Piedmont Office Realty Trust Inc

NYSE:PDM

Earnings Call Analysis

Piedmont's Q2 2024: Record Leasing and Positive Outlook

Piedmont Office Realty Trust reported an exceptional second quarter in 2024, highlighted by over 1 million square feet of leasing, the largest in a decade. The company experienced 15% rental rate growth on cash rent and a 23% increase on accrual base rents. Same-store NOI grew by 6% on a cash basis and 4% on an accrual basis compared to Q2 2023. Despite a slight dip in lease percentage to 87.3%, future cash rents are projected to increase by over $50 million annually as leases commence. Year-end leasing percentage is expected to rise to between 87.5% and 88.5%. Core FFO guidance for 2024 has been adjusted to a range of $1.46 to $1.52 per share.

Strong Leasing Activity Surges Ahead

In the second quarter of 2024, Piedmont Office Realty Trust showcased exceptional performance by completing over 1 million square feet of leasing, the highest quarterly volume in more than a decade. Approximately 400,000 square feet were from new tenant leases, while sizable renewals significantly contributed to portfolio stability. This push in leasing has increased the company’s confidence in raising occupancy rates throughout 2024.

Positive Financial Metrics

Piedmont reported a 15% increase in cash rental rate roll-ups and a striking 23% increase on accrual base rents, reflecting robust market demand. Additionally, same-store net operating income (NOI) rose by approximately 6% on a cash basis and about 4% on an accrual basis compared to the same period last year. The company's portfolio occupancy levels improved slightly, reaching 87.3%, showing continued leasing momentum.

Future Cash Flow and Occupancy Projections

Looking forward, Piedmont has a significant backlog of 1.6 million square feet in leases yet to commence, which could translate into over $50 million in future annualized cash rents and an estimated $30 million in NOI. The potential increase in occupancy over the next 12 to 24 months is promising, especially since many leases will take time to begin generating revenue.

Guidance Adjustments Amid Market Conditions

The company has narrowed its annual core funds from operations (FFO) guidance to a range of $1.46 to $1.52 per share, with a midpoint of $1.49. Notably, Piedmont has raised its guidance for same-store NOI to between 2% and 3% for the year, up from a previous forecast of flat to 2%. However, the company anticipates the third quarter to be the earnings trough due to the recent expirations of large leases.

Debt Management and Financial Health

In June, Piedmont executed a crucial refinancing of $400 million in senior unsecured notes at a favorable 6.875% coupon, marking a notable improvement in credit conditions. This financing is expected to cover debt maturities until 2027, effectively strengthening the balance sheet. Despite the expectations of increased net interest expense of about $0.01 per share per quarter, the company reassures a solid liquidity position and ample coverage for its dividend commitments.

Strategic Asset Management and Future Opportunities

The company is committed to selectively capitalizing on market opportunities and minimizing non-core assets. Following a recent sale in Dallas, management revealed intentions to potentially dispose of further non-core properties when market conditions stabilize. Additionally, Piedmont continues to pursue modest capital improvements across its properties, focusing on those in high-demand markets such as the Sunbelt.

Exploring New Markets and Tenant Demands

Piedmont's strategy focuses on providing quality, amenity-rich workplaces for small to medium-sized tenants, which has resulted in notable tenant retention rates. The current leasing volume continues to be driven by solid demand across core markets like Dallas, Atlanta, and Minneapolis. Enhancements in service and amenities have proved vital, and the management is optimistic about the ongoing demand for quality office space.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to the Piedmont Office Realty Trust, Inc. Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. I would now like to turn the call over to your host, Laura Moon, the floor is yours.

[Laura Moon, executive]

Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's Second Quarter 2024 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 second quarter of 2024 that is available for your review on our website at piedmontreit.com under the Investor Relations section. During this call, you will 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 financing, 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 are based upon the information and estimates we have reviewed as the date the statements 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 regarding second quarter operating results. Brent?

[Christopher Smith, executive]

Thanks, Laura. Good morning, everyone, and thank you for joining us today as we review our second quarter results. In addition to Laura, 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. We also have the usual full complement of our management team available to answer your questions. Piedmont had an exceptional quarter, and we're very pleased with the results thus far this year. As we released last night, Piedmont completed over 1 million square feet of leasing, the largest quarterly volume the company has reported in over a decade. When at that time, the portfolio was approximately 35% bigger than it is today, and we operate in 18 markets. As you all know, we are a very different and far more focused company in 2024. Out of the headline, 1 million square feet of total leasing, over 400,000 square feet of the quarter's volume was related to new tenant leasing. And importantly, the balance included several sizable renewals, which gives us the confidence that we can increase portfolio occupancy through the remainder of 2024.



