Good day, ladies and gentlemen, and welcome to the Piedmont Office Realty Trust Third Quarter 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open up the floor for your 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 Third Quarter 2022 Earnings Conference Call. Last night, we filed our 10-Q and an 8-K that includes our earnings release and our unaudited supplemental information for the third 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 of these forward-looking statements are discussed in our press release as well as our SEC filings.
We encourage everyone to review the more detailed discussion related to risks associated with forward-looking statements in our SEC filings. Examples of forward-looking statements include those related to Piedmont's future revenues and operating income, dividends and financial guidance, future 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 were filed last night. At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments. Brent?
Good morning, and thank you again for joining us on today's call as we review our financial and operating results for the third 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. During the third quarter, Piedmont executed over 440,000 sq ft of leasing at meaningfully higher rental rates, with almost a third related to new tenant leasing. In addition, the company delivered solid financial results in line with the quarter's consensus estimates. Also, we completed a very strategic acquisition and laid the groundwork for two important dispositions. Notwithstanding these accomplishments, the broader economic environment continues to pose numerous challenges to the commercial real estate sector.
This results from a number of factors, including the impact of remote work, rapidly rising interest rates and inflation, as well as concerns regarding a recession. Despite these headwinds, we remain optimistic and realistic about our leasing prospects, our prudent investment strategy in targeted growth markets, and our overall operating performance. Our current leasing pipeline remains stable, with over 300,000 sq ft currently in documentation and over 150,000 sq ft of leasing already executed in the fourth quarter, positioning us to close 2022 with over 2 million sq ft of completed leasing and the portfolio approximately at 87% leased. In short, we believe Piedmont's focus on high-quality assets and amenity-rich working environments will allow us to continue to attract and retain tenants, and our well-capitalized balance sheet provides us with the operating flexibility to successfully navigate these challenging times.
With that, I'll turn it over to George, Chris, and Bobby to provide further details on the quarter. George?
Thanks, Brent, and good morning, everyone. Despite the usual summer travel impact, along with the growing macroeconomic uncertainty that Brent alluded to, our operational teams delivered solid third quarter results on many fronts, and leasing momentum remained solid. We're still seeing demand from a broad range of industries, particularly the financial, legal, healthcare, and business services sectors. Workspace utilization in our portfolio continues to increase incrementally and is up to 50% in September. Nationally, there is a growing chorus of companies setting the stage for greater in-office participation by removing vaccine mandates, increasing the number of required in-person days, or enhancing the office experience with additional incentives or amenities.
We believe our operating strategy of providing a highly amenitized, modern working environment is a critical component in meeting today's corporate flight to quality objectives, which is not only appealing to leasing prospects with new space needs, but also to attracting and retaining employees for existing tenants and for drawing employees back into the office. We believe the merits of this strategy is showing up in our leasing results. Workforce priorities have shifted post-COVID. There's a much higher concern for quality of life, home ownership, work-life balance, and shorter commute times. Our premier assets complement these needs and are located in growth areas, most of which are easily accessible suburban and infill submarkets.
This quarter, we completed over 50 transactions for approximately 444,000 sq ft of total overall volume. Of this, exactly half or 25 of these leases, totaling 124,000 sq ft, were related to new tenant lease activity and expansions. While the volume of new deal activity was good, the total square footage did not reach the level of the past few quarters. We largely attribute this to the first part of the summer when historically we have seen some slowdown in general business activity due to vacation, travel season, and that smaller businesses continue to make corporate decisions quicker than larger corporations. As Brent already noted, our pipeline activity is strong, and we anticipate that new leasing in the fourth quarter will be back at pre-pandemic levels.
I will note our leasing economics were very favorable, with approximately 33% and 38% roll up or increase in rents for the quarter on a cash and accrual basis, respectively. Our weighted average lease term at the end of the third quarter is approximately six years. Our lease percentage at the end of the third quarter was approximately 87%, up 150 basis points from year-end and largely unchanged from the close of the previous quarter. While the majority of new lease activity continues to emanate from our Sunbelt portfolio where over 70% of our vacancies reside, we are experiencing good leasing activity in all of our select markets. Now I'd like to highlight a few key accomplishments that have occurred in some of our operating markets this quarter.
