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) May 3, 2012

 

 

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 May 3, 2012, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the first quarter 2012 and published supplemental information for the first quarter 2012 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 May 3, 2012.
99.2    Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the First Quarter 2012.

 

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: May 3, 2012

 

3


EXHIBIT INDEX

 

Exhibit No.

  

Description

99.1    Press release dated May 3, 2012.
99.2    Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the First Quarter 2012.

 

4

EX-99.1

Exhibit 99.1

Piedmont Office Realty Trust Reports First Quarter Results

ATLANTA, May 3, 2012—Piedmont Office Realty Trust, Inc. (“Piedmont” or the “Company”) (NYSE:PDM), an owner of primarily Class A commercial office properties located predominantly in the ten largest U.S. office markets, today announced its results for the quarter ended March 31, 2012.

Highlights for the Three Months Ended March 31, 2012:

 

   

Achieved Funds From Operations (“FFO”) of $0.35 for the quarter;

 

   

Continued to advance its portfolio refinement strategy by selling four Portland assets at a gain of $17.8 million, or $0.10 per diluted share, marking its exit from the Portland market;

 

   

Completed over 800,000 square feet in leasing during the quarter, including approximately 500,000 square feet of office leasing;

 

   

Paid off the $140.0 million mortgage on 500 W. Monroe, which was the last remaining debt on the property.

Donald A. Miller, CFA, President and Chief Executive Officer stated, “We are pleased to continue to execute on our long-term strategy of narrowing the number of markets in which we operate and maintaining strong financial metrics in order to be able to take advantage of future opportunities. Although our office leasing volume was lighter this quarter compared to the record leasing year we experienced in 2011, we continue to be optimistic that our leasing activity will reflect strong volumes during 2012.”

Results for the Quarter ended March 31, 2012

Piedmont’s net income available to common stockholders for the first quarter of 2012, which includes the gain mentioned above, was $37.2 million, or $0.22 per diluted share, as compared with $34.0 million, or $0.20 per diluted share, for the first quarter 2011. Both FFO and Core FFO were $60.0 million, or $0.35 per diluted share, for the quarter ended March 31, 2012 as compared to $71.3 million, or $0.41 per diluted share, for the quarter ended March 31, 2011, reflecting an anticipated decrease as a result of the sale of 35 W. Wacker during the fourth quarter of 2011, as well as downtime before certain major leases commence later in 2012.

Adjusted FFO (“AFFO”) for the first quarter of 2012 totaled $50.1 million, or $0.29 per diluted share, as compared to $56.3 million, or $0.33 per diluted share, in the first quarter of 2011, reflecting the anticipated decrease noted above, offset by lower capital expenditures during the current quarter as compared to the previous period.


Revenues for the quarter ended March 31, 2012 were $133.2 million, as compared with $131.5 million for the same period a year ago, primarily reflecting additional rental revenues and reimbursements from properties acquired during the last twelve months offset by a $3.3 million reduction in lease termination revenue.

Property operating costs were $52.8 million in the first quarter of 2012 compared to $48.8 million in the first quarter of 2011, reflecting added operating costs from the acquisition of seven properties over the last twelve months.

Other income and expense on a quarter over quarter basis decreased approximately $6.2 million, reflecting the acquisition through foreclosure of the 500 W. Monroe Building during the first quarter of 2011 and the resulting conversion of the mezzanine loan receivables related to the property into an equity ownership. Recognition of interest income on the receivables and gain on consolidation of a variable interest entity were recorded during the prior period.

Leasing Update

During the first quarter of 2012, the Company executed approximately 810,000 total square feet of leasing, throughout its markets, including joint venture and industrial assets. Of the leases signed during the quarter, approximately 437,000 square feet related to its consolidated portfolio of office properties, 74,000 square feet related to a renewal at a joint venture property, and 300,000 square feet related to a seven-year new lease at one of its two industrial properties. Of the approximately 437,000 square feet of consolidated office leasing, 275,000 square feet, or 63%, was renewal-related and 162,000 square feet, or 37%, was with new tenants.

The stabilized portfolio was 87.5% leased as of March 31, 2012 as compared to 89.1% leased as of December 31, 2011, primarily reflecting the expiration of several large leases during the period. The Company’s overall office portfolio was 84.4% leased as of March 31, 2012, with a weighted average lease term remaining of 6.6 years. Details outlining Piedmont’s significant upcoming lease expirations and the status of current leasing activity can be found in the Company’s quarterly supplemental information package.

Capital Markets, Financing and Other Activities

As previously announced, during the first quarter Piedmont completed the disposition of four office buildings (the Deschutes, Rhein, Rogue, and Willamette buildings) and 18.19 acres of adjoining vacant land located in Beaverton, Oregon for approximately $43.9 million, exclusive of closing costs. The disposition marks Piedmont’s exit from the Portland market, furthering the Company’s portfolio refinement strategy, and resulted in a gain of $17.8 million, or $0.10 per diluted share, which is included in Piedmont’s statement of operations for the quarter.


During the first quarter of 2012, Piedmont also paid off the $140.0 million mortgage loan secured by the 500 W Monroe Building in downtown Chicago, IL. The mortgage loan represented the last remaining debt secured by the 500 W. Monroe Building.

Piedmont’s gross assets amounted to $5.3 billion as of March 31, 2012. Total debt was approximately $1.4 billion as of March 31, 2012 as compared to $1.5 billion as of December 31, 2011. The Company’s total debt-to-gross assets ratio was 25.7% as of March 31, 2012 as compared with 27.5% as of December 31, 2011. Net debt to annualized core EBITDA ratio was 4.2 times and the Company`s fixed charge coverage ratio was 4.6 times. As of March 31, 2012, Piedmont had cash and capacity on its unsecured line of credit of approximately $484.5 million.

Subsequent to Quarter End

Dividend

On May 2, 2012, the Board of Directors of Piedmont declared a dividend for the second quarter of 2012 in the amount of $0.20 per common share outstanding to stockholders of record as of the close of business on June 1, 2012. Such dividends are to be paid on June 22, 2012.

Repayment of Debt

On May 1, 2012, Piedmont repaid in full the balance outstanding on the $45.0 Million Fixed-Rate Loan secured by the 4250 N. Fairfax building in advance of its scheduled maturity.

Guidance for 2012

Based on management’s expectations, the Company affirmed its financial guidance for full-year 2012 as follows:

 

    Low         High  

Core FFO

  $ 234     -     $ 250  Million 

Core FFO per diluted share

  $ 1.35      -     $ 1.45   

These estimates reflect the effect of the disposition in December of the 100% leased 35 W. Wacker building in Chicago and management’s view of current market conditions and incorporate certain economic and operational assumptions and projections. Actual results could differ from these estimates. Note that individual quarters may fluctuate on both a cash basis and an accrual basis due to the 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, 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, May 4, 2012 at 10:00 A.M. Eastern Daylight Time. The live audio webcast of the call may be accessed on the Company’s website at www.piedmontreit.com in the Investor Relations section. Dial-in numbers are 1-877-407-3982 for participants in the United States and 1-201-493-6780 for international participants. The conference identification number is 392077. A replay of the conference call will be available until May 18, 2012, and can be accessed by dialing 1-877-870-5176 or 1-858-384-5517 for international participants, followed by pass code 392077. 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 first quarter 2012 performance, discuss recent events, and conduct a question-and-answer period.

Supplemental Information

Quarterly Supplemental Information as of and for the period ended March 31, 2012 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. (NYSE:PDM) is a fully-integrated and self-managed real estate investment trust (REIT) specializing in high-quality, Class A office properties located primarily in the ten largest U.S. office markets, including Chicago, Washington, D.C., New York, Dallas, Los Angeles and Boston. As of March 31, 2012, Piedmont’s 75 wholly-owned office buildings were comprised of approximately 21 million rentable square feet. The Company is headquartered in Atlanta, GA with local management offices in each of its major markets. Investment-grade rated by Standard & Poor’s and Moody’s, Piedmont has maintained a low-leverage strategy while transacting $5.9 billion and $1.7 billion in property acquisitions and dispositions, respectively, during its fourteen year operating history. For more information, see www.piedmontreit.com.

Forward Looking Statements

Certain statements contained in this press release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company intends for all such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such information is subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of the Company`s performance in future periods. Such forward-looking statements can generally be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “continue” or similar words or phrases that are predictions of future events or trends and which do not relate solely to historical matters. Examples of such statements in this press release include the Company`s estimated range of Core FFO and Core FFO per diluted share for the year ending December 31, 2012 and anticipated leasing volumes for 2012.


