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Text: All of this information is available on our website under the Investor Relations section.
The definitions and reconciliations of these non-GAAP measures are contained in the supplemental financial information available on the Company's website.
After our prepared comments are made, our senior management team will be available to address any questions that you may have.
At this time, our Chief Executive Officer, Brent Smith, who will provide some opening comments and discuss our first quarter results and accomplishments.
Before I address our quarterly results, I thought I'd begin with the topic that is at the forefront of all our minds, the COVID-19 pandemic and its impact on the economy, our tenants and specifically on Piedmont.
The COVID-19 pandemic has had a profound impact on our daily lives and communities.
Even more difficult to fully comprehend is the suffering that many have endured in our heartfelt sympathies go out to the families, whose lives have been forever changed.
With the outbreak of the pandemic the Piedmont Board and Management Team set three specific priorities; first make sure we're taking all the necessary steps to protect our tenant and our people; second, preserve our other precious resource, which is our capital; and third, that we prepare with [Technical Issues] future to adapt the business to our very best to anticipate the needs of our customers, be creative and engineer new solutions in ways of doing business and not rely on simply what worked in the past.
As when those other businesses, our top priority is protect our customers, contractors and employees, and I want to reassure you that all of us at Piedmont are focusing our efforts to confront this new global issue.
I could not be prouder of how our team is responded to the challenges that were unimaginable just a few months ago.
During the crisis our building that remained opened to essential workers.
As of today, all of our seven core markets are operating under governors orders for shelter-in-place.
In Atlanta, our second largest market and where our headquarters is located, the governor has begun reopening select businesses to start to rebuild the economy.
That said, I think it's going to be challenging and slower than we would like it to be.
Ultimately, the recovery is largely dependent on the duration of the pandemic, an unknown factor.
At Piedmont, I believe, we are taking proper and conservative precautions, we've doubled down, in fact tripled down on sanitation, hygiene and housekeeping, striving to make our building safe and helping our tenant communicate to their employees to ensure they are doing everything they can to social distance.
To remain six feet apart throughout the buildings, lobby's, elevators and other common areas as well as their offices to prevent the spread of infection.
Today, our essential employees and contractors continue to report to work on site, in shifts utilizing appropriate PPE, while there [Technical Issues] employees continue to work from home without disruption.
Across the portfolio of Piedmont, the entire team is working tirelessly to implement new policies and procedures, extensive signage, expansive cleaning protocols, while evaluating new products and measures to ensure our buildings promote a healthy environment.
Finally, we're providing all the support we can to the local communities and businesses we operate with, to help those who need it to get back on their feet.
And as part of those efforts Piedmont and its related foundation has donated over $40,000 to local charities across all our seven markets including Seniors First in Orlando, NYU Langone hospital in New York City; Meals on Wheels in Northern Virginia, and the Emory Hospital COVID-19 impact fund here in Atlanta, among others.
Turning our attention to Piedmont's tenants and the performance of the first quarter of 2020.
Overall the consequences of the COVID-19 virus outbreak had minimal impact on our operations, and financial results for the first three months for the year.
The nature of our tenancy has never been a more powerful, depreciated component of our strategy than it is today.
With the majority of our tenants investment grade quality and an approximately seven year weighted average lease term remaining in the portfolio, we are well positioned to weather this storm.
That said, we are closely monitoring a couple of areas of our tenant base.
To-date, we've had a limited number of tenants whose businesses and financials have been significantly impacted by the pandemic.
We feel fortunate to have limited exposure to some of the industry's most disrupted about 1% of our forecasted 2020 revenues are related to retail tenants and likewise, about 2% of our 2020 budgeted revenues are associated with the co-working sector.
Digging into rent collection specifics in the first quarter rental receipts came in as anticipated, but as April progressed we had a number of select tenants unable to pay their rent.
So far Piedmont has had 96% of it's tenants submit full rent payment, with many of the remaining seeking some form of rent deferral for the month of April.
Most of these deferral are coming from our smaller tenants, largely food, traveling, consulting, retail, co-working related to provide many services at our properties.
Most of them that subsequently begun to avail themselves the various federal and state relief funds, such as CARES Act loans and the Payment Protection Program, which can be utilized partially to meet rental obligation.
All the requests made to us were carefully reviewed and we had accommodate a limited number of the tenants that have requested deferrals of rent for typically up to three months and repayments scheduled for later this year without penalty or we pay back in 2021 with interest.
Regarding Piedmont's second most precious resource, its capital and liquidity.
We firmly believe we have ample financial capacity to confront the effects of the economic slowdown associated with COVID-19.
The Company committed it's financial obligations, including the servicing its debt, as well as be all its debt covenants with significant positive margins.
Piedmont also has a favorable liquidity position with access to our largely unused $500 million line of credit.