Beginning with Atlanta, our portfolio experienced the most volume of new activity with 10 deals for nearly 35,000 sq ft. Atlanta has been Piedmont's most consistent performer for the past four quarters, capturing 43% of all new tenant transactions, and the pipeline continues to be quite robust. In fact, we've already signed six more new deals in October for another 57,000 sq ft, including a well-known Atlanta financial services firm, which is relocating their regional headquarters into our LEED Gold 999 Peachtree property from the Buckhead sub-market. I would add that our building was selected by that tenant over a newly completed development in the midtown sub-market, primarily because of its superior location and sustainability designation. Adding to Atlanta's already well-known pro-business reputation was Money Magazine's recent ranking of best places to live in the United States, with Atlanta taking the top spot.
We are excited to be growing here with the recent acquisition of our LEED Platinum 1180 Peachtree AA Trophy Tower, in which Chris Kollme will touch on in just a moment. Atlanta is our largest market, accounting for 26% of our ALR at the end of September, and the flight to quality is very evident here. We anticipate continued strong lease production in the quarters ahead. Coming to Dallas, we're happy to announce the extension of the entire Ryan lease at our LEED- certified three Galleria office tower. The economics of this 178,000 sq ft deal were strong with significant rental rate roll-ups on both a cash and accrual basis, no free rent, and no tenant improvement allowances. That extension will expire in phases over the next 2-5 years.
Also noteworthy is the completion of nine new lease deals totaling 32,000 sq ft spread amongst the remainder of our Dallas assets. One of those deals was an approximate 9,000 sq ft expansion of an existing tenant. Evidently, businesses in this dynamic market are continuing to grow despite the cloudy economic environment. Our Minneapolis holdings were quite active this quarter, with three new tenant transactions for 50,000 sq ft, including our largest new tenant leasing deal for this quarter, a headquarters relocation into our LEED Gold Crescent Ridge II asset for 35,000 sq ft. That new user, a financial services firm, will double in size from its existing location, and interestingly, will have all staff working in person 100% of the time.
Our monetization efforts at Crescent Ridge II are paying off, having completed four new lease transactions in the past few quarters and a robust pipeline that should stabilize occupancy there soon. Moving downtown to our LEED Gold Trophy tower, U.S. Bancorp Center, our team there signed a new lease with a white tablecloth seafood restaurant for a 10-year term, adding to our already robust set of on-site amenities. Lease extension conversations are ongoing with our anchor tenant there at U.S. Bank, and we believe negotiations with the bank at this downtown asset and at Meridian Crossing in the suburbs will accelerate once the bank completes its merger with Union Bank, anticipated at year-end. The PMO formula continues to demonstrate leasing success, particularly with smaller tenants, the most active customer segment across all of our markets.
These tenants are driven to our office projects, citing their ease of accessibility, vast amenity base, unique tenant engagement programming, best-in-class conference facilities, along with a sustainability-minded operator. As noted in a recent CBRE report, owners are witnessing increased demand for LEED designated assets, which are also generating a meaningful rental premium on average of 4%, with a difference even more substantial in suburban markets. Looking ahead to the remainder of 2022 and into 2023, we remain optimistic about the leasing performance of our portfolio. Tour activity continues to be strong and consistent. We have approximately 2 million sq ft of outstanding proposals, which is in line with the past four quarters. With only a few leases expiring for the remainder of the year, we expect positive net space absorption in the fourth quarter, resulting in an anticipated year-end lease percentage around 87%.
Additionally, expirations are low next year, with only one lease larger than 100,000 sq ft that will not expire until December 2023. In conclusion, I do want to mention that Piedmont has invested in a number of our assets over the last few years, improving amenity offerings and modernizing lobbies and elevators and the like to compete on an attractive basis with any new build. A large portion of this redevelopment has now been completed, and we have no exposure to inflation associated with ground development, and we will focus on redevelopment, which we believe is a better risk-adjusted return. I'll now turn the call over to Chris Kollme to review our third quarter investment activity. Chris?