The following are some of the factors that could cause the Company`s actual results and its expectations to differ materially from those described in the Company`s forward-looking statements: the Company`s ability to successfully identify and consummate suitable acquisitions; the demand for office space, rental rates and property values may continue to lag the general economic recovery; our $500 million Unsecured Facility matures in August 2012 and a failure to renew this facility would cause our business, results of operation, cash flows, financial condition and access to capital to be adversely affected; lease terminations or lease defaults, particularly by one of the Company`s large lead tenants; the impact of competition on the Company`s 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 the Company operates; 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 the Company`s assets, including, but not limited to, receivables, real estate assets and other intangible assets; availability of financing including the Company’s ability to renew its $500 Million Unsecured Facility; costs of complying with governmental laws and regulations; uncertainties associated with environmental and other regulatory matters; potential changes in the political environment and reduction in federal and/or state funding of our government tenants; we are and may continue to be subject to litigation; the Company`s ability to continue to qualify as a REIT under the Internal Revenue Code; and other factors detailed in the Company`s most recent Annual Report on Form 10-K for the period ended December 31, 2011, and other documents the Company files 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. The Company cannot guarantee the accuracy of any such forward-looking statements contained in this press release, and the Company does not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Research Analysts/ Institutional Investors Contact:

Eddie Guilbert

770-418-8592

research.analysts@piedmontreit.com

Shareholder Services/Transfer Agent Services Contact:

Computershare, Inc.

866-354-3485

Investor.services@piedmontreit.com


Piedmont Office Realty Trust, Inc.

Consolidated Balance Sheets

(in thousands)

 

 

 

     March 31,
2012
    December 31,
2011
 
     (unaudited)        

Assets:

    

Real estate assets, at cost:

    

Land

   $ 631,745      $ 640,196   

Buildings and improvements

     3,750,475        3,759,596   

Buildings and improvements, accumulated depreciation

     (813,679     (792,342

Intangible lease asset

     191,599        198,667   

Intangible lease asset, accumulated amortization

     (119,188     (119,419

Construction in progress

     16,725        17,353   
  

 

 

   

 

 

 

Total real estate assets

     3,657,677        3,704,051   

Investment in unconsolidated joint ventures

     37,901        38,181   

Cash and cash equivalents

     28,679        139,690   

Tenant receivables, net of allowance for doubtful accounts

     24,932        24,722   

Straight line rent receivable

     106,723        104,801   

Notes receivable

     19,000        —     

Due from unconsolidated joint ventures

     449        788   

Restricted cash and escrows

     25,108        9,039   

Prepaid expenses and other assets

     12,477        9,911   

Goodwill

     180,097        180,097   

Deferred financing costs, less accumulated amortization

     5,187        5,977   

Deferred lease costs, less accumulated amortization

     228,468        230,577   
  

 

 

   

 

 

 

Total assets

   $ 4,326,698      $ 4,447,834   
  

 

 

   

 

 

 

Liabilities:

    

Line of credit and notes payable

   $ 1,352,525      $ 1,472,525   

Accounts payable, accrued expenses, and accrued capital expenditures

     116,292        122,986   

Deferred income

     32,031        27,321   

Intangible lease liabilities, less accumulated amortization

     46,640        49,037   

Interest rate swap

     2,552        2,537   
  

 

 

   

 

 

 

Total liabilities

     1,550,040        1,674,406   

Stockholders’ equity :

    

Common stock

     1,726        1,726   

Additional paid in capital

     3,664,202        3,663,662   

Cumulative distributions in excess of earnings

     (888,331     (891,032

Other comprehensive loss

     (2,552     (2,537
  

 

 

   

 

 

 

Piedmont stockholders’ equity

     2,775,045        2,771,819   

Non-controlling interest

     1,613        1,609   
  

 

 

   

 

 

 

Total stockholders’ equity

     2,776,658        2,773,428   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 4,326,698      $ 4,447,834   
  

 

 

   

 

 

 

Net Debt (Debt less cash and cash equivalents and restricted cash and escrows)

   $ 1,298,738      $ 1,323,796   

Total Gross Assets (1)

   $ 5,259,565      $ 5,359,595   

Number of shares of common stock outstanding at end of period

     172,630        172,630   

 

(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  
     3/31/2012     3/31/2011  

Revenues:

    

Rental income

   $ 105,758      $ 100,322   

Tenant reimbursements

     26,741        26,894   

Property management fee revenue

     574        830   

Other rental income

     124        3,404   
  

 

 

   

 

 

 

Total revenues

     133,197        131,450   

Operating expenses:

    

Property operating costs

     52,782        48,817   

Depreciation

     27,453        25,037   

Amortization

     12,792        10,338   

General and administrative

     5,257        6,612   
  

 

 

   

 

 

 

Total operating expenses

     98,284        90,804   
  

 

 

   

 

 

 

Real estate operating income

     34,913        40,646   

Other income (expense):

    

Interest expense

     (16,537     (15,640

Interest and other income (expense)

     97        3,459   

Equity in income of unconsolidated joint ventures

     170        209   

Gain on consolidation of a variable interest entity

     —          1,920   
  

 

 

   

 

 

 

Total other income (expense)

     (16,270     (10,052
  

 

 

   

 

 

 

Income from continuing operations

     18,643        30,594   

Discontinued operations :

    

Operating income

     758        3,377   

Gain on sale of real estate assets

     17,830        —     
  

 

 

   

 

 

 

Income from discontinued operations

     18,588        3,377   
  

 

 

   

 

 

 

Net income

     37,231        33,971   

Less: Net income attributable to noncontrolling interest

     (4     (4
  

 

 

   

 

 

 

Net income attributable to Piedmont

   $ 37,227      $ 33,967   
  

 

 

   

 

 

 

Weighted average common shares outstanding — diluted

     172,874        172,955   

Per Share Information — diluted:

    

Income from continuing operations

   $ 0.11      $ 0.18   
  

 

 

   

 

 

 

Income from discontinued operations

   $ 0.11      $ 0.02   
  

 

 

   

 

 

 

Net income available to common stockholders

   $ 0.22      $ 0.20   
  

 

 

   

 

 

 


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  
     3/31/2012     3/31/2011  

Net income attributable to Piedmont

   $ 37,227      $ 33,967   

Depreciation (1) (2)

     27,809        27,154   

Amortization (1)

     12,840        12,106   

Gain on sale of real estate assets (1)

     (17,830     —     

Gain on consolidation of variable interest entity

     —          (1,920
  

 

 

   

 

 

 

Funds from operations

     60,046        71,307   

Acquisition costs

     (3     (26
  

 

 

   

 

 

 

Core funds from operations

     60,043        71,281   

Depreciation of non real estate assets

     93        170   

Stock-based and other non-cash compensation expense

     334        968   

Deferred financing cost amortization

     803        607   

Straight-line effects of lease revenue (1)

     (1,565     2,237   

Amortization of lease-related intangibles (1)

     (1,532     (1,363

Income from amortization of discount on purchase of mezzanine loans

     —          (484

Acquisition costs

     3        26   

Non-incremental capital expenditures (3)

     (8,066     (17,131
  

 

 

   

 

 

 

Adjusted funds from operations

   $ 50,113      $ 56,311   
  

 

 

   

 

 

 

Weighted average common shares outstanding — diluted

     172,874        172,955   

Funds from operations per share (diluted)

   $ 0.35      $ 0.41   

Core funds from operations per share (diluted)

   $ 0.35      $ 0.41   

Adjusted funds from operations per share (diluted)

   $ 0.29      $ 0.33   

 

(1)

Includes adjustments for wholly-owned properties, including discontinued operations, 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. Tenant improvements, leasing commissions, building capital and deferred lease incentives incurred to lease space that was vacant at acquisition, leasing costs for spaces vacant for greater than one year, leasing costs for spaces at newly acquired properties for which in-place leases expire shortly after acquisition, improvements associated with the expansion of a building and renovations that change the underlying classification of a building are excluded 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 and impairment losses, adding back depreciation and amortization on real estate assets, and after the same adjustments for unconsolidated partnerships and joint ventures. These adjustments 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 gains or losses on the early extinguishment of debt, acquisition-related costs, 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.

Core EBITDA, Core Net Operating Income, Same Store Net Operating Income

Unaudited (in thousands)

 

 

 

     Three Months Ended  
     3/31/2012     3/31/2011  

Net income attributable to Piedmont

   $ 37,227      $ 33,967   

Net income attributable to non-controlling interest

     4        123   

Interest Expense

     16,537        17,174   

Depreciation(1)

     27,902        27,324   

Amortization(1)

     12,840        12,106   

Gain on sale of real estate assets(1)

     (17,830     —     

Gain on consolidation of variable interest entity

     —          (1,920
  

 

 

   

 

 

 

Core EBITDA*

     76,680        88,774   

General & administrative expenses(1)

     5,318        6,704   

Management fee revenue

     (574     (830

Interest and other income

     (97     (3,460

Lease termination income

     (124     (3,404

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

     100        436   

Straight line rent adjustment(1)

     (1,664     1,972   

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

     (1,532     (1,534
  

 

 

   

 

 

 

Core Net Operating Income (cash basis)*

     78,107        88,658   

Acquisitions

     (3,150     2   

Dispositions

     (954     (7,327

Industrial properties

     (242     (237

Unconsolidated joint ventures

     (590     (658
  

 

 

   

 

 

 

Same Store NOI*

   $ 73,171      $ 80,438   
  

 

 

   

 

 

 

Change period over period in same store NOI

     -9.0  

Fixed Charge Coverage Ratio (Core EBITDA/ Interest Expense)(2)

     4.6     

Annualized Core EBITDA (Core EBITDA x 4)

   $ 306,720     

 

(1)

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

(2) 

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 and unconsolidated joint venture assets. 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.