George will provide market specifics and details on the leasing pipeline in a moment, but we believe that this quarter's leasing success is a testament to the high quality of our portfolio and the unwavering commitment of our teams at the property to provide truly differentiated environments and not just office space. We also continue to be the beneficiaries of tenants demanding not only superior professional space, but also that they delivered by well-capitalized sustainability-minded landlord. In addition, our customer service and leasing strategy, targeting small- and medium-sized tenancy is driving portfolio leasing volumes and rental rates to new highs. We believe these trends will be long-lasting, and Piedmont is extremely well positioned to compete and gain market share in this next office cycle. Furthermore, Piedmont's operating strategy is clearly resulting in positive cash flow performance. During the second quarter, we were able to continue to drive double-digit rental rate growth of 15% roll-ups on cash rent and a 23% increase on accrual base rents when those respective leases commence.



Likewise, during the quarter, same-store NOI increased approximately 6% on a cash basis and roughly 4% on an accrual basis as compared to the second quarter of 2023. The company's leasing success over the last several quarters has generated occupancy gains in our in-service portfolio, ending the second quarter at 87.3% leased compared to 87.1% leased at the end of 2023. As a reminder, while we have generated significant leasing volumes, the timing required for these leases to commence and to begin cash paying rents can be up to 12 to 24 months out. So as a result, we have generated a backlog of 1.6 million square feet of leases that are yet to commence or an abatement, equating to over $50 million of future annualized cash rents once these leases commence and abatements burn off, and we estimate over $30 million of future annualized NOI. And while presidential elections can always be a wildcard impacting tenant decision-making in the latter half of the year, the leasing pipeline across the portfolio from both the proposal and tour activity standpoint remains robust, as George will explain in a moment.



Turning to the balance sheet, that Bobby will detail, I want to thank our entire finance team for completing crucial refinancing activity during the first half of this year, including issuing $400 million of new 5-year bonds in June at approximately 240 basis points improved credit spread compared to the bond offering only 1 year ago. This latest bond issuance concludes several significant refinancing transactions over the past year and is expected to address all final debt maturities until 2027, and in the process, meaningfully improves Piedmont's balance sheet and liquidity position. And finally, as Chris will discuss, just after the end of the second quarter, we were able to close on another small disposition. Across the broader office market, we are witnessing a modest uptick in transactional activity, which gives us the belief that we can begin to recycle capital more efficiently next year. Looking ahead to the remainder of this year and beyond.



Although challenges reside in the office sector as commodity office space continues to be rationalized and repurposed, we are optimistic about the secular and company-specific trends that are driving our leasing momentum, including continued population migration to the Sunbelt and the suburbs, the flight to quality by office users, improving access to capital within the office sector and the continued differentiation between obsolete product and the well-located vibrant environment that Piedmont delivers across our portfolio. With that, I'll hand the call over to George, who will go into more details on second quarter operational results.

[George Wells, executive]

Thanks, Brent, and good morning, everyone. Exceptional leasing momentum for new space and multiple existing tenant renewals during the second quarter led to strong operational results on several of our key metrics. All of our core markets experienced solid leasing demand dominated by small to medium-sized businesses that are attracted to our modern well-amenitized projects. Having the right blend of amenities is crucial for today's office customers, and our portfolio is well equipped with a wide range of food and beverage options, hospitality-infused collaborative workspaces, training rooms, fitness centers, outdoor meeting spaces and event program designing to bring people together. This quarter, we added 2 more food and beverage operators, one at our Clarton asset in Northern Virginia and the other in our downtown Minneapolis Tower, further enhancing the range of our offerings and vibrancy in our common areas.