Thank you, George. As we disclosed on last quarter's call, we entered into a binding contract to purchase 1180 Peachtree Street in the heart of Midtown Atlanta for a purchase price of approximately $465 million, including the assumption of an approximately $200 million, 4.1% fixed rate secured mortgage, which matures in 2028. I'm pleased to report that we have closed on the acquisition of what we believe is the highest quality, most differentiated office setting in Atlanta. At almost 700,000 sq ft, 1180 Peachtree is a LEED Platinum skyline-defining asset with a weighted average lease term of over seven years and in-place rents at approximately 20% below market rates. The initial accrual basis NOI yield for the transaction is 6.3%.
Piedmont is now one of the largest owners in Midtown, accumulating a position of over 1.3 million sq ft within just the last 12 months. If you haven't already done so, I'd encourage you to review the materials on our website, which offer more complete details about this acquisition. We anticipate ultimately funding the 1180 acquisition using sale proceeds generated from non-core asset dispositions. After quarter end, we have agreed to terms for the disposition of our two assets in Cambridge, Massachusetts, to two separate buyers. Both groups are nearing completion of their diligence periods. These transactions are on an all-cash basis with no financing contingencies. We anticipate recognizing an approximate nine-digit book gain on a consolidated basis.
As for the balance of 2022, given current market conditions and our temporary leverage levels, our capital markets initiatives will be principally concentrated on evaluating additional dispositions of non-core assets. That said, we will be patient and we will be disciplined, as today's market environment is certainly challenging for both buyers and sellers. With that, I'll turn it over to Bobby to walk you through the financial highlights of the quarter and address guidance for the remainder of 2022. Bobby?
Thank you, Chris. I'll discuss some of our financial highlights for the quarter, but I encourage you to please review the entire earnings release and supplemental financial information which were filed last night for more complete details. Now including additional interest expense incurred during the current quarter, driven by rising interest rates as well as interest expense from additional debt associated with the 1180 Peachtree acquisition, Piedmont still achieved our operational and financial goals for the quarter. With successful leasing year to date, rising rental rates, and asset recycling, the company was able to maintain Core FFO of $0.50 per diluted share, consistent with the third quarter of 2021. The FFO generated during the third quarter was approximately $43 million, which is well above our current $26 million dollar quarterly dividend level.
We continue to experience improving lease economics and rental rate roll-ups during the quarter, similar to the last several quarters. Our same-store cash NOI, however, decreased marginally as expected during the third quarter due to successful prior leasing activity and the commencement of these leases, resulting in a 60% increase in leased square footage under abatement as of September 30, 2022, compared to September 30, 2021. Our guidance for same-store NOI on a cash and accrual basis remains the same for the year and is still anticipated to increase approximately 2%-3% as several abatements burn off during the fourth quarter. Turning to the balance sheet, our debt-to-gross asset ratio was 39.8%. This temporarily elevated ratio is due to the debt related to the acquisition of 1180 Peachtree that Chris mentioned.
Now I say temporarily elevated because as with all of our acquisitions, we intend the recycling of assets to be leverage neutral, and we anticipate reducing our current floating debt outstanding with the proceeds from property sales over the next few quarters, including our two Cambridge assets, which are currently expected to close around the end of the year. We also anticipate selling other non-core and non-strategic properties during 2023, which will ultimately allow us to return to a more normalized leverage level in the mid-30% range, with no development projects outstanding. As is often the case, we acquired the 1180 Peachtree property in a reverse 1031 exchange in order to protect the significant tax gain we anticipate recognizing in conjunction with the sale of our two Cambridge assets.
During the third quarter, our average Net Debt- to- core EBITDA ratio was 5.9 x on a trailing twelve-month basis. In addition to assuming the $197 million mortgage in conjunction with the 1180 Peachtree acquisition, during the third quarter, we also entered into a $200 million bridge loan priced at SOFR + 1%, which covered the majority of initial cash funding requirements for the 1180 Peachtree acquisition. Additionally, I would note that Eddie and his financial planning team continually run capital financing models. In that regard, debt maturing through the end of next year includes a $350 million bond maturity in June 2023 and the $200 million term loan maturing during the third quarter.
