Thillman; Analyst; Robert W. Baird & Co., Inc
Dylan Brzyski; Analyst; Green Street
Presentation
Operator
Greetings, welcome to the Piedmont Office Realty Trust Incorporated third quarter, 2024 earnings call. At this time, all participants are in a listen-only mode, a question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Laura Moon. You may begin.
Laura Moon
Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's third quarter, 2024 earnings conference call. Last night we filed our form 10 Q and 8K that includes our earnings release and our unaudited supplemental information for the third quarter of 2024. That is available for your review on our website at Piedmontreit dotcom 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 1,995. 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 press release 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 finance, 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. 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, FFOAFFO and Same Store. No, I 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 third quarter operating results. Brent,
C. Brent Smith
Thanks Laura, good morning, everyone and thank you for joining us today as we review our third quarter results. In addition to Laura on the line with me this morning, are George Wells, our Chief Operating Officer Chris Kme, our EVP of Investments, Bobby Bowers, our Chief Financial Officer and Sherry Rexroad, our new EVP finance.
We also have the usual full complement of our management team available to answer your question in our business. There is no doubt name of the game is leasing. Leasing drives occupancy which drives earnings and ultimately cash flow. And here at PMAT, we're undoubtedly experiencing great leasing success with the momentum heading into next year.
During the third quarter, we executed over 461,000 square feet of total leasing, which brings our total leasing year-to-date to approximately 2 million square feet, which is the most leasing we've done in the first nine months of the year in over a decade.
Importantly, this leasing success helps lift the overall lease percentage of our in service portfolio to 88.8%. The highest level it's been since the first quarter of 2020 which marked the beginning of the COVID '19 pandemic, incidentally, 2 million square feet of leasing on an annual basis is what we would normally call a great year and we still have another quarter to go with a robust pipeline of approximately 3 million square feet of potential leases in the proposal stage.
I'd also note that the activity is broad based across industries and exhibiting growth in all of our submarkets excluding Washington DC, which has its own unique set of challenges. Furthermore, the leases we have signed so far this year have resulted in double digit rental rate growth of 12% on a cash basis and almost 20% on a accrual basis. Once those leases begin, George will provide market specifics and details on the leasing pipeline in a moment. But we believe that the investments that we've made in our portfolio combined with our relentless focus on best in class service and a sustainability mindset are resonating with both existing and prospective tenants alike and demonstrating the growing demand for highly aize well located work environments operated by a financially stable landlord.
The headlines reinforce our belief that the macro environment is improving JL L's third quarter. Office report is entitled tide beginning to shift for us office as availability rate declines for the first time in five years.
Well known industry leading companies like Salesforce three M and Amazon continue to require greater in office attendance which will likely influence others to follow suit.
A recent KBMG survey of 400 US CEO S revealed that 80% of the CEO S expect corporate employees to be present in their offices full time within three years. That's a substantial increase from the 34% expectation in this group's April survey.
More widespread in office attendance is surely contributing to positive trends like four straight quarters of decreasing sublease availability and three straight years of declining downsize rates.
We witnessed this phenomenon firsthand in our own portfolio with a number of tenant expansions including a large e-commerce tenant in Dallas and from the supply side, JLL also sees favorable trends as new construction starts are dropping to new lows and obsolete commodity office is rationalized and repurposed. We're seeing positive absorption in the top tier assets through the o though the overall market continues to experience negative absorption. However, that trend too is improving.
As I've noted on prior calls, the TOP 5 to '10 assets in the submarket are gaining market share and demonstrating positive absorption.
It is this improving macro backdrop combined with the leasing success that we have experienced in our own portfolio thus far this year and our robust pipeline that buoys our optimism as we look to the remainder of this year and beyond.
Although it is true that it will take a few quarters for leasing success to translate to cash flow. We currently have a backlog of 1.5 million square feet of leases representing approximately $48 million of additional annual revenues. And our contractual expirations to the end of 2025 are very manageable at less than 11% of annual revenue.
Although there will always be one or two vacancies in any given year. We have proven over the past several years that our strategy has been very effective in maintaining and attracting new customers in an extraordinary narrowly competitive environment. And we believe that our prospects for future growth with promising is the overall office environment improves shifting gears. I want to recognize the Piedmont team for once again, achieving five star and green star recognition from Gresb based on 2023 sustainability performance.
Furthermore, our scores ranked in the top decile for participating listed American companies, a huge accomplishment for Piedmont and one that takes daily focus from not only our property management team but many other team members throughout the company.
If you have a moment, I hope that you will check out our recently published annual ESG report which is available electronically on our website.
