ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto as of December 31, 2025 and 2024, and for the years ended December 31, 2025, 2024, and 2023, included elsewhere in this Annual Report on Form 10-K. See also “ Cautionary Note Regarding Forward-Looking Statements ” preceding Part I of this report and “ Risk Factors " set forth in Item 1A. of this report.
Liquidity and Capital Resources
We intend to use cash on hand, cash flows generated from the operation of our properties, net proceeds from the disposition of select properties, and borrowings under our $600 Million Unsecured 2022 Line of Credit as our primary sources of immediate liquidity. As of December 31, 2025, we had $553 million of borrowing capacity available under our $600 Million Unsecured 2022 Line of Credit and no required debt maturities until 2028. Consequently, we believe that we have sufficient liquidity to meet our obligations for the foreseeable future; however, as part of our overall debt management strategy, we may seek other new secured or unsecured borrowings from third party lenders or issue other debt or equity securities as additional sources of capital. The nature and timing of these additional sources of capital will be highly dependent on market conditions.
Our most consistent use of capital has historically been, and we believe will continue to be, to fund capital expenditures for our existing portfolio of properties. During the years ended December 31, 2025 and 2024, we incurred the following types of capital expenditures (in thousands):
December 31, 2025
December 31, 2024
Capital expenditures for redevelopment/renovations
Other capital expenditures, including building and tenant improvements
Total capital expenditures (1)
(1) Of the total amounts paid, approximately $17.7 million and $19.9 million related to soft costs such as capitalized interest, payroll, and other general and administrative expenses for the year ended December 31, 2025 and 2024, respectively.
"Capital expenditures for redevelopment/renovations" during the years ended December 31, 2025 and 2024 related to building upgrades, primarily to the lobbies and the addition of tenant amenities at certain of our buildings and assets under redevelopment.
"Other capital expenditures, including building and tenant improvements" include all other capital expenditures during the respective period and are typically comprised of tenant and building improvements necessary to lease, maintain, or provide enhancements, including energy efficient equipment, to our existing portfolio of office properties.
Given that our operating model frequently results in leases for multiple blocks of space to credit-worthy tenants, our leasing success can result in capital outlays which vary from one reporting period to another based upon the specific leases executed. For leases executed during the year ended December 31, 2025, we have committed to spend approximately $6.58 per square foot per year of lease term for tenant improvement allowances and lease commissions (net of expired lease commitments) as compared to $5.67 (net of expired lease commitments) for the year ended December 31, 2024 with the increase in the current year attributable to the significant amount of new tenant leasing completed. As of December 31, 2025, we had no individual tenant allowance commitments greater than $10 million.
In addition to the amounts that we have already committed to as a part of executed leases, we also anticipate continuing to incur similar market-based tenant improvement allowances and leasing commissions in conjunction with procuring future leases for our existing portfolio of properties. Both the timing and magnitude of expenditures related to future leasing activity can vary due to a number of factors and are highly dependent on the size of the leased square footage, length of the lease term, and the competitive market conditions of the particular office market at the time a lease is being negotiated, in addition to the impact of inflation and rising costs of construction.
Although reducing outstanding debt remains our priority, subject to the identification and availability of a few, select investment opportunities and our ability to consummate such acquisitions on satisfactory terms, acquiring new assets consistent with our investment strategy could also be a significant use of capital. Additionally, we may use capital to repay debt when we deem it prudent to refinance or reduce various obligations.
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Finally, we may also use capital resources to pay dividends to our stockholders. The amount and form of payment (cash or stock issuance) of future dividends, if any, to be paid to our stockholders will continue to be largely dependent upon (i) the amount of cash generated from our operating activities; (ii) our expectations of future cash flows; (iii) our determination of near-term cash needs for debt repayments, development projects, and selective acquisitions of new properties; (iv) the timing of significant expenditures for tenant improvements, leasing commissions, building redevelopment projects, and general property improvements; (v) long-term dividend payout ratios for comparable companies; (vi) our ability to continue to access additional sources of capital, including potential sales of our properties; (vii) our desire to reduce overall leverage; and (viii) the amount required to be distributed to maintain our status as a REIT. With the fluctuating nature of cash flows and expenditures, we may periodically borrow funds on a short-term basis to cover timing differences in cash receipts and cash disbursements, including to pay dividends to our stockholders.