Now, a majority of the term loan will be paid down with disposition proceeds that we have previously discussed, and the $350 million bond will be paid off with either a five to 10-year new bond issuance or more likely with a bank term loan, which we've already begun having discussions about with our lenders. I will note that Piedmont has only one mortgage outstanding. Therefore, the option of an additional mortgage debt is also available to us. Finally, after considering year-to-date results and our updated 2022 annual leasing forecast, including higher interest expense resulting from the rising interest rates, we are narrowing our 2022 annual Core FFO guidance per share to between $1.99 and $2.01 per diluted share. This revised guidance is almost exclusively attributable to increased interest expense.
This concludes my prepared comments, so I'll turn it back over to Brent at this time.
Thank you, George, Chris, and Bobby. As George mentioned, Piedmont operates a portfolio of Class A assets predominantly in the Sunb elt, where continued population migration and job formation trends provide a mitigant to the remote work headwinds the office sector faces. We have refined our portfolio over the last several years to create differentiated buildings that offer premier amenities and hospitality-driven collaboration spaces in conjunction with local food and beverage operators. At Piedmont, we go beyond the building to provide unique services and offerings, including our tenant engagement platform, published sustainability initiatives, and concierge experiences. It's a dynamic workplace environment that our competitors and frankly, the employee's house can't easily replicate. The flight to quality is helping our customers to attract, retain, and increase their employees' overall productivity.
In fact, over the last two years, 70% of our executed leases have taken place at properties that we have redeveloped within the last five years. These asset level investments are what's garnering more than our fair share of leasing activity. Our balance sheet is slightly elevated in terms of leverage due to a key strategic acquisition, but we will address a majority of the floating rate debt related to this acquisition with our anticipated Cambridge disposition. We will focus on a few other dispositions into 2023, patiently managing our balance sheet, but committed to get our leverage ratio down a few percent. Finally, I would note that we recently published our annual ESG report, and it is available on our website.
I would encourage you to please take a look when you have a moment, as there is a lot of good information, and we're proud of the work we're doing in these areas, reducing GHG emissions, energy and water consumption, and curtailing waste production. We are again an ENERGY STAR Partner of the Year, a 2022 Green Lease Leader with 50% of the portfolio now LEED- certified, 100% of our portfolio WELL Health-Safety rated and 88% BOMA 360 Certified . At Piedmont, I'm fortunate to work alongside colleagues who are good caretakers of the planet and good citizens within our communities. Along those lines, as I conclude, I want to thank each of my Piedmont colleagues with whom I've had the privilege to work alongside each day for their impeccable work ethic, creative tenant offerings, and the drive to provide best-in-class service to our customers.
With that, I will now ask 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. We will 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, then pose your question.
Baird. Hey guys, it's Nick on for Dave. I just wanted to touch on the leasing pipeline. I think George went over in great detail kind of some of the key factors we were looking at. As we're looking at the 150,000 sq ft signed in fourth quarter and the 300,000 sq ft in documentation, I guess I would want a little more color on what's that new versus renewal, and then what's like the average deal size you're seeing?
Sure, Nick. Good morning. Great question. I'm delighted to talk about our pipeline as it continues to be pretty robust. I would say that in terms of how much we have in new activity bucket, but I would say about a third of that that's already been signed is new. I would say looking forward to what's in the documentation stage, I would say again it's about a third or so is in the new bucket list. I think we have a couple of other transactions that we're chasing that we hope convert into the legal stage pretty soon as well. In terms of average size, you know, it's been a small tenant market for the most part. I would say the last quarter, I think 24 of our 25 deals were under 10,000 sq ft.
I would say looking at what we're doing so far for November, October and November, we have a couple of full floor transactions that were completed, which is pretty typical for us. I think we see between one and three deals that are about a full floor or larger. After that, I'd say the range is a little under 12,000 sq ft across the board.
I'd add there too, George, and this is Brent, Nick. Thanks for joining this morning. As we kinda as George alluded to, we really have seen that smaller tenant call it a half a floor, 12,000-15,000 sq ft or less, really be the strongest part of the market. Frankly, we're probably in terms of number of deals and volume for that segment above where we were pre-pandemic. I think that's what gives us some positive, just, I guess, vibes, as we think about the expirations the remainder of this year and into next year, given the fact that we have, you know, the Cargill expiration, the average tenant size that will be expiring is about 8,000 sq ft.