With that, I will hand the call over to George who will go into more details on third quarter operational results, George,
George Wells
Thanks Brent, good morning, everyone. Our well amenities portfolio generated another quarter of strong operational results. Not only do our existing customers appreciate our team's hospitality, high touch service and vibrant environments, but new customers are also recognizing our value proposition as new leasing transactions were completed in all of our core markets.
During the third quarter, we completed 65 lease transactions for over 460,000 square feet of total overall volume, which is on the high end of our typical quarterly range of 300 to 500,000 square feet. Nearly 45% of that volume is related to new tenant lease activity, accounting for 32 transactions or 205,000 square feet and contributing to positive net absorption in each of our core markets. With the exception of DC Metro, the weighted average lease term achieved was approximately eight years and five new food and beverage operators were signed this quarter, enhancing the attractiveness of our many rich portfolio continuing with operational metrics for the quarter. These economics were favorable as well with a 4% and 8% roll up or increase in rents for the quarter on a cash and accrual basis respectively.
As anticipated, our lease percentage moved up 150 basis points to end the quarter at 88.8% as we have experienced with several quarters, most of our new tenant lease activity or 60% occurred in our sunbelt portfolio where much of our vacancy resides.
The existing tenant retention rate of 80% was much higher than our longstanding retention average of 65%.
Interestingly and perhaps another sign of an improving macro environment, we recorded seven tenant space expansion during the quarter and no contractions for a net increase of 60,000 square feet and representing an 11% expansion from existing footprints, leasing capital spend was approximately $5.5 per square foot per lease year. And in line with our average for the past several quarters, sublease availability continues to hover around 5% and none of that space is expiring in 2024 or early 2025.
That said I'd like to point out a few highlights in some of our operating markets. This quarter, our 60 Broad Street Tower in New York captured nearly 20% of overall volume and landed the largest new transaction this quarter with a full floor '13 year expansion with the state in New York, which is also our largest tenant in our entire Piedmont portfolio. Now occupying roughly half of the million square foot building.
This transaction brings a total lease of executed a village to roughly 100,000 square feet in the last '12 months. With the asset. Now, almost 96% lease, we continue to have an active though slow moving dialogue with New York City to renew substantially all of its 313,000 square feet which expires in the second quarter of 2026.
Prospective new tenant interest is very active at 60 broad with the limited vacancies remaining with some of that demand emanating from office to resident conversions or distressed assets in their 60 broad.
More broadly.
Sbas recently reported that Manhattan office demand has returned to prepandemic level.
Leasing velocity at 9.5 million square feet was the strongest quarterly volume since the three months ending December 2019, a five year high.
Other market notables Atlanta, our largest market had another impressive performance with '13 transactions for 120,000 square feet and represents '26% or the largest share of overall quarter lease volume and remains our most consistent performer in attracting new business gallery on the park again, landed another full floor headquarters operation the ninth in the past four years.
Dallas, our second largest market also stood out with '17 transactions for 16% of the company's quarterly leasing volume. And every project here experienced positive absorption except for Lass Calina Center which stayed flat on the recognition front. Our properties and service teams continue to be awarded market recognition as Fema won several Kobe awards. Recently, Toby is an acronym for the outstanding building of the year and is determined by Boma. A widely known international real estate association has set the standard for operational best practices in Orlando. The exchange won the high rise category in the southern region. Also in Orlando Town Park won the low rise category in the southern region.
In Minneapolis, Crescent Ridge won the mid rise category in the Midwest northern region. And in Boston Wayside Office Park won in a low rise category at the highest award tier, the international level.
Let me take a moment to translate these rewards into our leasing success. Each of these buildings share many of the same characteristics including a preeminent location that's walkable and easily accessible by car. They also offer great conference, fitness and food and beverage option.
They are gray air and light and highly functional floor plates and they come and discounts in new construction.
And these factors are why we continue to see an increase in proposals across our portfolio and we remain positive about the future near term leasing trends.
Our leasing pipeline activity is exceptionally strong with approximately 450,000 square feet already and late stage activity. As Brent noted outstanding proposals at the end of the quarter stand at a record of approximately 3 million square feet. A strong indicator of future leasing activity given the strong pipeline and a limited amount of lease expirations remaining for the fourth quarter for the second quarter. In a row, we will be increasing our projected lease percentage by 50 basis points for in service portfolio to be in the 88 to 89% range at year end, I'll now turn the call over to Christopher A. Kollme for any comments on investment activity. Chris
Christopher Kollme
Thank you, George. While there are no material updates this quarter regarding Piedmont's portfolio, we do have a couple of small non-core assets currently on the market. We don't expect any additional dispositions to close this year. And as you all know, the transaction market remains choppy and highly uncertain.
