Office REIT Suspends Dividend To Preserve Cash For Tenant Build-Outs

Piedmont Office Realty Trust is halting dividends for the first time in its 15-year history as a publicly traded REIT.

The Atlanta-based office REIT is hoarding cash because more than 10% of its tenants that have signed leases aren't yet paying rent, Piedmont CEO Brent Smith said on the company's Tuesday earnings call.

Companies that have committed to occupying nearly 2M SF of Piedmont's office space were either on free rent status or had leases yet to commence at the end of the first quarter, according to the REIT's earnings report for the period.

Suspending the company's dividend, which paid investors 12.5 cents per share every quarter since mid-2023, would allow it to retain $60M of annual cash flow, Smith said. It would be able to spend that money on securing new leases and covering tenant build-outs — otherwise, it might have been forced to take on new debt or sell assets in a down market.

“We’re in a period unique to the company’s life cycle where cash flow is diminished from rent, and we have a lot of leasing momentum, and we want to continue that momentum,” Smith said on the call.

When all of the committed tenants start paying rent, they are expected to boost Piedmont's revenues by $67M a year, Smith said. He didn't give a definitive answer as to when the dividend will be turned back on, but he said, “I would imagine it would be [the] latter part of 2026 at the earliest.”

Smith confirmed to Bisnow in an email that it is the first time in Piedmont’s history as a REIT that it has ceased dividends.

Piedmont’s stock dropped from roughly $6.70 per share before it revealed the dividend suspension to $5.75 after trading closed on Tuesday, a 14% drop. It rebounded by 3% Wednesday to close at $5.91 per share. On the year, Piedmont's New York Stock Exchange-listed shares are down roughly 35%.

The company posted a first-quarter loss of $10M, narrowing its loss from $27.7M in the same period last year. First-quarter revenues were $136M, down from $139M a year earlier.

Smith said the firm is seeing strong leasing across its portfolio. Piedmont has 3M SF of office lease proposals out for its entire portfolio, 750K SF of which were signed or “in documentation” during the second quarter, Smith said.

Metro Atlanta was its top-earning market, raking in $44.7M in revenues in the first quarter.

Piedmont’s Atlanta tenants on free rent as of the end of March include two tenants at Galleria 600: Brand Industrial Services, which signed a 50K SF lease in February 2023, and GE Verona, which leased 77K SF at the building 10 months later. The free rent periods are scheduled to expire in March and September, respectively, according to a filing. 

Piedmont Chief Operating Officer George Wells said the REIT secured 122K SF in 12 deals last quarter in Atlanta, its most active market, including eight new leases totaling 99K SF.

Among the deals Wells highlighted were Chamberlain Hrdlicka’s 14-year, 31K SF lease at 999 Peachtree, which backfilled some of the space vacated by Eversheds Sutherland last year at the 620K SF Midtown tower. 

“This transaction also achieved a new rental rate high starting at $55 per SF, substantially higher than the expiring lease rate of approximately $39 per SF,” Wells said.

He also said an unnamed law firm doubled its footprint at 999 Peachtree during the first quarter to two full floors.

“We have a substantial pipeline to backfill additional Eversheds space,” Smith said. “999 Peachtree renovation has been very well received by the market.”

Smith wrote in an email that office space at its six-tower Galleria on the Park campus is achieving $40-per-SF rents and that the firm “is in discussions with a number of larger users.”

Despite the leasing activity, Piedmont's leased percentage dipped slightly to 88.1% at the end of the first quarter from 88.4% at the end of 2024. It is up from 87.8% in the first quarter of 2024, and the company's executives expect more positive momentum.

“Assuming there's no material surprise for the U.S. economy, we remain comfortable in achieving our previously released year-end lease percentage guidance of 89% to 90%,” Wells said.