Good day, ladies and gentlemen, and welcome to the Piedmont Office Realty Trust first quarter 2022 earnings call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Eddie Guilbert. Sir, the floor is yours.
Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's first quarter 2022 earnings conference call. Last night, we filed our Form 10-Q and an 8-K that includes our earnings release and our unaudited supplemental information for the first quarter that's available for your review on our website at piedmontreit.com under the Investor Relations section. During this call, you'll 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 1995. 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 for 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 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 speak as of the date they are made. Also on today's call, representatives of the company may refer to certain non-GAAP financial measures such as FFO, core FFO, AFFO and same-store NOI. The definitions and reconciliations of these non-GAAP measures are contained in the earnings release and in the supplemental financial information which we filed last night. At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments. Brent?
Good morning, everyone, and thank you again for joining us on today's call as we review our financial and operating results for the first quarter of 2022. In addition to Eddie, on the line with me this morning are George Wells, our Chief Operating Officer, Chris Kollme, our EVP of Investments, and Bobby Bowers, our Chief Financial Officer, as well as other members of the senior management team. We are extremely pleased with the strategic transactions closed during the first quarter and encouraged by the continued momentum we are witnessing across our markets, which led to the strong financial results.
While some U.S. companies are taking longer than we anticipated to finalize their return to the workplace strategy, we continue to encourage investors to focus on new tenant leasing as an indicator of the strength in the office sector, as opposed to individual building utilization levels, which can vary greatly by region and tenant type. On that metric, I would note that Piedmont's new tenant leasing activity this past quarter was the most robust it has been in over three years and marked the third consecutive quarter we've exceeded pre-pandemic levels of new tenant leasing. This leasing volume was achieved irrespective of the fact that the first quarter of the year historically tends to have the lowest leasing activity due to winter weather. Furthermore, these leasing transactions continued to demonstrate the positive momentum we're experiencing across our portfolio, particularly at our redeveloped properties.
I would reiterate Piedmont's portfolio is long dated and positioned for growth, with the average in-place rent 5%-10% below market and approximately six years of weighted average lease term remaining. At this time, I'm going to turn the call over to George Wells, our COO, to review this quarter's leasing activity with you in greater detail. George?
Thanks, Brent, and good morning, everyone. Our operational teams delivered strong first quarter results on many fronts, and the leasing momentum is very encouraging. Just as exciting is to see our tenants are increasingly communicating with their employees to return to the office. Our well-amenitized and wellness-focused portfolio is in an excellent position to support our customers' occupancy goals. In fact, our space utilization rate varies by tenant and property, and it is approaching pre-COVID levels at a few locations, and in some markets, utilization is averaging above 50%. Our lowest utilization levels are in Minneapolis and Washington, D.C., which are at approximately the 30% level at the end of the first quarter. I'm very excited to share our leasing results for the quarter.
We completed approximately 50 individual leases totaling 552,000 sq ft, with just under half of that activity related to new tenant leases. As Brent noted, these results reflect the third quarter in a row of exceeding pre-COVID new leasing tenant levels. Specific to the first quarter of this year, these results include the largest amount of new tenant leasing that we have experienced in the last 14 quarters. Tenant leasing demand is validating a flight to quality bias in the marketplace, and our strategy to aggregate modernized, well-located Class A properties that have an on-site and/or walkable amenity base continues to drive our leasing success.
These building factors, combined with a more robust service offering versus our peers for attributes such as tenant engagement, health, wellness, and sustainability, continues to have a meaningful impact on tenant space absorption, driving a 30 basis points increase in our lease percentage this quarter alone. Perhaps the best example of this phenomenon occurred this quarter at our Atlanta Galleria project. According to the Bureau of Labor Statistics, Atlanta has not only recovered all the jobs lost during the pandemic, but sits at 103% of pre-COVID employment levels. It should come as no surprise that this market continues to exhibit the strongest fundamentals across our portfolio.
As a reminder, we own five office buildings at the project spanning 2.2 million sq ft, which is 84% leased with run rates in the mid-30s gross, the highest in the submarket excluding new construction at an all-in basis of $245 per sq ft. In the last two years, we've redesigned the six-acre park experience. We've expanded food and beverage options. We've upgraded the fitness and conference center facilities, integrated new outdoor collaboration space, and improved access to Atlanta Braves' Battery entertainment complex. As a result of these repositioning efforts during the first quarter, we signed nine new tenants at the Atlanta Galleria, including three corporate headquarters relocations comprising 25,000 sq ft-50,000 sq ft each, and we renewed an additional seven tenants.