Broadly speaking, I would note that we are seeing financing conditions follow just a bit in a modest improvement in transactional activity in some of our markets. And while there is a long road to recovery ahead for obsolete office inventory tenant demand for high quality assets is being validated and we'd expect pricing for those assets to reach an inflection point and to stabilize in 2025. Anecdotally. There does appear to be growing conviction that we are at or very near the bottom from a pricing perspective.
As we have signaled for several quarters, we are more focused on dispositions than acquisitions, but we do remain in active dialogue around targeted potential opportunities. We will remain patient and highly selective with our capital with no other material updates at this time, I'll pass it over to Bobby to cover our financial results.
Unidentified Company Representative
Thank you, Chris. Well, we'll be discussing some of this quarter's financial highlights today. Please review the entire earnings release the 10 Q and the accompanying supplemental financial information which were filed yesterday. For more complete details.
Core FFO per diluted share for the third quarter of 2024 was 36¢ versus 43¢ per diluted share for the third quarter of 2023.
Approximately 3¢ of the decrease is due to increased net interest expense from our successful refinancing over the past year. With the remaining decrease attributable to lower reported rental income due to the sale of two properties this year as well as the downtime between the expiration of a few large leases earlier this year before newly executed leases commence as we've indicated throughout the year. We believe that we've reached the bottom of the trough for the company's quarterly FFO per share with this real estate cycle and that results will improve in 2025 as leases commence particularly in the second half of the year.
A FFO generated during the second quarter of 2024 was approximately $30 million providing ample coverage of the current quarterly dividend and funding for our foreseeable capital needs.
As we previously mentioned, capex for 2024 was elevated as we wrap up four major building redevelopment projects before the end of the year leaving us with much lower redevelopment requirements for next year.
Turning to the balance sheet, the proactive refinancing activity over the last '18 months is complete with $1.4 billion of maturing debt addressed.
Our current liquidity position is strong comprised of the full capacity on our $600 million line of credit and over $ 130 million of cash and cash equivalents representing the remaining unused proceeds from our last bond offering in June.
We've temporarily invested these proceeds assertively but intend to use them along with funds received from any potential dispositions and available bank credit to repay the $250 million term loan that matures during the first quarter of next year.
Absent this maturity which is largely prefunded. Now, we currently have no other final debt maturities until 2027.
Obviously, with the successful refinancing activity that took place in 2023 and 2024 we've repeatedly proven our access to capital in the debt markets albeit at higher rates which have temporarily impacted our credit ratios and earnings with interest expense. More than doubling over the last two years. Fortunately, all unsecured debt maturing in 2027. And for that matter, for the rest of this decade is expected to be refinanced at lower interest rates given the current or yield curve and thus be a tailwind to FFO per share growth.
We remain committed to the investment grade bond market and we will note that our outstanding bonds are all investment grade rated with our large backlog of executed yet un commenced leases or leases in abatement. We're modeling an improvement in our credit ratios next year as these leases begin our confidence in the return to FFO and a FFO growth as well as improving debt metrics is increasing.
We're currently experiencing historically wide 820 basis point. GAAP between our current reported lease percentage of 88.8% and our space currently paying rent or economically leased at only 80.6%.
This over 8%. GAAP is normally in 4 to 4.5% range.
For more information regarding the specific leases contributing to this GAAP, please refer to page 39 of the supplemental information filed last night for details of major leases that have not yet commenced or in abatement which will largely commence and begin generating cash by the end of next year.
At this time, I'd like to narrow our previously provided 2024 annual core FFO guidance to a dollar 48 to a dollar 50¢ per share with no change in our midpoint as a reminder. This guidance does not include any acquisition or disposition activity for the remainder of the year. If such transactions occur, we will update this guidance our same store no guidance for 2024 remains between 2 to 3% for the year.
The current quarterly trends are part of that guidance impacted by downtime between known lease expirations earlier this year and the commencement of executed leases in our backlog.
As we've typically done, we'll be providing guidance for next year after the end of the current fourth quarter, after we've completed our budget process and presented it to our board for approval in December.
We expect improving quarterly results next year, particularly in the second half of 2025. As significant newly executed leases commence this year's quarterly results have slowly declined primarily due to higher interest expense from recent refinancing and due to lease space downtime, we expect the inverse of this trend next year with a low lease expiration schedule which is anticipated to be less than a million square feet and has already executed leases commence generating FFO growth followed by improving cash flow with that. I'll turn the call over to Brent for closing comments.