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Results of Operations (2025 vs. 2024)
Overview
Net loss applicable to common stockholders for the year ended December 31, 2025 was approximately $83.6 million, or $0.67 per diluted share, as compared with $79.1 million, or $0.64 per diluted share, for the year ended December 31, 2024. The primary driver of the increase in net loss was an approximately $37.8 million loss on early extinguishment of debt recognized during the year ended 2025, which was largely offset by the non-recurrence of approximately $33.8 million of impairment charges recognized during the year ended 2024.
Comparison of the accompanying consolidated statements of operations for the year ended December 31, 2025 vs. the year ended December 31, 2024.
The following table sets forth selected data from our consolidated statements of operations for the years ended December 31, 2025 and 2024, respectively, as well as each balance as a percentage of total revenues for the years presented (dollars in millions):
December 31, 2025
% of Revenues
December 31, 2024
% of Revenues
Variance
Revenue:
Rental and tenant reimbursement revenue
Property management fee revenue
Other property related income
Total revenues
Expense:
Property operating costs
Depreciation
Amortization
Impairment charges
General and administrative
Other income (expense):
Interest expense
Other income
Loss on early extinguishment of debt
Gain/(loss) on sale of real estate assets
Net loss
Revenue
Rental and tenant reimbursement revenue decreased approximately $6.1 million for the year ended December 31, 2025 as compared to the prior year. The decrease was primarily due to the disposition of four projects subsequent to January 1, 2024 as well as lower tenant reimbursement revenue in the current year as compared to the prior year associated with lower recoverable operating costs (as discussed below). The impact of this decrease was partially offset by the roll-up of rental rates and new leases commencing during the year ended December 31, 2025.
Property management fee revenue decreased approximately $1.4 million for the year ended December 31, 2025, as compared to the same period in the prior year due to the termination of certain third-party property management arrangements in 2024.
Other property related income increased approximately $2.2 million for the year ended December 31, 2025 as compared to the prior year primarily due to increased parking income associated with increased utilization and higher transient parking at our office projects during the current year, as compared to the prior year.
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Expense
Property operating costs decreased approximately $6.2 million for the year ended December 31, 2025 as compared to the prior year. The variance was primarily due to reduced property tax expense due to lower tax assessments and successful appeals, as well as project dispositions subsequent to January 1, 2024 (as discussed above). The impact of these decreases is partially offset by an increase in other recoverable property operating costs such as utilities, repairs and maintenance, landscaping and security due to increased occupancy and utilization of our projects during the current year, as compared to the prior year.
Depreciation expense increased approximately $9.6 million for the year ended December 31, 2025 compared to the prior year. The increase was primarily due to additional building and tenant improvements acquired and/or placed in service subsequent to January 1, 2024, partially offset by property dispositions in 2024 and 2025.
Amortization expense decreased approximately $9.2 million for the year ended December 31, 2025 compared to the prior year. The decrease in amortization expense is associated with certain lease intangible assets at our existing projects becoming fully amortized subsequent to January 1, 2024. The decrease was partially offset by an increase in amortization expense associated with deferred lease acquisition costs associated with new leasing activity during the two years ended December 31, 2025.
During the year ended December 31, 2024, we recognized a non-cash impairment charge of approximately $33.8 million related to a change in hold period assumptions at certain properties in our portfolio. See Note 6 to our accompanying consolidated financial statements for further details.
General and administrative expense decreased approximately $4.8 million for the year ended December 31, 2025 compared to the prior year almost exclusively as the result of the recognition of $4.8 million of executive separation costs during 2024.
Other Income (Expense)
Interest expense increased approximately $5.0 million for the year ended December 31, 2025 as compared to the prior year as a result of refinancing activity as well as a $2.0 million decrease in capitalized interest during the year ended December 31, 2025.