In aggregate, these leases were executed with an average of eight years of term and rental rate roll-ups of approximately 10%. As many of you are aware, this project is situated at the corner of I-75 and I-285 and is connected directly to the Atlanta Braves' Truist Park, creating a unique office environment with prominent signage. The project exhibits the enhanced workplace strategy that we are employing throughout our portfolio. As a result of these place-making efforts, leasing has been off the charts. Since January 2021, Piedmont has signed more than 291,000 sq ft of new deals with roughly 300,000 sq ft of leasable space remaining at the complex. It's a fantastic organic growth opportunity for the company. Atlanta, along with our other Sun Belt markets, Dallas and Orlando, helped drive the first quarter's leasing activity.
In fact, Dallas experienced the most leasing during the quarter, led by the renewal of our largest 2022 lease expiration, a national pharmaceutical retailer located at 750 West John Carpenter. This approximately 164,000 sq ft renewal resulted in a positive cash and accrual rent roll-ups of approximately 10% and 17%, respectively. Finally, this transaction highlights the increased focus we see from national corporations towards sustainability-focused landlords and buildings. In this case, the building's LEED Gold status was a differentiator. From a macro perspective, the Dallas economy continues to be a national leader in employment growth. According to the Bureau of Labor Statistics, this metro has remarkably recovered 106% of jobs lost during COVID. It is not surprising that Dallas is ranked by CBRE as its 2022 Investor Intentions Survey as the top office market for capital deployment.
It certainly feels like this market is poised to experience positive absorption in the next few quarters. In Orlando, we completed 10 leasing transactions this quarter, including six new tenant leases. Most noteworthy, our local team successfully completed a lease renewal with a top 100 Am Law law firm with 40,000 sq ft under a new 14-year lease and with a high single-digit accrual and cash rent roll-up. This renewal at our 775,000 sq ft South Orange Avenue complex, which is located in the heart of downtown, where we are completing a multi-million-dollar redevelopment project, is gaining a fair amount of market recognition and is attracting a number of new tenant prospects. The redevelopment includes a significant lobby modernization, an upgraded two-acre outdoor park with collaborative workspaces, tenant-dedicated balconies, expanded food and beverage options, and a best-in-class conference center.
Today, we are pleased to share some exciting news regarding this modernized LEED Gold South Orange Avenue project with the announcement of a just signed approximately 62,000 sq ft new lease with one of the nation's premier planning and design consultants, Kimley-Horn and Associates. This marks the second location for this tenant within our portfolio and demonstrates the frequency in which tenants return to Piedmont for their office space needs. With the latest Kimley-Horn lease, new leasing at the South Orange Avenue property now totals approximately 125,000 sq ft since January 2021. Outside of the Sun Belt, new leasing activity is occurring in our Boston assets, albeit these properties were already relatively well leased.
According to Newmark Research, 1 million sq ft of office-to-lab conversions were executed during the past five years within the West Route 128 submarket, which includes our position in Burlington, with another 4 million sq ft right behind it in various stages of conversion. That would dramatically reduce the size of that submarket by 19%, allowing us to continue to push rental rates higher. Deal flow was generally slower in our other markets. In Washington, D.C., more return to office announcements give us renewed confidence that recovery there will gain momentum.
Mastercard, a large customer at our 4250 North Fairfax LEED Gold Trophy office tower in Ballston, has eliminated its alternating team concept and now requires all employees to be in the office several days a week. Also, Green Street in March highlighted the Biden administration's recent statement claiming that federal agencies will lead by example in returning to the office. Since that news, the Federal News Network has reported that two agencies, EPA and the Veterans Administration, were returning to the office in the second quarter of the year. Geopolitical uncertainty could also boost office demand in the near term from defense-related industries. This industry generally seeks close proximity to the Pentagon in Northern Virginia, where we own three well-amenitized, LEED-designated assets that sit adjacent to two Metro train stations. We have very limited amount of lease roll to Washington for the remainder of the year.
Our sole asset in New York is approximately 90% leased with virtually no expirations this year. Deal flow is slow, though, as the city in general is still in the early stages of recovery. That said, occupancy utilization is over 50% at our 60 Broad asset, and we continue to make modest progress on our lease with New York City. Minneapolis, the city with the largest number of Fortune 500 companies per capita in the U.S., has historically maintained one of the highest stabilized lease percentages in our company and today sits at approximately 90%. Prospect activity is good at our 2021 TOBY Award-winning asset in Norman Pointe and at our LEED Gold asset at Crescent Ridge II, where most of our vacancy resides.