We really, you know, and most of that call about 60%-65% of that's in the Sunb elt markets. We really feel like the portfolio is positioned to continue to get good leasing traction and good pipeline volume.
Yeah, all very helpful. Maybe touching on you guys resolved Ryan kind of for the intermediate term. Looking at your larger tenant roster, what are the chances we kind of see similar activity for, say, like an Amazon looking forward at Galleria Towers? Just looking at like for potential holdovers or if you've even begun discussions on something as far away as 2024.
Nick, this is Brent again. You know, I think we were really pleased to renew Ryan, as we noted, about kind of a phased period over time with a weighted average term of a little bit about three and a half years now. Really that's, I think, an example of the success we've had at that LEED-certified building. As we look to, you know, Amazon, I think it's pretty early given that's in 2025 expiration. I will say that, you know, they are active in the space akin to our other Dallas tenants. At this point, I think it's a little early to think and know whether or not their longer term plans are. I think as we look towards other larger tenant roll, we do have Cargill towards the end of 2023.
As I've noted on the last earnings call, we continue to be engaged with them. That LEED Gold building is a phenomenal asset. It's a 2010s vintage. And if you'll recall, we bought it for about $185 a foot at a 10-Cap . What's really interesting there is, and I think what, you know, continues to attract Cargill and other tenants that we do have, looking into the building or potential tenants as it is in the market now, you know, you've got a 300-seat auditorium, a 13,000 sq ft fitness center with lockers, cafe, coffee shops. It's really got everything we think about in terms of amenities that are already at the complex, and it is a building part of a larger complex.
Great parking ratio, five per 1000, and it's right down the street from the new light rail stop that's being built as we speak. Operational sometime we think in 2024 is what the city is saying. Great positioned asset. We're hopeful they will stay, but again, we are marketing that space. We'll provide continued update as we think about Cargill as they get closer to their expiration, which again is at the end of 2023. I would say, as well, U.S. Bank, we continue to stay very engaged with them also in Minneapolis, in both their location downtown as well as the extension in the space that we did last quarter for their suburban locations.
As you may recall, they, as we noted, are working through a silo merger with a West Coast bank that has federal approval now and hopefully should close by the end of the year. As we continue to work through with them, that has come into the picture as well as their final approach to hybrid and work strategy. I think the good news there is we see most financial services doing a predominantly in-office hybrid model. I think overall that bodes well, but obviously still very close with U.S. Bank given our relationship both on the banking side and on the customer relationship side as a tenant.
Thanks, Brent. Very helpful. Maybe last one for me, maybe for Chris, kind of touching on the asset sales. Sounds like the Cambridge assets are going to trade relatively soon. Just kind of wondering on pricing, how it's changed relative to your underwriting when you were looking at selling those assets. Then maybe touch on kind of the bidder pool out there. It sounds like all cash deal. Maybe debt financing is a little tough out there. How is that bode for like other assets say Houston that you have in the market right now? You guys get that?
It looks like we lost the main speaker line. Just one moment please. Ladies and gentlemen, please remain on the line while we connect the speaker line. Thank you for your patience. Ladies and gentlemen, please remain on the line. The conference call will begin shortly. We have the speaker's line connected. Dave, if you can please repeat your question.
Hey, guys. This last question is kind of for Chris on the asset sales and kind of Cambridge. Sounds like that one's gonna close relatively soon. Just wanted to touch on where that's coming in relative to your underwriting for potential sale. As we're looking at potential other sales such as Houston, is one of the pressure points here financing? That's part of the reason we see Cambridge trade is just that it's all cash buyers or a little more color on that would be helpful.
Yeah. Good morning, Nick. Good question. Sorry again for the technological challenges. Got to be a little guarded with our commentary on Cambridge. You know, we like where we sit, but in this market, we're not done until the wire hits. We did run a fully marketed process. Demand there was not surprisingly very robust. These are generational assets. I think we had over 80 confidentiality agreements signed in the first couple of weeks. We launched it back in July, shortly after we went non-refundable on 1180. We threw a very wide net. We wanted as many eyeballs as we could get on these two assets.
