Form 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported)   

            February 10, 2011

Piedmont Office Realty Trust, Inc.

 

(Exact Name of Registrant as Specified in Charter)

 

Maryland   001-34626   58-2328421

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

11695 Johns Creek Parkway Ste 350, Johns Creek, Georgia 30097

 

(Address of Principal Executive Offices)            (Zip Code)

 

Registrant’s telephone number, including area code   

        (770) 418-8800

 

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

  ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

  ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

  ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

  ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Item 2.02 Results of Operations and Financial Condition

On February 10, 2011, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the fourth quarter 2010, as well as the year ended December 31, 2010, and published supplemental information for the fourth quarter 2010 and for the year ended December 31, 2010 to its website. The press release and the supplemental information are attached hereto as Exhibit 99.1 and 99.2, respectively, and are incorporated herein by reference. Pursuant to the rules and regulations of the Securities and Exchange Commission, such exhibits and the information set forth therein are deemed to have been furnished and shall not be deemed to be “filed” under the Securities Exchange Act of 1934.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits:

 

Exhibit No.

    

Description

    
99.1      Press release dated February 10, 2011.
99.2      Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Fourth Quarter 2010.

 

2


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.

 

PIEDMONT OFFICE REALTY TRUST, INC.
(Registrant)
By:   

/s/ Robert E. Bowers

   Robert E. Bowers
   Chief Financial Officer and Executive Vice President

Date: February 10, 2011

 

3


EXHIBIT INDEX

 

Exhibit No.

    

Description

    
99.1      Press release dated February 10, 2011.
99.2      Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Fourth Quarter 2010.

 

4

Press Release

Exhibit 99.1

LOGO

Piedmont Office Realty Trust Reports Fourth Quarter Results

- Provides 2011 Guidance -

ATLANTA, February 10, 2011 — Piedmont Office Realty Trust, Inc. (“Piedmont” or the “Company”) (NYSE:PDM), an owner of primarily Class A properties located predominantly in the ten largest U.S. office markets, today announced its results for the quarter and year ended December 31, 2010.

Highlights for the Three Months and the Year Ended December 31, 2010:

 

   

Listed on the New York Stock Exchange in February 2010.

 

   

Achieved funds from operations (“FFO”) for the fourth quarter of $0.39 per diluted share compared to $0.44 per diluted share for the same quarter in 2009; and FFO for the year of $1.59 per diluted share compared to $1.51 per diluted share for 2009.

 

   

Leased over 780,000 square feet in the quarter at the Company’s 75 consolidated office properties, including 389,000 square feet of renewal leases and 394,000 square feet of new leases and signed over 2.1 million square feet of leases, or 10% of its portfolio, at its consolidated office properties during the year.

 

   

Completed the acquisition of two office buildings in Minneapolis, MN, with approximately 384,000 combined square feet for $65.6 million, bringing the total number of acquisitions completed during the year to three.

 

   

Sold two non-strategic assets during the quarter; no other dispositions were made during the year.

Donald A. Miller, CFA, President and Chief Executive Officer, stated, “We were pleased with the amount of leasing that we completed during the quarter, and over the year as a whole, to high-quality tenants. While we remain focused on our core operations through cost control and actively addressing known forthcoming lease expirations, we have not lost sight of our strategic objectives. We are encouraged by increased activity in the market, both from a leasing and capital transactions perspective, and remain committed to selectively growing our portfolio through thoughtful acquisitions.”

Results for the Fourth Quarter Ended December 31, 2010

All prior period per share amounts have been retroactively restated to reflect the stockholder-approved recapitalization of our common stock. Current period per share amounts reflect the issuance of 13.8 million shares of common stock. Both the recapitalization and issuance of stock


occurred during the first quarter of 2010.

Piedmont’s net income available to common stockholders was $28.7 million, or $0.17 per diluted share, for the fourth quarter of 2010, compared with net income of $25.9 million, or $0.16 per diluted share, for the fourth quarter of 2009. FFO totaled $67.9 million, or $0.39 per diluted share, for the fourth quarter of 2010 as compared to FFO of $69.5 million, or $0.44 per diluted share, for the fourth quarter of 2009. The fourth quarter of 2010 FFO results reflected approximately $0.04 in dilution per share related to the issuance of 13.8 million shares of common stock during first quarter of 2010. Adjusted FFO (“AFFO”) for the fourth quarter of 2010 totaled $38.1 million, or $0.22 per diluted share, as compared to $47.4 million, or $0.30 per diluted share, in the fourth quarter of 2009, with the decline due primarily to increased capital expenditures related to new leasing activity.

Revenues for the quarter ended December 31, 2010 totaled $151.3 million, compared to $149.4 million in the same period in 2009. Property operating expenses were $60.4 million in the fourth quarter of 2010 compared to $57.3 million in the fourth quarter of 2009. Same store net operating income for the quarter was $83.0 million, 2.7% lower than the $85.3 million for the fourth quarter of 2009, reflecting primarily the impact of rental rate roll downs on some recent new leases.

Results for the Year Ended December 31, 2010

Piedmont’s net income available to common stockholders was $120.4 million, or $0.70 per diluted share, for the twelve months ended December 31, 2010, compared with net income of $74.7 million, or $0.47 per diluted share, for the comparable 2009 period. Net income exclusive of impairment charges was $130.0 million in 2010 compared to $112.3 million in 2009. FFO for the year ended December 31, 2010, totaled $271.6 million, or $1.59 per diluted share, as compared to FFO of $239.3 million, or $1.51 per diluted share, for the year ended December 31, 2009. The 2010 FFO results reflected approximately $0.12 in dilution per share related to the issuance of 13.8 million shares of common stock during first quarter of 2010. Core FFO, which excludes impairment charges, was $281.3 million, or $1.65 per diluted share, for 2010, compared to $ 276.9 million, or $1.75 per diluted share, for 2009. The 2010 Core FFO results reflected approximately $0.12 in dilution per share related to the previously mentioned issuance of 13.8 million shares of common stock during first quarter of 2010. Adjusted FFO (“AFFO”) for the year ended December 31, 2010, totaled $215.7 million, or $1.26 per diluted share, as compared to $228.4 million, or $1.44 per diluted share, for the same period in 2009.

Revenues for the year ended December 31, 2010, totaled $588.8 million compared to $598.5 million in the same period in 2009. Property operating expenses were $217.9 million in 2010 compared to $230.6 million in 2009. Same store net operating income for the year was $347.6 million, 1.4% lower than the $352.6 million in 2009.

Leasing Update


During the fourth quarter of 2010, the Company executed leases for 783,000 square feet, all of which were office leases, spread throughout its markets. Of the leases signed in the quarter, 389,000 square feet, or 50 percent, was renewal-related and 394,000 square feet was new or expansion-related with existing tenants. As of December 31, 2010, the Company’s office portfolio was 89.2 percent leased with a weighted average lease term remaining of 5.8 years. The Company’s leased percentage increased 20 basis points from the end of the third quarter, but decreased 90 basis points year over year. That year over year decrease was primarily related to the acquisition of a vacant 142,000 square foot building in the Atlanta market at the end of the third quarter. Excluding the newly-acquired building in Atlanta from consideration, the portfolio was 89.9 percent leased as of December 31, 2010. The Company is actively managing its upcoming lease expirations, including several large 2011 and 2012 lease expirations.

A detailed presentation of the Company’s leasing activity can be found on pages 6 and 21 of its quarterly supplemental reporting package. Additional information on the quarterly supplemental reporting package can be found below.

Dividend

During the quarter ended December 31, 2010, the Company paid a quarterly dividend in the amount of $0.315 per share for all classes of common stock, bringing total dividends paid for the year ended December 31, 2010, to $1.26 per share.

Balance Sheet and Capital Markets Activities

As of December 31, 2010, Piedmont’s total gross assets were $5.3 billion with total debt of $1.4 billion. The Company’s total debt-to-gross assets ratio at the end of the fourth quarter of 2010 was 26.6 percent and the quarter’s net debt (total debt less cash and cash equivalents) to annualized core EBITDA ratio was 3.9 times. The Company’s fixed charge coverage ratio was 4.9 times. As of December 31, 2010, Piedmont had cash and capacity on its unsecured credit line of approximately $540 million. The Company has a $250 million unsecured term loan maturing in 2011.

On November 7, 2010, all of Piedmont’s 39.7 million shares of Class B-2 common stock converted on a one-for-one basis into the Company’s Class A common stock. On January 30, 2011, the final tranche of Piedmont’s Class B common stock converted on a one-for-one basis into the Company’s Class A common stock; therefore, all of the Company’s outstanding shares of common stock are now Class A common shares and traded on the New York Stock Exchange.

Acquisitions and Dispositions

As previously communicated, the Company purchased, for $65.6 million, two Class A, eight-story office buildings (the “Meridian Crossings Buildings”) containing approximately 384,000 combined rentable square feet and located in the Minneapolis, MN market. The Meridian Crossings Buildings, which were constructed in 1997 and 1998, are primarily leased through 2023 to U.S.


Bank, an existing tenant within the Piedmont portfolio. The two buildings combined are approximately 96 percent leased.

During the fourth quarter of 2010, Piedmont completed two dispositions: the sale of 111 Sylvan Avenue in Englewood Cliffs, NJ for $55 million; and the sale of a joint venture property, of which Piedmont’s proportionate share was approximately 4 percent, for $5.3 million.

Guidance for 2011

The Company introduced its financial guidance for full-year 2011 based upon management’s expectations as follows:

 

     Low             High       

Net Income

   $ 106         —         118      Million   

Add: Depreciation & Amortization

   $ 150         —         156      Million   

Core FFO

   $ 256         —         269      Million   

Core FFO per diluted share

   $ 1.48         —         1.56   

These estimates reflect management’s view of current market conditions and incorporate certain economic and operational assumptions and projections. These estimates exclude any significant acquisitions or dispositions which would result in a change in the Company’s 2011 outlook and guidance. Actual results could differ from these estimates. Note that individual quarters may fluctuate on both a cash basis and an accrual basis due to timing of repairs and maintenance, capital expenditures, capital markets activities 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

This release contains certain supplemental non-GAAP financial measures such as FFO, AFFO, Core FFO, Same store net operating income, Net income exclusive of impairment charges, and Core EBITDA. See below for definitions and reconciliations of these metrics to their most comparable GAAP metric.

Conference Call Information

Piedmont has scheduled a conference call and an audio webcast for Friday, February 11, 2011 at 10:00 A.M. Eastern Time. Dial-in numbers are (877) 407-9039 for participants in the United States and (201) 689-8470 for international participants. The conference identification number is 365345. The live audio webcast of the call may be accessed on the Company’s website at www.piedmontreit.com in the Investor Relations section. A replay of the conference call will be available until February 25, 2010, and can be accessed by dialing (877) 870-5176, or (858) 384-


5517 for international participants, followed by passcode 365345. A webcast replay will also be available after the conference call in the Investor Relations section of the Company’s website. During the audio webcast and conference call, the Company’s management team will review fourth quarter 2010 performance, discuss recent events, and conduct a question-and-answer period.

Supplemental Information

Quarterly Supplemental Information as of and for the three and twelve months ended December 31, 2010, 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. is a fully-integrated and self-managed real estate investment trust (“REIT”) specializing in the acquisition, ownership, management, development and disposition of primarily high-quality Class A office buildings located predominantly in large U.S. office markets and leased principally to high-credit-quality tenants. Since its first acquisition in 1998, the Company has acquired $5.5 billion of office and industrial properties. Rated as an investment-grade company by Standard & Poor’s and Moody’s, Piedmont has maintained a low-leverage strategy while acquiring its properties.

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”). We intend 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 our 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 quality of the Company’s assets; the Company’s leasing and transactional activity prospects; and the Company’s estimated range of Net Income, Depreciation and Amortization, Core FFO and Core FFO per diluted share for the year ending December 31, 2011.

The following are some of the factors that could cause our actual results and expectations to differ materially from those described in our forward-looking statements: our ability to successfully identify and consummate suitable acquisitions; current adverse market and economic conditions; lease terminations or lease defaults, particularly by one of our large lead


tenants; the impact of competition on our efforts to renew existing leases or re-let space; changes in the economies and other conditions of the office market in general and of the specific markets in which we operate; economic and regulatory changes; additional risks and costs associated with directly managing properties occupied by government tenants; adverse market and economic conditions and related impairments to our assets, including, but not limited to, receivables, real estate assets and other intangible assets; the success of our real estate strategies and investment objectives; availability of financing; costs of complying with governmental laws and regulations; uncertainties associated with environmental and other regulatory matters; our ability to continue to qualify as a REIT under the Internal Revenue Code; the impact of outstanding or potential litigation; and other factors detailed in our most recent Annual Report on Form 10-K and our Quarterly Report on Form 10-Q as of and for the period ended September 30, 2010, and other documents we file with the Securities and Exchange Commission.

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

Research Analysts Contact:

Eddie Guilbert

770-418-8592

research.analysts@piedmontreit.com

or

ICR Inc.

Evelyn Infurna

203-682-8346

Evelyn.infurna@icrinc.com

All Other Shareholder Inquiries, Contact:

Shareholder Relations

866-354-3485

investor.services@piedmontreit.com


Piedmont Office Realty Trust, Inc.

Consolidated Balance Sheets

Unaudited (in thousands)

 

 

 

     December 31, 2010     December 31, 2009  

Assets:

    

Real estate assets, at cost:

    

Land

   $ 647,653      $ 651,876   

Buildings and improvements

     3,688,751        3,663,391   

Buildings and improvements, accumulated depreciation

     (744,756     (665,068

Intangible lease asset

     219,770        243,312   

Intangible lease asset, accumulated amortization

     (145,742     (147,043

Construction in progress

     11,152        17,059   
                

Total real estate assets

     3,676,828        3,763,527   

Investment in unconsolidated joint ventures

     42,018        43,940   

Cash and cash equivalents

     56,718        10,004   

Tenant receivables, net of allowance for doubtful accounts

     28,849        33,071   

Straight line rent receivable

     105,157        95,371   

Notes receivable

     61,144        58,739   

Due from unconsolidated joint ventures

     1,158        1,083   

Prepaid expenses and other assets

     23,724        21,456   

Goodwill

     180,097        180,097   

Deferred financing costs, less accumulated amortization

     5,306        7,205   

Deferred lease costs, less accumulated amortization

     192,481        180,852   
                

Total assets

   $ 4,373,480      $ 4,395,345   
                

Liabilities:

    

Line of credit and notes payable

   $ 1,402,525        1,516,525   

Accounts payable, accrued expenses, and accrued capital expenditures

     112,648        97,747   

Deferred income

     35,203        34,506   

Intangible lease liabilities, less accumulated amortization

     48,959        60,655   

Interest rate swap

     691        3,866   
                

Total liabilities

     1,600,026        1,713,299   

Redeemable common stock

     -          75,164   

Stockholders’ equity :

    

Class A common stock

     1,330        397   

Class B-1 common stock

     -          397   

Class B-2 common stock

     -          397   

Class B-3 common stock

     397        398   

Additional paid in capital

     3,661,308        3,477,168   

Cumulative distributions in excess of earnings

     (895,122     (798,561

Redeemable common stock

     -          (75,164

Other comprehensive loss

     (691     (3,866
                

Piedmont stockholders’ equity

     2,767,222        2,601,166   

Non-controlling interest

     6,232        5,716   
                

Total stockholders’ equity

     2,773,454        2,606,882   
                

Total liabilities, redeemable common stock and stockholders’ equity

   $ 4,373,480      $ 4,395,345   
                

Net Debt (Total debt less cash and cash equivalents)

   $ 1,345,807      $ 1,506,521   

Total Gross Assets (1)

   $ 5,263,978      $ 5,207,456   

All classes of common stock outstanding at end of period

     172,658        158,917   

 

(1)

Total assets exclusive of accumulated depreciation and amortization related to real estate assets.