In addition, we are in the midst of lease discussions with U.S. Bancorp, our largest tenant, and we hope to report more progress on this active renewal discussion during the next quarter. In summary, economics for future leasing look promising as leases executed during the first quarter were quite favorable, with an approximately 5% and 13% increase in second-generation rents on a cash and accrual basis, respectively. The first quarter's executed leases average lease term was 6.6 years. Our overall portfolio is at 87% leased as of March 31st, 2022, up from 85.5% leased at year-end 2021, with only about 4.6% of our portfolio's annualized lease revenues expiring during the remainder of 2022. Our leasing pipeline has not dissipated.
Our record levels of prospective tours and active proposal pipeline, and that is in addition to our 1 million sq ft of already executed leases that have not commenced or are still in abatement, which represent approximately $33 million of incremental cash ALR due to come into the portfolio over the next 12-24 months. With very few leases expiring for the remainder of the year, we continue to expect net space absorption during 2022, especially since roughly 90% of those expirations and 70% of our vacancy reside in the Sun Belt. This bolsters our confidence to reach an anticipated year-end lease percentage around 88%. Thank you for your time this morning. I am now going to turn the call over to Chris Kollme, who will review with you our property investment transactions completed during the first quarter and our capital deployment strategy. Chris.
Thanks, George. On the investments front, the team has been very busy, and we remain highly optimistic about the deal flow we're seeing in our pipeline. Looking back over the past 18-24 months, the overwhelming majority of what we've seen marketed through the brokerage channels has been characterized by long-vault, good credit, newly developed, and or 100% leased assets. They're fully banked with little downside, and they've traded at ±5% cash cap rates and 20%-35% above replacement cost. As most of you know, this has not been the traditional opportunity set for Piedmont, but if these types of opportunities allow us to continue to elevate the portfolio and further advance our Sun Belt expansion, we will consider these transactions if highly strategic in nature and accretive to earnings.
To be clear, we are not abandoning our more traditional investment philosophy of buying well-located real estate in great markets at a basis which supports repositioning, redevelopment, and activation. We firmly believe in the flight to quality theme, and we think it's here to stay. As George outlined at the Atlanta Galleria, 25 Burlington Mall Road in Boston, and through the momentum we're currently seeing in Orlando following our redevelopment efforts there, quality is not solely defined by age. Well-placed capital can in fact reinvent and reinvigorate great real estate. I will note, while the brokerage community plays an incredibly important role in our acquisition pipeline, we are not dependent on broadly marketed transactions as our only source of investment opportunities. We have made significant progress tightening our footprint and concentrating in particular nodes which we believe provide outsized growth and opportunity in our portfolio.
We know where we want to be, we know the assets we want to own, and our local teams know the owners of those assets. We can't force them to sell, but we can certainly play offense, express our interest, and try to engage in discussions, which is precisely how our acquisition of 999 Peachtree in Midtown Atlanta came about. After just five months of ownership, we have already completed approximately 60,000 sq ft of leasing at the asset. Our teams are actively engaged with brokers and directly with owners, principally in Dallas and Atlanta at the moment.
We're optimistic that this heightened focus will continue to generate great results in 2022. The pipeline for acquisition stands at around $1.5 billion and gives us confidence that we can achieve our goal to have at least 75% of our AOR generated by our Sunbelt markets by the end of 2023. On the disposition side, we've already disclosed 2 completed transactions in 2022, the sale of our Presidential Way assets in Boston and the sale of Two Pierce Place in Chicago, both of which closed in late January. We also reported that our notes receivable related to the 2020 New Jersey portfolio sale were fully repaid in late March, completing our exits from Chicago and New Jersey as projected and redeploying those proceeds into midtown Atlanta through a reverse 1031 at accretive yields.
Looking forward, we have engaged a brokerage team to market our two non-core LEED Gold assets in Houston. We are also evaluating market conditions for our two assets in Cambridge, where unprecedented pricing metrics have severely limited our opportunities to grow. As we've said often, if and when we cannot grow within a sub-market and/or we have fully maximized value on a given asset, we will consider selling. In the case of Cambridge, both variables are certainly true, and we believe we can redeploy those proceeds in an accretive manner. We will continue to keep a close eye to the balance of our portfolio and will likely prune select assets in addition to the activity I just mentioned, with the intention of reinvesting those proceeds into higher growth markets in the Sunbelt.
With that, I'll turn the call over to Bobby to walk you through the financial highlights of the quarter and our updated guidance for 2022. Bobby?
Thanks, Chris. While I'll discuss some of our financial highlights for the quarter, I encourage you to please review the entire earnings release and supplemental financial information which were filed last night for more complete details. Core FFO for the first quarter was $0.51 per diluted share. That's a 6% increase over the first quarter of 2021, and this increase is primarily due to accretive recycling activity since the first quarter of last year and rising rental rates. That's particularly at our most amenitized locations, such as the Galleria in Glenridge Highlands in Atlanta, South Orange Avenue and CNL Center in Orlando, the Galleria and One Lincoln Park in Dallas, as well as Wayside Road and Burlington Mall Road in Boston. These are projects where we're now achieving net effective rents higher than those pre-pandemic.