C. Brent Smith
Thank you, George Chris and especially Bobby. As we announced a few weeks ago, Bobby will be stepping down as our CFO this quarter and I want to take a moment to thank him for his two decades of leadership at Piedmont and his invaluable contributions to our business values and culture. He's left an indelible legacy on the employees of Piedmont, and I will personally miss our daily interaction and strategic collaboration.
We do however wish him well as he focuses more time on his family and on his other interests outside of Piedmont.
If you haven't already had a chance, please reach out and wish him well.
And as we turn this page, we look forward to hearing more on our next call from Sherry, Rex Road as our new CFO Sherry who was formerly with Store Blackrock and CBRE and joined us about a month ago, has been working alongside Bobby and we look forward to her capable leadership.
As for the rest of us, we're still very much focused on P boxs core business designing, managing and leasing great places, whether that be a place to work or a place to meet, relax, eat or drink the investments we've made in our portfolio combined with our customer centric placemaking mindset continues to resonate with existing and prospective tenants alike.
We have no immediate refinancing needs until 2027 and continue to be selective with capital deployment.
Our customer service and leasing strategy targeting small and medium sized enterprises is driving portfolio, leasing volumes and rental rates to new highs and we're also starting to experience increased demand from large corporate.
We believe these trends will be long lasting and Piedmont is extremely well positioned to compete and gain market share in this next office cycle.
With that, I will now ask the operator to provide our listeners with instructions on how they can submit their questions. We will attempt to answer all of your questions now or we will follow up with appropriate public disclosure, if necessary, operator,
Question and Answer Session
Operator
Certainly, at this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue, you may press star two. If you would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please. While we poll for questions.
Your first question for today is from Anthony Paolone with JP Morgan.
Anthony Paolone
Great, thanks. Good morning and welcome Sherry and thank you Bobby for everything and all the best. First of all, My first question is on the 3 million square foot leasing pipeline. Can you maybe talk a bit more about where some of that might be concentrated? And you know what might be a bit more nearer term, maybe nature of the tenants. Any other context around? That would be great.
George Wells
Good morning, Tony George Wells here and thanks for joining us this morning. Look, I'll tell you what we're quite excited considering where we've been the past several quarters around a little over 2 million square feet to see a jump to 3 million square feet. You can just imagine how excited we are about our near term prospects. So, meaning if you take a look at the markets that these, this demand is emanating in, it's not surprised that that Minneapolis is rising to the top. It's a second quarter in a row where they've captured 2020 to 25% of overall proposal volume in terms of new activity. I would say Dallas Nova Atlanta and Boston is about 50% of that new Deal activity. So going back to the 3 million , I'm sorry, I should have speculated upfront. I should have mentioned upfront. 70% of that is for new activity. And so we're, we're pretty pleased with that ratio in terms of sectors that we're seeing it from. It's not unlike what we've seen in the past couple of quarters. We're seeing it come out of financial construction, health care, associations, insurance.
But surprisingly, again, no technology firms have really stepped up at this point. When you take a look at the reason for this spike in overall proposals, it's, it's really the result of the fact that we just had many blocks of over 100,000 square feet available for the past several quarters. And we now are getting that one of those we're getting is in Dallas with Ryan leaving their 112,000 square foot lease here in the first quarter of 2025. And we have a fair amount of deal activity to take care of that. And as you know, with Minneapolis, we, we lost Excelsior, so we've lost Cargill and Excelsior and US bank at our Meridian crossing asset. And the market is really coming around and appreciate what we're doing with those particular assets. In fact, we've got over '12 prospects that are over 50,000 square feet or more. And that's really what's caused the bulk of our spike in overall proposals. So, I mean, look when you look at proposals, you look what we have in late stage activity and also the overlayer and the tour activity for the last quarter hit a record number and just continues to just give us that positive outlook of what we can do here in the near term. And certainly the PDM brand is with the customers that are looking for that differentiated workplace offering where we have vibrant environments and exceptional customer service.
C. Brent Smith
Do you have a second question? Maybe to?
Anthony Paolone
Oh, yeah, sorry, I was on mute. Appreciate that. So you mentioned the one tenant and I I think one Q '25 for 125,000 square feet. It sounds like that's a known move out. Can you just note any other you know, larger items to watch for 2025 that we should have on Radar. Radar.