Piedmont Office Realty Trust, Inc.

Consolidated Statements of Income

Unaudited (in thousands)

 

 

 

     Three Months Ended     For the Year Ended  
     12/31/2010     12/31/2009     12/31/2010     12/31/2009  

Revenues:

        

Rental income

   $ 110,778      $ 110,405      $ 442,687      $ 443,436   

Tenant reimbursements

     36,997        36,108        135,145        149,193   

Property management fee revenue

     948        928        3,212        3,111   

Other rental income

     2,589        1,982        7,794        2,764   
                                

Total revenues

     151,312        149,423        588,838        598,504   

Operating expenses:

        

Property operating costs

     60,401        57,281        217,871        230,588   

Depreciation

     26,685        26,701        103,971        104,516   

Amortization

     11,523        16,172        44,931        57,300   

General and administrative

     7,824        6,219        29,201        27,315   

Impairment loss on real estate assets

     -          -          -          35,063   
                                

Total operating expenses

     106,433        106,373        395,974        454,782   
                                

Real estate operating income

     44,879        43,050        192,864        143,722   

Other income (expense):

        

Interest expense

     (17,378     (19,488     (72,761     (77,743

Interest and other income

     491        652        3,489        4,450   

Equity in income of unconsolidated joint ventures

     630        672        2,633        104   
                                

Total other income (expense)

     (16,257     (18,164     (66,639     (73,189
                                

Income from continuing operations

     28,622        24,886        126,225        70,533   

Operating income, excluding impairment loss

     1,017        1,179        5,089        4,645   

Impairment loss

     -          -          (9,587     -     

Gain (loss) on sale of real estate assets

     (817     -          (817     -     
                                

Discontinued operations

     200        1,179        (5,315     4,645   
                                

Net income

     28,822        26,065        120,910        75,178   

Less: Net income attributable to noncontrolling interest

     (122     (119     (531     (478
                                

Net income attributable to Piedmont

   $ 28,700      $ 25,946      $ 120,379      $ 74,700   
                                

Weighted average common shares outstanding - diluted

     172,996        158,393        170,967        158,581   

Net income per share available to common stockholders - diluted

   $ 0.17      $ 0.16      $ 0.70      $ 0.47   
                                
                                  

Reconciliation of Net Income Excluding Impairment Charges:

        

Net income attributable to Piedmont

       $ 120,379      $ 74,700   

Impairment losses on consolidated properties

         9,587        35,063   

Impairment losses from unconsolidated JVs

         53        2,570   
                    

Net income available to stockholders, exclusive of impairment charges

       $ 130,019      $ 112,333   
                    

Weighted average common shares outstanding - diluted

         170,967        158,581   

Net income per share available to stockholders, exclusive of impairment charges - diluted

       $ 0.76      $ 0.71   
                    


Piedmont Office Realty Trust, Inc.

Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations

Unaudited (in thousands except for per share data)

 

 

 

     Three Months Ended     Year Ended  
     12/31/2010     12/31/2009     12/31/2010     12/31/2009  

Net income attributable to Piedmont

   $ 28,700      $ 25,946      $ 120,379      $ 74,700   

Depreciation (1) (2)

     26,821        27,264        105,107        106,878   

Amortization (1)

     11,623        16,274        45,334        57,708   

Net Loss on Sales of Properties (1)

     792        -        792        -   
                                

Funds from operations

     67,936        69,484        271,612        239,286   

Impairment loss on real estate assets (1)

     -        -        9,640        37,633   
                                

Core funds from operations

     67,936        69,484        281,252        276,919   

Depreciation of non real estate assets

     173        171        707        632   

Stock-based and other non-cash compensation expense

     1,223        671        3,681        3,178   

Deferred financing cost amortization

     608        696        2,608        2,786   

Straight-line effects of lease revenue (1)

     (3,456     (1,618     (6,088     (997

Amortization of lease-related intangibles (1)

     (1,331     (1,663     (5,793     (5,399

Income from amortization of discount on purchase of mezzanine loans

     (473     (334     (2,405     (2,278

Non-incremental capital expenditures (3)

     (26,594     (19,974     (58,305     (46,452
                                

Adjusted funds from operations

   $ 38,086      $ 47,433      $ 215,657      $ 228,389   
                                

Weighted average common shares outstanding-diluted

     172,996        158,393        170,967        158,581   

Funds from operations per share (diluted)

   $ 0.39      $ 0.44      $ 1.59      $ 1.51   

Core funds from operations per share (diluted)

   $ 0.39      $ 0.44      $ 1.65      $ 1.75   

Adjusted funds from operations per share (diluted)

 

   $

 

0.22

 

  

 

  $

 

0.30

 

  

 

  $

 

1.26

 

  

 

  $

 

1.44

 

  

 

(1)

Includes adjustments for wholly-owned properties and for our proportionate ownership in unconsolidated joint ventures.

(2)

Excludes depreciation of non real estate assets.

(3)

Capital expenditures of a recurring nature related to tenant improvements and leasing commissions that do not incrementally enhance the underlying assets’ income generating capacity. We exclude first generation tenant improvements and leasing commissions from this measure.

*Definitions

Funds From Operations (“FFO”): FFO is calculated in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines FFO as net income (computed in accordance with GAAP), excluding gains or losses from sales of property, adding back depreciation and amortization on real estate assets, and after the same adjustments for unconsolidated partnerships and joint ventures. Such factors can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. FFO may provide valuable comparisons of operating performance between periods and with other REITs. FFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income. We believe that FFO is a beneficial indicator of the performance of an equity REIT. However, other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than we do; therefore, our computation of FFO may not be comparable to that of such other REITs.

Core Funds From Operations (“Core FFO”): We calculate Core FFO by starting with FFO, as defined by NAREIT, and adjust for certain non-recurring items such as impairment losses and other extraordinary items. Such items create significant earnings volatility. We believe Core FFO provides a meaningful measure of our operating performance and more predictability regarding future earnings potential. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income; therefore, it should not be compared to other REITs’ equivalent to Core FFO.

Adjusted Funds From Operations (“AFFO”): AFFO is calculated by deducting from Core FFO non-incremental capital expenditures and adding back non-cash items including non-real estate depreciation, straight lined rents and fair value lease revenue, non-cash components of interest expense and compensation expense, and by making similar adjustments for unconsolidated partnerships and joint ventures. Although AFFO may not be comparable to that of other REITs, we believe it provides a meaningful indicator of our ability to fund cash needs and to make cash distributions to equity owners. AFFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income, as an alternative to net cash flows from operating activities or as a measure of our liquidity.


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income

Unaudited (in thousands)

 

 

 

     Three Months Ended     Year Ended  
     12/31/2010     12/31/2009     12/31/2010     12/31/2009  

Net income attributable to Piedmont

   $ 28,700      $  25,946      $  120,379      $ 74,700   

Net income attributable to non-controlling interest

     122        119        531        478   

Interest Expense

     17,378        19,488        72,761        77,743   

Depreciation

     26,995        27,434        105,814        107,510   

Amortization

     11,623        16,274        45,334        57,708   

Impairment loss on real estate assets

     -          -          9,640        37,633   

Net loss on sales of properties(1)

     792        -          792        -     
                                

Core EBITDA*

     85,610        89,261        355,251        355,772   

General & administrative expenses

     7,934        6,297        29,624        27,558   

Management fee revenue

     (948     (928     (3,212     (3,111

Interest and other income

     (491     (652     (3,489     (4,450

Lease termination income

     (2,589     (1,982     (7,794     (2,764

Lease termination expense - straight line rent & acquisition intangibles write-offs

     461        552        1,338        1,353   

Straight line rent adjustment

     (3,791     (2,619     (7,300     (2,809

Net effect of amortization of below-market in-place lease intangibles

     (1,457     (1,212     (5,919     (4,939
                                

Core net operating income (cash basis)*

     84,729        88,717        358,499        366,610   

Acquisitions

     881        -          883        -     

Dispositions

     (1,119     (1,672     (6,169     (6,667

Industrial properties

     (347     (638     (803     (2,559

Unconsolidated joint ventures

     (1,165     (1,156     (4,835     (4,793
                                

Same Store NOI*

   $ 82,979      $ 85,251      $ 347,575      $ 352,591   
                                

Year over Year change in same store NOI

     -2.7       -1.4  

Fixed Charge Coverage Ratio (Core EBITDA/ Interest Expense)(1)

     4.9         

Annualized Core EBITDA (Core EBITDA x 4)

   $ 342,440                           

 

(1)

Piedmont had no capitalized interest, principal amortization or preferred dividends for any of the periods presented.

*Definitions

Core EBITDA: Defined as net income before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property, or other extraordinary items. We do not include impairment losses in this measure because we feel these types of losses create volatility in our earnings and make it difficult to determine the earnings generated by our ongoing business. We believe Core EBITDA is a reasonable measure of our liquidity. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative measurement of cash flows from operating activities or other GAAP basis liquidity measures. Other REITs may calculate Core EBITDA differently and our calculation should not be compared to that of other REITs.

Core net operating income (“Core NOI”): Core NOI is defined as real estate operating income with the add-back of corporate general and administrative expense, depreciation and amortization, and casualty and impairment losses and the deduction of income and expense associated with lease terminations and income associated with property management performed by Piedmont for other organizations. We present this measure on a cash basis, which eliminates the effects of straight lined rents and fair value lease revenue. The company uses this measure to assess its operating results and believes it is important in assessing operating performance. Core NOI is a non-GAAP measure which does not have any standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies.

Same store net operating income (“Same Store NOI”): Same Store NOI is calculated as the Core NOI attributable to the properties owned or placed in service during the entire span of the current and prior year reporting periods. Same Store NOI excludes amounts attributable to industrial properties. We present this measure on a cash basis, which eliminates the effects of straight lined rents and fair value lease revenue. We believe Same Store NOI is an important measure of comparison of our stabilized properties’ operating performance. Other REITs may calculate Same Store NOI differently and our calculation should not be compared to that of other REITs.

Supplemental Information

Exhibit 99.2

LOGO

Quarterly Supplemental Information

December 31, 2010

 

 

Corporate Headquarters   Institutional Analyst Contact   Investor Relations
11695 Johns Creek Parkway, Suite 350   Telephone: 770.418.8592   Telephone: 866.354.3485
Johns Creek, GA 30097   research.analysts@piedmontreit.com   investor.services@piedmontreit.com
Telephone: 770.418.8800     www.piedmontreit.com


Piedmont Office Realty Trust, Inc.

Quarterly Supplemental Information

Index

 

 

 

     Page  

Introduction

  

Corporate Data

     3   

Investor Information

     4   

Financial Highlights

     5-7   

Key Performance Indicators

     8   

Financials

  

Balance Sheet

     9   

Income Statements

     10-11   

Funds From Operations / Adjusted Funds From Operations

     12   

Same Store Analysis

     13-14   

Capitalization Analysis

     15   

Debt Summary

     16   

Debt Detail

     17   

Debt Analysis

     18   

Operational & Portfolio Information - Office Investments

  

Tenant Diversification

     19   

Tenant Credit Rating & Lease Distribution Information

     20   

Leasing Activity

     21   

Lease Expiration Schedule

     22   

Annual Lease Expirations

     23   

Capital Expenditures & Commitments

     24   

Contractual Tenant Improvements & Leasing Commissions

     25   

Geographic Diversification

     26   

Industry Diversification

     27   

Other Investments

  

Other Investments Detail

     28   

Supporting Information

  

Definitions

     29-30   

Research Coverage

     31   

Non-GAAP Reconciliations

     32-35   

Risks, Uncertainties and Limitations

     36   

 

Please refer to page 36 for a discussion of important risks related to the business of Piedmont Office Realty Trust, as well as an investment in its securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information. Considering these risks, uncertainties, assumptions, and limitations, the forward-looking events contained in this supplemental reporting package might not occur.

Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. In addition, many of the schedules herein contain rounding to the nearest thousands or millions and, therefore, the schedules may not total due to this rounding convention.


Piedmont Office Realty Trust, Inc.

Corporate Data

 

 

Piedmont Office Realty Trust, Inc. (“Piedmont” or the “Company”) (NYSE: PDM) is a fully-integrated and self-managed real estate investment trust (“REIT”) specializing in the acquisition, ownership, management, development and disposition of primarily high-quality Class A office buildings located predominately in large U.S. office markets and leased principally to high-credit-quality tenants. Since its first acquisition in 1998, the Company has acquired $5.5 billion of office and industrial properties (inclusive of joint ventures) through December 31, 2010. Rated as an investment-grade company by Standard & Poor’s and Moody’s, Piedmont has maintained a low-leverage strategy while acquiring its properties. Approximately 82% of our Annualized Lease Revenue (“ALR”)(1) is derived from our office properties located within the ten largest U.S. office markets, including Chicago, Washington, D.C., the New York metropolitan area, Boston and greater Los Angeles.

This data supplements the information provided in our reports filed with the Securities and Exchange Commission.

 

     As of
    December 31, 2010    
     As of
    December 31, 2009    
 

Number of properties (2)

     75         73   

Rentable square footage (in thousands) (2)

     20,408         20,229   

Percent leased (3)

     89.2%         90.1%   

Capitalization (in thousands):

     

Total debt

     $1,402,525         $1,516,525   

Equity market capitalization (4)

     $3,477,342         $ N/A   

Total market capitalization (4)

     $4,879,867         $ N/A   

Debt / Total market capitalization (4)

     28.7%         N/A   

Common stock data

     

High closing price during quarter (4)

     $20.31         $ N/A   

Low closing price during quarter (4)

     $18.25         $ N/A   

Closing price of Class A common stock at period end (4)

     $20.14         $ N/A   

Weighted average fully diluted shares outstanding (in thousands) (5) (6)

     170,967         158,581   

Shares of common stock issued and outstanding (in thousands) (6)

     172,658         158,917   

Rating / outlook

     

Standard & Poor’s

     BBB / Stable         BBB / Stable   

Moody’s

     Baa2 / Stable         Baa3 / Positive   

Employees (7)

     110         107   

 

 

 

(1)

The definition for Annualized Lease Revenue can be found on page 29.

(2)

Our office portfolio currently consists of 75 properties (exclusive of our equity interests in seven properties owned through unconsolidated joint ventures and our two industrial properties). During the fourth quarter of 2010, we acquired Meridian Crossings, two buildings comprised of 384,000 square feet, and sold 111 Sylvan Avenue comprised of 410,000 square feet. We also completed the sale of 14400 Hertz Quail Springs Parkway, a 57,000 square foot joint venture property located in Oklahoma City, OK; our ownership in this joint venture was 4%.

(3)

Calculated as leased square footage on December 31, 2010 plus square footage associated with executed new leases for currently vacant spaces divided by total rentable square footage, expressed as a percentage. This measure is presented for our 75 office properties and excludes industrial and unconsolidated joint venture properties. During the third quarter of 2010, we acquired a vacant 142,000 square foot building; if we excluded this building from consideration, our percent leased would be 89.9%.

(4)

Our Class A common stock was listed on the New York Stock Exchange on February 10, 2010; there is no market data as of December 31, 2009. As of December 31, 2010, our Class B-3 common stock was not listed on a national securities exchange and there was no established market for such shares. We have used the closing price of the Class A common stock at the relevant period end for the purposes of the calculations regarding market capitalization herein.