EX-99.2

Exhibit 99.2

 

LOGO

Quarterly Supplemental Information

March 31, 2012

 

 

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

   5-8

Key Performance Indicators

   9

Financials

  

Balance Sheet

   10

Income Statements

   11-12

Funds From Operations / Adjusted Funds From Operations

   13

Same Store Analysis

   14-15

Capitalization Analysis

   16

Debt Summary

   17

Debt Detail

   18

Debt Analysis

   19

Operational & Portfolio Information - Office Investments

  

Tenant Diversification

   20

Tenant Credit Rating & Lease Distribution Information

   21

Leased Percentage Information

   22

Rental Rate Roll Up / Roll Down Analysis

   23

Lease Expiration Schedule

   24

Quarterly Lease Expirations

   25

Annual Lease Expirations

   26

Capital Expenditures & Commitments

   27

Contractual Tenant Improvements & Leasing Commissions

   28

Geographic Diversification

   29

Geographic Diversification by Location Type

   30

Industry Diversification

   31

Property Investment Activity

   32

Value-Add Activity

   33

Other Investments

  

Other Investments Detail

   34

Supporting Information

  

Definitions

   35-36

Research Coverage

   37

Non-GAAP Reconciliations & Other Detail

   38-41

Property Detail

   42-43

Risks, Uncertainties and Limitations

   44
 

 

Please refer to page 44 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 predominantly in large U.S. office markets and leased principally to high-credit-quality tenants. 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. Since its first acquisition in 1998, the Company has acquired $5.9 billion of office and industrial properties (inclusive of joint ventures) through March 31, 2012. Rated as an investment-grade company by Standard & Poor’s and Moody’s, Piedmont has maintained a low-leverage strategy while acquiring its properties.

This data supplements the information provided in our reports filed with the Securities and Exchange Commission and should be reviewed in conjunction with such filings.

 

     As of
    March 31, 2012    
          As of
    December 31, 2011    
 

Number of consolidated office properties (2)

     75            79   

Rentable square footage (in thousands) (2)

     20,617            20,942   

Percent leased (3)

     84.4%            86.5%   

Percent leased - stabilized portfolio (4)

     87.5%            89.1%   

Capitalization (in thousands):

        

Total debt - principal amount outstanding

     $1,352,525            $1,472,525   

Equity market capitalization (5)

     $3,064,178            $2,941,611   

Total market capitalization (5)

     $4,416,703            $4,414,136   

Total debt / Total market capitalization

     30.6%            33.4%   

Total debt / Total gross assets

     25.7%            27.5%   

Common stock data

        

High closing price during quarter

     $18.91            $17.50   

Low closing price during quarter

     $17.18            $15.42   

Closing price of common stock at period end

     $17.75            $17.04   

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

     172,874            172,981   

Shares of common stock issued and outstanding (in thousands)

     172,630            172,630   

Rating / outlook

        

Standard & Poor’s

     BBB/Stable            BBB/Stable   

Moody’s

     Baa2/Stable            Baa2/Stable   

Employees

     117            116   

 

 

 

(1) 

The definition for Annualized Lease Revenue can be found on page 35.

(2) 

As of March 31, 2012, our consolidated office portfolio consisted of 75 properties (exclusive of our equity interests in five properties owned through unconsolidated joint ventures and our two industrial properties). During the first quarter of 2012, we sold our portfolio of assets located in the Portland, OR market, comprised of four office properties totaling 326,000 square feet and developable land totaling 18.2 acres. For additional detail on asset transactions during the first quarter of 2012, please refer to page 32.

(3) 

Calculated as leased square footage on March 31, 2012 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. Please refer to page 22 for additional analyses regarding Piedmont's leased percentage.

(4) 

Please refer to page 33 for information regarding value-add properties, data for which is removed from stabilized portfolio totals.

(5) 

Based on a share price of $17.75 as of March 30, 2012.

(6) 

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

 

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    Frank C. McDowell    Donald A. Miller, CFA

Director, Chairman of the

Board of Directors and Chairman

of Audit Committee

  

Director and Vice Chairman of the

Board of Directors

  

Chief Executive Officer, President and

Director

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

Director and Chairman of

Capital Committee

  

Director and Chairman of Governance

Committee

  

Director and Chairman of

Compensation Committee

William H. Keogler, Jr.    Raymond G. Milnes, Jr.    Jeffery L. Swope
Director    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 March 31, 2012

 

 

 

Financial Results (1)                    

- Funds from operations (FFO) for the quarter ended March 31, 2012 was $60.0 million, or $0.35 per share (diluted), compared to $71.3 million, or $0.41 per share (diluted), for the same quarter in 2011. The decrease in FFO for the three months ended March 31, 2012 as compared to the same period in 2011 was principally related to three factors: 1) decreased operating income due to the disposition of certain assets with meaningful operating income contributions, notably 35 West Wacker Drive, and lower overall leased percentage in 2012 as compared to 2011, offset somewhat by operating income contributions from newly acquired assets, 2) reduced termination fee income of $3.3 million in 2012 as compared to 2011, and 3) the one-time recognition in 2011 of $2.6 million of deferred operating income from the 500 West Monroe Street property related to the conversion of our mezzanine loan investment collateralized by equity ownership of the building to an owned property through foreclosure. The items contributing to the reduction in FFO in 2012 as compared to 2011 are offset somewhat by $1.4 million of reduced General & Administrative expenses related primarily to increased legal expense reimbursements in 2012 as compared to 2011.

 

- Core funds from operations (Core FFO) for the quarter ended March 31, 2012 was $60.0 million, or $0.35 per share (diluted), compared to $71.3 million, or $0.41 per share (diluted), for the same quarter in 2011. The decrease in Core FFO for the three months ended March 31, 2012 as compared to the same period in 2011 was principally related to the items described for changes in FFO above.

 

- Adjusted funds from operations (AFFO) for the quarter ended March 31, 2012 was $50.1 million, or $0.29 per share (diluted), compared to $56.3 million, or $0.33 per share (diluted), for the same quarter in 2011. The decrease in AFFO for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily related to the items described above for the FFO variance, offset somewhat by a decrease in non-incremental capital expenditures in 2012 as compared to 2011.

 

- During the quarter ended March 31, 2012, the Company paid to shareholders a quarterly dividend in the amount of $0.20 per share for its common stock. The Company’s dividend payout percentage for the three months ended March 31, 2012 was 58% of Core FFO and 69% of AFFO. The dividend was reduced from an annualized $1.26 per share to $0.80 per share, an approximate $80 million reduction per annum.

Operations                                     

- On a square footage leased basis, our total office portfolio was 84.4% leased as of March 31, 2012, as compared to 86.5% as of December 31, 2011. On a stabilized square footage leased basis, our portfolio was 87.5% leased as of March 31, 2012, as compared to 89.1% leased as of December 31, 2011. The stabilized leased percentage excludes the impact of value-add acquisitions (see page 33) that have not yet reached stabilization, including 500 West Monroe Street in Chicago, IL, 1200 Enclave Parkway in Houston, TX, The Medici in Atlanta, GA, Suwanee Gateway One in Suwanee, GA, and 400 TownPark in Lake Mary, FL. The primary reason for the decline in the leased rate for our stabilized assets between December 31, 2011 and March 31, 2012 is the net reduction of 221,000 leased square feet associated with the Sanofi-aventis US lease expiration at 200 Bridgewater Crossing in Bridgewater, NJ and the net reduction of approximately 121,000 leased square feet associated with the Marsh USA lease expiration at 500 West Monroe Street in Chicago, IL. Please refer to page 22 for additional information.

 

- The weighted average remaining lease term of our portfolio was 6.6 years(2) as of March 31, 2012 as compared to 6.4 years at December 31, 2011.

 

- During the three months ended March 31, 2012, the Company completed 810,000 square feet of leasing at our properties, inclusive of our industrial and joint venture assets. Of the total leasing activity during the quarter, we signed renewal leases for 348,000 square feet and new tenant leases for 462,000 square feet. Leases for approximately 437,000 square feet were signed for our wholly-owned office properties with an average committed capital cost of $3.15 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 quarter ended March 31, 2012 was $0.53 and average committed capital cost per square foot per year of lease term for new leases signed during the same time period was $4.98.

 

(1) FFO, Core FFO and AFFO are supplemental non-GAAP financial measures. See pages 35-36 for definitions of non-GAAP financial measures. See pages 13 and 38 for reconciliations of FFO, Core FFO and AFFO to Net Income.