AFFO generated during the first quarter was approximately $39 million, well above our current $26 million quarterly dividend level. As we mentioned last quarter, our board has indicated that given our cash NOI growth over the last few years, the fact that we are approaching the conclusion of a large construction restacking project for the state of New York at Sixty Broad, as well as the time since our last dividend increase, the board will be reviewing our dividend payout amount during the summer of this year. Also, George has indicated, our completed new tenant leasing activity during the first quarter of 2022 was the best in several years. The second generation rents during the first quarter improved 5% and 13% for cash and accrual basis rents, respectively.
On a same-store comparative basis, cash NOI increased a little over 5%, and on an accrual basis, it increased approximately 2.5%. Turning to the balance sheet, our trailing twelve-month net debt to core EBITDA ratio as of the end of the first quarter of 2022 was within our managed range at 5.8x . As noted on our last earnings call, we anticipated, and during the quarter, we did receive approximately $119 million in proceeds from the payoff of two notes receivable that were outstanding as of December 31st, 2021. The proceeds were used to pay down our $500 million line of credit.
As of the end of the first quarter, we had approximately $420 million of unused capacity on the revolver, and we had a debt to gross asset ratio of 34.6%. Now, we have no scheduled debt maturities in 2022 other than a $500 million revolver, which our treasurer, Eddie Guilbert, and his team are currently in the process of renewing, with a closing targeted for June of this year. Finally, at this time, I'd like to update our annual guidance for 2022, raising the low end of the range and the midpoint of our previous guidance. We currently estimate core FFO per diluted share for 2022 will be in the range of $1.99-$2.07.
This revised estimate incorporates the successful leasing progress year- to- date and an analysis of our existing tour activity and prospective leasing pipeline. It also includes the current backlog of approximately 1 million sq ft of leases yet to commence or in some form of abatement, which will generate new revenues or will offset reimbursable operating expenses. This guidance also includes an accelerated rise in our projected short-term LIBOR interest rates on our debt. Specifically, the 30-day LIBOR we expect to increase to over 2% by year-end. We also have several other operational and supply chain considerations that we've included in our new guidance. As a result of this revised guidance, our estimated same-store cash and accrual-based NOI for the year are both expected to be positive in the range of 1%-4%.
I will note the effects of the dispositions that were completed during the first quarter, as well as the payoff of the $119 million notes receivable were already included in our original guidance. However, no acquisition or disposition activity is contemplated in this new revised guidance. At this time, I'll turn the discussion back over to Brent Smith.
Thank you, George, Chris and Bobby. Repeating the comments I made at the beginning of the call, I'm extremely pleased with the operating results achieved thus far in 2022, and I want to express my sincere appreciation to my colleagues working diligently every day at Piedmont. We are excited about our leasing pipeline and the organic cash flow growth that can be generated, and we're very encouraged with the accretive capital recycling opportunities we anticipate this year, both of which can accelerate and improve earnings growth of our portfolio. That said, there will be challenges, particularly in the areas of construction and property management, but our team is closely monitoring supply chain issues to minimize the impact on construction projects and tenant services. Our finance team will be prudently managing our expenses and balance sheet during this inflationary environment.
As I talk with other CEOs and business leaders around the country, many are sharing that as much of a struggle as it was to lead an organization through the global pandemic, it is just as much of a struggle to lead our organization out of it to be more efficient and more productive in this new hybrid environment. Although work styles and schedules will be different than they were before COVID, there seems to be a significant agreement from executives on the long-term value for most organizations to offer their employees a modernized, easily accessible, amenitized office space as part of the organization's hybrid work model. We've been saying that we believe we position ourselves to capture a significant amount of that evolving tenant demand in the post-pandemic world, but it's admittedly gratifying to see it coming to fruition.
Piedmont's strategy of offering a premier sustainability and wellness designated amenitized office experience at rental rates well below new construction is resonating across our markets. To that end, I want to reiterate our steadfast commitment to be a leader among the commercial real estate industry for environmental, social, and governance initiatives, and call your attention to the fact that our entire portfolio was awarded the WELL Health-Safety Rating during the first quarter. At Piedmont, we're dedicated to enhancing the safety and well-being of our portfolio as our tenants complete their transition back to the office, and the WELL Health-Safety Rating reinforces our market-leading policies and procedures for keeping our tenants, employees and visitors safe, healthy and productive, while bolstering confidence for those who utilize our buildings.