C. Brent Smith
Hi, Tony, this is Brent. Good morning. Thanks for joining us. I think as you know, yeah, the 100 roughly 110,000 square feet we'll get back with from Ryan in Dallas at our Galleria project there and George noted great traction. We really, you know, last quarter put to bed the larger expirations that we have in 2025. So again, I think that gives us a lot of I guess, certainty, I guess around the projection of what we can accomplish, calling this the trough and then looking ahead to next year with limited role, you know, we, we think we'll have probably less than a million square feet of renewal activity to accomplish next year of expirations once we get to next year, just given what's in the pipeline. And so we continue to see really no big exposure that gives us concern and particularly is that $48 million backlog of revenue starts to bleed into the portfolio next year really over the next call. It, you know, 6 to '18 months and it really does start to accelerate in the second half of next year as well. So no, no major move outs that we see and or impediments to continuing to drive occupancy through next year.
Anthony Paolone
Okay. And then just, you know, last one more specific to DC and Northern Virginia. If my math is right, if you take that part of the portfolio out, you're, you're like 91% leased. And so I guess the question is with, with that market, like, do you think you start to see some, some traction occupancy pick up there in the next few quarters or do you think a recovery there is a bit further in the offing?
C. Brent Smith
Great point, Tony. And I think as we alluded in our prepared remarks, you know, we are seeing a broad based increase in deal flow X DC. And I think as I noted DC has its own set of challenges without the US government coming back fully to the office. I'd say that really more impacts the district than northern Virginia, but it is an overall malaise in the market. And so I think we continue to be cautious about our, our overall approach to DC and we see good activity in Nova, but again, very cautious in what we think we can accomplish next year in the district in '25. We've got product in Boston and Claritin. It's highly walkable, the right size floor plates and good transactional activity in terms of trading proposals in that part of the market. And I note that the district itself only represents about 4.5, maybe at most 5% of the A LR of the portfolio. So really, that's the most challenged submarket in in the whole portfolio. And again, Nova, we think there will be good activity next year.
Anthony Paolone
Okay, great. Thank you.
Operator
Your next question is from Michael Lewis with Truest Securities.
Michael Lewis
Great. Thank you. I wanted to ask about the, you know, the strong leasing activity and the, the surge in the pipeline as well. You know, this is kind of a theme throughout the office reach right now. There's, there's kind of renewed enthusiasm, you know, not to throw cold water. Iii I have a little bit of a hard time, you know, wrapping my head around that there's a surge in demand because of return to office where the economy is so strong. And so I wonder kind of what you attribute the increase to inactivity? Is it maybe some of it is, you know, there's more explorations, there were a lot of short term leases signed during the pandemic. Maybe this is really a re phenomenon, you know, you talked about the growing share for the best properties and the best landlords, you know, I guess I'm just asking, you know, why do you think the pipeline has gotten so strong?
C. Brent Smith
My great question, this is Brent, you know, I think continuing to, you know, follow what similar high quality landlord owners are seeing. I'd say it's a couple of different things specifically for our portfolio, but for that upper portion called the top again, 5 to '10 buildings in the submarket that's called the TOP 20% of the market. We've seen a couple of different factors. You know, for our portfolio, we own a little bit of a more approachable price point. We've got a bigger addressable market and we've seen those are looking to move up from B to a really gravitate to, to a high quality but not necessarily new development. You've heard me talk about that looking for a more value price point for that type of environment that their workforce wants to be in. And also, so that's one leg of this tool and that's continued migration and, and floating to again, the the high quality landlords typically are well capitalized and they're able to invest in their assets and also write commissions and T I etcetera. I think the other leg of this tool is we have seen bigger users. Non tech, I would point out start to make a little bit more decision activity. And I do think that is a component of the return to office phenomenon. You know, admittingly we continue to see utilization still hover around 70% but there is a different feeling in the air in terms of people expecting their workforce to come back to the office through mandate through other initiatives. And and we've seen it also gravitate towards that tenant engagement and creating unique environments at the building. As we've talked about to really capture teams of 25, '10 5,100 plus and allow that collaboration environment. And we're seeing more and more of those Corporates who said my workforce can be remotely realized. The culture, creativity and collaboration has to occur around an office building and in person that three days a week or five days a week, you know, they need that space and it's not overall changing the demand profile. I think a lot of the industry has gone through the pain. You now have either seen space come back and those obsolete buildings go from 70% lease down to 30% lease. And you can tell what part of the market needs to be pulled out out of its nominator. But overall, you're going to continue to see the focus on the upper end of the market. And that's where the demand is. And as that has occurred, you're seeing vacancies shrink now in that segment, 10% sometimes even tighter levels of vacancy. And so that's also, I think creating a sense of urgency from big users to say, okay, I want high quality space at a reasonable price. I need to take a hold of it now in some of these markets because once I factor out the obsolete product, the landlords that have no capital, I'm only left with a certain subset. And so I think that plus again, that small medium enterprise looking to uplift into a better quality asset have been the two big drivers for our pipeline. And I think, you know, again, for high quality landlords, they would echo that sentiment.