(2) Remaining lease term (after taking into account leases for vacant spaces which had been executed but not commenced as of March 31, 2012) is weighted based on Annualized Lease Revenue, as defined on page 35.

 

5


Piedmont Office Realty Trust, Inc.

Financial Highlights

As of March 31, 2012

 

 

 

  - During the three months ended March 31, 2012, we executed six 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
 L. Perrigo Company    110 Hidden Lake Circle    Greenville, SC    300,000       2019    New (Industrial)

 SSB Realty, LLC

   1200 Crown Colony Drive    Quincy, MA    234,668         2024    Renewal

 Savient Pharmaceuticals, Inc.

   400 Bridgewater Crossing    Bridgewater, NJ    48,469       2022    New
 Bipartisan Policy Center, Inc.    1225 Eye Street    Washington, D.C.    38,092         2022    Renewal / Expansion

 Hospital Management Association

   Sarasota Commerce Center II    Sarasota, FL    26,957       2020    New

 Ingrace’s Company III, Inc.

   Aon Center    Chicago, IL    21,086         2022    New

Leasing Update                                        

 

  - As of December 31, 2011, there were five tenants whose leases contributed greater than 1% to our Annualized Lease Revenue and were scheduled to expire during the first quarter of 2012 or the eighteen month period following the end of the first quarter of 2012. Information regarding the leasing status of the spaces associated with those tenants' leases is presented below.

 

Tenant Name   Property   Property Location   Square
Footage (1)
  Percentage of Current
Quarter Annualized Lease
Revenue (%)
  Expiration (2)    Current Leasing Status
Kirkland & Ellis   Aon Center   Chicago, IL   331,887   0.0%   N/A    The tenant vacated at lease expiration. KPMG has leased 69% of the space previously leased to Kirkland & Ellis beginning in August 2012. United Healthcare has leased 16% of the space previously leased to Kirkland & Ellis beginning in September 2012. The remaining 15% of the Kirkland & Ellis space is being actively marketed for lease.
Marsh USA   500 West Monroe
Street
  Chicago, IL   173,290   0.0%   N/A    The tenant vacated at lease expiration. Approximately 53,000 square feet of Marsh’s space has been leased by GE; GE has the option during the first two years of the new lease term to expand up to an additional 81,000 square feet in space formerly occupied by Marsh. The Company is actively marketing the uncommitted space for lease.
Sanofi—aventis US   200 Bridgewater
Crossing
  Bridgewater, NJ   221,491   0.0%   N/A    The tenant vacated at lease expiration. The Company is in advanced negotiations with three tenants to lease a majority of the space previously leased by Sanofi that has not yet been re-leased.
    400 Bridgewater
Crossing
  Bridgewater, NJ   77,803   0.0%   N/A    The tenant vacated at lease expiration. The Company has fully leased all space previously leased by the tenant at the building.
United States of America (National Park Service)   1201 Eye Street   Washington, D.C.   219,750   1.9%   Q3 2012    The Company is awaiting the release of the Congressionally-approved solicitation for offers from the GSA, a key component of the Government’s space acquisition process. The Company anticipates the National Park Service to holdover in its existing space while the GSA negotiates the National Park Service's future lease.
Comptroller of the Currency   One
Independence
Square
  Washington, D.C.   333,815   3.7%   Q2 2013    The tenant is expected to vacate at lease expiration. The Company is actively marketing the space for lease.

 

 

(1) Square footage represents the total square footage leased by the tenant at the building 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 March 31, 2012

 

 

 

  - Piedmont typically signs leases several months in advance of their anticipated lease commencement dates. Presented below is a schedule of uncommenced leases greater than 50,000 square feet and their anticipated commencement dates.

 

Tenant Name    Property    Property Location    Square Feet
Leased
         Estimated
Commencement Date
   New / Expansion
Synchronoss Technologies, Inc.    200 Bridgewater Crossing    Bridgewater, NJ    78,581       Q2 2012    New

US Foods, Inc.

   River Corporate Center    Tempe, AZ    133,225         Q2 2012    New

KPMG

   Aon Center    Chicago, IL    235,189       Q3 2012    New
United Healthcare Services, Inc.    Aon Center    Chicago, IL    54,634         Q3 2012    New

GE (1)

   500 West Monroe Street    Chicago, IL    86,028       Q4 2012 - Q4 2014    Expansion

Thoughtworks, Inc.

   Aon Center    Chicago, IL    52,529         Q4 2013    New

Federal Home Loan Bank of Chicago

   Aon Center    Chicago, IL    63,402         Q4 2013    New

Integrys Business Support, LLC

   Aon Center    Chicago, IL    149,432         Q2 2014    New

(1) The square footage presented includes the 19th floor premises, which is currently leased by GE. GE will not lease that space upon the commencement of the renewal term, but it is required to lease that space one year after the commencement of the renewal term.

Financing and Capital Activity            

  - As of March 31, 2012, our ratio of debt to total gross assets was 25.7%, our ratio of debt to gross real estate assets was 29.5%, and our ratio of debt to total market capitalization was 30.6%. These debt ratios are based on total principal amount outstanding for our various loans at March 31, 2012. Subsequent to quarter end, we repaid the $45 million loan secured by 4250 North Fairfax Drive in Arlington, VA. Our pro forma leverage ratios, after adjusting for the repayment of that debt and assuming that $25 million of repayment proceeds was from cash, are: 25.4% for debt to total gross assets, 28.9% for debt to gross real estate assets, and 30.2% for debt to total market capitalization.

 

  - On March 19, 2012, Piedmont completed the sale of its properties in Beaverton, OR, allowing the Company to exit the Portland, OR market and further its strategic objective of focusing on select markets. The properties, which were sold for $43.9 million, were comprised of approximately 326,000 square feet of office space and 18.2 acres of developable land. The operating income for the assets is presented in discontinued operations. Piedmont recorded a gain on the sale of properties of $17.8 million. As part of the sale transaction, Piedmont provided $19 million in seller financing to the buyer, NIKE, Inc. The interest-only loan to NIKE bears interest at 8.73% and has a maturity date of October 31, 2012.

 

  - On January 9, 2012, Piedmont repaid a $140 million loan secured by 500 West Monroe Street in Chicago, IL. The loan was open to prepayment without any yield maintenance requirements. The repayment of the loan allowed Piedmont to further its strategic objective of decreasing its secured debt borrowings in relation to its total borrowings.

 

  - On February 28, 2012, the Board of Directors of Piedmont declared dividends for the first quarter of 2012 in the amount of $0.20 per common share outstanding to stockholders of record as of the close of business on March 9, 2012. The dividends were paid on March 22, 2012.

 

7


Piedmont Office Realty Trust, Inc.

Financial Highlights

As of March 31, 2012

 

 

 

  - During the first quarter of 2012, no additional purchases were made under the company’s stock repurchase program. Since the program’s inception last fall, the Company has repurchased a total of 199,400 shares at an average price of $16.24 per share. Any future repurchases of the Company’s common stock will be made at the discretion of the Company.

 

  - The trial date for the ongoing shareholder litigation has been postponed. Piedmont believes that the case is without merit and intends to continue to vigorously defend the complaint. See Piedmont’s Form 10-Q dated as of March 31, 2012 for further disclosure.

Subsequent Events                              

 

  - On May 1, 2012, Piedmont repaid a $45 million loan secured by 4250 North Fairfax Drive in Arlington, VA. The loan was open to prepayment without any yield maintenance requirements. The repayment of the loan allowed Piedmont to further its strategic objective of decreasing its secured debt borrowings in relation to its total borrowings. Please see Financing and Capital Activity above for pro forma leverage ratios, which take into account the repayment of this debt.

 

  - On May 2, 2012, the Board of Directors of Piedmont declared dividends for the second quarter of 2012 in the amount of $0.20 per common share outstanding to stockholders of record as of the close of business on June 1, 2012. The dividends are to be paid on June 22, 2012.

Guidance for 2012                               

 

  - The following financial guidance for calendar year 2012 remains unchanged and is based on management’s expectations at this time:

 

     Low        High

Core Funds from Operations

   $234   -  $250 million

Core Funds from Operations per diluted share

   $1.35  -  $1.45

These estimates reflect management’s view of current market conditions and incorporate certain economic and operational assumptions and projections, including the disposition of 35 West Wacker Drive which contributed approximately $0.13 per share of funds from operations in 2011. Actual results could differ from these estimates. Note that individual quarters may fluctuate on both a cash and an accrual basis due to the timing of lease commencements and expirations, 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 supplemental report.

 

8


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 35-36 and reconciliations are provided on pages 38-40.