During the year ended December 31, 2025, we repurchased approximately $312.7 million in aggregate principal amount of the $600 Million Unsecured Senior Notes due 2028. The premium paid to repurchase the notes, as well as the write-off of the pro-rata share of unamortized debt issuance costs, resulted in the recognition of a $37.3 million loss on early extinguishment of debt. The loss on early extinguishment of debt in the prior year was due to the write-off of unamortized debt issuance costs associated with refinancing activity during the year ended December 31, 2024.
Gain on sale of real estate assets during the year ended December 31, 2025 primarily consists of the gain recognized on the sale of the 80 and 90 Central project in Boston, Massachusetts, which closed in May of 2025, as well as recognition of the return of amounts held in escrow for the 750 West John Carpenter project sold in July 2024. During the prior year we recognized a loss on the sale of the 750 West John Carpenter project of approximately $0.4 million.
Results of Operations (2024 vs. 2023)
Please refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations (2024 vs. 2023)" in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on February 19, 2025, for a discussion of the results of operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
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Issuer and Guarantor Financial Information
As of December 31, 2025, Piedmont, through its wholly-owned subsidiary Piedmont OP, had five separate issuances totaling approximately $1.7 billion of senior unsecured notes payable outstanding that mature in 2028, 2029, 2030, 2032 and 2033 (see Note 3 to our accompanying consolidated financial statements for additional details regarding each of these issuances) (collectively, the "Notes"). The Notes are senior unsecured obligations of Piedmont OP, rank equally in right of payment with all of Piedmont OP's other existing and future senior unsecured indebtedness, and would be effectively subordinated in right of payment to any of Piedmont OP’s future mortgage or other secured indebtedness (to the extent of the value of the collateral securing such indebtedness) and to all existing and future indebtedness and other liabilities of Piedmont OP’s subsidiaries, whether secured or unsecured.
The Notes are fully and unconditionally guaranteed by Piedmont, the parent entity that consolidates Piedmont OP and all other subsidiaries. In particular, Piedmont guarantees to each holder of the Notes that the principal and interest on the Notes will be paid in full when due, whether at the maturity dates of the respective loans, or upon acceleration, upon redemption, or otherwise; interest on overdue principal and interest on any overdue interest, if any, on the Notes will also be paid in full when due; and all other obligations of the Issuer to the holders of the Notes will be promptly paid in full. Piedmont's guarantee of the Notes is its senior unsecured obligation and ranks equally in right of payment with all of Piedmont's other existing and future senior unsecured indebtedness and guarantees. Piedmont’s guarantee of the Notes is effectively subordinated in right of payment to any future mortgage or other secured indebtedness or secured guarantees of Piedmont (to the extent of the value of the collateral securing such indebtedness and guarantees); and all existing and future indebtedness and other liabilities, whether secured or unsecured, of Piedmont’s subsidiaries.
In the event of the bankruptcy, liquidation, reorganization or other winding up of Piedmont OP or Piedmont, assets that secure any of their respective secured indebtedness and other secured obligations will be available to pay their respective obligations under the Notes or the guarantee, as applicable, and their other respective unsecured indebtedness and other unsecured obligations only after all of their respective indebtedness and other obligations secured by those assets have been repaid in full.
All non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes, or to make any funds available therefore, whether by dividends, loans, distributions or other payments.
Pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being Registered, the following tables present summarized financial information for Piedmont OP as issuer and Piedmont as guarantor on a combined basis after elimination of (i) intercompany transactions and balances among Piedmont OP and Piedmont and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor (in thousands):
Combined Balances of Piedmont OP and Piedmont Realty Trust, Inc. as Issuer and Guarantor, respectively
December 31, 2025
December 31, 2024
Due from non-guarantor subsidiary
Total assets
Total liabilities
For the Year Ended December 31, 2025
Total revenues
Net loss
Net Operating Income by Geographic Segment
Our President and Chief Executive Officer is our chief operating decision maker ("CODM"), who evaluates our portfolio and assesses the ongoing operations and performance of our projects utilizing the following geographic segments: Atlanta, Dallas, Orlando, Northern Virginia/Washington, D.C., Minneapolis, New York, and Boston. These operating segments are also our reportable segments. Additionally, as of December 31, 2025, we owned two properties in Houston that did not meet the definition of an operating or reportable segment as the CODM does not regularly review these properties for purposes of allocating resources or assessing performance, and we do not maintain a significant presence or anticipate further investment in
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this market. These two properties are included in "Other" below. See Note 13 to the accompanying consolidated financial statements for additional information and a reconciliation of Net loss applicable to Piedmont to accrual-based net operating income ("NOI").
