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Piedmont Office Realty Trust Reports Second Quarter 2017 Results

08/02/17

ATLANTA, August 2, 2017 --Piedmont Office Realty Trust, Inc. ("Piedmont" or the "Company") (PDM), an owner of Class A office properties in select sub-markets located primarily within eight major Eastern U.S. office markets, today announced its results for the quarter ended June 30, 2017.

Highlights for the Three Months Ended June 30, 2017:

  • Reported Net Income Applicable to Common Stockholders of $0.16 per diluted share;
  • Achieved Core Funds From Operations ("Core FFO") of $0.46 per diluted share as compared with $0.40 for the quarter ended June 30, 2016;
  • Reported a 9.2% increase in Same Store NOI- Cash Basis;
  • Completed approximately 362,000 square feet of leasing during the second quarter, of which over half related to new leases;
  • Sold Sarasota Commerce Center II for $23.5 million, marking the Company`s exit from the Sarasota, FL market; and
  • Entered into a binding contract to sell 8560 Upland Drive, the Company`s last asset located in the Denver, CO market.
  • Additionally, subsequent to quarter end, Piedmont successfully completed the sale of Two Independence Square, an approximately 606,000 square foot office building located in Washington, D.C., for approximately $360 million, or $593 per square foot.

Donald A. Miller, CFA, President and Chief Executive Officer, commented, "We delivered solid financial results this quarter, and just after quarter end we closed on the sale of Two Independence Square which was an important disposition for the Company.  It was our largest non-strategic asset in Washington, D.C. and the sale captured significant value for our stockholders.  Although leasing has been sluggish in the first half of 2017, our forward leasing pipeline provides optimism headed into the second half of the year."

Results for the Quarter ended June 30, 2017

Piedmont recognized net income applicable to common stockholders for the three months ended June 30, 2017 of $23.7 million, or $0.16 per diluted share, as compared with $72.3 million, or $0.50 per diluted share, for the three months ended June 30, 2016.  The prior quarter included approximately $73.8 million, or $0.51 per diluted share attributable to gains on sales of real estate assets, whereas the current quarter included approximately $6.5 million, or $0.04 of such gains.  

Funds From Operations ("FFO"), which removes the impact of the gains on sales mentioned above, as well as depreciation and amortization, and Core FFO, which further removes the impact of acquisition expenses, were both $0.46 per diluted share for the three months ended June 30, 2017, as compared with $0.40 per diluted share for the three months ended June 30, 2016, with the increase primarily due to new leases commencing and net acquisition transactional activity over the last twelve months.

Revenues and property operating costs for the three months ended June 30, 2017 also increased due to net transactional activity and new leases commencing over the last twelve months. Revenues and property operating costs for the three months ended June 30, 2017 were $148.7 million and $55.8 million, respectively, compared to $135.3 million and $52.3 million, respectively, for the same period a year ago.

General and administrative expense was $8.0 million for the three months ended June 30, 2017, compared to $8.3 million for the same period in 2016, primarily as a result of decreased accruals for potential stock-based compensation expense during the current period. Interest expense increased $2.0 million for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, primarily due to a net increase in the average debt outstanding during the current quarter.

Leasing Update

The Company`s leasing volume for the quarter ended June 30, 2017 totaled approximately 362,000 square feet, with approximately half of that volume related to new leases.  Our most productive market during  the second quarter was Dallas, TX where we completed almost 100,000 square feet of leases highlighted by the following:

·         Caris Life Sciences, LLC signed a 27,000 square foot, 10+ year new lease at 750 West John Carpenter Freeway;
·        Covey Park Energy signed a 19,000 square foot, 5-year lease expansion and short-term extension at  One Lincoln Park; and
·        Veterans United Home Loans executed an almost 19,000 square foot, 5+ year lease renewal and expansion at Las Colinas Corporate Center II.

Other leasing highlights for the second quarter of 2017 included:  NAI Brannen Goddard completed a 28,000 square foot, 5-year lease renewal at Glenridge Highlands One in Atlanta, GA;  The General Services Administration (GSA) signed a 21,000 square foot, 5-year lease renewal at 400 Virginia Avenue in Washington, D.C; and R-T Specialty, LLC signed an 11,000 square foot, 11+ year lease expansion at 500 West Monroe Street in Chicago, IL.