Overall, this quarter, we completed a record 65 lease transactions for over 1 million square feet of total overall volume twice our quarterly average. With nearly 40% of that volume was related to new tenant lease activity accounting for 38 transactions for 400,000 square feet, which is more than twice our precoded quarterly leasing average of 165,000 square feet. The average size of new leasing activity was approximately 11,000 square feet consistent with previous quarters, with a weighted average term achieved at nearly 11 years. Once again, our focus on small and medium-sized enterprises continues to yield excellent results with a record 31 new tenant leases each less than 10,000 square feet, totaling almost 130,000 square feet with many having lease commencement dates later in 2024. As Brent mentioned earlier, this quarter's rent roll-up metrics were quite impressive and is a continuation of strong roll-up trend the company has achieved over the past 10 quarters, including double-digit accrual increases in each quarter.



As we previously forecasted and despite record-breaking leasing success, which will commence in subsequent quarters, our lease percentage dipped down slightly quarter-over-quarter to end the second quarter to 87.3%. As we have experienced in several quarters now, most of our new tenant lease activity are 85% occurred in our Sunbelt portfolio with the majority of our in-service vacancies reside. Excluding 2 unusually large move-outs, the quarterly retention rate for the remainteportfolio was in line with our typical historical average of 70%. Leasing capital spend was a little over $6 per square foot per lease year during the second quarter, slightly higher than our average for the past several quarters, primarily driven by several large lease renewals in Dallas with the commission structure for renewal is higher than most other markets. Sublease activity remains flat at around 5% and none of that space is expiring in 2024.



Next, I'd like to highlight a few key accomplishments and announcements which occurred in some of our operating markets this quarter. Starting with Orlando, our fourth largest market by annualized lease revenue, our local team made headlines with the relocation of Travel and Leisure's headquarters to our downtown project on Church Street and secured another 9 deals, bringing the total amineleasing volume in this market to 220,000 square feet. T&L is completely backfilling all of the space, the single user vacated at 501 West Church in the second quarter and was attracted to the vibrancy and in many sets location, including ease of accessibility, above-average parking ratio and significant building top signage easily visible from the most travel thoughfar in Orlando. Additionally, Pema worked closely with city officials and travel and leisure to land City-funded incentives that will be realized over the 15-year lease term. Kudos to our skillful local property and leasing team for such a significant win.



Our Dallas portfolio realized the most overall leasing volume with 13 deals for 370,000 square feet. Renewal activity drove 87% of that volume with Ryan tact and a global e-commerce retailer extending sizable leases at Galleria office towers. As an aside, our interconnected neighbor, the Dallas Galleria continues to reinvest and modernize its powerhouse experiential retail center, broadening its retail mix and F&B offerings and soon to be the second location in the U.S. for Netflix's permanent experiential venue called the Netflix House. Extensive renovations are also underway at the interconnected Galleria Weston. The Gallery Dallas is an exceptional mixed-use environment with its centralized easily accessible location. Its commercial uses drive retail, hotel and office customers from a wide radius reinforcing our confidence in more leasing success here. In other market notables Atlanta, our largest market, completed 18 transactions for 133,000 square feet, of which 23% were new leases. And our D.C. Metro team extended the lease for 2 of our large customers in this region, Applied Predictive Technologies and international fluid policy to 2034 and 2035, respectively.



Coming back to our overall portfolio, we remain positive about our future near-term leasing trends that we may not be able to replicate the second quarter record leasing volume. That said, our leasing pipeline activity is quite good with over 250,000 square feet of leases in late-stage negotiations or executed, and we are on pace to reach our norm of around 300,000 to 400,000 square feet of executed leases per quarter. Outstanding proposals sit at well over 2 million square feet on par with our trailing 12 months. Given the strong pipeline and the limited amount of lease expirations through the remainder of the year, we are increasing our year-end projected lease percentage approximately 50 basis points to the 87.5% to 88.5% range. I'll now turn the call over to Chris for his comments on investment activity. Chris?

[Christopher Kollme, executive]

Thank you, George. As Brent mentioned earlier, subsequent to quarter end, we closed on the sale of 750 West John Carpenter in the Las Colinas submarket of Dallas. The asset is a 12-story approximately 315,000 square foot office building, which was 46% leased as of June 30, 2024. While we remain highly committed to the Dallas market and our team there, we were approached by a local investor who expressed an interest in the asset. We firmly believe in maintaining total objectivity around each of our assets. And as we evaluated the competitive positioning, the lack of walkable retail offerings, the persistent vacancy and importantly, the significant amount of time and capital required to elevate the asset to today's standards. We simply felt our resources are better spent elsewhere. So we sold the asset in July in an all-cash transaction. We continue to have preliminary dialogue around potential dispositions of noncore assets throughout our portfolio, but it's premature to speculate on any of those at this time. As for new investments, we continue to be highly engaged across our operating markets with an eye towards refining and enhancing our existing portfolio. We are tracking several opportunities across the Sun Belt, but we will be disciplined and patient on the acquisition front. As always, we will keep you informed of any material acquisition or disposition activity as appropriate. With that, I'll turn the call over to Bobby to review our financial results.