The following table presents NOI by geographic segment (in thousands):
Years Ended December 31,
Atlanta
Dallas
Orlando
Northern Virginia/Washington, D.C.
Minneapolis
New York
Boston
Total reportable segments
Other
Total NOI
Comparison of the Year Ended December 31, 2025 Versus the Year Ended December 31, 2024
Atlanta
NOI increased due to several leases commencing at our Galleria on the Park and Glenridge Highlands projects during the year ended December 31, 2025 as compared to the same period in the prior year.
Orlando
NOI increased primarily due to the commencement of the Travel and Leisure lease at the 501 West Church project, as well several leases commencing at The Exchange project and the CNL Center I and II project during the year ended December 31, 2025 as compared to the same period in the prior year.
Northern Virginia/Washington, D.C.
NOI decreased primarily due to the expiration or downsizing of certain tenants at our 1201 & 1225 Eye Street project, our 4250 North Fairfax Drive project, and our Arlington Gateway project during the year ended December 31, 2025 as compared to the same period in the prior year.
Boston
NOI decreased primarily due to sale of the 80 and 90 Central project during the year ended December 31, 2025 as compared to the same period in the prior year.
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Funds From Operations ("FFO"), Core Funds From Operations ("Core FFO"), and Adjusted Funds From Operations (“AFFO”)
Net loss calculated in accordance with GAAP is the starting point for calculating FFO, Core FFO, and AFFO. These metrics are non-GAAP financial measures and should not be viewed as an alternative measurement of our operating performance to net loss. Management believes that accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, we believe that the additive use of FFO, Core FFO, and AFFO, together with the required GAAP presentation, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.
We calculate FFO in accordance with the current National Association of Real Estate Investment Trusts ("NAREIT") definition. NAREIT currently defines FFO as Net loss (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets, goodwill, and investment in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, along with appropriate adjustments to those reconciling items for joint ventures, if any. Other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than we do; therefore, our computation of FFO may not be comparable to the computation made by other REITs.
We calculate Core FFO by starting with FFO, as defined by NAREIT, and adjusting for gains or losses on the early extinguishment of debt and any significant non-recurring or infrequent items. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative to net loss calculated in accordance with GAAP as a measurement of our operating performance. We believe that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain infrequent or non-recurring items which can create significant earnings volatility, but which do not directly relate to our core recurring business operations. As a result, we believe that Core FFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential. Other REITs may not define Core FFO in the same manner as us; therefore, our computation of Core FFO may not be comparable to the computation made by other REITs.
We calculate AFFO by starting with Core FFO and adjusting for non-incremental capital expenditures and then adding back non-cash items including: non-real estate depreciation, straight-lined rents and fair value lease adjustments, non-cash components of interest expense and compensation expense, and by making similar adjustments for joint ventures, if any. AFFO is a non-GAAP financial measure and should not be viewed as an alternative to net loss calculated in accordance with GAAP as a measurement of our operating performance. We believe that AFFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments in new properties or enhancements to existing properties that improve revenue growth potential. Other REITs may not define AFFO in the same manner as us; therefore, our computation of AFFO may not be comparable to the computation of other REITs.