Michael Lewis
Okay, thanks. And you know, you sold the one Dallas asset. I was going to ask about the two Houston assets. I know you had a buyer, I think several quarters ago that wanted seller financing. And so you passed, it sounds like from chris' comments. Maybe that's more of a 2025 activity also, you know, Chris said something interesting about, you know, maybe a bottom in office pricing right now, but you guys are more focused on being a seller versus a buyer. Maybe just elaborate on that, right? So like at a high level, very simple, right? You would think, you know, when prices are, are low, maybe you're not a seller, maybe you're a buyer if you can be and you kind of wait this out a little bit. It, so maybe just kind of what, what are your thoughts on, you know, the right timing to sell some of these non core assets versus, you know, when the time is to play offense?
C. Brent Smith
Great question Michael on the capital markets. And I think first a couple point out a couple of things, we sold two assets in Dallas this year, roughly about $77 million. First one, the first quarter was to a user group. Second one was more of a private equity, smaller shop. But I think it's indicative of what we see overall in the market is that those users who are sorry, those groups that are either users and have a known kind of need for a building and, or those who are local private equity and have a conviction around just the return to office or where we see a lot of the transactional activity. But overall, if you take our one Lincoln Park asset, it was really a different profile than the 750 West John Carpenter Freeway, which we felt just wasn't going to have be positioned well in the kind of modern office age going forward. And so that was both those transactions as you know, $50 million or less, which is where we see the demand right now. But I think as Chris alluded to in his prepared remarks really where we're seeing liquidity return. It's modest. It's probably the start of turning the corner, but it is for those higher quality assets. And so, you know, I think there's still immense distress at the bottom part of the market, but we are seeing firming of pricing at the call, higher end of the market called the TOP 25% of the quality assets. Pricing has moved meaningfully, let's be clear over the last three years. But you're seeing at least some convictions and transactional trades around some of those assets. And so that's what gives us the thought or the the at least the perspective that we're starting to see further liquidity come into the market and pricing start to be discovered We still think there'll be immense distress in the sector for the next couple of years. And that does provide us with an opportunity to, to consider recycling capital and playing, you know, continuing to move the portfolio towards our targeted sunbelt markets.
In terms of Houston specifically, we continue to have the assets quote unquote in the market. Very light, lightly. We've talked to a few user groups. They are well leased, but we do have the intention and they are on core to sell them and the target is next year. I'd say again, we're starting to see a little bit of return of capital for core. And so that's what gives us the hope that we can execute on that next year.
And then
Michael Lewis
Lastly, lastly for me, to kind of asked the question about DC that I was going to pose, but I, I do ask this question every four years and every four years, I forget the answer. Does, does the election and, you know, a change in administration, does that drive leasing activity in DC or do you expect that or, or just wondering since the election is right around the corner now?
C. Brent Smith
Yeah, I think broadly, just speaking, we haven't seen the election impact decision making across the portfolio for DC specifically, you know, it's anybody's guess. But I would say both groups, Republicans and Democrats, there was a bipartisan bill put forward that really is trying to accelerate decision making by the US government around space. So I guess I might call that an incremental positive. And I think both sides of the aisle are considering that. I think overall though, again, I don't see a clear path that brings the federal workforce necessarily back with either side, maybe more so with the Republican than a Democrat. But overall, I think that demand is going to be diminished in the district for some period of time. And as we've talked about, it's really hard to differentiate an asset in that market. So we still remain very cautious about our, our long term leasing success in that market, but it, it will turn around over time. I just think it's going to take it a lot longer than the rest of the US.
Michael Lewis
Got it.
Operator
Thank You. Your next question is from Nick Fillman with Baird.
Nicholas Thillman
Hey, good morning guys, maybe touching a little bit more on leasing. Just some clarification on the 450,000 square foot late stage pipeline. Can you give the breakdown on renewal versus new? I think the 70% was to the 3 million square feet and then just on that 70% renewal on proposals outstanding. I guess any you guys mentioned. No, No downsizing on that, but just curious on kind of what those tenants are thinking about those spaces currently.
C. Brent Smith
Certainly Nick, good morning out of the late stage activity that we're seeing which is around 450,000 square feet, 25% of that is related to new activity. And again, it's, it's happening in all of our markets. So, and the sectors are pretty familiar similar as well as what we've seen in the past couple of quarters.