 

    Three Months Ended  

 

 Selected Operating Data

 

 

      3/31/2012      

   

 

      12/31/2011      

   

 

      9/30/2011      

   

 

      6/30/2011      

   

 

      3/31/2011      

 

Percent leased (1)

    84.4%        86.5%        86.4%        86.5%        87.3%   

Percent leased - stabilized portfolio (1) (2)

    87.5%        89.1%        88.8%        89.0%        89.4%   

Rental income

    $105,758        $106,447        $104,936        $103,681        $100,322   

Total revenues

    $133,197        $136,478        $133,307        $136,054        $131,450   

Total operating expenses

    $98,284        $103,706        $96,568        $100,221        $90,804   

Real estate operating income

    $34,913        $32,772        $36,739        $35,833        $40,646   

Core EBITDA

    $76,680        $82,523        $86,941        $84,729        $88,774   

Core FFO

    $60,043        $65,270        $69,203        $65,843        $71,281   

Core FFO per share - diluted

    $0.35        $0.38        $0.40        $0.38        $0.41   

AFFO

    $50,113        $44,728        $50,988        $50,578        $56,311   

AFFO per share - diluted

    $0.29        $0.26        $0.29        $0.29        $0.33   

Gross dividends

    $34,526        $54,441        $54,441        $54,440        $54,387   

Dividends per share

    $0.200        $0.315        $0.315        $0.315        $0.315   

 Selected Balance Sheet Data

                             

Total real estate assets

    $3,657,677        $3,704,051        $3,926,638        $3,899,639        $3,892,087   

Total gross real estate assets

    $4,590,544        $4,615,812        $4,875,854        $4,828,700        $4,804,988   

Total assets

    $4,326,698        $4,447,834        $4,613,118        $4,560,206        $4,563,272   

Net debt (3)

    $1,298,738        $1,323,796        $1,600,650        $1,583,812        $1,529,603   

Total liabilities

    $1,550,040        $1,674,406        $1,896,195        $1,838,983        $1,809,755   

 Ratios

                             

Core EBITDA margin (4)

    57.1%        55.8%        59.8%        56.1%        60.6%   

Fixed charge coverage ratio (5) (6)

    4.6 x        4.7 x        4.9 x        4.4 x        5.2 x   

Net debt to core EBITDA (6) (7)

    4.2 x        4.0 x        4.6 x        4.7 x        4.3 x   

 

 

(1) Please refer to page 22 for additional leased percentage information.

(2) Please refer to page 33 for additional information on value-add properties, data for which is removed from stabilized portfolio totals.

(3) Net debt is calculated as the total principal amount of debt outstanding minus cash and cash equivalents and escrow deposits and restricted cash. As of the first quarter of 2011, net debt includes $185 million of secured debt associated with 500 West Monroe Street which was acquired March 31, 2011; $45 million of that debt was repaid during the fourth quarter of 2011 and the remaining $140 million was repaid during the first quarter of 2012. Each quarter prior to the fourth quarter of 2011 includes $120 million of debt associated with 35 West Wacker Drive, an asset sold in December 2011.

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

(5) The fixed charge coverage ratio is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. The Company had no capitalized interest, principal amortization or preferred dividends during any of the periods presented.

(6) The change in Piedmont’s debt coverage ratios during 2011 was primarily attributable to $185 million of additional debt assumed with the acquisition of 500 West Monroe Street in March 2011 and the related interest expense; $45 million of this debt was repaid on November 17, 2011, and the remaining $140 million was repaid on January 9, 2012.

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

 

9


Piedmont Office Realty Trust, Inc.

Consolidated Balance Sheets

Unaudited (in thousands)

 

 

      March 31, 2012         December 31, 2011         September 30, 2011         June 30, 2011         March 31, 2011    

Assets:

         

Real estate, at cost:

         

Land assets

    $ 631,745         $ 640,196         $ 693,229         $ 693,962         $ 688,103    

Buildings and improvements

    3,750,475         3,759,596         3,930,126         3,894,258         3,865,239    

Buildings and improvements, accumulated depreciation

    (813,679)        (792,342)        (807,917)        (792,881)        (770,147)   

Intangible lease asset

    191,599         198,667         232,973         225,182         238,504    

Intangible lease asset, accumulated amortization

    (119,188)        (119,419)        (141,299)        (136,180)        (142,754)   

Construction in progress

    16,725         17,353         19,526         15,298         13,142    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate assets

    3,657,677         3,704,051         3,926,638         3,899,639         3,892,087    

Investment in unconsolidated joint ventures

    37,901         38,181         38,391         41,271         41,759    

Cash and cash equivalents

    28,679         139,690         16,128         21,404         42,151    

Tenant receivables, net of allowance for doubtful accounts

    24,932         24,722         32,066         31,143         29,726    

Straight line rent receivable

    106,723         104,801        110,818         107,463         103,854    

Notes receivable

    19,000         -             -             -             -        

Due from unconsolidated joint ventures

    449         788         643         537         594    

Escrow deposits and restricted cash

    25,108         9,039         47,747         32,309         30,771    

Prepaid expenses and other assets

    12,477         9,911         13,978         14,577         11,967    

Goodwill

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

Deferred financing costs, less accumulated amortization

    5,187         5,977         4,788         4,396         5,374    

Deferred lease costs, less accumulated amortization

    228,468         230,577         241,824         227,370         224,892    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    $ 4,326,698         $ 4,447,834         $ 4,613,118         $ 4,560,206         $ 4,563,272    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

         

Line of credit and notes payable

    $ 1,352,525         $ 1,472,525         $ 1,664,525         $ 1,637,054         $ 1,601,112    

Accounts payable, accrued expenses, and accrued capital expenditures             

    116,292         122,986         143,106         126,111         122,769    

Deferred income

    32,031         27,321         32,514         32,161         38,990    

Intangible lease liabilities, less accumulated amortization

    46,640         49,037         56,050         43,657         46,517    

Interest rate swap

    2,552         2,537         -             -             367    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    1,550,040         1,674,406         1,896,195         1,838,983         1,809,755    

Stockholders’ equity:

         

Common stock

    1,726         1,726         1,728         1,728         1,727    

Additional paid in capital

    3,664,202         3,663,662         3,663,155         3,662,522         3,661,570    

Cumulative distributions in excess of earnings

    (888,331)        (891,032)        (952,370)        (948,956)        (915,543)   

Other comprehensive loss

    (2,552)        (2,537)        -             (44)        (465)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Piedmont stockholders’ equity

    2,775,045         2,771,819         2,712,513         2,715,250         2,747,289    

Non-controlling interest

    1,613         1,609         4,410         5,973         6,228    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    2,776,658         2,773,428         2,716,923         2,721,223         2,753,517    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable common stock and stockholders’ equity

    $ 4,326,698         $ 4,447,834         $ 4,613,118         $ 4,560,206         $ 4,563,272    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Common stock outstanding at end of period

    172,630         172,630         172,827         172,827         172,658    

 

 

 

10


Piedmont Office Realty Trust, Inc.

Consolidated Statements of Income

Unaudited (in thousands except for per share data)

 

 

 

     Three Months Ended  
  

 

 

 
             3/31/2012                      12/31/2011                      9/30/2011                      6/30/2011                      3/31/2011              
  

 

 

 

Revenues:

              

Rental income

       $ 105,758            $ 106,447            $ 104,936            $ 103,681            $ 100,322    

Tenant reimbursements

     26,741          29,431          28,294          30,663          26,894    

Property management fee revenue

     574          281          110          363          830    

Other rental income

     124          319          (33)         1,347          3,404    
  

 

 

 

      Total revenues

     133,197          136,478          133,307          136,054          131,450    

Operating expenses:

              

Property operating costs

     52,782          55,165          50,846          52,986          48,817    

Depreciation

     27,453          26,878          26,155          25,786          25,037    

Amortization

     12,792          15,459          14,891          14,107          10,338    

General and administrative

     5,257          6,204          4,676          7,342          6,612    
  

 

 

 

      Total operating expenses

     98,284          103,706          96,568          100,221          90,804    
  

 

 

 

Real estate operating income

     34,913          32,772          36,739          35,833          40,646    

Other income (expense):

              

Interest expense

     (16,537)         (16,179)         (16,236)         (17,762)         (15,640)   

Interest and other income (expense)

     97          (357)         (91)         (238)         3,459    

Equity in income of unconsolidated joint ventures

     170          587          485          338          209    

Gain / (loss) on consolidation of variable interest entity

     -              -              -              (388)         1,920    

Gain / (loss) on extinguishment of debt

     -              1,039          -              -              -        
  

 

 

 

      Total other income (expense)

     (16,270)         (14,910)         (15,842)         (18,050)         (10,052)   
  

 

 

 

Income from continuing operations

     18,643          17,862          20,897          17,783          30,594    

Discontinued operations:

              

Operating income, excluding impairment loss

     758          5,261          3,377          3,248          3,377    

Gain / (loss) on sale of properties

     17,830          95,901          26,756          -              -        
  

 

 

 

      Income / (loss) from discontinued operations (1)

     18,588          101,162          30,133          3,248          3,377    
  

 

 

 

Net income

     37,231          119,024          51,030          21,031          33,971    

Less: Net income attributable to noncontrolling interest

     (4)         (4)         (4)         (4)         (4)   
  

 

 

 

Net income attributable to Piedmont

       $ 37,227            $ 119,020            $ 51,026            $ 21,027            $ 33,967    
  

 

 

 

Weighted average common shares outstanding - diluted

     172,874          173,036          173,045          172,986          172,955    

Net income per share available to common stockholders - diluted                

       $ 0.22            $ 0.69            $ 0.29            $ 0.12            $ 0.20    
  

 

 

 

 

 

(1) Reflects operating results for Eastpointe Corporate Center in Issaquah, WA, which was sold on July 1, 2011; 5000 Corporate Court in Holtsville, NY, which was sold on August 31, 2011; 35 West Wacker Drive in Chicago, IL, which was sold on December 15, 2011; and Deschutes, Rhein, Rogue, and Willamette in Beaverton, OR, which were all sold on March 19, 2012.