(5)

Weighted average fully diluted shares outstanding are presented on a year-to-date basis for each period.

(6)

On January 22, 2010, we filed an amendment to our charter to effect a recapitalization of our common stock as described further in our SEC filings. The recapitalization had the effect of a one-for-three reverse stock split. Prior period share and per share information in this report have been restated to reflect this recapitalization. In conjunction with our February 10, 2010 listing on the New York Stock Exchange, we issued 13.8 million additional shares of Class A common stock, the primary reason for the year-over-year increase in shares outstanding.

(7)

During the second quarter of 2010, the company opened a regional management office in Boston. The opening of that office is the primary reason for the increase in number of employees.

 

3


Piedmont Office Realty Trust, Inc.

Investor Information

 

 

Corporate

 

11695 Johns Creek Parkway, Suite 350, Johns Creek, Georgia 30097

770.418.8800

www.piedmontreit.com

Executive and Senior Management

 

Donald A. Miller, CFA    Robert E. Bowers    Laura P. Moon

Chief Executive Officer, President

and Director

  

Chief Financial Officer, Executive

Vice President, Secretary, and

Treasurer

  

Chief Accounting Officer and

Senior Vice President

Raymond L. Owens    Carroll A. Reddic, IV   

Executive Vice President - Capital

Markets

  

Executive Vice President - Real

Estate Operations, Assistant

Secretary

  

 

Board of Directors

W. Wayne Woody    Donald A. Miller, CFA    Frank C. McDowell

Director and Chairman of the

Board of Directors

  

Chief Executive Officer, President

and Director

  

Director and Vice Chairman of the

Board of Directors

Wesley E. Cantrell    Michael R. Buchanan    Donald S. Moss

Director and Chairman of

Governance Committee

  

Director and Chairman of Capital

Committee

  

Director and Chairman of

Compensation Committee

Jeffery L. Swope       William H. Keogler, Jr.
Director       Director

 

Transfer Agent

    

Corporate Counsel

Bank of New York Mellon Shareowner Services      King & Spalding

P.O. Box 358010

Pittsburgh, PA 15252-8010

Phone: 866.354.3485

    

1180 Peachtree Street, NE

Atlanta, GA 30309

Phone: 404.572.4600

 

4


Piedmont Office Realty Trust, Inc.

Financial Highlights

As of December 31, 2010

 

 

 

On January 22, 2010, we filed an amendment to our charter to effect a recapitalization of our common stock as described further in our Securities and Exchange Commission (“SEC”) filings. Upon the effectiveness of the recapitalization, each share of our outstanding common stock converted automatically into: (a) 1/12th of a share of our Class A common stock; plus (b) 1/12th of a share of our Class B-1 common stock; plus (c) 1/12th of a share of our Class B-2 common stock; plus (d) 1/12th of a share of our Class B-3 common stock. The recapitalization had the effect of a one-for-three reverse stock split. Prior period share and per share information in this report have been restated to reflect this recapitalization. Class B-1 common stock converted automatically into Class A common stock on August 9, 2010; Class B-2 common stock converted automatically into Class A common stock on November 7, 2010; and Class B-3 common stock converted subsequent to 2010 year end into Class A common stock on January 30, 2011.

Financial Results (1)                    

-  Funds from operations (FFO) for the quarter ended December 31, 2010 was $67.9M, or $0.39 per share (diluted), compared to $69.5M, or $0.44 per share (diluted), for the same quarter in 2009. FFO for the twelve months ended December 31, 2010 was $271.6M, or $1.59 per share (diluted), compared to $239.3M, or $1.51 per share (diluted), for the same period in 2009. The increase in FFO for the twelve months ended December 31, 2010 as compared to the same period in 2009 was primarily due to differences in the amount of impairment charges in each year; specifically, $9.6M in impairment charges associated with one wholly-owned property and one joint venture interest were recognized in 2010 as compared to the recognition of $37.6M in impairment charges on three wholly-owned properties and one joint venture interest in the third quarter of 2009. Additionally, higher termination income and lower interest expense in 2010 contributed to the year-over-year increase.

 

 Core funds from operations (Core FFO) for the quarter ended December 31, 2010 was $67.9M, or $0.39 per share (diluted), compared to $69.5M, or $0.44 per share (diluted), for the same quarter in 2009. Core FFO for the twelve months ended December 31, 2010 was $281.3M, or $1.65 per share (diluted), compared to $276.9M, or $1.75 per share (diluted), for the same period in 2009. The increase in Core FFO for the twelve months ended December 31, 2010 as compared to the same period in 2009 was primarily due to higher termination income and lower interest expense in 2010. The decrease in per share amounts of Core FFO for the three months and the twelve months ended December 31, 2010 as compared to the same periods in 2009 was primarily due to the dilutive effect of the 13.8 million shares of Class A common stock issued when the Company listed on the NYSE in February 2010.

 

 Adjusted funds from operations (AFFO) for the quarter ended December 31, 2010 was $38.1M, or $0.22 per share (diluted), compared to $47.4M, or $0.30 per share (diluted), for the same quarter in 2009. AFFO for the twelve months ended December 31, 2010 was $215.7M, or $1.26 per share (diluted), compared to $228.4M, or $1.44 per share (diluted), for the same period in 2009. The decrease in AFFO for the three months and the twelve months ended December 31, 2010 as compared to the same periods in 2009 was primarily due to increased capital expenditures and higher straight line rent adjustments in 2010 associated with new leasing activity, partially offset by higher termination income and lower interest expense in 2010. The per share amounts of AFFO are also lower in 2010 as compared to 2009 due to the dilutive effect of the 13.8 million shares of Class A common stock issued when the Company listed on the NYSE in February 2010.

 

 During the quarter ended December 31, 2010, the Company paid to stockholders a quarterly dividend in the amount of $0.315 per share for all classes of common stock, or a total of $1.26 per share for the year, as compared to Core FFO per share of $1.65 and AFFO per share of $1.26 for the year.

Operations                                     

-  On a square footage basis, our portfolio was 89.2% leased as of December 31, 2010 as compared to 89.0% and 90.1% as of September 30, 2010 and December 31, 2009, respectively. The decrease in the office portfolio leased percentage during the year is primarily related to the acquisition of a vacant 142,000 square foot building in the Atlanta market at the end of the third quarter. Excluding the newly acquired building from consideration, the portfolio would have been 89.9% leased as of December 31, 2010.

 

-  The weighted average remaining lease term of our portfolio was 5.8 years(2) as of December 31, 2010 as compared to 5.9 years at December 31, 2009.

 

-  As noted in our December 31, 2009 Quarterly Supplemental Information, 6.8% of our Annualized Lease Revenue was set to expire in 2010 and a majority of this expiration was to take place in the fourth quarter. During the three months ended December 31, 2010, the Company completed 783,000 square feet of leasing at our 75 consolidated office properties. We executed renewal leases for 389,000 square feet and new tenant leases for 394,000 square feet, bringing the year-to-date total office leasing activity to 2,108,000 square feet, with an average committed capital cost of $3.88 per square foot per year of lease term. Average committed capital cost per square foot per year of lease term for renewal leases signed during the year was $2.76 and average committed capital cost per square foot per year of lease term for new leases was $5.60. From an industrial leasing perspective, we did not execute any new leases during the quarter, maintaining the same year-to-date total industrial leasing activity of 487,000 square feet with an average committed capital cost of $0.21 per square foot per year of lease term.

 

 

(1) FFO, Core FFO and AFFO are supplemental non-GAAP financial measures. See pages 29-30 for definitions of non-GAAP financial measures. See pages 12 and 34 for reconciliations of FFO, Core FFO and AFFO to Net Income.

(2) Remaining lease term (after taking into account leases which had been executed but not commenced as of December 31, 2010) is weighted based on Annualized Lease Revenue, as defined on page 29.

 

5


Piedmont Office Realty Trust, Inc.

Financial Highlights

As of December 31, 2010

 

 

 

  - During the three months ended December 31, 2010, we retained tenants for 66% of the square footage associated with expiring leases. During the twelve months ended December 31, 2010, we retained tenants for 72% of the square footage associated with expiring leases. These results compare to a 78% retention rate for the year ended December 31, 2009.

 

  - During the three months ended December 31, 2010, we executed ten office leases greater than 20,000 square feet. Please see information on those leases listed below.

 

Tenant Name    Property    Property Location    Square Feet
Leased
   Expiration
Year
   Lease Type
Panasonic Avionics Corporation    26200 Enterprise Way    Lake Forest, CA    144,906    2022    Renewal

The Henry M. Jackson Foundation

for the Advancement of Military

Medicine

   Piedmont Pointe I    Bethesda, MD    124,516    2022    New
International Securities Exchange    60 Broad Street    New York, NY    64,395    2021    Renewal
Thoughtworks    Aon Center    Chicago, IL    52,529    2023    New
Butzel Long    150 West Jefferson    Detroit, MI    48,669    2022    Renewal/Contraction
KPMG    150 West Jefferson    Detroit, MI    40,250    2020    Renewal/Expansion
Coventry Health Care    Piedmont Pointe II    Bethesda, MD    33,558    2022    New
AT&T    2001 NW 64th Street    Ft. Lauderdale, FL    26,222    2016    Renewal/Contraction
Teradata    11695 Johns Creek Parkway    Johns Creek, GA    25,230    2018    Renewal/Expansion
Rockwell Automation    1441 West Long Lake Road    Troy, MI    24,562    2018    New

Leasing Update                                        

 

  - A total of six leases are scheduled to expire during the years 2011 and 2012 that contribute greater than 1% of Annualized Lease Revenue. Information regarding the leasing status of the spaces associated with those leases is as follows:

 

Tenant Name   Property   Property Location   Square
Footage (1)
  Percentage of Annualized
Lease Revenue (%)
  Expiration (2)   Leasing Status

United States of America

(Comptroller of the Currency)

  One Independence
Square
  Washington, D.C.   322,984   3.1%   Q2 2011   The Company is in discussions with the current tenant for a lease renewal of the entire space. The tenant has announced its future intentions to leave the building; therefore, a short term renewal of the lease for up to 24 months is anticipated.

Zurich American

Insurance Company

  Windy Point II   Schaumburg, IL   300,034   1.9%   Q3 2011  

Space has been substantially sublet by the tenant. The Company is in discussions with sublessees for direct leases and actively marketing the space for lease.

 

Kirkland & Ellis   Aon Center   Chicago, IL   331,887   1.8%   Q4 2011   Kirkland & Ellis is vacating. KPMG has leased 218,123 SF beginning in August 2012, the majority of which is space currently leased to Kirkland & Ellis. Pursuant to its lease, KPMG elected during Q4 2010 to reduce the amount of space it will lease by 45,517 SF. The 218,123 SF total figure presented above is net of the contraction.
Sanofi-aventis US   200 Bridgewater
Crossing
  Bridgewater, NJ   297,379   2.0%   Q1 2012   The Company is actively marketing the space for lease. The tenant will likely be vacating at lease expiration.

United States of

America (NASA)

  Two Independence
Square
  Washington, D.C.   551,907   4.5%   Q3 2012   The Company is in discussions with the current tenant for a lease renewal of the entire space.

United States of America (National

Park Service)

  1201 Eye Street   Washington, D.C.   219,750   1.7%   Q3 2012   Discussions with the current tenant have not yet commenced.

 

 

(1) Square footage represents the total square footage leased by the tenant expiring during the expiration quarter.

(2) The lease expiration date presented is that of the majority of the space leased to the tenant at the building.

 

6


Piedmont Office Realty Trust, Inc.

Financial Highlights

As of December 31, 2010

 

 

 

 Financing and Capital Activity            

 

  -  

As of December 31, 2010, our ratio of debt to total market capitalization was 28.7%; our ratio of debt to gross real estate assets was 30.7%; and our ratio of debt to total gross assets was 26.6%.

 

  -  

On December 8, 2010, Piedmont sold 111 Sylvan Avenue in Englewood Cliffs, NJ. The sale allowed Piedmont to exit a non-strategic asset, as well as avoid re-leasing exposure. The results from operations for the asset are presented in discontinued operations. Piedmont recognized a loss on the sale of the asset, the majority of which was included in impairment charges recognized during the second quarter of 2010.

 

  -  

On October 1, 2010, Piedmont completed the purchase of Meridian Crossings, two buildings totaling 384,000 square feet in suburban Minneapolis, MN. The buildings are 96% leased. Approximately 88% of the total square footage in both buildings is leased by U.S. Bank, a tenant with which Piedmont has significant existing business relationships. U.S. Bank’s lease extends through 2023. U.S. Bank has become the third largest tenant in Piedmont’s portfolio as a result of this acquisition.

 

  -  

On October 15, 2010, Piedmont, along with its joint venture partners, sold 14400 Hertz Quail Springs Parkway, a 57,000 square foot building in Oklahoma City, OK, for $5.3 million. Piedmont’s ownership in the property was approximately 4%. Piedmont recognized a $25,000 gain on the sale of its interest in the asset.

 

  -  

On November 7, 2010, all of Piedmont’s 39.7 million shares of Class B-2 common stock converted on a one-for-one basis into Class A common stock.

 

  -  

On November 9, 2010, the board of directors of Piedmont declared dividends for the fourth quarter of 2010 in the amount of $0.315 per share on all classes of outstanding common shares of Piedmont to stockholders of record as of the close of business on December 1, 2010. The dividends were paid on December 15, 2010.

 Subsequent Events                              

 

  -  

Effective January 10, 2011, Bank of New York Mellon became Piedmont’s transfer agent.

 

  -  

On January 30, 2010, Piedmont’s 39.7 million shares of Class B-3 common stock converted on a one-for-one basis into Class A common stock.

 

  -  

Piedmont, as a mezzanine lender, continues to pursue its rights to foreclose the equity interests in 500 West Monroe in Chicago, IL. On January 13, 2011, a New York appellate court ruled in Piedmont’s favor, affirming its ability to conduct a foreclosure auction of the equity interests under the Uniform Commercial Code; however, in response to that ruling, the current equity owner has filed a further appeal. For additional information on Piedmont’s mezzanine loan investments, please refer to page 28 herein and our Quarterly Report on Form 10-Q as of and for the period ended September 30, 2010.

 Guidance for 2011                                

 

  -  

The following financial guidance for calendar year 2011 is based on management’s expectations at this time:

 

     Low      High

Net Income

   $106  -  118 million

Add: Depreciation & Amortization

   $150  -  156 million

Core Funds from Operations

   $256  -  269 million

Core Funds from Operations per diluted share

   $1.48 -  1.56

These estimates reflect management’s view of current market conditions and incorporate certain economic and operational assumptions and projections. These estimates exclude any significant acquisitions or dispositions which would result in a change in the Company’s 2011 outlook and guidance. Actual results could differ from these estimates. Note that individual quarters may fluctuate on both a cash and an accrual basis due to timing of repairs and maintenance, capital expenditures 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 supplemental report.

 

7


Piedmont Office Realty Trust, Inc.

Key Performance Indicators

Unaudited (in thousands except for per share data)

 

 

This section of our supplemental report includes non-GAAP financial measures, including, but not limited to, Core Earnings Before Interest, Taxes, Depreciation, and Amortization (Core EBITDA), Funds from Operations (FFO), Core Funds from Operations (Core FFO), and Adjusted Funds from Operations (AFFO). Definitions of these non-GAAP measures are provided on pages 29-30 and reconciliations are provided on pages 32-35.