We remain fully committed to exceeding the expectations of our customers, staying on the leading edge for space, design, amenity and service offerings demanded in today's competitive workplace, which will help our tenants to attract and retain their employees in a challenging labor market. We are sensibly reinvesting in our portfolio, keeping our assets fresh and modernized. Where we do not believe reinvesting in an asset will take it to premium levels, we will cull it from our portfolio. Exceptional quality is crucial, and we do not want our own commodity product. With that, I will now ask for our conference call 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'll make appropriate later public disclosure if necessary. Operator?
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Dave Rodgers. Please announce your affiliation and then pose your question.
Baird. Hey, guys, it's Nick on for Dave. First, maybe wanted to touch on some comments George made, especially on the leasing pipeline. I think last quarter, Brent mentioned around 500,000 sq ft of active negotiations and then an additional 1,000,000 sq ft like that you're trading LOIs on. Just wanted to kind of get an idea of like where that pipeline stands now. Just want to see if like the strong leasing that we saw in first quarter is gonna continue throughout the year. Then maybe break that pipeline down between new and renewal leasing.
Sure. Good morning, Nick. This is George. Thank you for the question. I'll tell you, momentum continues to be quite strong. I mean, just starting out for the things that happened before getting proposals in terms of tour activity. We had a record high number of tours in March that we haven't seen in the past 18 months. Aggregately, we're really happy with where the momentum is from a tour perspective. Diving into proposals, it's been pretty consistent, somewhere around 100 deals per quarter, you know, I'd say $1.5 million-$2 million overall in overall transactions. I would say about a little bit more than half of that is for new deal activity.
Great. Maybe on the renewal side, you guys kind of mentioned US Bank. How soon are you beginning discussions with some of these larger expirations on their spaces?
Hey, Nick, this is Brent. You know, I'd say we start discussions, you know, with the government tenant, usually about three years out before expiration. If it's a more traditional corporate tenant, it's usually somewhere around 18 months out. We try to prod them, and depending on the situation these days, they'll usually engage around 12-9 months out, just depending on how they're thinking about their space and how they plan their work from home approach, b ut that's usually when we start to really heavily engage. If you think about what really sits before us, in terms of those bigger tenants right now, we've obviously shared, CVS was the more near term. We got that one accomplished, which was great, which really reduces the amount of 2022 exposure. Everything else would be into.
Well into 2023, and the most near of the term of those would be Ryan, as we've discussed on the last call. They have not started construction on that potential site that they've considered moving to. So we do feel pretty good about our opportunity for at least a short-term renewal, but would also remind the market, you know, they've got about 80% of their people back into the space. They're utilizing it, and that would equate to just relative to market, a high teens% roll-up on a cash basis. So we feel pretty good about overall the positioning of that asset in the market.
Very prominent signage, but we do think we'll get something short-term with them there if they do decide to even go forward with the building that they have up, in Frisco, the land that they're building on.
Great.
In regards to Cargill, that is further out, but we are in discussions with them. They are still working on their work from home strategy. I think that still stands in the situation where I think it could go either way, but I think we're still cautiously optimistic. US Bank, as we've talked about, very close relationship with US Bank as they are one of our trusted advisors, particularly on the debt side, and I have a relationship with the management team there. We continue to work with them, and Downtown, frankly, itself continues to recover, and their location out in the suburbs is critical to their operations. We're engaged with them, and I'd say we feel pretty good about where things are headed, but it's still pretty early.
I think that's really the major ones for 2023 as we think about what's on the horizon. We feel pretty good about, again, where those stand.
Okay. Yeah, that's very helpful. The last one maybe is on the investment sales side and maybe for Chris. Sounds like the exit from Houston is pretty imminent. I know you guys mentioned that before you would enter a new market, you would exit one of your current markets. Guess maybe on the $1.5 billion of pipeline for acquisitions, is there any new Sunbelt markets involved in that or maybe some new sub-markets, just to follow on that?
Yes, it's a fair question, Nick. You know, we have said for some time we've been evaluating new markets, really in the major markets in the Sun Belt. We have said, as you point out, that we wouldn't add a dot without taking a dot off the map. We are certainly trying to further simplify our story, not complicate it. We do intend to be out of Houston sometime this year. It's hard to tell the timing, probably, you know, circa third quarter, early fourth quarter, a nd also, you know, we've been pretty clear on where we're heading in New York. You know, we think we could be in a position to plant a flag in a new market over the next 18-24 months. Really hard to put a timeline on it.
We've been looking at it for 2-3 years. You know, for the moment, we're laser-focused on Dallas and Atlanta, but you know, also making sure we're engaged in some of these potential new markets.