The Company`s leased percentage was 91.0%, and weighted average lease term was approximately 6.7 years as of June 30, 2017, both comparable with the first quarter of 2017. Same Store NOI increased 9.2% and 7.9% on a cash and accrual basis, respectively, compared to the second quarter of the prior year, primarily reflecting expiration of abatement periods and the commencement of leases over the last twelve months. Details outlining Piedmont`s significant upcoming lease expirations, the status of current leasing activity, and a schedule of significant near-term abatement periods can be found in the Company`s quarterly supplemental information package available at www.piedmontreit.com.

 

Transactional Activity

During the second quarter, Piedmont disposed of Sarasota Commerce Center II for $23.5 million, or $158 per square foot, marking Piedmont`s exit from the Sarasota, FL office market, and entered into a binding contract to sell 8560 Upland Drive, Piedmont`s last asset in the Denver, CO market and last asset held through an unconsolidated joint venture.  The Upland Drive sale subsequently closed on July 27, 2017.
Additionally, subsequent to quarter end, the Company successfully completed the sale of one of its largest non-strategic properties, Two Independence Square, located at 300 E Street, S.W. in Washington D.C for approximately $360 million, or $593 per square foot.  The 606,000 square foot, 9-story, office building is 100% leased and has served as the headquarters for the National Aeronautics and Space Administration (NASA) since its construction. Subsequent to quarter end, net sales proceeds were used to pay off the balance outstanding on the Company`s $500 million line of credit and a $140 million maturing mortgage.

Third Quarter 2017 Dividend Declaration

On August 1, 2017, the board of directors of Piedmont declared dividends for the third quarter of 2017 in the amount of $0.21 per share on its common stock to stockholders of record as of the close of business on August 25, 2017, payable on September 15, 2017.

Guidance for 2017

Based on the consummation of the sale of Two Independence Square and management`s expectations for the remainder of the year, the Company is narrowing its previously issued guidance for full-year 2017 as follows:

(in millions, except per share data)   Low   High
Net Income   $172 - $178
Add:        
  Depreciation   121     126
  Amortization   73     78
Less:  Gain on Sale of Real Estate Assets   (115 ) - (123)
NAREIT FFO and Core FFO applicable to Common Stock   251     259
NAREIT FFO and Core FFO per diluted share   $1.72 - $1.78

These estimates reflect management`s view of current market conditions and incorporate certain economic and operational assumptions and projections. Actual results could differ materially from these estimates based on a variety of factors, including major acquisitions and dispositions, as well as those factors discussed under "Forward Looking Statements" below.

Note that individual quarters may fluctuate on both a cash basis and an accrual basis due to lease commencements and expirations, abatement periods, the timing of repairs and maintenance, capital expenditures, capital markets activities, seasonal general and administrative expenses, and one-time revenue or expense events. In addition, the Company`s guidance is based on information available to management as of the date of this release.

Non-GAAP Financial Measures

To supplement the presentation of the Company`s financial results prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), this release and the accompanying quarterly supplemental information as of and for the period ended June 30, 2017 contain certain financial measures that are not prepared in accordance with GAAP, including FFO, Core FFO, AFFO, Same Store NOI (cash basis), Property NOI (cash basis) and Core EBITDA. Definitions and reconciliations of each of these non-GAAP measures to their most comparable GAAP metrics are included below and in the accompanying quarterly supplemental information.

Each of the non-GAAP measures included in this release and the accompanying quarterly supplemental financial information has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of the Company`s results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the Company`s presentation of non-GAAP measures in this release and the accompanying quarterly supplemental information may not be comparable to similarly titled measures disclosed by other companies, including other REITs. The Company may also change the calculation of any of the non-GAAP measures included in this news release and the accompanying supplemental financial information from time to time in light of its then existing operations to include other adjustments that may affect its operations.