 

11


Piedmont Office Realty Trust, Inc.

Consolidated Statements of Income

Unaudited (in thousands except for per share data)

 

 

 

    Three Months Ended  
      3/31/2012         3/31/2011         Change         Change    

Revenues:

       

Rental income

    $     105,758          $     100,322          $     5,436          5.4%    

Tenant reimbursements

    26,741          26,894          (153)         -0.6%    

Property management fee revenue

    574          830          (256)         -30.8%    

Other rental income

    124          3,404          (3,280)         -96.4%    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    133,197          131,450          1,747          1.3%    

Operating expenses:

       

Property operating costs

    52,782          48,817          (3,965)         -8.1%    

Depreciation

    27,453          25,037          (2,416)         -9.6%    

Amortization

    12,792          10,338          (2,454)         -23.7%    

General and administrative

    5,257          6,612          1,355          20.5%    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    98,284          90,804          (7,480)         -8.2%    
 

 

 

   

 

 

   

 

 

   

 

 

 

Real estate operating income

    34,913          40,646          (5,733)         -14.1%    

Other income (expense):

       

Interest expense

    (16,537)         (15,640)         (897)         -5.7%    

Interest and other income (expense)

    97          3,459          (3,362)         -97.2%    

Equity in income of unconsolidated joint ventures

    170          209          (39)         -18.7%    

Gain / (loss) on consolidation of variable interest entity

    -              1,920          (1,920)         -100.0%    

Gain / (loss) on extinguishment of debt

    -              -              -              0.0%    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

    (16,270)         (10,052)         (6,218)         -61.9%    
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    18,643          30,594          (11,951)         -39.1%    

Discontinued operations:

       

Operating income, excluding impairment loss

    758          3,377          (2,619)         -77.6%    

Gain / (loss) on sale of properties

    17,830          -              17,830          0.0%    
 

 

 

   

 

 

   

 

 

   

 

 

 

Income / (loss) from discontinued operations (1)

    18,588          3,377          15,211          450.4%    
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    37,231          33,971          3,260          9.6%    

Less: Net income attributable to noncontrolling interest

    (4)         (4)         -              0.0%    
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Piedmont

    $     37,227          $     33,967          $     3,260          9.6%    
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding - diluted

    172,874          172,955         

Net income per share available to common stockholders - diluted

    $     0.22          $     0.20         
 

 

 

   

 

 

     

 

 

(1) Reflects operating results for Eastpointe Corporate Center in Issaquah, WA, which was sold on July 1, 2011; 5000 Corporate Court in Holtsville, NY, which was sold on August 31, 2011; 35 West Wacker Drive in Chicago, IL, which was sold on December 15, 2011; and Deschutes, Rhein, Rogue, and Willamette in Beaverton, OR, which were all sold on March 19, 2012.

 

12


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  
        3/31/2012             3/31/2011      

Net income attributable to Piedmont

    $ 37,227          $ 33,967     

Depreciation (1) (2)

    27,809          27,154     

Amortization (1)

    12,840          12,106     

(Gain) / loss on sale of properties (1)

    (17,830)         -         

(Gain) / loss on consolidation of VIE

    -              (1,920)    
 

 

 

   

 

 

 

Funds from operations

    60,046          71,307     

Acquisition costs

    (3)         (26)    
 

 

 

   

 

 

 

Core funds from operations

    60,043          71,281     

Depreciation of non real estate assets

    93          170     

Stock-based and other non-cash compensation expense

    334          968     

Deferred financing cost amortization (1)

    803          607     

Straight-line effects of lease revenue (1)

    (1,565)         2,237     

Amortization of lease-related intangibles (1)

    (1,532)         (1,363)    

Income from amortization of discount on purchase of mezzanine loans

    -              (484)    

Acquisition costs

    3          26     

Non-incremental capital expenditures (3)

    (8,066)         (17,131)    
 

 

 

   

 

 

 

Adjusted funds from operations

    $ 50,113          $ 56,311     
 

 

 

   

 

 

 

Weighted average common shares outstanding - diluted

    172,874          172,955     

Funds from operations per share (diluted)

    $ 0.35          $ 0.41     

Core funds from operations per share (diluted)

    $ 0.35          $ 0.41     

Adjusted funds from operations per share (diluted)

    $ 0.29          $ 0.33     

 

 

 

(1)

Includes adjustments for wholly-owned properties, including discontinued operations, 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 36. During the third quarter of 2011, Piedmont revised its definitions of incremental and non-incremental capital expenditures in order to conform with the more broadly accepted definitions for such terms by other office REITs. Capital expenditures have been restated for all prior periods in order to provide a consistent basis for comparison.

 

13


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Cash Basis)

Unaudited (in thousands)

 

 

 

     Three Months Ended  
         3/31/2012              3/31/2011      

Net income attributable to Piedmont

     $ 37,227           $ 33,967     

Net income attributable to noncontrolling interest

     4           123     

Interest expense

     16,537           17,174     

Depreciation (1)

     27,902           27,324     

Amortization (1)

     12,840           12,106     

(Gain) / loss on sale of properties (1)

     (17,830)          -         

(Gain) / loss on consolidation of VIE

     -               (1,920)    
  

 

 

    

 

 

 

Core EBITDA

     76,680           88,774     

General & administrative expenses (1)

     5,318           6,704     

Management fee revenue

     (574)          (830)    

Interest and other income (1)

     (97)          (3,460)    

Lease termination income

     (124)          (3,404)    

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

     100           436     

Straight-line effects of lease revenue (1)

     (1,664)          1,972     

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

     (1,532)          (1,534)    
  

 

 

    

 

 

 

Core net operating income - cash basis

     78,107           88,658     

Net operating income from:

     

Acquisitions (2)

     (3,150)          2     

Dispositions (3)

     (954)          (7,327)    

Industrial properties

     (242)          (237)    

Unconsolidated joint ventures

     (590)          (658)    
  

 

 

    

 

 

 

Same Store NOI - Cash Basis

     $ 73,171         $ 80,438     
  

 

 

    

 

 

 

Change period over period

     -9.0%             N/A       

 

 

   

Same Store Net Operating Income

Top Seven Markets

  

  

    
          Three Months Ended        
          3/31/2012      3/31/2011        
          $      %        $      %          
      

 

 

    

 

 

      
   

Washington, D.C. (4)

   $ 19,040         26.0         $ 18,021         22.4          
   

New York (5)

     12,310         16.8           13,582         16.9          
   

Chicago (6)

     9,429         12.9           12,392         15.4          
   

Minneapolis

     4,990         6.8           5,040         6.3          
   

Dallas

     3,803         5.2           3,816         4.7          
   

Los Angeles

     3,617         5.0           3,768         4.7          
   

Boston (7)

     2,547         3.5           3,871         4.8          
   

Other (8)

     17,435         23.8           19,948         24.8          
      

 

 

    

 

 

      
   

Total

     $         73,171         100.0           $         80,438         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 1200 Enclave Parkway in Houston, TX, purchased on March 30, 2011; 500 West Monroe Street in Chicago, IL, acquired on March 31, 2011; The Dupree in Atlanta, GA, purchased on April 29, 2011; The Medici in Atlanta, GA, purchased on June 7, 2011; 225 and 235 Presidential Way in Woburn, MA, purchased on September 13, 2011; and 400 TownPark in Lake Mary, FL purchased on November 10, 2011.

(3) Dispositions consist of Eastpointe Corporate Center in Issaquah, WA, sold on July 1, 2011; 5000 Corporate Court in Holtsville, NY, sold on August 31, 2011; 35 West Wacker Drive in Chicago, IL, sold on December 15, 2011; and Deschutes, Rhein, Rogue, and Willamette in Beaverton, OR, sold on March 19, 2012.

(4) The increase in Washington, D.C. Same Store Net Operating Income for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily related to increased rental revenue principally attributable to the commencement of the NASA swing space lease at 1201 Eye Street in Washington, D.C. as well as an increase in revenue due to a rental rate increase associated with the lease extension of the Comptroller of the Currency at One Independence Square in Washington, D.C.

