Executive Summary / Key Takeaways

• Piedmont Realty Trust is strategically repositioning its Class A office portfolio, primarily in Sunbelt markets, by investing in modern, hospitality-inspired "Piedmont PLACEs" to meet the accelerating demand for high-quality office environments.
• This differentiated approach is driving record leasing volumes, with 1.8 million square feet leased year-to-date through Q3 2025, pushing the in-service lease percentage to 89.2% and establishing a robust backlog of $75 million in future additional annual cash rent.
• The company's strategic decision to suspend its dividend in Q1 2025 is funding this accretive growth, retaining approximately $60 million annually for investments yielding over 25% unlevered returns, and strengthening the balance sheet.
• Piedmont anticipates mid-single-digit FFO growth or better in 2026 and 2027 from organic leasing, with a significant potential tailwind of up to $0.17 per share FFO accretion from future refinancing of high-interest debt.
• While macroeconomic uncertainties and competition persist, Piedmont's focus on superior assets, service, and a strong balance sheet positions it to capitalize on the "flight to quality" trend and diminishing new office supply.

The Resurgence of the Office and Piedmont's Strategic Foundation

The U.S. office market has reached a pivotal turning point, with demand showing its first positive absorption since late 2021 in the third quarter of 2025, marking the largest total since the second quarter of 2019. This resurgence is not uniform; it is highly concentrated at the top end of the market, where "flight to quality" is the prevailing theme. Companies are increasingly recognizing the imperative of in-office interaction for culture, collaboration, and innovation, leading to a surge in demand for well-located, amenity-rich, and differentiated office spaces. Piedmont Realty Trust, Inc. (NYSE:PDM), a Maryland corporation operating as a REIT since 1998, has strategically positioned itself to capitalize on this trend. Its core business revolves around the ownership, management, development, redevelopment, and operation of high-quality, Class A office properties, primarily concentrated in major U.S. Sunbelt markets.

Piedmont's overarching strategy, encapsulated in its rebranding to "Piedmont Realty Trust" and its focus on "Piedmont PLACEs," is to cultivate superior work environments that blend impactful design with purposeful social spaces and a hospitality-driven service model. This approach has been foundational to its success, particularly since 2020, during which the company leased approximately 12 million square feet, representing 80% of its portfolio. This historical journey of continuous investment and adaptation has shaped its current competitive advantages and strategic responses to evolving market dynamics.

Technological Differentiation and Competitive Edge

Piedmont's competitive moat is not built on a single proprietary technology, but rather on a holistic and integrated approach to property development, management, and tenant experience that leverages modern design, smart amenities, and sustainable practices. This "technological differentiation" manifests in its "newly renovated, highly amenitized buildings paired with our hospitality-driven service model." The company's focus on "balancing impactful design with a range of purposeful social spaces" and "modernized hospitality infused properties" directly addresses the evolving needs of tenants seeking compelling environments to draw employees back to the office.

The tangible benefits of this strategy are quantifiable and directly impact its financial performance. For instance, in Q3 2025, rental rates for space vacant less than a year reflected an almost 9% cash roll-up and just over a 20% accrual roll-up. Over the past two years, Piedmont leased over 5 million square feet with rental rate roll-ups of approximately 9% on a cash basis and 17% on an accrual basis. These figures demonstrate the company's ability to command higher rents due to its superior product. Furthermore, asking rental rates in its Minneapolis redevelopment portfolio are now in the low $40s, a 15% increase from the pre-redevelopment phase, and are the highest within its submarkets. This contrasts sharply with asking rents for new construction, which can reach $92 per square foot, providing Piedmont with a significant competitive advantage by offering "fabulous space" at a "30% to 40% discount to new construction rents."

Piedmont's commitment to sustainability further enhances its competitive standing. The company achieved a 5-star rating and Green Star recognition from GRESB, placing it in the top decile of all participating listed U.S. companies, and is a 2024 ENERGY STAR Partner of the Year. These certifications appeal to environmentally conscious tenants and contribute to operational efficiencies, potentially leading to superior margins. The company's redevelopment initiatives, such as the Galleria 600 lobby rejuvenation, which received the "Best of Special Projects" award, exemplify its continuous "R&D" into creating leading-edge office environments. This strategic investment in its assets, coupled with its service level, allows Piedmont to compete effectively with new construction and differentiate itself from "dated, uninspiring or financially impaired" competitors who lack the capital or strategic vision to adapt.