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Reconciliations of net loss to FFO, Core FFO, and AFFO for the years ended December 31, 2025, 2024, and 2023, respectively, are presented below (in thousands except per share amounts):
GAAP net loss applicable to common stock
Depreciation of real assets
Amortization of lease-related costs
Impairment charges
(Gain)/loss on sale of real estate assets
NAREIT FFO applicable to common stock
Adjustments:
Executive separation costs
Loss on early extinguishment of debt
Core FFO applicable to common stock
Adjustments:
Amortization of debt issuance costs and discounts on debt
Depreciation of non real estate assets
Straight-line effects of lease revenue
Stock-based compensation adjustments
Amortization of lease-related intangibles
Non-incremental capital expenditures (1)
AFFO applicable to common stock
Weighted-average shares outstanding – diluted (2)
NAREIT FFO per share (diluted)
Core FFO per share (diluted)
(1) We define non-incremental capital expenditures as capital expenditures of a recurring nature related to tenant improvements, leasing commissions, and building capital that do not incrementally enhance the underlying assets' income generating capacity. Tenant improvements, leasing commissions, building capital and deferred lease incentives incurred to lease space that was vacant at acquisition, leasing costs for spaces vacant for greater than one year, leasing costs for spaces at newly acquired properties for which in-place leases expire shortly after acquisition, improvements associated with the expansion of a building, and renovations that either enhance the rental rates of a building or change the property's underlying classification, such as from a Class B to a Class A property, are excluded from this measure.
(2) Includes potential dilution under the treasury stock method that would occur if our remaining unvested and potential stock awards vested and resulted in additional common shares outstanding. Such shares are not included when calculating net loss per share applicable to Piedmont for the three years ended December 31, 2025 as they would reduce the loss per share presented.
NAREIT FFO applicable to common stock was $1.11 per diluted share for the year ended December 31, 2025, as compared to $1.44 per diluted share for the same period in the prior year due to the recognition of loss on early extinguishment of debt associated with debt retired during the current period, increased interest expense, net of interest income, recognized during the current year as compared to the year ended December 31, 2024, as well as the sale of four projects subsequent to January 1, 2024. Core FFO applicable to common stock was $1.41 per diluted share for the year ended December 31, 2025, as compared to $1.49 per diluted share for the same period in the prior year. The decrease is due to increased interest expense, net of interest income, in the current year as compared to the year ended December 31, 2024, as well as the sale of four projects subsequent to January 1, 2024.
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Property and Same Store Net Operating Income
Property Net Operating Income ("Property NOI") is a non-GAAP measure which we use to assess our operating results. We calculate Property NOI beginning with Net loss (calculated in accordance with GAAP) before adjusting for interest, depreciation and amortization and removing any impairments and gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Furthermore, we remove general and administrative expenses, income associated with property management performed by us for other organizations, and other income or expense items. For Property NOI (cash basis), straight-lined rents and fair value lease revenue are also eliminated; while such effects are not adjusted in calculating Property NOI (accrual basis). Property NOI is a non-GAAP financial measure and should not be viewed as an alternative to net loss calculated in accordance with GAAP as a measurement of our operating performance. We believe that Property NOI, on either a cash or accrual basis, is helpful to investors as a supplemental comparative performance measure of income generated by our properties alone without our administrative overhead. Other REITs may not define Property NOI in the same manner as we do; therefore, our computation of Property NOI may not be comparable to that of other REITs.
We calculate Same Store Net Operating Income ("Same Store NOI") as Property NOI attributable to the properties (excluding undeveloped land parcels) that were (i) owned by us during the entire span of the current and prior year reporting periods; and (ii) that were not out of service for development or redevelopment during those periods. Same Store NOI, on either a cash or accrual basis, is a non-GAAP financial measure and should not be viewed as an alternative to net loss calculated in accordance with GAAP as a measurement of our operating performance. We believe that Same Store NOI is helpful to investors as a supplemental comparative performance measure of the income generated from the same group of properties from one period to the next. Other REITs may not define Same Store NOI in the same manner as we do; therefore, our computation of Same Store NOI may not be comparable to that of other REITs.