(5) The decrease in the New York Same Store Net Operating Income for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily related to partial lease terminations with Sanofi-aventis at 200 & 400 Bridgewater Crossing in Bridgewater, NJ in order to allow for the execution of new long-term leases to backfill the terminated spaces in advance of the March 2012 Sanofi-aventis lease expirations.

(6) The decrease in Chicago Same Store Net Operating Income for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily related to the expiration of the Zurich American Insurance Company lease at Windy Point II in Schaumburg, IL as well as the expiration of the Kirkland & Ellis lease at Aon Center in Chicago, IL. The loss of the Zurich lease contributed approximately $2.7 million to the quarter's variance and the loss of the Kirkland & Ellis lease contributed approximately $2.5 million to the quarter's variance. These negative contributors are offset somewhat by the commencement of several new leases during the last year.

(7) The decrease in Boston Same Store Net Operating Income for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily due to a rental abatement concession associated with a long-term lease renewal with State Street Bank at 1200 Crown Colony Drive in Quincy, MA. The renewal period for the State Street Bank lease commenced in April 2011.

(8) The decrease in Other Same Store Net Operating Income for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily attributable to two factors: 1) a rental abatement concession in 2012 associated with a new lease with Chrysler Group, LLC at 1075 West Entrance Drive in Auburn Hills, MI, and 2) a rental abatement concession in 2012 associated with a new lease with Grand Canyon Education at Desert Canyon 300 in Phoenix, AZ.

 

14


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Accrual Basis)

Unaudited (in thousands)

 

 

 

     Three Months Ended  
         3/31/2012              3/31/2011      

Net income attributable to Piedmont

      $ 37,227            $ 33,967     

Net income attributable to noncontrolling interest

     4           123     

Interest expense

     16,537           17,174     

Depreciation (1)

     27,902           27,324     

Amortization (1)

     12,840           12,106     

(Gain) / loss on sale of properties (1)

     (17,830)          -         

(Gain) / loss on consolidation of VIE

     -               (1,920)    
  

 

 

    

 

 

 

Core EBITDA

     76,680           88,774     

General & administrative expenses (1)

     5,318           6,704     

Management fee revenue

     (574)          (830)    

Interest and other income (1)

     (97)          (3,460)    

Lease termination income

     (124)          (3,404)    

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

     100           436     
  

 

 

    

 

 

 

Core net operating income - accrual basis

     81,303           88,220     

Net operating income from:

     

Acquisitions (2)

     (4,190)          1     

Dispositions (3)

     (921)          (8,521)    

Industrial properties

     (254)          (256)    

Unconsolidated joint ventures

     (564)          (616)    
  

 

 

    

 

 

 

Same Store NOI - Accrual Basis

      $ 75,374            $ 78,828     
  

 

 

    

 

 

 

Change period over period

     -4.4%           N/A       

 

 

   

Same Store Net Operating Income

Top Seven Markets

  

  

    
          Three Months Ended        
          3/31/2012     3/31/2011        
          $      %       $      %          
      

 

 

   

 

 

      
   

Washington, D.C. (4)

       $ 20,448         27.1          $ 18,076         23.0          
   

New York (5)

     12,593         16.7          13,627         17.3          
   

Chicago (6)

     9,130         12.1          12,090         15.3          
   

Minneapolis (7)

     5,333         7.1          6,006         7.6          
   

Dallas

     3,924         5.2          4,039         5.1          
   

Los Angeles

     3,795         5.1          3,889         4.9          
   

Boston (8)

     2,871         3.8          3,524         4.5          
   

Other

     17,280         22.9          17,577         22.3          
      

 

 

   

 

 

      
   

Total

       $         75,374         100.0          $     78,828         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 1200 Enclave Parkway in Houston, TX, purchased on March 30, 2011; 500 West Monroe Street in Chicago, IL, acquired on March 31, 2011; The Dupree in Atlanta, GA, purchased on April 29, 2011; The Medici in Atlanta, GA, purchased on June 7, 2011; 225 and 235 Presidential Way in Woburn, MA, purchased on September 13, 2011; and 400 TownPark in Lake Mary, FL purchased on November 10, 2011.

(3) Dispositions consist of Eastpointe Corporate Center in Issaquah, WA, sold on July 1, 2011; 5000 Corporate Court in Holtsville, NY, sold on August 31, 2011; 35 West Wacker Drive in Chicago, IL, sold on December 15, 2011; and Deschutes, Rhein, Rogue, and Willamette in Beaverton, OR, sold on March 19, 2012.

(4) The increase in Washington, D.C. Same Store Net Operating Income for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily attributable to three factors: 1) increased rental revenue principally attributable to the commencement of the NASA swing space lease at 1201 Eye Street in Washington, D.C., 2) an increase in revenue due to a rental rate increase associated with the lease extension of the Comptroller of the Currency at One Independence Square in Washington, D.C., and 3) increased rental revenue as a result of the commencement of the Henry M. Jackson Foundation lease at Piedmont Pointe I and II in Bethesda, MD.

(5) The decrease in the New York Same Store Net Operating Income for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily related to partial lease terminations with Sanofi-aventis at 200 & 400 Bridgewater Crossing in Bridgewater, NJ in order to allow for the execution of new long-term leases to backfill the terminated spaces in advance of the March 2012 Sanofi-aventis lease expirations.

(6) The decrease in Chicago Same Store Net Operating Income for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily related to the expiration of the Zurich American Insurance Company lease at Windy Point II in Schaumburg, IL as well as the expiration of the Kirkland & Ellis lease at Aon Center in Chicago, IL. The loss of the Zurich lease contributed approximately $2.5 million to the quarter’s variance and the loss of the Kirkland & Ellis lease contributed approximately $2.5 million to the quarter’s variance. These negative contributors are offset somewhat by the commencement of several new leases during the last year.

(7) The decrease in Minneapolis Same Store Net Operating Income for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily related to the net loss of approximately 80,000 leased square feet associated with the expiration of the HSBC Card Services lease at Crescent Ridge II in Minnetonka, MN as well as an 80,000 square foot partial lease termination by US Bank (of which approximately 40,000 square feet has yet to be re-leased) during the second quarter of 2011 at US Bancorp Center in Minneapolis, MN.

(8) The decrease in Boston Same Store Net Operating Income for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily due to a rental rate reduction associated with a long-term lease renewal with State Street Bank at 1200 Crown Colony Drive in Quincy, MA. The renewal period for the State Street Bank lease commenced in April 2011.

 

15


Piedmont Office Realty Trust, Inc.

Capitalization Analysis

Unaudited ($ and shares in thousands)

 

 

 

     As of
    March 31, 2012    
    As of
    December 31, 2011    
 

 

Common stock price (1)

     $17.75        $17.04   

 

Total shares outstanding

     172,630        172,630   

 

Equity market capitalization (1)

     $3,064,178        $2,941,611   

 

Total debt - principal amount outstanding

     $1,352,525        $1,472,525   

 

Total market capitalization (1)

     $4,416,703        $4,414,136   

 

Total debt / Total market capitalization

     30.6%        33.4%   

 

Total gross real estate assets

     $4,590,544        $4,615,812   

 

Total debt / Total gross real estate assets (2)

     29.5%        31.9%   

 

Total debt / Total gross assets (3)

     25.7%        27.5%   

 

 

(1) Reflects common stock closing price as of the end of the reporting period.

(2) 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.

(3) 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.

 

16


Piedmont Office Realty Trust, Inc.

Debt Summary

As of March 31, 2012

Unaudited ($ in thousands)

 

 

 

Floating Rate & Fixed Rate Debt

Debt (1)    Principal Amount
Outstanding
 

Weighted Average

Stated Interest Rate

  Weighted Average
Maturity
  

 

LOGO

 

  

Floating Rate

   $20,000(2)   0.73%   5.0 months   

Fixed Rate

   1,332,525   4.61%   40.0 months   

 

  

Total

   $1,352,525   4.55%   39.5 months   

 

  
         
         
         
         

Unsecured & Secured Debt

Debt (1)    Principal Amount
Outstanding
 

Weighted Average

Stated Interest Rate

  Weighted Average
Maturity
  

 

LOGO

 

  

Unsecured

   $320,000   2.57%(3)   52.6 months   

Secured

   1,032,525   5.17%   35.4 months   

 

  

Total

   $1,352,525   4.55%   39.5 months   

 

  
         
         
         

Debt Maturities

Maturity Year    Secured Debt -
Principal Amount
Outstanding (1)
     Unsecured Debt -
Principal Amount
Outstanding (1)
      Weighted Average
Stated Interest
Rate
  Percentage of    
Total    
 

 

 

 

2012

   $45,000(4)      $20,000       3.82%   4.8%  

2013

   0      0       N/A   0.0%  

2014

   575,000      0       4.89%   42.5%  

2015

   105,000      0       5.29%   7.8%  

2016

   167,525      300,000       3.71%   34.5%  

2017

   140,000      0       5.76%   10.4%  

 

 

Total

   $1,032,525      $320,000       4.55%   100.0%  

 

 

(1) All of Piedmont’s outstanding debt as of March 31, 2012, was interest-only debt.