Financial Performance and Operational Momentum

Piedmont's financial performance in the first nine months of 2025 reflects a period of strategic investment and operational transition. For the three months ended September 30, 2025, the net loss applicable to common stockholders increased to approximately $13.50 million, or $0.11 per diluted share, compared to $11.50 million, or $0.09 per diluted share, in Q3 2024. This increase was primarily due to higher depreciation expense as significant building improvements were placed into service. Rental and tenant reimbursement revenue saw a modest increase of approximately $0.20 million in Q3 2025, driven by rental rate roll-ups and new lease commencements, partially offset by property dispositions.

Year-to-date through September 30, 2025, rental and tenant reimbursement revenue decreased by approximately $5.60 million, primarily due to the disposition of four projects since January 1, 2024. However, this was partially offset by the positive impact of new leases and rental rate growth. Property operating costs decreased by approximately $6.10 million for the nine months ended September 30, 2025, largely due to reduced property tax expense and dispositions. Depreciation expense increased by approximately $7 million, reflecting the company's ongoing capital investment in its portfolio. Interest expense for the nine months ended September 30, 2025, rose by approximately $4.20 million, primarily due to refinancing activities at higher rates. The company also recognized an $8.00 million loss on early extinguishment of debt from repurchasing $67.50 million of its 600 Million Senior Unsecured Notes due 2028.

Despite these near-term impacts, the operational momentum is strong. Core FFO per diluted share for Q3 2025 was $0.35, a slight decrease from $0.36 in Q3 2024, attributed to property sales and higher net interest expense, partially offset by operational growth. Crucially, cash basis same-store NOI turned positive in Q3 2025, as previously executed leases began to exit their abatement periods. This signals a turning point for cash flow generation.

Strategic Capital Allocation and Liquidity

Piedmont's liquidity position is robust, with $434 million of borrowing capacity available under its $600 Million Unsecured 2022 Line of Credit as of September 30, 2025. The company has no required debt maturities until 2028, providing significant financial flexibility. This strong liquidity is a direct result of proactive balance sheet management, including recent refinancing activities. During Q3 2025, Piedmont amended its $600 Million Unsecured 2022 Line of Credit and its $325 Million Unsecured 2024 Term Loan, reducing all-in interest rates by 10 basis points. The company also successfully repaid a $250 Million Unsecured 2018 Term Loan by utilizing proceeds from an upsized $325 Million Unsecured 2024 Term Loan and its revolving credit facility, and extended the maturity of its revolving credit facility to 2028 with options to extend to 2030.

A cornerstone of Piedmont's capital allocation strategy was the suspension of its dividend in Q1 2025. This decision, while impacting immediate shareholder returns, was a strategic move to fund accretive long-term growth and retain earnings as the company's "lowest cost of capital." This action is expected to provide approximately $60 million of additional cash flow annually, earmarked for internal growth initiatives, particularly funding tenant improvements and leasing commissions. Management projects an average unlevered return in excess of 25% on this invested leasing capital. The dividend suspension and subsequent reduction in borrowings are expected to result in up to $0.01 of accretion in 2025.

Capital expenditures for the nine months ended September 30, 2025, totaled $115.81 million, with a significant portion dedicated to redevelopment and tenant improvements, reflecting the company's investment in its portfolio. For leases executed in this period, Piedmont committed to spend approximately $6.73 per square foot per year of lease term for tenant improvements and lease commissions, an increase from the prior year, underscoring the intensity of current leasing activity.

Segment Performance and Outlook

Piedmont's portfolio, comprising 29 in-service and three redevelopment projects totaling 14.90 million square feet, is strategically diversified across key Sunbelt and other major U.S. markets.