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The following table sets forth a reconciliation from Net loss applicable to Piedmont calculated in accordance with GAAP to EBITDAre, Core EBITDA, Property NOI, and Same Store NOI on both a cash and accrual basis, for the years ended December 31, 2025 and 2024, respectively (in thousands):
Cash Basis
Accrual Basis
December 31,
December 31,
December 31,
December 31,
Net loss applicable to Piedmont (GAAP basis)
Net income applicable to noncontrolling interest
Interest expense
Depreciation
Amortization
Depreciation and amortization attributable to noncontrolling interests
Impairment charges
Loss/(gain) on sale of real estate assets
EBITDAre (1)
Loss on early extinguishment of debt
Executive separation costs
Core EBITDA (2)
General & administrative expenses
Management fee revenue (3)
Other income
Straight-line rent effects of lease revenue
Straight-line effects of lease revenue attributable to noncontrolling interests
Amortization of lease-related intangibles
Property NOI
Net operating (income)/loss from:
Acquisitions
Dispositions (4)
Other investments (5)
Same Store NOI
Change period over period in Same Store NOI
(1) We calculate Earnings Before Interest, Taxes, Depreciation, and Amortization- Real Estate ("EBITDAre") in accordance with the current NAREIT definition. NAREIT currently defines EBITDAre as net income (computed in accordance with GAAP) adjusted for gains or losses from sales of property, impairment losses, depreciation on real estate assets, amortization on real estate assets, interest expense and taxes, along with the same adjustments for joint ventures, if any. Some of the adjustments mentioned can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. EBITDAre is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that EBITDAre is helpful to investors as a supplemental performance measure because it provides a metric for understanding our results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization) and capitalization and capital structure expenses (such as interest expense and taxes). We also believe that EBITDAre can help facilitate comparisons of operating performance between periods and with other REITs. However, other REITs may not define EBITDAre in accordance with the NAREIT definition, or may interpret
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the current NAREIT definition differently than us; therefore, our computation of EBITDAre may not be comparable to that of such other REITs.
(2) We calculate Core Earnings Before Interest, Taxes, Depreciation, and Amortization ("Core EBITDA") as net income (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and removing any impairment losses, gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that Core EBITDA is helpful to investors as a supplemental performance measure because it provides a metric for understanding the performance of our results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization), as well as items that are not part of normal day-to-day operations of our business. Other REITs may not define Core EBITDA in the same manner as us; therefore, our computation of Core EBITDA may not be comparable to that of other REITs.
(3) Presented net of related operating expenses incurred to earn such management fee revenue.
(4) Dispositions include 80 and 90 Central, sold in the second quarter of 2025, 161 Corporate Center, sold in the first quarter of 2025, 750 West John Carpenter Freeway, sold in the third quarter of 2024, and One Lincoln Park, sold in the first quarter of 2024.
(5) Other investments include active or recently completed out-of-service redevelopment projects and land. The operating results from a portion of The Exchange in Orlando, Florida, as well as Meridian and 9320 Excelsior Boulevard in suburban Minneapolis, Minnesota are included in this line item.
Overview
Our portfolio consists of office projects located within identified growth submarkets in large metropolitan cities concentrated primarily in the Sunbelt. We typically lease space to creditworthy corporate or governmental tenants on a long-term basis. As of December 31, 2025, our average lease was approximately 14,000 square feet with six years of lease term remaining. Leased percentage, as well as rent roll ups and roll downs which we experience as a result of re-leasing, can fluctuate widely between buildings and between tenants, depending on when a particular lease is scheduled to commence or expire.
Leased Percentage
The leased percentage of our in-service portfolio increased to 89.6% leased as of December 31, 2025, from 88.4% leased as of December 31, 2024. During the year ended December 31, 2025, we completed approximately 2.5 million square feet of leasing, including approximately 1.7 million square feet of new tenant leases, which contributed to the increase in our in-service leased percentage as compared to December 31, 2024. As of December 31, 2025, scheduled lease expirations for 2026 represented less than 10% of our Annualized Lease Revenue. To the extent the square footage from new leases for currently vacant space in our in-service portfolio exceeds or falls short of the square footage associated with non-renewing expirations, such leases would increase or decrease our in-service leased percentage, respectively. As of December 31, 2025, three projects, 222 South Orange Avenue in Orlando, Florida, and 9320 Excelsior Boulevard and Meridian, both in suburban Minneapolis, Minnesota, were classified as out of service as they undergo redevelopment. Collectively, these out of service projects were approximately 62% leased as of December 31, 2025.