 

    Three Months Ended  

 

 Selected Operating Data

 

 

      12/31/2010      

   

 

      9/30/2010      

   

 

      6/30/2010      

   

 

      3/31/2010      

   

 

      12/31/2009      

 

Percent leased (1)

    89.2%        89.0%        89.8%        89.6%        90.1%   

Rental income

    $110,778        $110,776        $110,623        $110,512        $110,405   

Total revenues

    $151,312        $145,502        $145,181        $146,844        $149,423   

Total operating expenses

    $106,433        $90,447        $100,037        $99,059        $106,373   

Real estate operating income

    $44,879        $55,055        $45,144        $47,785        $43,050   

Impairment losses on real estate assets (2)

    $0        $53        $9,587        $0        $0   

Core EBITDA (3)

    $85,610        $95,612        $85,435        $88,592        $89,261   

Core FFO

    $67,936        $77,919        $66,199        $69,198        $69,484   

Core FFO per share - diluted

    $0.39        $0.45        $0.38        $0.42        $0.44   

AFFO (3)

    $38,086        $61,468        $55,812        $60,290        $47,433   

AFFO per share - diluted

    $0.22        $0.36        $0.32        $0.36        $0.30   

Gross dividends

    $54,388        $54,388        $54,388        $53,777        $49,733   

Dividends per share

    $0.315        $0.315        $0.315        $0.315        $0.315   

 Selected Balance Sheet Data

                             

Total real estate assets

    $3,676,828        $3,689,428        $3,704,757        $3,737,478        $3,763,527   

Total gross real estate assets

    $4,567,326        $4,573,622        $4,560,176        $4,571,837        $4,575,638   

Total assets

    $4,373,480        $4,389,585        $4,405,501        $4,428,410        $4,395,345   

Net debt (4)

    $1,345,807        $1,334,986        $1,321,459        $1,325,531        $1,506,521   

Total liabilities

    $1,600,026        $1,591,653        $1,594,278        $1,584,781        $1,713,299   

 Ratios

                             

Core EBITDA margin (5)

    56.2%        65.0%        58.2%        59.7%        59.1%   

Fixed charge coverage ratio (6)

    4.9 x        5.5 x        4.5 x        4.6 x        4.6 x   

Net debt to core EBITDA (7)

    3.9 x        3.5 x        3.9 x        3.7 x        4.2 x   

 

 

(1) Percent leased excludes industrial and unconsolidated joint venture properties. Percent leased decreased in the first quarter of 2010 as compared to the prior period primarily due to Kirkland & Ellis vacating 99,000 square feet at Aon Center in Chicago, IL. Percent leased decreased in the third quarter of 2010 as compared to the prior period primarily due to the acquisition of Suwanee Gateway One, a newly-built, vacant building consisting of 142,000 square feet.

(2) Impairment losses include losses for both wholly-owned and unconsolidated joint venture assets.

(3) Core EBITDA and AFFO have been adjusted to exclude impairments on real estate assets as shown on pages 32 and 34.

(4) Net debt is calculated as total debt minus cash and cash equivalents.

(5) Core EBITDA margin is calculated as Core EBITDA divided by total revenues (including revenues associated with discontinued operations).

(6) Fixed charge coverage is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. We had no capitalized interest, principal amortization or preferred dividends during any of the periods presented.

(7) Core EBITDA is annualized for the purposes of this calculation.

 

8


Piedmont Office Realty Trust, Inc.

Consolidated Balance Sheets

Unaudited (in thousands)

 

 

        December 31, 2010             September 30, 2010             June 30, 2010             March 31, 2010             December 31, 2009      

Assets:

         

   Real estate, at cost:

         

Land assets

    647,653         652,875         651,876         651,876         651,876    

Buildings and improvements

    3,688,751         3,685,956         3,668,859         3,672,594         3,663,391    

Buildings and improvements, accumulated depreciation

    (744,756)        (739,055)        (714,615)        (689,117)        (665,068)   

Intangible lease asset

    219,770         222,952         224,532         235,022         243,312    

Intangible lease asset, accumulated amortization

    (145,742)        (145,139)        (140,804)        (145,242)        (147,043)   

Construction in progress

    11,152         11,839         14,909         12,345         17,059    
                                       

   Total real estate assets

    3,676,828         3,689,428         3,704,757         3,737,478         3,763,527    

   Investment in unconsolidated joint ventures

    42,018         42,591         43,005         43,482         43,940    

   Cash and cash equivalents

    56,718         67,539         81,066         76,994         10,004    

   Tenant receivables, net of allowance for doubtful accounts

    28,849         29,269         30,986         33,152         33,071    

   Straight line rent receivable

    105,157         100,751         96,912         95,164         95,371    

   Notes receivable

    61,144         60,671         60,101         59,407         58,739    

   Due from unconsolidated joint ventures

    1,158         1,085         1,124         1,202         1,083    

   Prepaid expenses and other assets

    23,724         36,802         24,866         18,600         21,456    

   Goodwill

    180,097         180,097         180,097         180,097         180,097    

   Deferred financing costs, less accumulated amortization

    5,306         5,878         6,467         6,509         7,205    

   Deferred lease costs, less accumulated amortization

    192,481         175,474         176,120         176,325         180,852    
                                       

Total assets

    $ 4,373,480         $ 4,389,585         $ 4,405,501         $ 4,428,410         $ 4,395,345    
                                       

Liabilities:

         

   Line of credit and notes payable

    $ 1,402,525         $ 1,402,525         $ 1,402,525         $ 1,402,525         $ 1,516,525    

   Accounts payable, accrued expenses, and accrued capital expenditures

    112,648         102,411         102,365         83,172         97,747    

   Deferred income

    35,203         33,882         33,916         39,079         34,506    

   Intangible lease liabilities, less accumulated amortization

    48,959         51,807         54,730         57,689         60,655    

   Interest rate swap

    691         1,028         742         2,316         3,866    
                                       

Total liabilities

    1,600,026         1,591,653         1,594,278         1,584,781         1,713,299    

Redeemable common stock (1)

    -             -             -             -             75,164    

Stockholders’ equity (2) :

         

   Class A common stock

    1,330         932         536         534         397    

   Class B-1 common stock

    -             -             397         397         397    

   Class B-2 common stock

    -             397         397         397         397    

   Class B-3 common stock

    397         397         397         397         398    

   Additional paid in capital

    3,661,308         3,660,551         3,659,910         3,659,257         3,477,168    

   Cumulative distributions in excess of earnings

    (895,122)        (869,434)        (855,631)        (820,878)        (798,561)   

   Redeemable common stock (1)

    -             -             -             -             (75,164)   

   Other comprehensive loss

    (691)        (1,028)        (742)        (2,316)        (3,866)   
                                       

Piedmont stockholders’ equity

    2,767,222         2,791,815         2,805,264         2,837,788         2,601,166    

   Non-controlling interest

    6,232         6,117         5,959         5,841         5,716    
                                       

Total stockholders’ equity

    2,773,454         2,797,932         2,811,223         2,843,629         2,606,882    
                                       

Total liabilities, redeemable common stock and stockholders’ equity

    $ 4,373,480         $ 4,389,585         $ 4,405,501         $ 4,428,410         $ 4,395,345    
                                       

All classes of common stock outstanding at end of period (2)

    172,658         172,658         172,658         172,517         158,917    

 

(1) During the three months ended March 31, 2010, the board of directors terminated the share redemption plan. We are no longer required by GAAP to reclassify any of our common stock outstanding as redeemable common stock.

(2) On January 22, 2010, we filed an amendment to our charter to effect a recapitalization of our common stock as described further in our SEC filings. Upon the effectiveness of the recapitalization, each share of our outstanding common stock converted automatically into: (a) 1/12th of a share of our Class A common stock; plus (b) 1/12th of a share of our Class B-1 common stock; plus (c) 1/12th of a share of our Class B-2 common stock; plus (d) 1/12th of a share of our Class B-3 common stock. The recapitalization had the effect of a one-for-three reverse stock split. Prior period share and per share information in this report have been restated to reflect this recapitalization.

 

9


Piedmont Office Realty Trust, Inc.

Consolidated Statements of Income

Unaudited (in thousands)

 

 

 

    Three Months Ended  
       
            12/31/2010                 9/30/2010                 6/30/2010                 3/31/2010                 12/31/2009            
       

Revenues:

         

Rental income

      $ 110,778       $ 110,776       $ 110,623       $ 110,512       $ 110,405      

Tenant reimbursements

    36,997         29,690         33,374         35,083         36,108      

Property management fee revenue

    948         806         705         753         928      

Other rental income

    2,589         4,230         479         496         1,982      
       

      Total revenues

    151,312         145,502         145,181         146,844         149,423      

Operating expenses:

         

Property operating costs

    60,401         46,612         55,497         55,361         57,281      

Depreciation

    26,685         26,011         25,584         25,691         26,701      

Amortization

    11,523         11,018         11,004         11,387         16,172      

Impairment loss on real estate assets

    -             -             -             -             -          

General and administrative

    7,824         6,806         7,952         6,620         6,219      
       

      Total operating expenses

    106,433         90,447         100,037         99,059         106,373      
       

Real estate operating income

    44,879         55,055         45,144         47,785         43,050      

Other income (expense):

         

Interest expense

    (17,378)        (17,359)        (18,933)        (19,091)        (19,488)     

Interest and other income

    491         993         1,036         969         652      

Equity in income of unconsolidated joint ventures

    630         619         647         737         672      
       

      Total other income (expense)

      (16,257)        (15,747)        (17,250)        (17,385)        (18,164)     
       

Income from continuing operations

    28,622         39,308         27,894         30,400         24,886      

Operating income, excluding impairment loss

    1,017         1,434         1,454         1,185         1,179      

Impairment loss

    -             -             (9,587)        -             -          

Loss on sale of real estate assets

    (817)        -             -             -             -          
       

      Discontinued operations (1)

    200         1,434         (8,133)        1,185         1,179      
       

Net income

    28,822         40,742         19,761         31,585         26,065      

Less: Net income attributable to noncontrolling interest

    (122)        (158)        (125)        (125)        (119)     
       

Net income attributable to Piedmont

      $ 28,700       $ 40,584       $ 19,636       $ 31,460       $ 25,946      
       

Weighted average common shares outstanding - diluted

    172,996         172,885         172,718         165,200         158,393      

Net income per share available to common stockholders - diluted

      $ 0.17       $ 0.23       $ 0.11       $ 0.19       $ 0.16      
       

 

 

 

(1)

Reflects operating results for 111 Sylvan Avenue in Englewood Cliffs, NJ, which was sold on December 8, 2010.

 

10


Piedmont Office Realty Trust, Inc.

Consolidated Statements of Income

Unaudited (in thousands)

 

 

 

 

    Three Months Ended     Twelve Months Ended  
      12/31/2010         12/31/2009         Change         Change         12/31/2010         12/31/2009         Change         Change    

Revenues:

               

Rental income

    $     110,778          $     110,405          $ 373          0.3%         $     442,687          $     443,436          $ (749)         -0.2%    

Tenant reimbursements

    36,997          36,108          889          2.5%         135,145          149,193          (14,048)         -9.4%    

Property management fee revenue

    948          928          20          2.2%         3,212          3,111          101          3.2%    

Other rental income

    2,589          1,982          607          30.6%         7,794          2,764          5,030                182.0%    
                                                               

Total revenues

    151,312          149,423          1,889          1.3%         588,838          598,504          (9,666)         -1.6%    

Operating expenses:

               

Property operating costs

    60,401          57,281          (3,120)         -5.4%         217,871          230,588          12,717          5.5%    

Depreciation

    26,685          26,701          16          0.1%         103,971          104,516          545          0.5%    

Amortization

    11,523          16,172          4,649          28.7%         44,931          57,300          12,369          21.6%    

Impairment loss on real estate assets

    -              -              -              0.0%         -              35,063          35,063          100.0%    

General and administrative

    7,824          6,219          (1,605)         -25.8%         29,201          27,315          (1,886)         -6.9%    
                                                               

Total operating expenses

    106,433          106,373          (60)         -0.1%         395,974          454,782          58,808          12.9%    
                                                               

Real estate operating income

    44,879          43,050          1,829          4.2%         192,864          143,722              49,142          34.2%    

Other income (expense):

               

Interest expense

    (17,378)         (19,488)         2,110          10.8%         (72,761)         (77,743)         4,982          6.4%    

Interest and other income

    491          652          (161)         -24.7%         3,489          4,450          (961)         -21.6%    

Equity in income of unconsolidated joint ventures

    630          672          (42)         -6.3%         2,633          104          2,529          2431.7%    
                                                               

Total other income (expense)

    (16,257)         (18,164)         1,907          10.5%         (66,639)         (73,189)         6,550          8.9%    
                                                               

Income from continuing operations

    28,622          24,886          3,736                15.0%         126,225          70,533          55,692          79.0%    

Operating income, excluding impairment loss

    1,017          1,179          (162)         -13.7%         5,089          4,645          444          9.6%    

Impairment loss

    -              -              -              0.0%         (9,587)         -              (9,587)         0.0%    

Loss on sale of real estate assets

    (817)         -              (817)         0.0%         (817)         -              (817)         0.0%    
                                                               

Discontinued operations (1)

    200          1,179          (979)         -83.0%         (5,315)         4,645          (9,960)         -214.4%    
                                                               

Net income

    28,822          26,065          2,757          10.6%         120,910          75,178          45,732          60.8%    

Less: Net income attributable to noncontrolling interest

    (122)         (119)         (3)         -2.5%         (531)         (478)         (53)         -11.1%    
                                                               

Net income attributable to Piedmont

    $ 28,700          $ 25,946          $     2,754          10.6%         $ 120,379          $ 74,700          $ 45,679          61.1%    
                                                               

Weighted average common shares outstanding - diluted

    172,996          158,393              170,967          158,581         
Net income per share available to common stockholders - diluted     $ 0.17          $ 0.16              $ 0.70          $ 0.47         
                                       

 

 

(1) Reflects operating results for 111 Sylvan Avenue in Englewood Cliffs, NJ, which was sold on December 8, 2010.

 

11


Piedmont Office Realty Trust, Inc.

Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations

Unaudited (in thousands except for per share data)

 

 

 

     Three Months Ended               Twelve Months Ended  
         12/31/2010              12/31/2009                       12/31/2010              12/31/2009      

Net income attributable to Piedmont

     $ 28,700           $ 25,946                $ 120,379           $ 74,700     

Depreciation (1) (2)

     26,821           27,264                105,107           106,878     

Amortization (1)

     11,623           16,274                45,334           57,708     

Gain / loss on sale of property (1)

     792           -                    792           -         
                                        

Funds from operations

     67,936           69,484                271,612           239,286     

Impairment loss on real estate assets (1)

     -           -                9,640           37,633     
                                        

Core funds from operations

     67,936           69,484                281,252           276,919     

Depreciation of non real estate assets

     173           171                707           632     

Stock-based and other non-cash compensation expense

     1,223           671                3,681           3,178     

Deferred financing cost amortization

     608           696                2,608           2,786     

Add/(deduct) straight-line effects of lease revenue (1)

     (3,456)          (1,618)               (6,088)          (997)    

Amortization of lease-related intangibles (1)

     (1,331)          (1,663)               (5,793)          (5,399)    

Income from amortization of discount on purchase of mezzanine loans

     (473)          (334)               (2,405)          (2,278)    

Non-incremental capital expenditures (3)

     (26,594)          (19,974)               (58,305)          (46,452)    
                                        

Adjusted funds from operations

     $ 38,086           $ 47,433                $ 215,657           $ 228,389     
                                        

Weighted average common shares outstanding - diluted

     172,996           158,393                170,967           158,581     

Funds from operations per share (diluted)

     $ 0.39           $ 0.44                $ 1.59           $ 1.51     

Core funds from operations per share (diluted)

     $ 0.39           $ 0.44                $ 1.65           $ 1.75     

Adjusted funds from operations per share (diluted)

     $ 0.22           $ 0.30                $ 1.26           $ 1.44     

 

 

(1) Includes adjustments for wholly-owned properties and for our proportionate ownership in unconsolidated joint ventures.