[Robert Bowers, executive]

Thank you, Chris. While we will be discussing some of this quarter's financial highlights today, please review the entire earnings release, the 10-Q and the accompanying supplemental financial information, which were filed yesterday for more complete details. Core FFO per diluted share for the second quarter of 2024 was $0.37 per share versus $0.45 per diluted share for the second quarter of 2023. I do want to note that same-store property NOI increased on both a cash and accrual basis during the second quarter of 2024 as compared to the same period a year ago. Core FFO for the second quarter of 2024 reflects this property level income but is offset by approximately $0.06 per share of increased net interest expense as well as decreased operating income as a result of the sale of One Lincoln Park during the first quarter of 2024. And as we've discussed on this call over the last several quarters, the expiration of 2 large leases during the first 6 months of this year.



AFFO generated during the second quarter of 2024 was approximately $28 million, providing ample coverage of the current $15 million quarterly dividend and funding our foreseeable capital needs. CapEx for the quarter, however, remained elevated as we work to complete this year for major building redevelopment projects, which today have a total of only approximately $10 million of remaining capital expenditures to complete. Turning to the balance sheet. As Brent has already mentioned, we issued in June $400 million in senior unsecured notes at a 6.875% coupon, a marked improvement compared to our 2023 issuance, which we believe demonstrates an increased appetite for office paper and particularly Piedmont's high-quality portfolio. The bulk of the proceeds from the issuance of the notes were used immediately to pay off the $230 million balance on our $600 million revolver. as well as the remaining $25 million balance on an unsecured bank term loan that was scheduled to mature early next year.



The remaining debt proceeds, along with funds received from any dispositions and our unused line of credit are earmarked to repay a $250 million, 4.8% fixed rate term loan that matures late in the first quarter of next year. Until its maturity, we currently intend to invest the unused portion of the bond proceeds accretively at higher interest rates. We currently have no other remaining final debt maturities until 2027. As a result of the $400 million refinancing activity, net interest expense will increase about $0.01 per share per quarter beginning in the third quarter of this year. This increase, along with the sale of 750 West John Carpenter in Dallas subsequent to the end of the quarter, will impact our guidance for the rest of the year. Therefore, we announced yesterday that we're narrowing our 2024 annual core FFO guidance to a range of $1.46 to $1.52 per share, moving the midpoint to $1.49 per share.



I encourage you to review the earnings release for more specific metrics on guidance, but I will note, we are increasing guidance for same-store NOI on both a cash and accrual basis to between 2% and 3% for the current year, up from our previous guidance of a flat to 2% increase. As we indicated on our last few earnings calls, the third quarter of this year is expected to be our FFO earnings trough due primarily to the timing of 2 large lease expirations. With that said, with relatively low lease expirations over the next few quarters and strong leasing results to date, plus the continuing leasing momentum that George mentioned, we anticipate FFO growth per share to begin improving later this year, followed by growing cash generation later next year. Our confidence in this growth is due to the difference between our current reported lease percentage of 87.3%, and the percentage of leases that have commenced and begun paying full cash rents.



This difference is now 850 basis points. The widest that gap has been in over 8 years. The gap is due to a backlog of 1.6 million square feet of executed leases yet to commence and related rent abatements not yet burned off. This backlog of executed leases represents over $50 million annually of future rents yet to commence. Our current analysis of this timing difference between the executed lease percentage and what we refer to as cash paying economic lease percentage is included for your review on Page 37 in our quarterly financial supplement, which was furnished last night along with an analysis of major leases yet to commence for vacant space and larger leases and abatement, which are set forth on Page 38 of the supplement. In keeping with our normal practice, due to the uncertain nature of the capital markets environment, the revised guidance we've provided does not have any speculative acquisitions or dispositions nor does it currently contemplate any additional refinancing activity this year. Of course, we will adjust and communicate to you the impacts on guidance if any of these transactions occur. With that, I'll turn the call back over to Brent for closing comments.