Further, bolstering our liquidity, we have entered into a binding contract to sell our only asset in Philadelphia, 1901 Market Street for $360 million.
I would also note that a significant deposit for the transaction went non-refundable on March 31st.
We intend to use the proceeds from the sale to repay the properties $160 million mortgage, as well as eliminate the balance on our line of credit, which will result in only one small mortgage remaining in our portfolio, where the other 56 properties being unencumbered.
While we are seeing signs of the virus outbreak slowing and the infection curve flattening.
We know that this disruption is not over.
The short-term financial impacts caused by the pandemic on 2020 results are still to be fully realized and the longer-term impacts will depend on a great [Technical Issues] upon the duration of the pandemic, it impacts on our tenants and the speed of the recovery.
Certainly, we think activity has slowed, although we continue to execute some leasing, primarily renewals.
We believe the pandemic will likely push out new leasing activity on the whole about a quarter and delayed some expected growth in the portfolio.
Likewise, the few tenant improvements and redevelopment projects we have scheduled will also be delayed.
While we currently believe the impact on Piedmont earnings will be contained and a majority of those impacts will occur primarily in the second quarter of 2020.
To extend the pandemics impact on our economy, on our tenants and on Piedmont will be dependent upon the duration of pandemic and a depth of financial disruption to our tenants.
Bobby will go into more detail in a moment on some of the factors that could impact the second quarter and the back half of the year.
Focusing back to the first quarter, we are pleased with the operational results from a lease transaction perspective.
During the quarter we completed approximately 417,000 square feet of leasing, which as well as first across all our operating markets and included approximately 120,000 square feet of new tenant leasing.
The first quarter execute leases for recently occupied space reflected a 5% roll up in cash rents and a 15.4% increase in accrual rents.
The larger leases for the quarter include the following: In Boston, Advanced Micro Devices renewed to 2028, approximately 107,000 square feet at 90 Central Street.
In Orlando the law firm at Greenberg Traurig renewed approximately 37,000 square feet to the year 2031 at CNL Center I and at 200 South Orange Avenue; Jones Lang LaSalle signed a renewal expansion through 2026 totaling approximately 20,000 square feet.
Finally in Washington, the Association for Unmanned Vehicle Systems signed a new lease through the end of 2030 for approximately 15,000 square feet at 3100 Clarendon Boulevard.
As of quarter end, the portfolio was approximately 90% leased.
The leased percentage at the end of the quarter includes the transfer into service of our previously out of service asset, the recently redeveloped now 41% lease to [Indecipherable] Tower in Chicago.
Regarding upcoming lease expirations we have low lease expiration over the next 18 months with the only sizable lease being the City of New York at 60 Broad Street, where we remain in discussions for a long-term renewal of substantially all the cities existing 313,000 square foot lease that expired this month.
As common with government tenants, the lease entered holdover status on April 15th with the lease specified post exploration increase in cash rents approximating the current market rental rate.
I would note the benefit of increased straight-line rents would not be recognized until a long-term renewal could be executed, which given the tenant, the decision is likely to be further delayed, due to the pandemic.
Therefore for forecasting purposes we have delayed the potential full roll-up in straight-line rent associated with a long-term lease by approximately six months or until the middle to latter part of next year.
Turning to transactional activity, as we previously announced during the first quarter, we completed the depth purchase in Dallas, Texas, of the Galleria Office Towers, comprising 1.4 million square feet and an adjacent two acre development parcel for a total of $396 million or approximately $273 per square foot, which represents a significant discount to replacement cost.
The acquisition allowed us to establish a sizable position in a strong submarket, so that along with our other assets in Dallas, we could present prospective tenants for the spectrum of high-quality office throughout this growing and diverse Sun Belt market.
With the acquisition, we expect that we will be able to realize additional marketing and operational synergies with our existing operations.
The Galleria Office Towers required to reverse exchange and we match for the disposition of 1901 Market Street in Philadelphia that is expected to close in the middle of the summer.
Therefore there is not a need to make a special dividend distribution related to the substantial nine figure gain we anticipate on the sale of our only Philadelphia property.
I'll share with you today how Piedmont has committed to protecting our people and preserving our capital and liquidity.
As one last point, we remain optimistic about the future commercial office real estate.
We're trying to predict the outcome of this event at least to many more questions than answers, one thing is certain, the industry will change and Piedmont will be positioning itself to succeed.
For the first quarter of 2020, we reported $0.47 per diluted share of core FFO, that's a $0.02 increase, compared to the first quarter of 2019.
Even with the loss of earnings contribution due to dispositions up to almost fully leased assets during 2019 that's the One Independence Square building in Washington, DC and our 500 West Monroe property in Chicago, we were more than able to offset these sales with newly acquired Sun Belt properties in Atlanta and Dallas, as well as with new lease commitments and with the continued roll-up of rents across the portfolio.