(2) Excludes depreciation of non real estate assets.

(3) Non-incremental capital expenditures are defined on page 30.

 

12


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Cash Basis)

Unaudited (in thousands)

 

 

 

     Three Months Ended      Twelve Months Ended  
         12/31/2010              12/31/2009              12/31/2010              12/31/2009      

Net income attributable to Piedmont

     $ 28,700           $ 25,946           $ 120,379           $ 74,700     

Net income attributable to noncontrolling interest

     122           119           531           478     

Interest expense

     17,378           19,488           72,761           77,743     

Depreciation (1)

     26,995           27,434           105,814           107,510     

Amortization (1)

     11,623           16,274           45,334           57,708     

Impairment loss on real estate assets (1)

     -               -               9,640           37,633     

Gain / loss on sale of property (1)

     792           -               792           -         
                                   

Core EBITDA

     85,610           89,261           355,251           355,772     

General & administrative expenses (1)

     7,934           6,297           29,624           27,558     

Management fee revenue

     (948)          (928)          (3,212)          (3,111)    

Interest and other income

     (491)          (652)          (3,489)          (4,450)    

Lease termination income

     (2,589)          (1,982)          (7,794)          (2,764)    

Lease termination expense - straight line rent & acquisition intangibles write-offs

     461           552           1,338           1,353     

Straight line rent adjustment (1)

     (3,791)          (2,619)          (7,300)          (2,809)    

Net effect of amortization of above/(below) market in-place lease intangibles (1)

     (1,457)          (1,212)          (5,919)          (4,939)    
                                   

Core net operating income

     84,729           88,717           358,499           366,610     

Acquisitions (2)

     881           -           883           -     

Dispositions (3)

     (1,119)          (1,672)          (6,169)          (6,667)    

Industrial properties

     (347)          (638)          (803)          (2,559)    

Unconsolidated joint ventures

     (1,165)          (1,156)          (4,835)          (4,793)    
                                   

Same Store NOI

     $ 82,979           $ 85,251           $ 347,575           $ 352,591     
                                   

Change period over period

     -2.7%            N/A            -1.4%           N/A       

 

   

 

Same Store Net Operating Income

Top Seven Markets

 

  

  

        
          Three Months Ended             Twelve Months Ended         
       12/31/2010      12/31/2009             12/31/2010      12/31/2009     
       $      %        $      %               $      %        $      %       
                                           
 

Chicago (4)

     $ 17,767         21.4           $ 19,546         22.9             $ 76,210         21.9          $ 79,912         22.7       
 

Washington, D.C.

     18,936         22.8           18,809         22.1             74,877         21.6          74,040         21.0       
 

New York (5)

     13,725         16.5           11,987         14.1             52,291         15.1          53,582         15.2       
 

Minneapolis

     5,148         6.2           5,523         6.5             21,207         6.1          21,111         6.0       
 

Los Angeles (6)

     2,037         2.5           4,906         5.7             15,749         4.5          21,765         6.2       
 

Dallas

     4,351         5.3           4,322         5.1             16,321         4.7          16,370         4.6       
 

Boston (7)

     4,169         5.0           3,610         4.2             15,741         4.5          15,036         4.2       
 

Other (8)

     16,846         20.3           16,548         19.4             75,179         21.6          70,775         20.1       
                                           
 

Total

     $     82,979         100.0           $     85,251         100.0             $     347,575         100.0          $     352,591         100.0       
                                                         

(1) Includes amounts attributable to wholly-owned properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures.

(2) Acquisitions consist of Suwanee Gateway One in Suwanee, GA, purchased on September 28, 2010, and Meridian Crossings in Richfield, MN, purchased on October 1, 2010.

(3) Dispositions consists of 111 Sylvan Avenue in Englewood Cliffs, NJ, sold on December 8, 2010.

(4) The decrease in Chicago Same Store Net Operating Income for the three months ended December 31, 2010 as compared to the same period in 2009 is primarily due to accrual adjustments for property taxes due to a millage rate increase as well as reduced rental income due to the previously announced 99,000 square foot partial lease expiration by Kirkland & Ellis as of January 1, 2010 at Aon Center in Chicago, IL. The decrease in Chicago Same Store Net Operating Income for the twelve months ended December 31, 2010 as compared to the same period in 2009 is primarily related to a rental abatement concession associated with a lease renewal at Windy Point I in Schaumburg, IL, as well as a lease renewal for a lesser amount of space and a rental abatement concession associated with a lease renewal at Two Pierce Place in Itasca, IL.

(5) The increase in New York Same Store Net Operating Income for the three months ended December 31, 2010 as compared to the same period in 2009 is primarily related to a retroactive rental rate adjustment recognized in the fourth quarter of 2009 related to the lease restructure with the State of New York at 60 Broad Street in New York, NY. The decrease in New York Same Store Net Operating Income for the twelve months ended December 31, 2010 as compared to the same period in 2009 is primarily related to rental abatements in 2010 associated with the lease restructure/extension with the State of New York and utility credits to tenants for prior year charges at 60 Broad Street in New York, NY, as well as a one-time payment for utilities in 2009 by a tenant at 5000 Corporate Court in Holtsville, NY.

(6) The decrease in Los Angeles Same Store Net Operating Income for the three months ended and the twelve months ended December 31, 2010 as compared to the same periods in 2009 is primarily due to a rental abatement in 2010 associated with a lease renewal at 800 North Brand Boulevard in Glendale, CA, as well as two lease renewals for less space than previously occupied by the renewing tenants at 800 North Brand Boulevard in Glendale, CA and Fairway Center II in Brea, CA.

(7) The increase in Boston Same Store Net Operating Income for the three months ended and the twelve months ended December 31, 2010 compared to the same periods in 2009 is primarily related to the commencement of a 26,000 square foot lease during the fourth quarter of 2009 and the space expansion for Advanced Micro Devices effective during the fourth quarter of 2010, both at 90 Central Street in Boxborough, MA.

(8) The increase in Other Same Store Net Operating Income for the three months ended and the twelve months ended December 31, 2010 compared to the same periods in 2009 is due to a number of factors, the largest of which is the phased lease commencement for First Data Corporation for 184,000 square feet at Glenridge Highlands Two in Atlanta, GA during 2009.

 

13


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Accrual Basis)

Unaudited (in thousands)

 

 

 

     Three Months Ended      Twelve Months Ended  
         12/31/2010              12/31/2009              12/31/2010              12/31/2009      

Net income attributable to Piedmont

     $ 28,700           $ 25,946           $ 120,379           $ 74,700     

Net income attributable to noncontrolling interest

     122           119           531           478     

Interest expense

     17,378           19,488           72,761           77,743     

Depreciation (1)

     26,995           27,434           105,814           107,510     

Amortization (1)

     11,623           16,274           45,334           57,708     

Impairment loss on real estate assets (1)

     -               -               9,640           37,633     

Gain / loss on sale of property (1)

     792           -               792           -         
                                   

Core EBITDA

     85,610           89,261           355,251           355,772     

General & administrative expenses (1)

     7,934           6,297           29,624           27,558     

Management fee revenue

     (948)          (928)          (3,212)          (3,111)    

Interest and other income

     (491)          (652)          (3,489)          (4,450)    

Lease termination income

     (2,589)          (1,982)          (7,794)          (2,764)    

Lease termination expense - straight line rent & acquisition intangibles write-offs

     461           552           1,338           1,353     
                                   

Core net operating income

     89,977           92,548           371,718           374,358     

Acquisitions (2)

     (308)          -           (306)          -     

Dispositions (3)

     (1,054)          (1,575)          (5,814)          (6,279)    

Industrial properties

     (366)          (637)          (863)          (2,554)    

Unconsolidated joint ventures

     (1,089)          (1,188)          (4,605)          (4,684)    
                                   

Same Store NOI

     $ 87,160           $ 89,148           $ 360,130           $ 360,841     
                                   

Change period over period

     -2.2%            N/A            -0.2%           N/A       

 

   

 

Same Store Net Operating Income

Top Seven Markets

 

  

  

        
          Three Months Ended             Twelve Months Ended         
       12/31/2010      12/31/2009             12/31/2010      12/31/2009     
       $      %        $      %               $      %        $      %       
                                           
 

Chicago (4)

     $ 18,545         21.3           $ 20,573         23.1              $ 82,370         22.9           $ 84,825         23.5        
 

Washington, D.C.

     18,986         21.8           18,869         21.2              75,286         20.9           75,726         21.0        
 

New York

     14,193         16.3           13,747         15.4              55,172         15.3           55,095         15.3        
 

Minneapolis

     4,972         5.7           5,422         6.1              20,509         5.7           20,749         5.7        
 

Los Angeles (5)

     3,939         4.5           4,807         5.4              18,861         5.2           21,677         6.0        
 

Dallas

     4,230         4.8           4,154         4.6              15,675         4.4           16,107         4.5        
 

Boston (6)

     3,823         4.4           3,465         3.9              14,535         4.0           13,887         3.8        
 

Other (7)

     18,472         21.2           18,111         20.3              77,722         21.6           72,775         20.2        
                                           
 

Total

     $     87,160         100.0           $     89,148         100.0              $     360,130         100.0           $     360,841         100.0          
                                                           

(1) Includes amounts attributable to wholly-owned properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures.

(2) Acquisitions consist of Suwanee Gateway One in Suwanee, GA, purchased on September 28, 2010, and Meridian Crossings in Richfield, MN, purchased on October 1, 2010.

(3) Dispositions consists of 111 Sylvan Avenue in Englewood Cliffs, NJ, sold on December 8, 2010.

(4) The decrease in Chicago Same Store Net Operating Income for the three months ended December 31, 2010 as compared to the same period in 2009 is primarily due to accrual adjustments for property taxes due to a millage rate increase as well as reduced rental income due to the previously announced 99,000 square foot partial lease expiration by Kirkland & Ellis as of January 1, 2010 at Aon Center in Chicago, IL. The decrease in Chicago Same Store Net Operating Income for the twelve months ended December 31, 2010 as compared to the same period in 2009 is primarily related to the previously announced 99,000 square foot partial lease expiration with Kirkland & Ellis at Aon Center in Chicago, IL, as well as reduced operating expense recoveries associated with a renewal lease conversion from a net to a gross operating expense recovery structure at Windy Point I in Schaumburg, IL.

(5) The decrease in Los Angeles Same Store Net Operating Income for the three months ended and the twelve months ended December 31, 2010 as compared to the same periods in 2009 is primarily due to a lease renewal for less space than previously occupied by a tenant at 800 North Brand Boulevard in Glendale, CA. Additional contributors to the decrease in Los Angeles Same Store Net Operating Income for the twelve months ended December 31, 2010 as compared to the same period in 2009 are holdover rent that was recognized in 2009 for a lease that terminated in 2008 and decreased rental revenue in 2010 attributable to a lease default during 2009 by a bank that leased 25,000 square feet, both at 1901 Main Street in Irvine, CA.

(6) The increase in Boston Same Store Net Operating Income for the three months ended and the twelve months ended December 31, 2010 compared to the same periods in 2009 is primarily related to the lease renewal and space expansion for Advanced Micro Devices at 90 Central Street in Boxborough, MA.

(7) The increase in Other Same Store Net Operating Income for the three months ended and the twelve months ended December 31, 2010 compared to the same periods in 2009 is due to a number of factors, the largest of which is the phased lease commencement for First Data Corporation for 184,000 square feet at Glenridge Highlands Two in Atlanta, GA during 2009.

 

14


Piedmont Office Realty Trust, Inc.

Capitalization Analysis

Unaudited ($ and shares in thousands)

 

 

 

     As of
    December 31, 2010    
     As of
    December 31, 2009    
      

 

Common stock price (1)

  

 

 

 

$20.14

 

  

     $ N/A      

 

Total shares outstanding (2)

     172,658         158,917      

 

Class A common stock

     132,956         39,729      

Class B-1 common stock

     -             39,729      

Class B-2 common stock

     -             39,729      

Class B-3 common stock

     39,702         39,729      

 

Equity market capitalization (3)

     $3,477,342         $ N/A      

 

Total consolidated debt

     $1,402,525         $1,516,525      

 

Total market capitalization (1)

     $4,879,867         $ N/A      

 

Total debt / Total market capitalization

     28.7%         N/A      

 

Total gross real estate assets

     $4,567,326         $4,575,638      

 

Total debt / Total gross real estate assets (4)

     30.7%         33.1%      

 

Total debt / Total gross assets (5)

     26.6%         29.1%      

 

 

(1) Reflects Class A common stock closing price as of the end of the reporting period. The company was not listed on a public exchange as of December 31, 2009. Our Class A common stock initially listed on the New York Stock Exchange on February 10, 2010.

(2) On January 22, 2010, we filed an amendment to our charter to effect a recapitalization of our common stock as described further in our SEC filings. Upon the effectiveness of the recapitalization, each share of our outstanding common stock converted automatically into: (a) 1/12th of a share of our Class A common stock; plus (b) 1/12th of a share of our Class B-1 common stock; plus (c) 1/12th of a share of our Class B-2 common stock; plus (d) 1/12th of a share of our Class B-3 common stock. The recapitalization had the effect of a one-for-three reverse stock split. Prior period share and per share information in this report have been restated to reflect this recapitalization. Class B-1 common stock converted automatically into Class A common stock on August 9, 2010 and Class B-2 common stock converted automatically into Class A common stock on November 7, 2010.

(3) Market value of common shares is defined as the total number of shares of all classes of our common stock outstanding multiplied by the closing price of our Class A common stock at the end of the reporting period, as further qualified in footnotes (1) and (2) above.

(4) Total debt to total gross real estate assets ratio is defined as total debt divided by gross real estate assets. Gross real estate assets is defined as total real estate assets with the add back of accumulated depreciation and accumulated amortization related to real estate assets.

(5) Total debt to total gross assets ratio is defined as total debt divided by gross assets. Gross assets is defined as total assets with the add back of accumulated depreciation and accumulated amortization related to real estate assets.

 

 

15


Piedmont Office Realty Trust, Inc.

Debt Summary

Unaudited ($ in thousands)

 

 

 

Floating Rate & Fixed Rate Debt

Debt (1)    Amount          Weighted Average
Interest Rate
         Weighted Average
Maturity
    

 

LOGO

      

Floating Rate

     $0  (2)          
0.00%  (3)
  
       20.0 months      

Fixed Rate (4)

     1,402,525           4.66%           41.2 months      
      

Total

     $1,402,525           4.66%           41.2 months      
      
               
               
               
               

Unsecured & Secured Debt

Debt (1)    Amount          Weighted Average
Interest Rate
         Weighted Average
Maturity
    

 

LOGO            

      

Unsecured

     $250,000           2.36%  (4)           5.9 months      

Secured

     1,152,525           5.16%           48.9 months      
      

Total

     $1,402,525           4.66%           41.2 months      
      
               
               
               

Debt Maturities

Maturity Year    Secured Debt (1)           Unsecured Debt (1)          

 

Weighted Average
Interest Rate

   Percentage of    
Total
    
    

 

2011

   $0       $250,000       2.36%    17.8%   

2012

   45,000       0 (2)       5.20%    3.2%   

2013

   0       0       N/A    N/A   

2014

   695,000       0       4.92%    49.6%   

2015

   105,000       0       5.29%    7.5%   

2016

   167,525       0       5.55%    11.9%   

2017

   140,000       0       5.76%    10.0%   
    

TOTAL

   $1,152,525       $250,000       4.66%    100.0%   

 

  

(1) All of Piedmont's outstanding debt as of December 31, 2010 is interest-only debt.