Getting back to the, the larger deals, the 70% of the 3 million . You know, I'm not sure that we're seeing a lot of downsizing in those large users that we're, we're chasing. I think what we are seeing is that those are more inner market moves, those are not migrations from other cities so far. Although there are some in inbound activity occurring in Dallas and Atlanta, but those are not the deals that we're seeing. They're more inner market moves at this point
And to add to just in terms of that renewal probability, I, you know, I think we continue to look back, look forward in that 60 to 70% annual range, still feels like where the portfolio is landing. We're seeing again, George denoted less contractions than expansions meaningfully this quarter. In fact, we had no contractions in the third quarter, only expansions. But we feel that, you know, that's a conservative but achievable level in that 60 to 70% renewal range.
Nicholas Thillman
And you guys have had like strong kind of spread this year, I guess, and you're having your discussions on these renewals on early stages. Are you still seeing roll up in rents or like, do you think this is a common trend we could see for '25 and 26?
C. Brent Smith
Yeah. Yeah, we we've, we've actually, you know, looking at interesting stat we leave now almost 60% of the portfolio since the pandemic with an average cash roll up of 7 to 8%. I think that is very indicative of what we see across the portfolio in terms of in some instance, last quarter, you know, we did a million square feet and it was a roll up on a cash basis, I believe in the low teen, yeah, about 12% '12 13%. So, again, I think the demand for and our addressable market is, is very strong. And so that's leading to our ability to push rate pretty meaningfully across definitely the sunbelt markets. But even we're seeing some ability up and some of our northern markets as well to push rate New York as an example where we did 100,000 square feet there this, this year alone up in the tower.
Nicholas Thillman
And then maybe a question for Chris on the dispositions, the 3 to 4 smaller buildings, are these more stabilized assets or is there some vacancy with these assets and then just kind of what's like a rough range of kind of proceeds do you expect from these sales in, in '25
George Wells
Morning, Nick I don't know that we want to necessarily get into expected proceeds at the front of Brent and, and Bobby and Sherry on that. But, you know, as you know, we've closed about $75 million a year-to-date. Very pleased to get that those two deals done, given the environment, in terms of what we have out in the market, again, they're mostly smaller assets in our portfolio. They've been on our disposition list for some time. If we're able to move any of them, I don't think you'll be surprised with the decision or the rationale. These are, are typically either Brent mentioned one or two land opportunities, one, there's another asset that's about 80% at least. And I don't want to get into too many details on, on the balance. But you know, these are, these are again our assets that are non core assets have been on our disposition list for some time. We do feel cautiously optimistic that conditions are improving and we'll be able to move them. Certainly won't be in 2024 but hopefully 1st, first half of 2025.
Yeah, and I just add to that, you know, we probably think we can accomplish maybe 60 to $50 million in sales in the next 6, '12 months or so. Given what we have in the market and some traction, I characterize it as core plus, you know, these are well leased, you know, they're not problematic assets. We've left a little bit of meat on the bone. But they are what we would consider to be towards the lower end of the quality spectrum for our portfolio and again smaller in size. So we do think there's demand there. But in both of these situations, we've actually shown really good lease up or sorry, the ones that are in the market that are assets, good lease up over the last call it year. And so we think that we've proven that they again meet the demand for today's modern workforce and we're hopeful we can execute.
Nicholas Thillman
That's very helpful. And then I'd be remiss if I didn't ask Bobby a question on his last conference call. So on the on the redevelopment, what's the remaining spend for those three assets? And I assume most of that is planned for the
Michael Lewis
Fourth quarter?
Unidentified Company Representative
Yeah, actually here today we have about five projects that in total or about '10 million left to complete. So those are projects that totaled 100 million. So you can see the vast majority of that's done with very little rolling into next year.
Nicholas Thillman
Very helpful. Thank
C. Brent Smith
You all. I would just add on top of that Nick, you know what we really feel like we've touched a lot of the portfolio and given it you know, Piedmont Place making as we characterize it. And that means you know, really investing in the assets, creating the tenant engagement programs and, and creating that environment again that we call the modern office environment. And so we're reaping the wards of that. We think next year in terms of just increased leasing velocity and getting through some heavier construction periods as we know and have seen and what we're seeing in Minneapolis is when you're deep in construction, it's tough to get to our activity and demand. But as you're about three months away from completion, things really start to pick up and the vision starts to take hold and that's when we start to really see a pickup in demand and proposals, et cetera. So, again, I think we've touched a lot of that redevelopment capital. You'll see it wind down here in the beginning of next year and then I think we'll be reaping the rewards of that for years to come.
Nicholas Thillman
Thanks for the added color, Brent. Appreciate it
Operator
As a reminder. If you would like to ask a question, please press star one.
Your next question for today is from Dylan Brzyski with Green Street.