[Christopher Smith, executive]

Thank you, George, Chris and Bobby. We continue to focus on our core business, designing, managing and leasing great workplace environment. The investments we've made in our portfolio, combined with our leasing strategy continues to resonate with existing and prospective tenants alike. Piedmont's balance sheet is well positioned, having effectively addressed all of our final debt maturities until 2027 and having the pool availability of our $600 million line of credit. Our dividend is rightsized and our lease expiration schedule very manageable. We continue to be selective with capital deployment and anticipate being a net seller of assets to continue to deleverage the balance sheet and enhance all ready, ample liquidity resources. As indicated, when we originally introduced our 2024 guidance back in February, we expected the impact of increased interest expense and recent tenant vacates to result in an earnings and occupancy drop during this third quarter of '24, and we anticipate a return to growth in subsequent quarters. With that, I'll now ask the operator to provide our listeners with instructions on how they can submit their questions. We will attempt to answer all your questions now or we will make appropriate later public disclosure, if necessary.

[Operator]

Certainly, the floor is now open for questions. [Operator Instructions] Please hold just a moment while we poll for questions. Your first question is coming from Nick Thillman with Baird. Your line is live.

[Nicholas Thillman, analyst]

I appreciate the update on the leasing front, good momentum there. I guess, Amazon leases done. The next big one, I guess, is city of New York. So any sort of update on the discussions there and then maybe plans for that asset longer term?

[Christopher Smith, executive]

Nick, this is Brett. Thanks for joining us today. I think as you did point out, with the renewal of Amazon, as we discussed last quarter at Ryan as well, that's really put our large lease expirations to bed now or at least known in the market all the way up until 2026. So a great runway we feel like in terms of being able to continue to get these absorption in the portfolio. Looking ahead to 2026, as you point out, New York City is the largest of those expirations. As we've noted previously on calls, that dialogue continues to be very favorable and trending towards a renewal. We would expect that we'd like to dispose of the asset. When we feel like the capital market to stabilize in New York and that lease is consummated, again, likely to be sometime in '25, just depends on the receptivity in the overall marketplace at that time. But as we've noted, it is our intention to dispose the asset more near term.

[Nicholas Thillman, analyst]

And then maybe touching on dispositions, the John Carpenter to sort of sale under leased asset, I guess, what would -- what's the earnings effect of that sale? And then sort of -- is there plans for some of these other assets that have a little bit more vacancy to recycle those? Or is this kind of more of a one-off?

[Christopher Smith, executive]

Yes. Great question. I think as a platform, we're very adept at evaluating older '80s, '90s, 2,000 vintage assets and their viability in the modern and kind of office environment. We take a close lens to our own portfolio. And frankly, West John Carpenter Freeway had a number of attributes that just didn't fit what we would deem an asset worthy of the Piedmont portfolio. I think if we look at our elsewhere in the portfolio where there might be elevated leap-- sorry, occupancy levels -- sorry, elevated vacancy levels, really resides and call it 5 assets. One of them we just disposed of West John Carpenter Freeway. The other being 25 really to Mall Road. We feel very good about that asset is positioning in the market as one of the top 5 assets in that submarket. Admittedly, it is a little bit slower just given the tech lack of focus on leasing right now. The other one would be our lost cleanest asset, where we did have a tenant vacate during the quarter, but we still feel like that is very well positioned at LossClenas Corporate Center amenitized and we have good leasing momentum there. And then the other ones would be in the district, which we've talked about being very challenged overall in the submarket. So I feel like overall, the portfolio, this is probably one of the last ones, if not the last one, that we would say need to be pruned. And we feel very good about what we have moving forward. Now specifically to the West John Carpenter Freeway in terms of impact on earnings, that would be extremely limited again, maybe $0.01 or so impact.

[Nicholas Thillman, analyst]

How much capital do you think you would have had to put in that space to actually basically lease that one up.

[Christopher Smith, executive]

Great question. That would have been approaching probably $100 a foot in base building capital as well as tenant-related lease-up capital. We unique to that asset. It was built actually to have 2 towers joined for most of the common areas. So if you think about a refresh, there's a lot of extra ground on cover for a 300,000 square foot building. And then once you add in carry costs, that number probably would approach or exceed $100 additional capital per square foot on the building.