We certainly approached domestic investors, international investors, as well as a couple of dozen ultra-high net worth individuals who have ties to Harvard and or have been investors in Cambridge for years. You know, the debt markets, as you mentioned, and the economic uncertainties certainly did have some impact on some potential buyers. You know, the uniqueness of Harvard Square and the uniqueness of Cambridge, as well as remember, these are two long-term leased assets to Harvard and Bank of America. There certainly was ample demand that was engaged on the assets. We have, you know, two highly qualified all cash buyers, two others, with certainly others that are waiting in the wings, and we expect to close later in the quarter. You know, on Cambridge, we like where we sit.
Again, we're not done yet, but we've been pleased with the execution so far. On Houston, you know, we mentioned back in the summer that we had talked to some potential buyers on those two assets. I would like to remind everybody, it's onlytwo assets, and it's 600,000 sq ft. Those conversations are still ongoing, but it's really difficult to predict when or if those assets are gonna trade. We'll certainly keep you informed as and if we make progress there. Brent, anything to add?
Nick, this is Brent. Yeah, I would add, you know, I think overall, clearly the market is repricing risk. The lower the risk, the less the price impact. Obviously our Cambridge assets, Chris mentioned generational. I think we've been fortunate to probably see less of an impact there. As with regards to Houston, I think as you noted in your question, and I think that's pretty accurate, great assets and frankly, as we've had discussion with potential buyers, valuations have been where we felt would be reasonable, but the financing markets have not been there. That's been probably the bigger hangup. As we continue to talk to those groups that are interested, I think we're hopeful that the market will open back up.
We're also thinking creatively about ways to monetize and get out of Houston longer term.
Very helpful. Thanks, guys.
Your next question for today is coming from Daniel Ismail. Please announce your affiliation, then pose your question.
Great. With Green Street. Just curious on conversations with tenants renewing their space. Has there been any conversations around, you know, changing lease terms on a renewal or new lease with respect to early termination rights? Have you seen tenants taking less space when they renew, or taking up more space? I'm just curious if you can speak to any of those trends.
Thank you, Dan. This is George Wells here. You know, we've taken a look back at renewal and retention rates that we've had over the past couple of years, and they've held pretty steady, I would say in that 70%+ range. We also dug further into how many of those were looking for contractions versus expansions, and we're pleasantly surprised to note that, you know, 40 of our deals had some expansion element to them versus 27 of those deals had contractions. That's still what we're seeing today in terms of where the dynamics of our tenants are going. Some want some more space, and some want less. In fact, this past quarter, I think we had six expansions versus three contractions for 15,000 sq ft net positive.
Yes, it still seems to be evolving. I don't think that, you know, all the macro noise that you're hearing is fully being reflected in our pipeline. We don't wanna be naive to think that it won't, but at this point, our properties continue to resonate with the demand that's in the marketplace. I will say that, you know, flexibility is always a key for tenants that are looking at entering into any building in the marketplace today. I would say the biggest ask in that realm is basically termination rights, somewhere, I would say two-thirds of the way into a lease term, but I would not say that that's universal. I think on occasion, that's something that's asked for, but we're not seeing a lot of contraction options or contractions in our existing pipeline today.
I think I'd add there, Daniel, too, as well, you know, usually those termination rights come with pretty heavy penalties. I think that's a positive. Overall, I'd say, you know, we continue to see that small tenant market, and I mentioned before, having the most depth also be the portion of the market where they're not giving back space. You know, I think as I've kind of continued to understand and talk to CEOs, how they're thinking about real estate, we've kind of come to the realization that, you know, small organizations, offices that are generally a floor or less, are typically renewing for that portion, you know, that same amount of space or potentially expanding if their business is growing. Downsize situations have been predominantly around larger corporate situations.
For instance, I know, like, a quarter or two ago where EY in New York gave back, basically went from 800,000 sq ft, took a new asset, went down to 400,000 sq ft. What we've also seen some instances of that is suburban locations pop up or their use of WeWork to continue to proliferate office space further out into the suburbs. We continue to really focus and feel like the risk is more associated with those larger scale tenants and why we feel good about the average tenant size rolling, you know, through 2023 of being around 8,000 sq ft continues to give us a pretty good anticipation of positive renewal rates and less shrinkage, if you will, upon renewal.