Dylan Brzyski
Good morning guys. Hope you're all doing well. Just a just a quick one. I know you mentioned being able to push face rents across the portfolio, but just sort of curious how the concessionary environment is, is trending. Are we starting to see relief on that front as you guys start to approach that 90% lease percentage within your portfolio.
C. Brent Smith
That's a great question, Dylan, thanks for joining us today. You know, as we continue, we have noted, we have pushed base rents and we've seen net effective rents grow in the sunbelt. I think it's been mostly flat kind of in the north, maybe even a little bit negative in DC. But again, the concessions around, you know, increasing base rents, we've finally seen concessions level off, I think that's fair to say. But it is, you know, has been a pretty meaningful move over the last couple of years where you've seen it go from, call it 6 to $8 per square foot per year, closer to, you know, 8 to '10 depending on the circumstances. So the good news is though that as, as T I si think has leveled off, we've continued to try to rein in free rent. And we have continued to push that lower all, you know, as we talk about and negotiate transactions, but capital unfortunately is paramount and it is expensive. And so that is what tenants focus on in terms of negotiations. The ability that we also can drive lower concessions is through a modest spec suite program in which we build out the space first for some of the smaller users say, for instance, we're building out a 18,000 square foot space based on a on a 22,000 square foot floor and economies of scale will, you know, go ahead and prebuild the remaining space of the floor and then utilize that in our leasing program. It's been very successful. Strategy keeps costs down and more importantly, it keeps costs down on the T I front. And more importantly, we get earlier starts in terms of commencement and we're also able to really drive free rent lower in those instances as well. So in short concessions are probably T I capital has increased 20% over the last 2, 2.5 years, free rent is now starting to come down. And we're continuing to find strategies to reduce the overall concession package from and continue to drive better economics and higher n s going forward.
Dylan Brzyski
That's helpful. Thanks, Brent. And then I guess just pivoting over to your comments on, on acquisitions and not necessarily likely doing anything on that front over the near term. But I mean, as you sort of think about the opportunity set and obviously Piedmont's portfolio is high quality. So I assume so your investable universe is, is going to be smaller than, than one might expect. But we've seen some of your peers sort of go at this right now through, through the debt angle or the mortgage angle, is that sort of an avenue of path that that Piedmont is, is looking at today?
C. Brent Smith
Great question Dylan and I would say, you know, we continue to focus very much on our sunbelt markets for opportunities, really, primarily Atlanta and Dallas at the moment. And we know that '10 to '15 assets in each market we'd like to own. So we stay very close to those groups. We're very comfortable playing up and down the capital stack. You know, in, in instances, we bought a note coming out of the last crisis in Chicago, we foreclosed on that asset and we sold it for about a 70 $80 million gain in 2019 as part of our exit out of Chicago. So we're, we're very comfortable. We consider that we have looked at notes, we've looked at direct equity and talked to groups. But again, I think right now we're focused on continuing to position the balance sheet for executions in '25. And so that means looking to continue to deleverage modestly through non core asset sales and continuing to get EBINO into the portfolio as well with all this backlog of leasing to uplift our credit and put us in a position to play a stronger offensive strategy next year and thinking about acquisitions. And as Chris noted, you know, we're looking to try to find, you know, unique opportunities that we can create value in for shareholders that would be accretive to earnings, and really be a logical acquisition. You know, to bring into the, I would note that, you know, if we were to go after a note, you know, we're looking for a way to get to the asset where I think, you know, we would probably view that as a hostile strategy, but something that we would consider for the right asset.
Dylan Brzyski
Great, appreciate the detail, Brent.
Operator
We have reached the end of the question-and-answer session and I will now turn the call over to Brent Smith for closing remarks.
C. Brent Smith
I want to thank everybody for joining us today if you haven't kind of gotten the feeling, I think management is extremely excited about the track record of leasing that we've accomplished your day. 2 million square feet is a record. And more importantly, though, the operational growth that we seem to be positioned, given the platform and the activity that we're seeing across the portfolio as we do see increases from return to office, I would encourage investors to, to have if you have time to please schedule a meeting with management at NRE that conference is the 19th and 20th in Las Vegas. But more importantly, I I'd also encourage investors if you've got the time you're coming through Atlanta. We management, we really appreciate the opportunity to tour you through in two hours, you can cover up probably about a billion for real estate and really see the strategy that we're putting forth. So we'd love to host you and then I would be remiss if I didn't one last time, say how much myself and all the Piedmont employees will Miss working with Bobby. His contributions and impact have left an indelible impression on the firm myself and all my fellow colleagues, Bobby. I want to congratulate you for what you've accomplished.
You're in an illustrious career and for what lies ahead and with that. Thank you, everyone. Have a good day.
Operator
This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.