AFFO was approximately $19 million for the first quarter, which is lower than typical and impacted by one-time payment of lease commissions on a 520,000 square foot 20-year lease to the State of New York at 60 Broad Street in New York City.
With several leases commencing in Atlanta and in Houston late last year, same-store NOI was approximately 2% on a cash basis and 4% on an accrual basis for the first quarter of 2020.
Turning to the balance sheet, our average net debt core EBITDA ratio for the first quarter of 2020 was 5.7 times and our debt to gross asset ratio was approximately 38.7% at the end of the quarter.
Both metrics reflect higher outstanding debt during the quarter as a result of the purchase of the Galleria Office Towers in February.
During the quarter, we entered into a new $300 million unsecured term loan and used the proceeds to pay down our $500 million line of credit, leaving approximately $350 million of availability.
As Brent mentioned earlier, we plan to pay off the remaining balance on the line, as well as our $160 million mortgage [Technical Issues] the proceeds from the sale of 1901 Market Street, which is expected to close this summer.
After doing so, we expect our leverage ratios to decrease and to be similar to our metrics as of the end of the fourth quarter of 2019.
I would add, there are no scheduled debt maturities until late 2021 and our investment grade ratings from Moody's and Standard & Poor's were both recently reaffirmed with stable outlooks.
Given our low leverage, strong liquidity position and quality of our tenants, we do not currently anticipate any changes to our present dividend level.
We are withdrawing our guidance for 2018.
That said we believe our strong diversified tenant base, a majority of which is investment grade quality, and our attractive portfolio of assets located in highly amenitized easily accessible business centers and our prudent balance sheet, which provides us with excellent liquidity all position us well and we'll mitigate the adverse effects of the pandemic on Piedmont.
I do however, want to provide you with a few additional thoughts on trends that we've seen so far in the second quarter that are guiding our assumptions for how the pandemic could impact us during the rest of the quarter and the back half of the year.
While we continue to execute lease renewals, new tenant leasing activity during the second quarter has been slow and we think this trend will continue throughout the quarter, likely pushing all new tenant leasing goals out at least a quarter which will, in all likelihood modestly lower annual operating revenues for 2020 by $1 million to $2 million and lower our originally anticipated year-end leased percentage.
We expect most of our transient parking income for the second quarter will not occur, that would equate to a reduction of approximately $1 million of net operating income.
And with respect to retail tenant income, which is about 1% of our total 2020 revenues, retail NOI is estimated to decline by approximately $1.5 million.
Cash NOI rent receipts will likely be negatively impacted on a same-store basis, when compared to 2019, due primarily to rent deferral amendments I'll discuss in a moment.
The few redevelopment projects within our portfolio will be delayed for a few months, but are not expected to impact 2020 net income materially.
The sale of 1901 Market Street in Philadelphia is expected to close during the summer and while no other deals are under way any other acquisition or disposition during the year will be pricing, property and market dependent.
Now as Brent noted for the month of April to-date, we've received 96% of our regular monthly rents, with all of our 20 largest tenants representing over a third of our cash receipts paying their April rents.
Of the unpaid 4$amount we do have the number of tenants requesting their leases the restructure.
The focus is primarily been on providing appropriate tenants, we've typically up to three months of rent [Technical Issues] that will, in most cases, be paid back later in 2020 or with interest in 2021, although we have accepted some lease extensions and exchange for deferrals.
To date, we've agreed to about $1 million of rent deferrals per month for three months for 27 of our tenants, representing approximately 400,000 square feet of leases.
These lease amendments as you would expect are primarily with retail, hospitality a smaller co-working tenants.
Regarding our seven tenants in the co-working sector all the one are under traditional lease structures with standard credit requirements and combined total about 2% of our originally forecasted revenues.
No one today, knows how long this pandemic will last, nor the impact will have on so many businesses across the broad spectrum of our economy.
However, we do expect to reevaluate guidance when we have a better grasp of the pandemics broader economic impact after current shelter-in-place orders that are in effect for all of our operating markets are lifted and the longer-term consequences of the COVID-19 pandemic on the economy and more specifically on our tenants can be more thoroughly evaluated.
However, we do believe we are in a fortunate position with no major development projects, with a sound balance sheet, with the team of employees dedicated to providing outstanding service and safety to our tenants, and with a client roster position to recover financially.
With that, I'll now ask our operator to provide our listeners with instructions on how they can submit their questions.

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qtrly core ffo of $0.47 per diluted share.
entered into a $300 million unsecured term loan and used proceeds to pay down its $500 million line of credit.
withdrawing its 2020 guidance.

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