Great. Appreciate the color there. Then just a last one for me. Can you give us an update on the current market on the portfolio, just in-place rents versus market rents?
Absolutely, Danny. I think as we've continued to kind of reiterate, for the past few quarters, that's generally in the neighborhood of 5%-10%. You know, obviously, we had a stellar quarter this quarter with a significant roll-up on a number of tenants. But even if you remove the largest tenant with a massive roll-up, we were still above that high end of that range of 5%-10%. I think as we also look forward to the roll, I think that's representative of kind of the more near-term roll that we have in the portfolio as well. I think that's still a fair barometer.
Great. Thanks, Brent.
Your next question for today is coming from Anthony Paolone. Please announce your affiliation, then pose your question.
Thanks, J.P. Morgan. Just, first question is as it relates to like asset sales and thinking about our earnings, you know, over the next year or so. I think historically you've tried to pair dispositions with acquisitions, and you've tried to match those in a way where it's actually been accretive. But in your commentary, it seemed like the focus has shifted a bit more towards the balance sheet and maybe reducing debt. So should we think about, you know, maybe dispositions next year? Like, do you think that will be dilutive, or do you still intend to kind of match that up and mitigate, you know, the earnings impact?
Yeah. I appreciate you joining this morning, Tony. This is Brent. You know, as we continue to, you know, really as an operating business model, we've continued to be big recyclers of capital. You know, we've sold about $400 million four out of the last six years. Despite COVID, we've still managed to continue to be able to recycle assets. With an anticipated Cambridge disposition, we'll achieve about $300 million this year in dispose. But overall, I think we feel like the asset sales market is gonna give us the opportunity to sell Cambridge, which will be accretive relative to 1180, and then have the additional dispositions that'll come in, so that net-net, when we sell everything, we'll get back to leverage neutral and roughly earnings neutral on 1180.
Again, that was a trophy quality asset that we're trading trophy quality asset for in Cambridge. I think overall, the net-net quality of the portfolio and certainly advances the strategy of continuing to bolster in high growth submarkets like Midtown Atlanta. We feel very positive about the ultimate end game and maintaining the level of earnings and not diluting earnings. As we look forward in continuing the recycling strategy, it's always our objective to improve the quality of the portfolio and have the acquisitions be accretive to earnings. I would not say anything's changed in that regard. We'll be continuing focus on that in 2023.
Okay, got it. Just one other item. Just thinking about the inflationary environment and, you know, if the portfolio stays, you know, kind of in this mid-80%s, you know, occupied level, you know, does inflation on the cost structure for, you know, the other 15% that you're not getting reimbursed on, is that something we should be thinking about as potentially notable looking into next year, or can you kind of control that?
I guess the first thing I'd say is, you know, the majority of our leases do have clauses that insulate us from immediate price increases. Now then, as you point out, you know, the portfolio is a little bit under leased. We took on some vacancy knowingly, at the early end of 2019 with the number of acquisitions that we had, and I feel like we're at the trough related to the vacancy in those acquisitions with great traction at those assets. So I think we feel, like we can continue to maintain the occupancy level that we have in the portfolio. It is a little under leased, but overall, I don't feel like the inflationary pressures that we're seeing are gonna come to the bottom line materially to the landlord.
We are at a kind of, I would say, above the occupancy level where most of the costs are being passed through to the tenants. I don't think that's a meaningful exposure that shareholders to be focused on.
Okay, great. Thank you.
Once again, if there are any remaining questions or comments, please press star one on your phone at this time. There are no further questions in queue. I would like to turn the floor over to Brent Smith for any closing comments.
Thank you. Again, I wanna thank everyone for joining the management team this morning. As a reminder, we are gonna be at the Nareit Conference in San Francisco in two weeks, so reach out to Justin or Eddie if you'd like to sit down with management. We'd certainly like an opportunity to tell the story and continue to share what we think is a very exciting transition at Piedmont as we continue to have strong leasing activity and recycling transactions. Again, I hope everyone has a wonderful holiday season, and we look forward to continuing the dialogue on the fourth quarter call in January. Thank you.
Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.