Impact of Downtime, Abatement Periods, and Rental Rate Changes
Commencement of a lease associated with a new tenant typically occurs 6-18 months after the lease execution date, after refurbishment of the space is completed. The downtime between a lease expiration and the new lease's commencement can negatively impact Property NOI and Same Store NOI comparisons (both accrual and cash basis). In addition, office leases for both new and renewing tenants often contain upfront rental and/or operating expense abatement periods which may delay the cash flow benefits of the lease even after the new or renewed lease has commenced, negatively impacting Property NOI and Same Store NOI on a cash basis until such abatements expire. As of December 31, 2025, we had approximately 1.1 million square feet of executed leases for vacant space that are yet to commence representing approximately $46 million of future additional annual cash rents, and approximately 0.8 million square feet of executed leases currently under rental abatement, representing approximately $22 million of future additional annual cash rents.
If we are unable to replace expiring leases with new or renewal leases at rental rates equal to or greater than the expiring rates, rental rate roll-downs could occur and negatively impact Property NOI and Same Store NOI comparisons. As discussed above, our diverse portfolio and the magnitude of some of our tenants' leased spaces can result in rent roll-ups and roll-downs that can fluctuate widely on a project-by-project and a quarter-to-quarter basis. During the year ended December 31, 2025, we experienced a 10.1% and 19.1% roll up in cash and accrual rents, respectively, on executed leases related to space vacant one year or less.
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During the year ended December 31, 2025, Same Store NOI increased by 0.2% and 1.8% on a cash and accrual basis, respectively, as newly commenced leases or those with expiring abatements outweighed expiring leases. Same Store NOI comparisons for any given period fluctuate as a result of the mix of net leasing activity in individual properties during the respective period.
Election as a REIT
We have elected to be taxed as a REIT under the Code and have operated as such beginning with our taxable year ended December 31, 1998. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our adjusted REIT taxable income, computed without regard to the dividends-paid deduction and by excluding net capital gains attributable to our stockholders, as defined by the Code. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we may be subject to federal income taxes on our taxable income for that year and for the four years following the year during which qualification is lost and/or penalties, unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net loss and net cash available for distribution to our stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and intend to continue to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for federal income tax purposes. We have elected to treat one of our wholly owned subsidiaries as a taxable REIT subsidiary ("TRS"). Our TRS performs non-customary services for tenants of buildings that we own, including real estate and non-real estate related-services. Any earnings related to such services performed by our TRS are subject to federal and state income taxes. In addition, for us to continue to qualify as a REIT, our investments in TRS cannot exceed 20% of the value of our total assets.
Inflation
We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that are intended to protect us from, and mitigate the risk of, the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax, and insurance on a per square-foot basis, or in some cases, annual reimbursement of operating expenses above certain per square-foot allowances. However, due to the long-term nature of the leases, the leases may not readjust their reimbursement rates frequently enough to fully cover inflation.
Application of Critical Accounting Estimates
Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. The critical accounting policies outlined below have been discussed with members of the Audit Committee of the board of directors.
Valuation of Real Estate Assets
We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate and intangible assets of operating properties in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present, we assess whether the respective carrying values will be recovered from the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition for assets held for use, or from the estimated fair value, less costs to sell, for assets held for sale. In the event that the expected undiscounted future cash flows for assets held for use or the estimated fair value, less costs to sell, for assets held for sale do not exceed the respective asset carrying value, we adjust such assets to the respective estimated fair values and recognize an impairment loss.
Projections of expected future cash flows require that we estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. The changing of these assumptions and the subjectivity of assumptions used in the future cash flow analysis, including capitalization and discount rates, could result in a changed assessment or an incorrect assessment of the property’s estimated fair value and, therefore, could result in the
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misstatement of the carrying value of our real estate and related intangible assets and our reported net loss attributable to Piedmont.