(2) Amount represents the outstanding balance as of December 31, 2010 on a $500 million unsecured line of credit, which matures in August 2011. Management intends to exercise the one-year extension option to extend the maturity date to August 2012. The payment of a 15 bp fee will be required to extend the term of this facility.

(3) The interest rate on the currently unused $500 million unsecured line of credit is equal to the weighted average interest rate on all outstanding draws as of December 31, 2010. Piedmont may select from multiple interest rate options with each draw, including the prime rate and various length LIBOR locks. All LIBOR selections are subject to an additional spread of 0.475% over the selected rate based on Piedmont's current credit rating.

(4) The $250 million unsecured term loan has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix the interest rate on this loan at 2.36% through June 28, 2011.

 

16


Piedmont Office Realty Trust, Inc.

Debt Detail

Unaudited ($ in thousands)

 

 

 

Facility   Property   Rate(1)     Maturity     Principal Balance
Outstanding as of
December 31, 2010
 
   

Secured (Fixed)

       

$45.0 Million Fixed-Rate Loan

  4250 North Fairfax     5.20%        6/1/2012        $45,000   

35 West Wacker Building Mortgage Note

  35 West Wacker Drive     5.10%        1/1/2014        120,000   

Aon Center Chicago Mortgage Note

  Aon Center     4.87%        5/1/2014        200,000   

Aon Center Chicago Mortgage Note

  Aon Center     5.70%        5/1/2014        25,000   

Secured Pooled Facility

  Nine Property Collateralized Pool (2)     4.84%        6/7/2014        350,000   

$105.0 Million Fixed-Rate Loan

  US Bancorp Center     5.29%        5/11/2015        105,000   

$125.0 Million Fixed-Rate Loan

  Four Property Collateralized Pool (3)     5.50%        4/1/2016        125,000   

$42.5 Million Fixed-Rate Loan

  Las Colinas Corporate Center I & II     5.70%        10/11/2016        42,525   

WDC Mortgage Notes

  1201 & 1225 Eye Street     5.76%        11/1/2017        140,000   
   

Subtotal/Weighted Average (4)

      5.16%          $1,152,525   

Unsecured (Variable)

       

$250 Million Unsecured Term Loan (5)

  N/A     LIBOR + 1.50%(5)         6/28/2011        $250,000   

$500 Million Unsecured Facility (6)

  N/A     0%(7)         8/30/2011 (8)     0   
   

Subtotal/Weighted Average (4)

      2.36%          $250,000   
   

Total/ Weighted Average (4)

      4.66%          $1,402,525   
   

(1) All of Piedmont’s outstanding debt as of December 31, 2010 is interest-only debt.

(2) The nine property collateralized pool includes 1200 Crown Colony Drive, Braker Pointe III, 2 Gatehall Drive, One and Two Independence Square, 2120 West End Avenue, 200 and 400 Bridgewater Crossing, and Fairway Center II. 400 Bridgewater Crossing was added as a substitute property in December 2010 in order to allow for the release upon sale of 111 Sylvan Avenue.

(3) The four property collateralized pool includes 1430 Enclave Parkway, Windy Point I and II, and 1055 East Colorado Boulevard.

(4) Weighted average is based on the total balance outstanding and interest rate at December 31, 2010.

(5) The $250 million unsecured term loan has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix the interest rate on this loan at 2.36% through June 28, 2011.

(6) All of Piedmont’s outstanding debt as of December 31, 2010 is term debt with the exception of the $500 million unsecured line of credit, which had no outstanding draws at year end.

(7) The interest rate on the currently unused $500 million unsecured line of credit is equal to the weighted-average interest rate on all outstanding draws as of December 31, 2010. Piedmont may select from multiple interest rate options with each draw, including the prime rate and various length LIBOR locks. All LIBOR selections are subject to an additional spread (0.475% as of December 31, 2010) over the selected rate based on Piedmont’s current credit rating.

(8) Piedmont may extend the term for one additional year provided Piedmont is not then in default and upon the payment of a 15 basis point extension fee.

 

17


Piedmont Office Realty Trust, Inc.

Debt Analysis

As of December 31, 2010

Unaudited

 

 

 

Debt Covenant Compliance (1)            Required                       Actual                 

 

Maximum Leverage Ratio

     0.60         0.30        

 

Minimum Fixed Charge Coverage Ratio (2)

     1.50         4.84        

 

Maximum Secured Indebtedness Ratio

     0.40         0.24        

 

Minimum Unencumbered Leverage Ratio

     1.60         7.91        

 

Minimum Unencumbered Interest Coverage Ratio (3)

     1.75         14.19        

 

Maximum Certain Permitted Investments Ratio (4)

     0.35         0.02        
   
                        

 

(1) Debt covenant compliance calculations relate to specific calculations detailed in our term loan and line of credit agreements.

 

(2) Defined as EBITDA for the trailing four quarters (including the company’s share of EBITDA from unconsolidated interests), less one-time or non-recurring gains or losses, less a $0.15 per square foot capital reserve, and excluding the impact of straight line rent leveling adjustments and amortization of intangibles divided by the company’s share of fixed charges, as more particularly described in the credit agreements.

 

(3) Defined as net operating income for the trailing four quarters for unencumbered assets (including the company’s share of net operating income from unconsolidated interests that are unencumbered) less a $0.15 per square foot capital reserve divided by the company’s share of interest expense associated with unsecured financings only, as more particularly described in the credit agreements.

 

(4) Permitted investments are defined as unconsolidated interests, debt investments, unimproved land, and development projects. Investments in permitted investments shall not exceed 35% of total asset value.

 

 

Other Debt Coverage Ratios    Three months ended
December 31, 2010
     Year ended
December 31, 2010
     Year ended
December 31, 2009
 

 

Net debt / Core EBITDA

     3.9 x         3.8 x         4.2 x   

 

Fixed charge coverage ratio (5)

     4.9 x         4.9 x         4.6 x   

 

Interest coverage ratio (6)

     4.9 x         4.9 x         4.6 x   
   
                            

 

(5) Fixed charge coverage is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. We had no capitalized interest, principal amortization or preferred dividends during the periods ended December 31, 2010 and December 31, 2009.

 

(6) Interest coverage ratio is calculated as Core EBITDA divided by the sum of interest expense and capitalized interest. We had no capitalized interest during the periods ended December 31, 2010 and December 31, 2009.

    

   

 

18


Piedmont Office Realty Trust, Inc.

Tenant Diversification

As of December 31, 2010

(in thousands)

 

 

 

     Credit Rating (1)   Number of
Properties
    Lease
Expiration(s)  (2)
    Annualized Lease
Revenue (3)
  Percentage of
Annualized Lease
Revenue (%)
  Leased Square
Footage
  Percentage of
Leased Square
Footage (%)

U.S. Government

  AAA / Aaa     10        (4)      $76,977   13.2   1,726   9.5

BP (5)

  A / A2     1        2013      32,477   5.6   776   4.3

US Bancorp

  A+ / Aa3     3        2014(6)      29,704   5.1   1,052   5.8

Leo Burnett

  BBB+ / Baa2     2        2019      26,739   4.6   695   3.8

State of New York

  AA / Aa2     1        2019      18,550   3.2   481   2.6

Winston & Strawn

  No rating available (7)     1        2024      17,987   3.1   417   2.3

Sanofi-aventis

  AA- / A1     2        2012      17,338   3.0   454   2.5

Independence Blue Cross

  No rating available     1        2023      14,897   2.5   761   4.2

Nestle

  AA / Aa1     1        2015      13,426   2.3   392   2.2

Kirkland & Ellis

  No rating available (7)     1        2011      11,655   2.0   366   2.0

Zurich American

  AA-     1        2011      10,878   1.9   300   1.6

Shaw

  BBB- / Ba1     1        2018      9,546   1.6   313   1.7

State Street Bank

  AA- / Aa2     1        2021      9,413   1.6   235   1.3

City of New York

  AA / Aa2     1        2020      9,147   1.6   313   1.7

Lockheed Martin

  A- / Baa1     3        2014      8,939   1.5   284   1.6

DDB Needham

  BBB+ / Baa1     1        2018      8,855   1.5   244   1.3

Gemini

  A+ / Aa3     1        2013      7,532   1.3   205   1.1

Gallagher

  No rating available     1        2018      6,995   1.2   307   1.7

Caterpillar Financial

  A / A2     1        2022      6,975   1.2   312   1.7

Harvard University

  Aaa     2        2017      6,431   1.1   105   0.6

Other

                Various      240,122   40.9   8,476   46.5

Total

                      $584,583   100.0   18,214   100.0

LOGO

(1) Credit rating may reflect credit rating of parent or guarantor. When available, both the S&P credit rating and the Moody’s credit rating are provided.

(2) Represents the expiration year of the majority of the square footage leased by the tenant.

(3) Please refer to page 29 for the definition of Annualized Lease Revenue.

(4) There are several leases with several different agencies of the U.S. Government with expiration years ranging from 2011 to 2025.

(5) Majority of space is subleased to Aon Corporation.

(6) U.S. Bank’s lease at One & Two Meridian Crossings expires in 2023.

(7) While no ratings are available for Winston & Strawn and Kirkland & Ellis, these tenants are ranked #33 and #5, respectively, in the 2010 AmLaw 100 ranking (based on 2009 financial data), a publication of The American Lawyer Magazine, which annually ranks the top-grossing, most profitable law firms.

 

19


Piedmont Office Realty Trust, Inc.

Tenant Credit Rating & Lease Distribution Information

As of December 31, 2010

 

 

 

    Tenant Credit Rating (1)    Annualized Lease
Revenue ($’s in
thousands)
     Percentage of
Annualized Lease
Revenue (%)
       

    AAA / Aaa

     $87,606       15.0     

    AA / Aa

     137,331       23.5     

    A / A

     103,628       17.7     

    BBB / Baa

     79,737       13.7     

    BB / Ba

     18,793       3.2     

    B / B

     14,432       2.5     

    Below

     1,400       0.2     

    Not rated (2)

     141,656       24.2     
                    

    Total

     $584,583       100.0     
                        

 

Lease Distribution

As of December 31, 2010

 

 

 

     Number of Leases    Percentage of
Leases (%)
   Annualized
Lease Revenue
(in thousands)
     Percentage of
Annualized Lease
Revenue (%)
   Leased Square
Footage (in
thousands)
   Percentage of
    Leased Square    
Footage (%)
    

2,500 or Less

   159    33.9      $12,780       2.2    132    0.7

2,501 - 10,000

   119    25.4      22,301       3.8    623    3.4

10,001 - 20,000

   54    11.5      24,286       4.2    784    4.3

20,001 - 40,000

   51    10.9      45,702       7.8    1,469    8.1

40,001 - 100,000

   32    6.8      58,640       10.0    1,988    10.9

Greater than 100,000

   54    11.5      420,874       72.0    13,218    72.6
 

Total

   469    100.0      $584,583       100.0    18,214    100.0
    

 

 

(1) Credit rating may reflect credit rating of parent or guarantor. Where differences exist between the S&P credit rating for a tenant and the Moody’s credit rating for a tenant, the higher credit rating is selected for this analysis.

(2) The classification of a tenant as “not rated” does not indicate that the tenant is of poor credit quality, but rather that the tenant or the tenant’s debt, if any, is not rated. Included in this category are such tenants as Winston & Strawn, Independence Blue Cross, McKinsey & Company and KPMG.

 

20


Piedmont Office Realty Trust, Inc.

Office Leasing Activity

(in thousands)

 

 

    Three Months Ended December 31, 2010             Twelve Months Ended December 31, 2010  
                   
    Leased Square
Footage
    Rentable Square
Footage
    Percent Leased (1)             Leased
Square
Footage
    Rentable Square
Footage
    Percent Leased (1)  
                   

 

As of September 30, 2010

    18,192        20,429        89.0%       

As of December 31, 2009

    18,221        20,229        90.1%   

 

New Leases

    825           

New Leases

    2,762       

Expired Leases

    (764        

Expired Leases

    (2,729    

Other

    2        4         

Other

    1        62     
                   

 

Subtotal

    18,255        20,433        89.3%       

Subtotal

    18,255        20,291        90.0%   

 

Acquisitions

    368        384         

Acquisitions

    368        526     

Dispositions

    (409     (409      

Dispositions

    (409     (409  

 

As of December 31, 2010 (2)

    18,214        20,408        89.2%       

As of December 31, 2010 (2)

    18,214        20,408        89.2%   
                   

Rental Rate Roll Up / Roll Down (3) (4)

 

 

 

    Square Feet     % of Total Signed
During Period
    % of Rentable Square Footage     % Change
Cash Rents
    % Change
Accrual Rents (5)
 
       

For the three months ended December 31, 2010:

         

 

New, renewal, and expansion leases executed for spaces vacant less than one year

    452        58     2.2     (19.5 %)      (10.3 %) 

 

Leases executed for spaces excluded from analysis (6)

    331        42      

For the twelve months ended December 31, 2010:

         

 

New, renewal, and expansion leases executed for spaces vacant less than one year

    1,501        71     7.4     (21.6 %)      (15.4 %) 

 

Leases executed for spaces excluded from analysis (6)

    607        29      

 

 

(1) Calculated as leased square footage as of period end with the addition of square footage associated with uncommenced leases for spaces vacant as of period end, divided by total rentable square footage as of period end, expressed as a percentage.

(2) The square footage associated with leases with end of period expiration dates is included in the end of the period leased square footage.

(3) The population analyzed consists of office leases executed during the period (retail leases as well as leases associated with storage spaces, management offices, industrial properties and unconsolidated joint venture assets were excluded from this analysis). For spaces that had been vacant for less than one year, the rents last in effect for the previous lease were compared to the initial rents of the new lease. Spaces that had been vacant for greater than one year were excluded from this analysis.

(4) For leases under which a tenant may use, at its discretion, a portion of its tenant improvement allowance for expenses other than those related to improvements to its space, an assumption is made that the tenant elects to use any such portion of its tenant improvement allowance for improvements to its space prior to the commencement of its lease. This assumption is made based upon the historical tenant improvement allowance usage patterns of the Company’s tenants.

(5) For newly signed leases which have variations in straight line rent calculations, whether for known future expansions, contractions, lease expense recovery structure changes, or other similar reasons, the weighted average of such straight line rent calculations is used for the purposes of this analysis.

(6) Represents leases signed at our consolidated office assets that do not qualify for inclusion in the analysis primarily because the space for which the new lease was signed had been vacant for greater than one year. Leases signed with Piedmont entities are excluded from the analysis. During the fourth quarter of 2010, a renewal lease was signed with KPMG at 150 West Jefferson; however, because the tenant is vacating its old premises and moving to space that has been vacant for greater than a year, it is excluded from the analysis.

 

21


Piedmont Office Realty Trust, Inc.