Great. Thanks, guys.
I think I'd add to that, this is Brent. You know, as we continue to evaluate, I think we really wanna continue to go deeper into those sub-markets we already have a presence in, particularly those who are seeing strong growth and leasing activity. We'll look at, you know, a combination of core plus value add. Really what we're looking for, though, are great assets that are at Main and Main and may need to be modernized. Once that is complete, they could easily and effectively compete against new construction. I think we continue to focus on those opportunities.
Your next question for today.
Anything else, Nick? Okay.
Your next question for today.
Please go ahead.
Is coming from Michael Lewis. Michael, please announce your affiliation, then pose your question.
Thank you. I'm at Truist Securities. I appreciate all the, you know, the investment update from Chris. I wanted to ask if maybe you could, you know, discuss this decision a little bit more. It sounds like you know, you're interested in some lower cap rate assets. You know, we estimate the implied cap rate on your shares are, you know, have an eight handle. So maybe just talk about, you know, capital allocation, how you got convinced, you know, that this is the best way to allocate capital. You know, you framed it as not really a change in strategy, but it sounds a little bit like it sort of is.
I feel like that's putting a little bit of words in our mouth, Michael, to say that we're going after lower cap rate assets. I think we've always said that we are looking for accretive acquisitions. I think if you look at what we have in the pipeline for dispositions, whether it be, you know, Cambridge, long-term lease Houston, potentially monetization in New York, maybe next year, some of the other non-core but quality assets that we'll continue to prune that are mature, we feel like we can rotate that into accretive acquisitions. I don't think we feel like we're moving down the spectrum, but we're looking for quality in that regard.
I think when it comes to what we think we can buy, I think that's still we feel a very good opportunity to pick up assets that can compete with new construction. We can find leasing velocity or be able to create value in some manner for shareholders over time. If we look at our own stock, we have bought back our stock in the past, and we still continue to use that same framework that when we trade at significant discounts to NAV and we feel like it's the best use of capital, we will continue to do so. I would note that we don't have really any capital coming in the door from a disposition standpoint and would not consider levering up to buy back shares at this point.
We do feel that some of these acquisition opportunities that are in the pipeline that are more value add and core plus and continue to tighten the footprint and grow cash flow are gonna create value for shareholders, certainly, and that's what we're gonna continue to look for. You know, we'll continue to describe to the market what the accretion story is for each transaction that goes forward, but we very much feel like we can maintain that story and continue to improve the quality of the portfolio.
Okay, great. That's helpful. You know, on the leasing side, you've addressed CVS, you talked about Ryan, Cargill, US Bank, so I figured why not even go out further out? I wanted to ask about, you know, Amazon in Dallas is a little less than three years out. Do you have any sense of whether they want new space or if, you know, maybe there's potential for them to stay and expand in place? Maybe it's too early. I don't know.
You know, I wouldn't say it's too early. We are engaged in discussions with both Amazon and their brokerage representatives. As you point out, that lease is still about three years out, so it is a little early, b ut as we think about our opportunity at Dallas Galleria Tower IV, if we were to think about new development and also our relationship with Amazon, who continues to bring their workforce back to our existing assets, we feel very, I guess, like we have a compelling opportunity for them to continue to grow in that location. We'll continue to kind of be engaged, I would say, with them intently on their opportunities at that location to either stay in the existing buildings or move to a newer asset if that's what they would prefer.
Remember, if you recall, they did sign an expansion shortly after we bought the asset, so we continue to stay very engaged with that team, and their space needs.
Great. Lastly for me, one for Bobby. You know the next maturity. You have the notes expiring in the summer of 2023. Thought I'd ask the question given you know what's happened with interest rates lately. You know, how are you kind of thinking about that? I don't know if you have a sense of like what you'd be able to refi that at today, if the cost of capital has moved up materially or anything like that.
Well, I'll tell you're asking the question that all of us are watching as we're looking at interest rates very closely right now. You might have noticed in my comments, I indicated we've adjusted our interest rates even on our short-term debt up from a 100 basis point increase this year to 200 basis points of an increase taking place that's having an impact on us, b ut I'll tell you, we're currently running the models. We're committed to trying to do public debt offerings. You might note in the last two years, we've done two of them. We'll be evaluating those as we get closer, and we determine what's happening with the interest rates.
Okay. Thank you.
Your next question for today is coming from Anthony Paolone. Anthony, please announce your affiliation, then pose your question.
Yeah. Thank you, JPMorgan. My first question relates to US Bancorp. I know when New York City and state leases were expiring, you guys were pretty transparent about what, you know, mark-to-market and CapEx would look like for those. Can you give us any brackets around, you know, what the US Bancorp situation may look like?