Conference Call Information

Piedmont has scheduled a conference call and an audio web cast for Thursday, August 3, 2017 at 10:00 A.M. Eastern daylight time. The live audio web cast of the call may be accessed on the Company`s website at www.piedmontreit.com in the Investor Relations section. Dial-in numbers are (877) 407-0778 for participants in the United States and Canada and (201) 689-8565 for international participants. A replay of the conference call will be available through 10 A.M. EDT on August 17, 2017, and may be accessed by dialing (877) 481-4010 for participants in the United States and Canada and (919) 882-2331 for international participants, followed by conference identification code 16154. A web cast replay will also be available after the conference call in the Investor Relations section of the Company`s website. During the audio web cast and conference call, the Company`s management team will review second quarter 2017 performance, discuss recent events, and conduct a question-and-answer period.

Supplemental Information

Quarterly supplemental information as of and for the period ended June 30, 2017 can be accessed on the Company`s website under the Investor Relations section at www.piedmontreit.com.

About Piedmont Office Realty Trust

Piedmont Office Realty Trust, Inc. (PDM) is an owner, manager, developer, and operator of high-quality, Class A office properties in select submarkets located primarily within eight major U.S. office markets. Its geographically-diversified, over $5 billion portfolio is comprised of approximately 20 million square feet. The Company is a fully-integrated, self-managed real estate investment trust (REIT) with local management offices in each of its major markets and is investment-grade rated by Standard & Poor`s (BBB) and Moody`s (Baa2). For more information, see www.piedmontreit.com.

Forward Looking Statements

Certain statements contained in this press release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company intends for all such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such information is subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of the Company`s performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "believe," "continue" or similar words or phrases that are predictions of future events or trends and which do not relate solely to historical matters. Examples of such statements in this press release include the Company`s optimism regarding it`s leasing pipeline and whether the pipeline will result in increased leasing volume during the second half of the year and the Company`s estimated range of Net Income, Depreciation, Amortization, Gain on Sale of Real Estate Assets, NAREIT FFO/Core FFO and NAREIT FFO/Core FFO per diluted share for the year ending December 31, 2017.

The following are some of the factors that could cause the Company`s actual results and its expectations to differ materially from those described in the Company`s forward-looking statements: Economic, regulatory, and/or socio-economic changes (including accounting standards) that impact the real estate market generally, or that could affect patterns of use of commercial office space; the impact of competition on our efforts to renew existing leases or re-let space on terms similar to existing leases; changes in the economies and other conditions affecting the office sector in general and the specific markets in which we operate, particularly in Washington, D.C., the New York metropolitan area, and Chicago where we have high concentrations of our Annualized Lease Revenue; lease terminations or lease defaults, particularly by one of our large lead tenants; the effect on us of adverse market and economic conditions, including any resulting impairment charges on both our long-lived assets or goodwill; the success of our real estate strategies and investment objectives, including our ability to identify and consummate suitable acquisitions and divestitures; the illiquidity of real estate investments, including the resulting impediment on our ability to quickly respond to adverse changes in the performance of our properties; the risks and uncertainties associated with our acquisition of properties, many of which risks and uncertainties may not be known at the time of acquisition; development and construction delays and resultant increased costs and risks; our real estate development strategies may not be successful; future acts of terrorism in any of the major metropolitan areas in which we own properties, or future cybersecurity attacks against us or any of our tenants; costs of complying with governmental laws and regulations; additional risks and costs associated with directly managing properties occupied by government tenants; the effect of future offerings of debt or equity securities or changes in market interest rates on the value of our common stock; uncertainties associated with environmental and other regulatory matters; potential changes in political environment and reduction in federal and/or state funding of our governmental tenants; any change in the financial condition of any of our large lead tenants; the effect of any litigation to which we are, or may become, subject; changes in tax laws impacting REITs and real estate in general, as well as our ability to continue to qualify as a REIT under the Internal Revenue Code of 1986 (the "Code"); the future effectiveness of our internal controls and procedures; and other factors, including the risk factors discussed under Item 1A. of Piedmont`s Amended Annual Report on Form 10-K/A for the year ended December 31, 2016.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company cannot guarantee the accuracy of any such forward-looking statements contained in this press release, and the Company does not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Research Analysts/ Institutional Investors Contact:
Eddie Guilbert
770-418-8592
research.analysts@piedmontreit.com

Shareholder Services/Transfer Agent Services Contact:
Computershare, Inc.
866-354-3485
investor.services@piedmontreit.com

PDM Q2 2017 Financials