Lease Expiration Schedule

As of December 31, 2010

(in thousands)

 

 

 

    OFFICE PORTFOLIO       GOVERNMENTAL ENTITIES
    Annualized Lease
Revenue (1)
  Percentage of
 Annualized Lease 
Revenue (%)
  Rentable Square
Footage
  Percentage of
 Rentable Square 
Footage (%)
      Annualized Lease
Revenue (1)
  Percentage of
 Annualized Lease 
Revenue (%)
  Percentage of
Current Year
 Total Annualized 
Lease Revenue
Expiring (%)
         

Vacant

  $0   0.0   2,195   10.8     $0   0.0   N/A

2011(2)

  73,231   12.5   2,017   9.9     19,216   3.3   26.2

2012

  79,771   13.6   2,053   10.1     36,763   6.3   46.1

2013

  63,498   10.9   1,617   7.9     1,598   0.3   2.5

2014

  51,894   8.9   1,684   8.3     3,601   0.6   6.9

2015

  43,421   7.4   1,555   7.6     0   0.0   0.0

2016

  32,623   5.6   1,181   5.8     1,265   0.2   3.9

2017

  18,526   3.2   545   2.7     1,251   0.2   6.8

2018

  46,060   7.9   1,565   7.7     8,647   1.5   18.8

2019

  49,848   8.5   1,436   7.0     18,551   3.2   37.2

2020

  30,652   5.2   1,125   5.5     11,773   2.0   38.4

2021

  15,017   2.6   533   2.6     1,025   0.2   6.8

2022

  16,772   2.9   696   3.4     0   0.0   0.0

2023

  24,837   4.2   1,150   5.6     0   0.0   0.0

2024

  22,231   3.8   540   2.6     0   0.0   0.0

Thereafter

  16,202   2.8   516   2.5     1,323   0.2   8.2
         

Total / Weighted Average

  $584,583   100.0   20,408   100.0     $105,013   18.0  
         

LOGO

 

 

(1) Annualized Lease Revenue for purposes of this schedule includes the revenue effects of leases executed but not commenced as of December 31, 2010.

(2) Includes leases with an expiration date of December 31, 2010 aggregating 110,773 square feet and Annualized Lease Revenue of $4,282,926.

 

22


Piedmont Office Realty Trust, Inc.

Annual Lease Expirations

As of December 31, 2010

(in thousands)

 

 

 

    12/31/2011(2)   12/31/2012   12/31/2013   12/31/2014
               
   

 

Expiring
Square
  Footage  

    Expiring Lease  
Revenue
(1)
  Expiring
Square
  Footage  
    Expiring Lease  
Revenue
(1)
  Expiring
Square
  Footage  
    Expiring Lease  
Revenue
(1)
  Expiring
Square
  Footage  
    Expiring Lease  
Revenue
(1)
               

Atlanta

  97   $1,927   34   $620   29   $726   28   $574

Austin

  0   0   0   0   0   0   0   0

Boston

  0   0   7   333   0   29   27   1,829

Central & South Florida

  146   3,348   4   108   7   201   18   441

Chicago

  523   20,185   42   1,596   769   31,205   28   1,072

Cleveland

  0   0   112   1,920   14   337   0   0

Dallas

  124   2,749   86   2,000   9   232   41   979

Denver

  0   0   0   0   0   0   0   0

Detroit

  225   4,200   84   2,287   147   3,429   6   121

Houston

  0   0   0   0   0   0   0   0

Los Angeles

  94   3,526   46   1,698   69   2,489   5   209

Minneapolis

  223   7,527   30   981   45   1,447   807   22,971

Nashville

  0   0   0   0   0   0   0   0

New York

  6   410   585   19,755   232   8,617   96   4,195

Philadelphia

  0   0   0   0   0   0   0   0

Phoenix

  45   788   0   0   0   0   0   0

Portland

  105   1,506   147   2,035   0   0   74   1,052

Seattle

  38   1,522   0   0   0   0   0   0

Washington, D.C.

  391   20,950   876   41,525   296   14,119   554   18,564
               

Total / Weighted Average (3)

  2,017   $68,638   2,053   $74,858   1,617   $62,831   1,684   $52,007
               

 

 

(1) Expiring lease revenue is calculated as expiring square footage multiplied by the rent per square foot of the tenant currently leasing the space.

(2) Includes leases with an expiration date of December 31, 2010 aggregating 110,773 square feet.

(3) Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule as the Lease Expiration Schedule accounts for revenue effects of newly signed leases. Expirations in the Lease Expiration Schedule reflect rental rates of newly executed leases, effectively incorporating known roll ups and roll downs.

 

23


Piedmont Office Realty Trust, Inc.

Capital Expenditures by Type

For the quarter ended December 31, 2010

Unaudited ($ in thousands)

 

 

        

For the Three Months Ended

 
          
             December 31, 2010        September 30, 2010        June 30, 2010          March 31, 2010          December 31, 2009      
          
 

Non-incremental (1)

              
 

 

Bldg / construction / dev

     $3,082         $2,293         $3,607         $2,638         $2,539    
 

Tenant improvements

     17,197         6,088         2,333         4,039         11,359    
 

Leasing costs

     6,315         4,948         3,029         2,737         6,076    
          
 

Total non-incremental

     26,594          13,329          8,969          9,414          19,974    
 

Incremental (1)

              
 

 

Bldg / construction / dev

     1,174         417         439         250         1,559    
 

Tenant improvements

     6         0         0         0         19    
 

Leasing costs

     2,531         0         0         0           
          
 

Total incremental

     3,711         417         439         250         1,578    
          
 

Total capital expenditures

     $30,305         $13,746         $9,408         $9,664         $21,552    
          

 

         
             
   

Tenant improvement commitments (2)

         
   

 

Tenant improvement commitments outstanding as of September 30, 2010

     $ 114,858         
   

New tenant improvement commitments related to leases executed during period

       17,313         
   

Tenant improvement commitments fulfilled, expired or other adjustments (3)

       (20,781)         
              
   

Total as of December 31, 2010

     $ 111,390         
              
                           

 

 

NOTE: The information presented on this page is for all consolidated assets, inclusive of our industrial properties.

(1) Definitions for non-incremental and incremental capital expenditures can be found on pages 29 and 30.

(2) Commitments are unexpired contractual tenant improvement obligations for leases executed in current and prior periods that have not yet been incurred and have not otherwise been presented on Piedmont’s financial statements. The three largest commitments total approximately $61.0 million, or 55% of total outstanding commitments.

(3) Amount reflects an adjustment for a pre-commencement contraction option exercised by KPMG at Aon Center in Chicago, IL during the fourth quarter of 2010. The tenant improvement commitment associated with the KPMG lease decreased by approximately $3.9 million.

 

24


Piedmont Office Realty Trust, Inc.

Contractual Tenant Improvements and Leasing Commissions

 

 

 

       

For the Twelve

     For the Year Ended  
       

Months Ended

December 31, 2010    

    

2009

    

2008

    

2007

 

  Renewal Leases

              
   

 

Number of leases

    37         34         34         39   
   

Square feet

    1,241,481         1,568,895         967,959         1,672,383   
   

 

Tenant improvements per square foot (1)

    $14.40         $12.01         $8.28         $13.19   
   

Leasing commissions per square foot

    $8.40         $5.51         $7.17         $7.18   
    Total per square foot     $22.80         $17.52         $15.45         $20.37   
     
   

Tenant improvements per square foot per year of lease term

    $1.74         $1.44         $1.39         $1.85   
   

Leasing commissions per square foot per year of lease term

    $1.02         $0.66         $1.20         $1.01   
   

Total per square foot per year of lease term

    $2.76         $2.10         $2.59         $2.86   
   

  New Leases

              
   

 

Number of leases

    56         28         37         44   
   

Square feet

    866,212         700,295         747,919         508,605   
   

 

Tenant improvements per square foot (1)

    $32.65         $45.04         $30.59         $24.93   
   

Leasing commissions per square foot

    $11.28         $17.12         $15.95         $10.39   
   

Total per square foot

    $43.93         $62.16         $46.54         $35.32   
     
   

Tenant improvements per square foot per year of lease term

    $4.16         $4.05         $3.24         $3.29   
   

Leasing commissions per square foot per year of lease term

    $1.44         $1.54         $1.69         $1.37   
   

Total per square foot per year of lease term

    $5.60         $5.59         $4.93         $4.66   
   

  Total

              
   

 

Number of leases

    93         62         71         83   
   

Square feet

    2,107,693         2,269,190         1,715,878         2,180,988   
   

 

Tenant improvements per square foot (1)

    $21.90         $22.21         $18.01         $15.93   
   

Leasing commissions per square foot

    $9.59         $9.09         $11.00         $7.93   
   

Total per square foot

    $31.49         $31.30         $29.01         $23.86   
     
   

Tenant improvements per square foot per year of lease term

    $2.70         $2.42         $2.41         $2.21   
   

Leasing commissions per square foot per year of lease term

    $1.18         $0.99         $1.47         $1.10   
   

Total per square foot per year of lease term

    $3.88         $3.41         $3.88         $3.31   

NOTE: This information is presented for our consolidated office assets only. Short-term leases (leases for a term of less than one year) are excluded from this information.

(1) For leases in which a tenant may use, at its discretion, a portion of its tenant improvement allowance for expenses other than those related to improvements to its space, an assumption is made that the tenant elects to use any such portion of its tenant improvement allowance for improvements to its space prior to the commencement of its lease. This assumption is made based upon the historical tenant improvement allowance usage patterns of the Company’s tenants.

 

25


Piedmont Office Realty Trust, Inc.

Geographic Diversification

As of December 31, 2010

 

 

Location    Number of
Properties
         Annualized Lease
Revenue ($’s in
thousands)
         Percentage of
Annualized Lease
Revenue (%)
         Rentable Square
Footage (in
Thousands)
         Percentage of
Rentable Square
Footage (%)
         Leased Square
Footage (in
thousands)
         Percent Leased  
(%)

Chicago

   6       $153,709       26.3       4,889       24.0       4,310       88.2

Washington, D.C.

   14       122,341       20.9       3,045       14.9       2,788       91.6

New York

   8       91,453       15.6       2,920       14.3       2,748       94.1

Minneapolis

   4       46,187       7.9       1,612       7.9       1,580       98.0

Los Angeles

   5       29,744       5.1       1,144       5.6       913       79.8

Dallas

   7       25,767       4.4       1,275       6.2       1,152       90.4

Boston

   4       23,764       4.1       583       2.9       562       96.4

Detroit

   4       18,905       3.2       929       4.5       794       85.5

Philadelphia

   1       14,897       2.5       761       3.7       761       100.0

Atlanta

   4       10,605       1.8       750       3.7       455       60.7

Houston

   1       9,562       1.6       313       1.5       313       100.0

Nashville

   1       6,975       1.2       312       1.5       312       100.0

Phoenix

   4       6,287       1.1       557       2.7       344       61.8

Central & South Florida

   3       6,192       1.1       299       1.5       264       88.3

Austin

   1       5,428       0.9       195       1.0       195       100.0

Portland

   4       4,593       0.8       325       1.6       325       100.0

Cleveland

   2       3,262       0.6       187       0.9       175       93.6

Denver

   1       2,712       0.5       156       0.8       156       100.0

Seattle

   1         2,200         0.4         156         0.8         67         42.9

Total / Weighted Average

   75       $584,583       100.0       20,408       100.0       18,214       89.2
    

LOGO

 

26


Piedmont Office Realty Trust, Inc.

Industry Diversification

As of December 31, 2010

 

 

 

Industry Diversification     Number of  
Tenants
    Percentage of  
Total Tenants
(%)
    Annualized Lease  
Revenue ($’s in
thousands)
  Percentage of
  Annualized Lease  
Revenue (%)
    Leased Square  
Footage (in
thousands)
  Percentage of
  Leased Square  
Footage (%)
 

Governmental Entity

  5   1.3   $105,013   18.0   2,528   13.9

Business Services

  60   15.0   68,338   11.7   2,170   11.9

Depository Institutions

  14   3.5   56,852   9.7   1,790   9.8

Legal Services

  10   2.5   38,118   6.5   1,055   5.8

Insurance Carriers

  21   5.3   37,016   6.3   1,498   8.2

Petroleum Refining & Related Industries

  1   0.3   32,477   5.6   776   4.3

Chemicals & Allied Products

  8   2.0   24,706   4.2   736   4.0

Engineering, Accounting, Research, Management & Related Services

  26   6.5   22,209   3.8   654   3.6

Nondepository Credit Institutions

  12   3.0   20,929   3.6   765   4.2

Communications

  33   8.2   17,328   3.0   595   3.3

Security & Commodity Brokers, Dealers, Exchanges & Services

  18   4.5   14,825   2.5   532   2.9

Food & Kindred Products

  4   1.0   14,214   2.4   423   2.3

Electronic & Other Electrical Equipment & Components, Except Computer

  10   2.5   13,959   2.4   622   3.4

Educational Services

  7   1.7   11,831   2.0   276   1.5

Transportation Equipment

  3   0.7   10,567   1.8   325   1.8

Other

  168   42.0   96,201   16.5   3,469   19.1
 

Total

  400   100.0   $584,583   100.0   18,214   100.0
   

LOGO

 

27


Piedmont Office Realty Trust, Inc.

Other Investments

As of December 31, 2010

 

 

INDUSTRIAL PROPERTIES   Location   Percent
  Ownership (%)  
      Year Built             Real Estate
Net Book
  Value ($’s in  
thousands)
      Rentable Square  
Footage (in
thousands)
    Percent
  Leased (%)  
 
   

112 Hidden Lake Circle

  Duncan, SC     100        1987          $9,853        313.4        100.0   

110 Hidden Lake Circle

  Duncan, SC     100        1987          13,240        473.4        36.8   
               
            $23,093        786.8        61.9   
               
UNCONSOLIDATED JOINT VENTURE PROPERTIES  (1)       Location   Percent
Ownership (%)
      Year Built       Piedmont
  Share of Real  
Estate Net
Book Value
($’s in
thousands)
    Real Estate
Net Book
Value ($’s in
thousands)
      Rentable Square  
Footage (in
thousands)
    Percent
  Leased (%)  
 
   

360 Interlocken

  Broomfield, CO     4        1996        $237        $6,431        51.7        100.0   

47300 Kato Road

  Fremont, CA     78        1982        2,668        3,442        58.4        0.0   

20/20 Building

  Leawood, KS     57        1992        2,603        4,586        68.3        90.6   

4685 Investment Drive

  Troy, MI     55        2000        5,172        9,402        77.1        100.0   

5301 Maryland Way

  Brentwood, TN     55        1989        11,073        20,129        201.2        100.0   

8560 Upland Drive

  Parker, CO     72        2001        7,685        10,690        148.2        100.0   

Two Park Center

  Hoffman Estates, IL     72        1999        11,575        16,101        193.7        83.0   
             
          $41,013        $70,781        798.6        87.8   
             
LAND PARCELS   Location                           Acres        
   

Portland Land Parcels

  Beaverton, OR             18.2     

Enclave Parkway

  Houston, TX             4.5     

Durham Avenue

  South Plainfield, NJ             8.9     

Corporate Court

  Holtsville, NY             10.0     

State Highway 161

  Irving, TX             4.5     
                   
              46.1     
                   
STRUCTURED FINANCE   Location                     Book Value
($’s in
thousands)
             
   

Mezzanine Loan (2)

  Chicago, IL           $48,171       

Mezzanine Loan (2)

  Chicago, IL           12,973       
                   
            $61,144       
                   

 

 

(1) On October 15, 2010, Piedmont sold it's 4% ownership in 14400 Hertz Quail Springs Parkway, a 57,000 square foot building in Oklahoma City, OK.

(2) Secured by a pledge of the equity interest of the entity owning a 46-story, Class A commercial office building located in downtown Chicago. For additional information on this investment, please refer to our Quarterly Report on Form 10-Q as of and for the period ended September 30, 2010 or our Annual Report on Form 10-K as of and for the period ended December 31, 2010.