Sure, Tony. This is Brent. I think the first expiration, there are two or kind of two locations for US Bank in Minneapolis, but the first location that'll come to expire should be, you know, I'd say a slight roll-up. In terms of capital, those assets are, you know, in decent shape, I would say. They will need a refresh of capital from the tenant side.
I wouldn't say it's equivalent to a new deal, but it's probably a little bit more than a standard renewal. You would expect we would have a significant amount of term to offset that capital. I think overall on a per square foot per year, it would be very favorable. I think the downtown location, it's kind of early to say you know leasing transactions downtown admittedly have been limited just given what's gone overall as the city's continued to recover in the CBD. The good news is the kind of major firms are starting to bring their employees back, including US Bank, which I think starts to bolster things.
It's tough to tell honestly what it would be on a mark-to-market basis, but if I had to peg it today, I'd probably say it was roughly flat, maybe slightly up, b ut probably, I'm being cautious in that regard. In terms of capital, that is a great asset. You know, we put in a lot of money into the base buildings and built a beautiful tenant amenity and hub at the top of the building, with beautiful 18-foot ceilings, et cetera. It's really top of market in terms of its amenity set, and really don't need to put a ton of capital into the base buildings. The tenant space itself is also in pretty good shape, but I would kind of characterize it similar to the suburban location.
It won't require as much capital as a new deal, probably more in line with a renewal or maybe just slightly above a standard renewal, in that type because it is a high-quality tenant, which we would expect a long-term commitment in that regard again. The per square foot component would be very favorable. When I say long-term, generally 10-15 years.
Okay, great. That's real helpful. Thanks for all that color there. My second question is probably for Chris and going through some of the capital markets discussion. You know, given the change in rates and spreads moving, any parts of the market where you've seen you know, liquidity you know, change either for better or worse, either geographically or by product type?
Yeah, it's a good question. You know, as I mentioned in the prepared remarks, you know, excluding the true core deals, I'd say, you know, the market has been pretty paralyzed for the last 18-24 months. For those new assets with long WALs and great credit, with one or two credits or one or two tenants, rather, occupying the entire building, until very, very recently, given the disruption in the debt markets, those deals have traded at very, very high prices. I'd suggest certainly at pre-COVID levels and maybe even through it in some cases. You know, again, these are situations where the buyers aren't having to underwrite through rollover or lease-up, and they're really just underwriting the credit and putting a cap rate on the income stream.
There are a couple of transactions in our market that look and feel a lot like that, where you've got a pristine credit, 13, 14-year firm lease that have been in the market and were getting exceptional reception until very recently. A couple of those deals have, because of the debt markets, been put on pause. I do think it is certainly the environment has put some buyers on alert, and I think some of those trades have been put on pause as a result.
I'd add to that, Tony. It's Brent. If you think about just geographically, I would say certainly, you know, dense CBD assets that rely on mass transit as the primary means of getting to the building may have impaired liquidity. I think we're fortunate in that there's very few of those in our portfolio. The asset in 60 Broad overcomes that because you just have such great long-term walkability with good credit tenancy. That's why we feel pretty good about that. Clearly, I think there is an increased focus on the Sun Belt and some secondary cities. If you note, AFIRE just announced Atlanta was its number one city for the year in terms of foreign investment. Then as we noted in our prepared remarks, CBRE noted Dallas was its number one market for investment.
I think you're gonna continue to see increased liquidity in the Sun Belt, and those more CBD locations, gateway markets, et cetera, probably have a little bit tougher time.
Tony, one thing I'd just add, we do know anecdotally, brokers are extremely busy pitching assignments in our healthier markets and are advising sellers to go sooner rather than later, given the potentially further rising in rates.
Okay. Got it. Then just last question. It's maybe a little bit for Bobby and everybody. The occupancy or I guess the commenced lease number was 83.9%, I think, at the end of the quarter. Trying to get a sense as to what you have embedded for that figure, you know, come the end of the year and just where you think that could go, you know, again, just given the leasing traction you've had and just fairly limited expirations this year and even next year, if you take, I guess, US Bancorp out of the mix, it's also a fairly modest year.
Yeah, Tony, this is Bobby. Thanks for the question. I might note that we had probably 750,000 sq ft of leases yet to commence or in abatement at the end of the year, and that number's climbed to now over 1 million as we've had more leasing success. Based upon the leasing, which we think looks very good right now, that number could potentially climb, Tony, b ut remember, that's good news. Currently with 1 million sq ft of leases yet to commence or in abatement, that's about $33 million of revenue, probably translates into a 60% margin, which is about right for us, $20 million of additional NOI. Again, based on current estimates, I think that number will increase, b ut remember, that's good news in terms of revenues coming down the pipeline.