[Nicholas Thillman, analyst]

And then maybe last one for just on the leasing pipeline overall. Can you basically break down renewal versus new leasing within that? And then kind of the average size of the tenants you're kind of seeing? And if anything between the markets, that commentary would be appreciated as well.

[Christopher Kollme, executive]

Look, our pipe, as we mentioned in our recent release, we just spoke about 250,000 square feet of late-stage activity being legal were executed. About half of that is for new activity. And in that new activity realm is really happening in every one of our markets. Digging deeper into the proposal stage, we mentioned, again, 2 million square feet just recently, 70% of that is for new activity. I would say that the bulk of that activity is happening in Minneapolis, Dallas and Atlanta. I mean, Minneapolis is a new market that we're starting to see a lot more demand. I mean, it's pretty obvious as a result of U.S. Bank bankaing a large percentage of their assets in that marketplace. And then looking a little further out in terms of tour velocity, we've been seeing the third quarter what we've been seeing for the past several quarters. And then if you can look at what's happening in July, we're really happy about that at the high end of our tour velocity range. So when you combine that early stage or late stage recovery, early stages with late-stage activity, we feel pretty good about why we went ahead and bolted on these percentage guys by the end of the year between 87.5% to 88.5%.

[Operator]

Your next question is coming from Dylan Burzinski with Green Street.

[Dylan Burzinski, analyst]

Most might have been answered by now. But just sort of trying to think through, obviously, a great quarter on the leasing front, great to hear you guys increasing leasing guidance for the year. Can you kind of just talk about some of the drivers of that pickup in leasing activity? Is it sort of a return to a more normalized leasing environment? Is it more certainty on the macro or less, I guess, less uncertainty on the macro front. Can you guys just give us some further details as to what you guys think is sort of driving that pickup?

[Christopher Kollme, executive]

Dylan, and thank you for joining us. I think it's a couple of different factors. One, to our own portfolio, I think our focus on amenities and having the right level of service has continued to benefit us in the retention ratio on average at or exceeding 70%. But I'd also say from a new tenant leasing activity, as we've noted on prior calls, our focus and our leasing strategy around small medium enterprises and those that take generally, call it, a half a floor or less in terms of space has been incremental in strength both in depth, but also in overall leasing velocity to backfill what has been historically these larger tenants that are giving back larger being 50,000 square feet or greater, on average, about 30% of their space. Now if we want to delve into specific industries, that would vary by market in terms of some of what we're seeing. But historically, now over the last year, we've seen really professional services come back in a meaningful way, buyers financial as well. And I'd say, including consumer goods as well as retail and industrial. So I think it has been a continued robust U.S. economy and frankly, nontech and nonlarge tech -- sorry, our nonlarge corporate have been continuing to meet those drivers depending on which market you're in.

[Operator]

[Operator Instructions] Our next question is coming from Michael Lewis with Truist Securities.

[Michael Lewis, analyst]

So this signed but not commenced sometimes ties might head up and not. So you talked about the $50 million of rent associated with those leases. $30 million of NOI is about $0.24 per share. But you're obviously over the next several quarters and ongoing, we'll be signing new leases that have new free rent periods. I guess, that spread between signed and not commenced versus rent paying occupancy has widened. Should we think about what a normalized level would be and what that $0.24 of upside ultimately evens out to? I'm just trying to think about what the real earnings power that's built up in that leasing you've done over the last several quarters, what that really is.

[Robert Bowers, executive]

Michael, it's Bobby. I'm going to address part of that. If you look back over the last 10 years, that gap between economic lease percentage and the reported lease percentage is about 4% to 5%. So we picked up about 3% gap here, which should close over time. That is what makes us optimistic about earnings. Yes, you do have some dispositions that will -- I mean, no disposition some expirations that will take place, but we have low explorations here over the next few quarters. So we think it will be accretive to us as that gap closes back towards 4%.