 

28


Piedmont Office Realty Trust, Inc.

Supplemental Definitions

 

Included in this section are management’s statements regarding certain non-GAAP financial measures provided in this supplemental report and reasons why management believes that these measures provide useful information to investors about the Company’s financial condition and results of operations. Reconciliations of these non-GAAP measures are presented on pages 32-35.

 

Adjusted Funds From Operations (“AFFO”): AFFO is calculated by deducting from Core FFO non-incremental capital expenditures and adding back non-cash items including non-real estate depreciation, straight lined rents and fair value lease revenue, non-cash components of interest expense and compensation expense, and by making similar adjustments for unconsolidated partnerships and joint ventures. Although AFFO may not be comparable to that of other REITs, we believe it provides a meaningful indicator of our ability to fund cash needs and to make cash distributions to equity owners. AFFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income, as an alternative to net cash flows from operating activities or as a measure of our liquidity.

 

Annualized Lease Revenue (“ALR”): ALR is calculated by multiplying (i) rental payments (defined as base rent plus operating expense reimbursements, if payable by the tenant on a monthly basis under the terms of a lease that have been executed, but excluding rental abatements and rental payments related to executed but not commenced leases for space that was covered by an existing lease), by (ii) 12. In instances in which contractual rents or operating expense reimbursements are collected on an annual, semi-annual, or quarterly basis, such amounts are multiplied by a factor of 1, 2, or 4, respectively, to calculate the annualized figure. For leases that have been executed but not commenced relating to un-leased space, ALR is calculated by multiplying (i) the monthly base rental payment plus any operating expense reimbursements for the initial month of the lease term, by (ii) 12. Unless stated otherwise, this measure excludes our industrial properties and unconsolidated joint venture interests.

 

Core EBITDA: Core EBITDA is defined as net income before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property, or other extraordinary items. We do not include impairment losses in this measure because we feel these types of losses create volatility in our earnings and make it difficult to determine the earnings generated by our ongoing business. We believe Core EBITDA is a reasonable measure of our liquidity. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative measurement of cash flows from operating activities or other GAAP basis liquidity measures. Other REITs may calculate Core EBITDA differently and our calculation should not be compared to that of other REITs.

 

Core Funds From Operations (“Core FFO”): We calculate Core FFO by starting with FFO, as defined by NAREIT, and adjusting for certain non-recurring items such as impairment losses and other extraordinary items. Such items create significant earnings volatility. We believe Core FFO provides a meaningful measure of our operating performance and more predictability regarding future earnings potential. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income; therefore, it should not be compared to other REITs’ equivalent to Core FFO.

 

Core Net Operating Income (“Core NOI”): Core NOI is defined as real estate operating income with the add-back of corporate general and administrative expense, depreciation and amortization, and casualty and impairment losses and the deduction of income and expense associated with lease terminations and income associated with property management performed by Piedmont for other organizations. We present this measure on an accrual basis and a cash basis, which eliminates the effects of straight lined rents and fair value lease revenue. The company uses this measure to assess its operating results and believes it is important in assessing operating performance. Core NOI is a non-GAAP measure which does not have any standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies.

 

EBITDA: EBITDA is defined as net income before interest, taxes, depreciation and amortization. We believe EBITDA is an appropriate measure of our ability to incur and service debt. EBITDA should not be considered as an alternative to cash flows from operating activities, as a measure of our liquidity or as an alternative to net income as an indicator of our operating activities. Other REITs may calculate EBITDA differently and our calculation should not be compared to that of other REITs.

 

Funds From Operations (“FFO”): FFO is calculated in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines FFO as net income (computed in accordance with GAAP), excluding gains or losses from sales of property, adding back depreciation and amortization on real estate assets, and after the same adjustments for unconsolidated partnerships and joint ventures. Such factors can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. FFO may provide valuable comparisons of operating performance between periods and with other REITs. FFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income. We believe that FFO is a beneficial indicator of the performance of an equity REIT. However, other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than we do; therefore, our computation of FFO may not be comparable to that of such other REITs.

 

Incremental Capital Expenditures: Incremental Capital Expenditures are defined as capital expenditures of a non-recurring nature that incrementally enhance the underlying assets’ income generating capacity. Tenant improvements, leasing commissions, building capital and deferred lease incentives incurred to lease space that was dark at acquisition, improvements associated with the expansion of a building and renovations that change the underlying classification of a building are included in this measure.

 

29


Piedmont Office Realty Trust, Inc.

Supplemental Definitions

 

 

 

NOI from Unconsolidated Joint Ventures: NOI from Unconsolidated Joint Ventures is defined as Core NOI attributable to our interests in eight properties owned through unconsolidated partnerships. We present this measure on an accrual basis and a cash basis, which eliminates the effects of straight lined rents and fair value lease revenue. NOI from Unconsolidated Joint Ventures is a non-GAAP measure and therefore may not be comparable to similarly defined data provided by other REITs.

 

Non-Incremental Capital Expenditures: Non-Incremental Capital Expenditures are defined as capital expenditures of a recurring nature related to tenant improvements and leasing commissions that do not incrementally enhance the underlying assets’ income generating capacity. We exclude first generation tenant improvements and leasing commissions from this measure.

 

Same Store Net Operating Income (“Same Store NOI”): Same Store NOI is calculated as the Core NOI attributable to the properties owned or placed in service during the entire span of the current and prior year reporting periods. Same Store NOI excludes amounts attributable to industrial properties and unconsolidated joint venture assets. We present this measure on an accrual basis and a cash basis, which eliminates the effects of straight lined rents and fair value lease revenue. We believe Same Store NOI is an important measure of comparison of our stabilized properties’ operating performance. Other REITs may calculate Same Store NOI differently and our calculation should not be compared to that of other REITs.

 

Same Store Properties: Same Store Properties is defined as properties owned or placed in service during the entire span of the current and prior year reporting periods. Same Store Properties excludes industrial properties and unconsolidated joint venture assets. We believe Same Store Properties is an important measure of comparison of our stabilized portfolio performance.

 

30


Piedmont Office Realty Trust, Inc.

Research Coverage

 

 

Paul E. Adornato, CFA    John W. Guinee, III    Brendon Maiorana
BMO Capital Markets    Stifel, Nicolaus & Company    Wells Fargo
3 Time Square    One South Street    7 St. Paul Street
New York, NY 10036    16th Floor    MAC R1230-011
Phone: (212) 885-4170    Baltimore, MD 21202    Baltimore, MD 21202
   Phone: (443) 224-1307    Phone: (443) 263-6516
Anthony Paolone, CFA    David B. Rodgers, CFA    Stephen C. Swett
JP Morgan    RBC Capital Markets    Morgan Keegan & Co.
277 Park Avenue    Arbor Court    535 Madison Avenue
New York, NY 10172    30575 Bainbridge Road, Suite 250    10th Floor
Phone: (212) 622-6682    Solon, OH 44139    New York, NY 10022
   Phone: (440) 715-2647    Phone: (212) 508-7585

 

31


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Cash Basis)

Unaudited (in thousands)

 

 

 

     Three Months Ended             Twelve Months Ended  
     12/31/2010      9/30/2010      6/30/2010      3/31/2010      12/31/2009             12/31/2010      12/31/2009  

Net income attributable to Piedmont

     $     28,700           $     40,584           $     19,636           $     31,460           $     25,946              $     120,379           $ 74,700     

Net income attributable to noncontrolling interest

     122           158           125           125           119              531           478     

Interest expense

     17,378           17,359           18,933           19,091           19,488              72,761           77,743     

Depreciation

     26,995           26,339           26,050           26,428           27,434              105,814           107,510     

Amortization

     11,623           11,119           11,104           11,488           16,274              45,334           57,708     

Impairment loss on real estate assets

     -               53           9,587           -               -                  9,640           37,633     

Gain / loss on sale of property

     792           -               -              -               -                  792           -         
                                                                 

Core EBITDA

     85,610           95,612           85,435           88,592           89,261              355,251           355,772     

General & administrative expenses

     7,934           7,001           7,993           6,696           6,297              29,624           27,558     

Management fee revenue

     (948)          (806)          (705)          (753)          (928)             (3,212)          (3,111)    

Interest and other income

     (491)          (993)          (1,036)          (969)          (652)             (3,489)          (4,450)    

Lease termination income

     (2,589)          (4,230)          (479)          (496)          (1,982)             (7,794)          (2,764)    

Lease termination expense - straight line rent & acquisition intangibles write-offs

     461           131           679           67           552              1,338           1,353     

Straight line rent adjustment

     (3,791)          (3,053)          (1,463)          1,006           (2,619)             (7,300)          (2,809)    

Net effect of amortization of above/(below) market in-place lease intangibles

     (1,457)          (1,510)          (1,525)          (1,426)          (1,212)             (5,919)          (4,939)    
                                                                 

Core net operating income

     84,729           92,152           88,899           92,717           88,717              358,499           366,610     

Acquisitions

     881           2           -           -           -              883           -     

Dispositions

     (1,119)          (1,686)          (1,683)          (1,681)          (1,672)             (6,169)          (6,667)    

Industrial properties

     (347)          (91)          (91)          (273)          (638)             (803)          (2,559)    

Unconsolidated joint ventures

     (1,165)          (1,217)          (1,186)          (1,268)          (1,156)             (4,835)          (4,793)    
                                                                 

Same Store NOI

     $ 82,979           $ 89,160           $ 85,939           $ 89,495           $ 85,251              $ 347,575           $     352,591     
                                                                 

 

32


Piedmont Office Realty Trust, Inc.

Unconsolidated Joint Venture NOI Reconciliation

Pro-rata (in thousands)

 

 

 

     Three Months Ended               Twelve Months Ended  
       12/31/2010          9/30/2010          6/30/2010          3/31/2010          12/31/2009                   12/31/2010          12/31/2009    

Equity in Income of Unconsolidated JVs

     $630           $619           $647           $737           $672                $2,633           $104     

Interest expense

     -             -             -             -             -                  -             -       

Depreciation

     310           329           337           348           344                1,324           1,437     

Amortization

     101           101           101           101           101                403           408     

Impairment loss

    
-  
  
     53           -           -           -                53           2,570     

Gain/loss on sale of property

     (25)          -           -           -           -                (25)          -     
                                                                   

Core EBITDA

     1,016           1,102           1,085           1,186           1,117                4,388           4,519     

General & administrative expenses

     73           40           38           66           71                217           165     

Interest and other income

     -           -           -           -           -                -           -     
                                                                   

Core net operating income (accrual basis)

     1,089           1,142           1,123           1,252           1,188                4,605           4,684     

Straight-line effects of lease revenue

     77           76           64           17           (31)               235           114     

Net effect of amortization of above/(below) market in-place lease intangibles

     (1)          (1)          (1)          (1)          (1)               (5)          (5)    
                                                                   

Core net operating income (cash basis)

     $     1,165           $     1,217           $     1,186           $     1,268           $     1,156                $     4,835           $     4,793     
                                                                   

 

33


Piedmont Office Realty Trust, Inc.

FFO/ Core FFO/ AFFO Reconciliations

Unaudited (in thousands)

 

 

 

    Three Months Ended           Twelve Months Ended  
        12/31/2010             9/30/2010             6/30/2010             3/31/2010             12/31/2009                   12/31/2010             12/31/2009      

Net income attributable to Piedmont

    $28,700         $40,584         $19,636         $31,460         $25,946           $120,379         $74,700    

Depreciation

    26,821         26,163         25,872         26,250         27,264           105,107         106,878    

Amortization

    11,623         11,119         11,104         11,488         16,274           45,334         57,708    

Gain / (loss) on sale of property

    792                                       792           
                                                         

Funds from operations

    67,936         77,866         56,612         69,198         69,484           271,612         239,286    

Impairment loss

           53         9,587                         9,640         37,633    
                                                         

Core funds from operations

    67,936         77,919         66,199         69,198         69,484           281,252         276,919    

Depreciation of non real estate assets

    173         176         178         178         171           707         632    

Stock-based and other non-cash compensation expense

    1,223         1,095         711         653         671           3,681         3,178    

Deferred financing cost amortization

    608         607         696         696         696           2,608         2,786    

Straight-line effects of lease revenue

    (3,456)        (2,921)        (784)        1,073         (1,618)          (6,088)        (997)   

Amortization of lease related intangibles

    (1,331)        (1,510)        (1,525)        (1,426)        (1,663)          (5,793)        (5,399)   

Income from amortization of discount on purchase of mezzanine loans

    (473)        (569)        (694)        (668)        (334)          (2,405)        (2,278)   

Non-incremental capital expenditures

    (26,594)        (13,329)        (8,969)        (9,414)        (19,974)          (58,305)        (46,452)   
                                                         

Adjusted funds from operations

    $38,086         $61,468         $55,812         $60,290         $47,433           $215,657         $228,389    
                                                         

 

34


Piedmont Office Realty Trust, Inc.

Discontinued Operations

Unaudited (in thousands)

 

 

 

    Three Months Ended           Twelve Months Ended  
                 
    12/31/2010     9/30/2010     6/30/2010     3/31/2010     12/31/2009           12/31/2010     12/31/2009  
                 

Revenues:

               

Rental income

    $           1,063      $           1,595      $           1,594      $           1,594      $           1,594           $           5,846      $           6,377    

Tenant reimbursements

    -            -            -            (2     -               (2       

Property management fee revenue

    -            -            -            -            -               -            -        

Other rental income

    -            -            -            -            -               -            -        
                 

Total revenues

    1,063        1,595        1,594        1,592        1,594           5,844        6,380    

Operating expenses:

               

Property operating costs

    8        5        8        8        19           31        101    

Depreciation

    -            -            130        389        389           519        1,556    

Amortization

    -            -            -            -            -               -            -        

General and administrative

    38        156        2        10                 205        78    
                 

Total operating expenses

    46        161        140        407        415           755        1,735    
                 

Operating income, excluding impairment loss and loss on sale

    1,017        1,434        1,454        1,185        1,179           5,089        4,645    

Impairment loss

    -            -            (9,587     -            -               (9,587     -        

Loss on sale

    (817     -            -            -            -               (817     -        
                 

Income from discontinued operations

    $ 200      $ 1,434      $ (8,133   $ 1,185      $ 1,179           $ (5,315   $ 4,645    
                 

 

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Piedmont Office Realty Trust, Inc.

Supplemental Operating & Financial Data

Risks, Uncertainties and Limitations

 

Certain statements contained in this supplemental package 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”). We intend 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 our 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.

 

The following are some of the factors that could cause our actual results and expectations to differ materially from those described in our forward-looking statements: our ability to successfully identify and consummate suitable acquisitions; current adverse market and economic conditions; lease terminations or lease defaults, particularly by one of our large lead tenants; the impact of competition on our efforts to renew existing leases or re-let space; changes in the economies and other conditions of the office market in general and of the specific markets in which we operate; economic and regulatory changes; additional risks and costs associated with directly managing properties occupied by government tenants; adverse market and economic conditions and related impairments to our assets, including, but not limited to, receivables, real estate assets and other intangible assets; the success of our real estate strategies and investment objectives; availability of financing; costs of complying with governmental laws and regulations; uncertainties associated with environmental and other regulatory matters; our ability to continue to qualify as a REIT under the Internal Revenue Code; the impact of outstanding or potential litigation; and other factors detailed in our most recent Annual Report on Form 10-K and our Quarterly Report on Form 10-Q as of and for the period ended September 30, 2010 and other documents we file with the Securities and Exchange Commission.

 

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

 

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