Right. Some of that $1 million, though, I think is already in the 83.9%. It's just in abatement. You know, can the 83.9% go to 85%, 88%? Like how much could that move?
Boy, you're just asking me estimates, but it could move, you know, 100,000 sq ft-200,000 sq ft. Ed, do you wanna-
Yeah.
You can model.
I'd say, Tony, just from a modeling standpoint, I'd recommend, you know, you sort of keep it in sort of locked up for now, you know? If we're projecting somewhere up to 88% leased by year-end, then you would also sort of grow the commenced lease percentage by an equal amount.
Okay. Got it. Keep that leased and commenced number, that spread about the same.
Yeah.
Okay. Thanks for the help.
Thanks, Tony. Operator?
Once again, if there are any questions or comments, please press star one on your phone at this time. Your next question for today is coming from Daniel Ismail. Please announce your affiliation, then pose your question.
Great. Thank you. Green Street. I'm just curious, with construction costs rising and supply chain issues, are you hearing of any issues on the tenant end on building out their own space and any potential problems in terms of revenue recognition with respect to tenants not being able to build out their own space in a decent amount of time?
Hey, Daniel, this is George Wells. I mean, it's certainly. I mean, that's all the news in terms of supply disruptions and potential components, certain costs going up. I would say that the impact to our overall portfolio has been modest at this point. It has affected a few commencement dates for some leases, but I wouldn't say it was dramatic. I would probably push it an extra month or two from some of the larger leases, but that's really been the extent of it, a nd even though costs have gone up, I would say it's not all materials, and I think we've done a really good job at trying to find domestic suppliers, and for long lead items, we're trying to go ahead and buy those products early.
Those are some of the mitigating positions we've taken to have a modest impact to our overall commitment dates and to our balance sheet.
I'd add to that, I don't think we see anything major from a revenue recognition standpoint, in that regard, Danny. What we just see in terms of the commencement and construction pipeline. I would add, you know, that's one of the benefits we do see around redevelopment right now, is just the fact that we are less impacted by the supply chain. We can easily and more affordably adjust and find other product, et cetera. That has proven effective as we continue to see leasing momentum pick up again at those projects where we have refreshed the assets and the amenities and modernized it.
Great. Maybe as a refresher, does revenue recognition starts when you hand the keys over to the tenants or when the tenant has substantially completed the space for its intended use?
Yeah. Revenue recognition begins once the space is substantially complete, so you've gotta have a certificate of occupancy. You look at the lease, when does it say it commences? You've gotta have the space completed first before you can have any revenue recognition.
Got it. Appreciate it. Thanks, Bobby. Maybe just like a last one for me. I'm just curious how, you know, you mentioned one tenant still trying to figure out their hybrid strategy. How does co-working play in the Piedmont portfolio these days? I'm curious if you guys have any appetite to expand or possibly even just contract that segment of your portfolio.
Hey, Danny, this is Brent. Yeah, I know, I think we've still kinda see the overall strategy of coworking to be relevant for certain assets in certain locations. You know, again, it represents about 2% of our overall ALR, so it's not significant amount. We have spread that quoted counterparty risk across a number of operators, whether it be WeWork or Industrious or IWG/Regus. Overall, we feel very good about those locations where they're specifically, you know, where we put them into the building. They're used really as an amenity, right? The flexibility for the tenancy and that has proven to be very good. The locations we have are all current and we're performing. We continue to often see them at a higher utilization rate than the actual building itself.
I think that said, though, we're not looking to increase overall exposure to that sector. Again, we put it into the locations it makes sense, and then kind of evaluate from there. I feel like we're pretty good and wouldn't look to increase it materially. We'll evaluate, you know, new assets as we bring them into the portfolio. I think we recognize, you know, you're being prudent with your exposure to that sector.
Got it. Thanks, everyone.
There are no further questions in queue. I would like to turn the floor over to Brent Smith for any closing comments.
Thank you. I wanna appreciate everyone joining today and just remind everyone that we continue to see and be very positive about the momentum on the leasing front. With low expirations, we do feel like we're really positioned for absorption and got a great set of opportunities ahead of us for potential capital recycling. I'd encourage you those to have a chance to sit down with us at Nareit in June to please reach out to Eddie or Justin to arrange that meeting. We do look forward to sharing more about what differentiates Piedmont, what's driving our strategy, our markets, and our operations. That's really helped us grow FFO nine out of the last 10 years, and we'll look to continue that momentum. Thank you for joining us today.