• Atlanta: NOI increased by 6.76% year-to-date through Q3 2025. The market is highly productive, with 27 deals in Q3 2025, largely new leases. Projects like Medici are seeing 30% cash roll-ups, and 999 Peachtree secured a new 14-year lease at $55 per square foot, significantly above the expiring rate.
• Dallas: Despite a slight YTD NOI decrease of 0.55%, Dallas remains active. The Las Colinas portfolio saw occupancy rise from 82% to 91% year-to-date, driven by a 56,000 square foot deal with a global data center provider. Galleria Towers is over 90% leased, with net rental rates up 30% since its 2020 acquisition.
• Orlando: NOI surged by 8.81% year-to-date. The out-of-service redevelopment project is experiencing "astounding market receptivity." The Travel & Leisure lease is expected to commence in Q4 2025, adding $5.7 million in annualized rent.
• Minneapolis: NOI increased by 2.46% year-to-date. The redevelopment strategy at Meridian and Excelsior is generating significant interest, with asking rates up 15% from pre-redevelopment levels.
• New York: NOI increased by 5.05% year-to-date. Piedmont is pursuing a long-term extension for New York City's lease at 60 Broad, with an $8 million annual holdover penalty providing leverage.
• Northern Virginia/Washington, D.C. & Boston: These markets experienced NOI decreases, with Washington, D.C. being an exception to positive absorption. Piedmont is strategically pruning non-core assets in these areas, including a suburban Boston property sold in Q2 2025 for $30 million. The D.C. district remains structurally challenging, but Northern Virginia shows good leasing velocity.
• Other (Houston): Two non-reportable projects in Houston are slated for disposition in 2026.

Piedmont's 2025 Core FFO guidance has been narrowed to $1.40-$1.42 per diluted share. The company expects to achieve a year-end in-service leased percentage of 89% to 90%. Management is confident in delivering mid-single-digit FFO growth or better in 2026 and 2027, driven by organic leasing within its static portfolio. The $75 million backlog of future additional annual cash rent, with approximately 70% expected to commence in 2026, will be a key driver of this growth. Furthermore, the potential to refinance $532 million of 9.25% bonds at current rates could generate approximately $21 million in interest savings, translating to a powerful $0.17 per share FFO accretion, representing significant upside to the organic growth projections.

Competitive Landscape and Risks

Piedmont operates in a competitive office REIT sector, facing both direct and indirect rivals. Direct competitors like Boston Properties (BXP), SL Green Realty (SLG), Vornado Realty Trust (VNO), and Kilroy Realty (KRC) each have distinct market focuses. While BXP and SLG dominate prime urban markets with larger portfolios, Piedmont differentiates itself through its geographic diversification, particularly its strong Sunbelt presence, which offers greater resilience against localized market fluctuations. Its investment-grade rating provides enhanced access to capital and fosters customer loyalty, contributing to stable cash flows.

Piedmont's sustainability certifications and "Piedmont PLACEs" strategy provide a unique value proposition, appealing to eco-conscious tenants and offering modern, amenity-rich spaces at a compelling value compared to new construction. This contrasts with some competitors who may prioritize urban density or specific tech integrations over comprehensive sustainability. However, Piedmont faces vulnerabilities, including potential overexposure to office market declines in certain submarkets like the D.C. district, and a potentially slower pace of high-profile development innovation compared to some urban-focused peers. Indirect competitors, such as coworking providers and remote work platforms, also pose a threat by offering flexible, cost-effective alternatives.

Key risks include economic, regulatory, and technological changes impacting the real estate market, such as reduced demand from remote/hybrid work models. While the company has seen a tapering of footprint reductions, a sustained economic downturn or increased interest rates could impact its financial performance. Piedmont is exposed to interest rate fluctuations on its variable-rate debt, with a 1% increase potentially raising interest expense by $1.70 million annually. Lease terminations, defaults, and the illiquidity of real estate investments also remain pertinent risks.

Conclusion

Piedmont Realty Trust is executing a compelling investment thesis centered on transforming its Class A office portfolio into highly desirable "Piedmont PLACEs." By strategically investing in modern amenities, delivering exceptional service, and focusing on high-growth Sunbelt markets, the company is capturing outsized leasing demand and driving robust rental rate growth. The proactive decision to suspend the dividend, while a short-term sacrifice, is a shrewd capital allocation move, funding accretive internal growth and strengthening the balance sheet for long-term value creation.

With a significant backlog of future cash rents poised to come online, and the potential for substantial FFO accretion from future debt refinancing, Piedmont is well-positioned for organic FFO growth in 2026 and 2027. The company's differentiated approach, emphasizing sustainability and value in a market increasingly bifurcated by quality, provides a strong competitive advantage against rivals. Investors should recognize Piedmont's strategic clarity and operational execution as key drivers for its continued success in a transforming office landscape.