[Christopher Smith, executive]

I would say, too, to add to that, Michael, and appreciate you joining us today. It's going to take some time for that $51 million to come into the portfolio as we've talked about, call it, anywhere from 12 to 24 months. I'd say a fair portion of that is, call it, 60% of it is in that current abatement period with 40% still yet to commence. But as that comes into the portfolio, as we talked about, that will backfill what we have now known vacates at Excelsior crossings and at Meridian crossings. And so that exact timing is always difficult to determine, and it's also somewhat impacted, as you point out, by the volume of leasing that we achieve going forward. And so Frank, ironically, that gap staying wide is a good thing because that will mean that we are continuing to have this excessive leasing velocity and increasing that backlog. As we approach 90% leased, I would imagine that, as Bobby pointed out, it's to the more normalized level, which historically has been in that, call it, 4.5% ZIP code. And so the gas, 4.5% gap between those leased percentage and the economic. And so if I had to specifically tell you when that would be, it somewhat be correlated to when we reach 90% occupancy, and that's probably going to take us, call it, another 18 to 24 months. But we do feel like with the momentum we see, it's possible to exceed that and do it even sooner. And that would, again, make that widened gap remain here in the near term. I hope that gives you a little bit more clarity.

[Michael Lewis, analyst]

Yes. No, that's helpful. It's nice to have some revenue in the hopper on the way. The -- you mentioned Excelsior and Meridian. One of the nice things about this is we could stop talking about U.S. Bancorp as a looming move out, and now it becomes redevelopment upside. So the 3 redevelopment projects that you have, is there anything to say as far as cost, timetables, potential NOI, all that stuff related to the redevelopments?

[Christopher Smith, executive]

Yes. I would say there are 3 assets in the redevelopment pool. One of them will be coming out of the redevelopment pool sometime next year. It will go into service or in operation late this year. And as we know, usually, it will stay out of service for either a year or delivery chipset occupancy. The other 2, we just added into the redevelopment pool, as you noted, 2 of Minneapolis, Meridian and Excelsior Crossings. Both of those are under what I would call a more modest but meaningful renovation. In terms of cost per square foot, that's for those 2 buildings running about $15 to $20 a foot of base building, and then we'll have lease-up. The reason they're going out of service, there's -- both were single-tenant buildings designed as such. So there's a need to really reposition them not only in the market because they haven't been marketed for almost a decade, but also to make some multitenant corridors, bathrooms, base building, new lobby, et cetera. But overall capital spend, if you think about the size of those 2 buildings, you're talking about somewhere in the neighborhood together of around $12 million of base building costs and expense.



So not in the grand scheme of our balance sheet, meaningful, which is why we like redevelopment opportunities rather than ground up, we can get to the cash flow faster. And frankly, we think mitigates some of that downtime. Receptivity in the market for both those assets has been very good. As we've noted on prior earnings calls, particularly Meridian, which is a little bit further along. We've actually already had a little bit of leasing success, now about 10% leased at that asset with a lot of traction with, call it, 40,000 to 50,000 square foot tenancy. And then the Excelsior building, it's underway as well, but a little bit behind in terms of its progress. But both of those will really be able to take tenancy through and actually walk through it towards the end of the year. They are in full construction mode at this point in time. In terms of that cost, again, pretty modest across all 3, but I would expect that, that capital is completed and spend, call it by the middle of next year. If you think about most of our larger redevelopment projects, we do think that will be wrapped up by the middle of 25. And really, we'll be in a more steady state kind of base building capital spend across the portfolio at that time.

[Operator]

There are there to be no further questions in queue. At this time, I would now like to turn the floor back over to Brent Smith for any closing remarks.

[Christopher Smith, executive]

Thank you very much. I appreciate everybody joining us today. Hopefully, you've taken away that we're very excited about the track record that we've created from a leasing and operational growth perspective here over the last, call it, 12 months and looking ahead and the repositioning of the balance sheet also really giving us an opportunity with no major debt maturities ahead of us, that we can now kind of reposition and focus the platform for future growth. We'd love to continue to talk to investors about that. We'll be at the Bank of America Conference on September 11 and 12 in New York City. But as I said on prior calls, we encourage investors to really come down to Atlanta meet with management, and tour the assets and petit afternoon here and really to be able to appreciate the story and what's really happening on the ground, if you will, within the submarkets in which we operate and how we're extrapolating this platform across our other markets. Again, if you have an opportunity, please contact Bobby or Jennifer, if you're interested in meeting, and we appreciate everybody joining today. Thank you.

[Operator]

Thank you, everyone. 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.