Valuation of Goodwill
Goodwill is the excess of cost of an acquired entity over the amounts specifically assigned to assets acquired and liabilities assumed in purchase accounting for business combinations, and is allocated to each of our reporting units. We test the carrying value of the goodwill assigned to each of our reporting units for impairment on an annual basis, or on an interim basis if an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit may be less than its carrying value. Such interim circumstances may include, but are not limited to, significant adverse changes in legal factors or in the general business climate, adverse action or assessment by a regulator, unanticipated competition, the loss of key personnel, or persistent declines in an entity’s stock price below the carrying value of the entity.
In performing our goodwill impairment assessment, we compare the estimated fair value of each of our reporting units to the reporting unit's carrying value, inclusive of allocated goodwill. If we conclude the fair value of a reporting unit is less than its carrying value, then we would recognize a goodwill impairment loss equal to the excess of the reporting unit's carrying amount over its estimated fair value (not to exceed the total goodwill allocated to that reporting unit). Estimation of the fair value of each reporting unit involves projections of discounted future cash flows, which are derived using certain assumptions that are subjective in nature. We also make estimates about future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, and the number of months it takes to re-lease the property, among other factors. The changing of these assumptions and the subjectivity of the market based assumptions used in the discounted future cash flow analysis, particularly the capitalization rates and discount rates, could result in a changed assessment or an incorrect assessment of the reporting unit’s estimated fair value and, therefore, could result in the misstatement of the carrying value of our reporting units and related goodwill and our reported net attributable to Piedmont. In addition, economic conditions could also cause us to recognize additional asset charges in the future, which could materially and affect our business, financial condition and results of operations. See Note 2 and Note 6 to our accompanying consolidated financial statements for more details regarding our goodwill.
Rental Revenue Recognition
Rental income for office properties is our principal source of revenue. The timing of rental revenue recognition is largely dependent on our conclusion as to whether we, or our tenant, are the owner of tenant improvements at the leased property. The determination of whether we, or our tenant, are the owner of tenant improvements for accounting purposes is subject to significant judgment. In making that determination, we consider numerous factors and perform an evaluation of each individual lease. No one factor is determinative in reaching a conclusion. The factors we evaluate include but are not limited to the following:
• whether the tenant is obligated by the terms of the lease agreement to construct or install the leasehold improvements as a condition of the lease;
• whether the landlord can require the lessee to make specified improvements or otherwise enforce its economic rights to those assets;
• whether the tenant is required to provide the landlord with documentation supporting the cost of tenant improvements prior to reimbursement by the landlord;
• whether the landlord is obligated to fund cost overruns for the construction of leasehold improvements;
• whether the leasehold improvements are unique to the tenant or could reasonably be used by other parties; and
• whether the estimated economic life of the leasehold improvements is long enough to allow for a significant residual value that could benefit the landlord at the end of the lease term.
When we conclude that we are the owner of tenant improvements, we record the cost to construct the tenant improvements as an asset and commence rental revenue recognition when the tenant takes possession of or controls the finished space, which is typically when the improvements being recorded as our asset are substantially complete, and our landlord obligation has been materially satisfied. When we conclude that our tenant is the owner of certain tenant improvements, we record our contribution towards those improvements as a lease incentive, which is amortized as a reduction to rental and tenant reimbursement revenue on a straight-line basis over the term of the related lease, and the recognition of rental revenue begins when the tenant takes possession of or controls the space.
In addition, we also record the cost of certain tenant improvements paid for or reimbursed by tenants when we conclude that we are the owner of such tenant improvements using the factors discussed above. For these tenant-funded tenant improvements, we record the amount funded or reimbursed by tenants as an asset and deferred revenue. The asset is depreciated and the deferred
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revenue is amortized and recognized as rental revenue over the term of the related lease beginning upon substantial completion of the leased premises. Consequently, our determination as to whether we, or our tenant, are the owner of tenant improvements for accounting purposes has a significant impact on both the amount and timing of rental revenue that we record related to tenant-funded tenant improvements.