(2) Amount represents the outstanding balance as of March 31, 2012, on the $500 million unsecured line of credit.

(3) The weighted average interest rate is a weighted average rate for amounts outstanding under our $500 million unsecured line of credit and our $300 million unsecured term loan. The $300 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 2.69% through its maturity date of November 22, 2016, assuming no credit rating change for the Company.

(4) The $45 million fixed-rate loan secured by 4250 North Fairfax Drive was paid off subsequent to quarter end without the payment of yield maintenance charges.

 

17


Piedmont Office Realty Trust, Inc.

Debt Detail

Unaudited ($ in thousands)

 

 

 

Facility   Property    Rate(1)    Maturity     Principal Amount
Outstanding as of
March 31, 2012
 

 

 

Secured

         

$45.0 Million Fixed-Rate Loan (2)

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

$200.0 Million Fixed-Rate Loan

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

$25.0 Million Fixed-Rate Loan

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

$350.0 Million Secured Pooled Facility

  Nine Property Collateralized Pool (3)    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 (4)    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   

$140.0 Million WDC Fixed-Rate Loans

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

 

 

Subtotal / Weighted Average (5)

     5.17%        $1,032,525   

Unsecured

         

$500 Million Unsecured Facility (6)

  N/A       0.73%(7)      8/30/2012        $20,000   

$300 Million Unsecured Term Loan

  N/A       2.69%(8)      11/22/2016        300,000   

 

 

Subtotal / Weighted Average (5)

     2.57%        $320,000   

 

 

Total Debt - Principal Amount Outstanding / Weighted Average Stated Rate (5)

   4.55%        $1,352,525   

 

 

(1) All of Piedmont’s outstanding debt as of March 31, 2012, was interest-only debt.

(2) The $45 million fixed-rate loan secured by 4250 North Fairfax Drive is open for prepayment thirty days prior to maturity. Piedmont repaid the loan subsequent to quarter end on May 1, 2012.

(3) 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.

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

(5) Weighted average is based on the total balance outstanding and interest rate at March 31, 2012.

(6) All of Piedmont’s outstanding debt as of March 31, 2012, was term debt with the exception of the $500 million unsecured line of credit. Piedmont has begun the process to replace this maturing facility.

(7) The interest rate on the $500 million unsecured line of credit is equal to the weighted average interest rate on all outstanding draws as of March 31, 2012. Piedmont may select from multiple interest rate options with each draw under this facility, including the prime rate and various length LIBOR locks. All LIBOR selections are subject to an additional spread (0.475% as of March 31, 2012) over the selected rate based on Piedmont’s current credit rating.

(8) The $300 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 2.69% through its maturity date of November 22, 2016, assuming no credit rating change for the Company.

 

18


Piedmont Office Realty Trust, Inc.

Debt Analysis

As of March 31, 2012

Unaudited

 

 

 

Debt Covenant Compliance (1)            Required                       Actual           

 

Maximum Leverage Ratio

     0.60         0.32   

 

Minimum Fixed Charge Coverage Ratio (2)

     1.50         4.65   

 

Maximum Secured Indebtedness Ratio

     0.40         0.24   

 

Minimum Unencumbered Leverage Ratio

     1.60         6.36   

 

Minimum Unencumbered Interest Coverage Ratio (3)

     1.75         21.65   

 

Maximum Certain Permitted Investments Ratio (4)

     0.35         0.01   

(1) Debt covenant compliance calculations relate to specific calculations detailed in our line of credit agreement.

 

(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. This definition of fixed charge coverage ratio as prescribed by our line of credit agreement is different from the fixed charge coverage ratio definition employed elsewhere within this report.

 

(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

March 31, 2012

  

Year ended

December 31, 2011        

 

Net debt to core EBITDA

   4.2 x    3.9 x

 

Fixed charge coverage ratio (5)

   4.6 x    4.8 x

 

Interest coverage ratio (6)

   4.6 x    4.8 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 March 31, 2012 and December 31, 2011.

 

(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 March 31, 2012 and December 31, 2011.

 

19


Piedmont Office Realty Trust, Inc.

Tenant Diversification (1)

As of March 31, 2012

(in thousands except for number of properties)

 

 

 

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

U.S. Government

  AA+ / Aaa   9   (4)   $73,148   13.6   1,596   9.2

BP(5)

  A / A2   1   2013   31,749   5.9   776   4.5

US Bancorp

  A / Aa3   3   2014 / 2023(6)   27,675   5.1   973   5.6

State of New York

  AA / Aa2   1   2019   19,405   3.6   481   2.8

Independence Blue Cross

  No rating available   1   2023   14,267   2.7   761   4.4

Nestle

  AA / Aa1   1   2015   13,798   2.6   392   2.2

GE

  AA+ / Aa3   2   2027   12,911   2.4   393   2.3

Shaw

  BBB- / Ba1   1   2018   9,836   1.8   313   1.8

City of New York

  AA / Aa2   1   2020   9,403   1.7   313   1.8

Lockheed Martin

  A- / Baa1   3   2014   9,320   1.7   283   1.6

DDB Needham

  BBB+ / Baa1   1   2018   8,997   1.7   246   1.4

KPMG

  No rating available   2   2027   8,946   1.7   277   1.6

Gallagher

  No rating available   1   2018   8,013   1.5   307   1.8

Gemini

  A+ / Aa3   1   2021   7,304   1.4   205   1.2

Caterpillar Financial

  A / A2   1   2022   7,125   1.3   312   1.8

Raytheon

  A- / A3   2   2019   6,555   1.2   440   2.5

Harvard University

  AAA / Aaa   2   2017   6,515   1.2   105   0.6

KeyBank

  A- / A3   2   2016   6,383   1.2   210   1.2

Edelman

  No rating available   1   2024   6,094   1.1   178   1.0

Harcourt

  BBB+   1   2016   6,038   1.1   195   1.1

Jones Lang LaSalle

  BBB- / Baa2   1   2017   5,777   1.1   165   0.9

Qwest Communications

  BB / Baa3   1   2014   5,697   1.1   161   0.9

First Data Corporation

  B / B3   1   2020   5,691   1.1   195   1.1

Archon Group

  A- / A1   2   2018   5,382   1.0   235   1.4

Other

          Various   221,656   41.2   7,891   45.3

Total

              $537,685   100.0   17,403   100.0

 

LOGO

(1) This schedule presents all tenants contributing 1.0% or more to Annualized Lease Revenue.

(2) Credit rating may reflect the credit rating of the parent or a guarantor. When available, both the Standard & Poor’s credit rating and the Moody’s credit rating are provided.

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

(4) There are several leases with several different agencies of the U.S. Government with expiration years ranging from 2012 to 2027.

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

(6) US Bank’s lease at One & Two Meridian Crossings, representing approximately 337,000 square feet and $8.9 million of Annualized Lease Revenue, expires in 2023. US Bancorp’s lease at US Bancorp Center for approximately 635,000 square feet, representing $18.7 million of Annualized Lease Revenue, expires in 2014.

 

20


Piedmont Office Realty Trust, Inc.

Tenant Credit Rating & Lease Distribution Information

As of March 31, 2012

 

 

 

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

    AAA / Aaa

     $9,953       1.8     

    AA / Aa

     179,618       33.4     

    A / A

     105,174       19.6     

    BBB / Baa

     74,355       13.8     

    BB / Ba

     9,698       1.8     

    B / B

     19,178       3.6     

    Below

     1,248       0.2     

    Not rated (2)

     138,461       25.8     
    

 

 

    

 

    

    Total

     $537,685       100.0     
    

 

 

    

 

    

 

Lease Distribution

As of March 31, 2012

 

 

 

     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

   180    34.5      $16,404       3.1    144    0.8

2,501 - 10,000

   136    26.1      24,817       4.6    735    4.2

10,001 - 20,000

   66    12.6      28,740       5.4    967    5.6

20,001 - 40,000

   57    10.9      51,113       9.5    1,651    9.5

40,001 - 100,000

   32    6.1      57,750       10.7    1,891    10.9

Greater than 100,000

   51    9.8      358,861       66.7    12,015    69.0

 

Total

   522    100.0      $537,685       100.0    17,403    100.0
  

 

 

 

(1) Credit rating may reflect the credit rating of the parent or a guarantor. Where differences exist between the Standard & Poor’s 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 can indicate that the tenant or the tenant's debt, if any, has not been rated. Included in this category are such tenants as Independence Blue Cross, McKinsey & Company and KPMG.

 

21


Piedmont Office Realty Trust, Inc.

Leased Percentage Information

(in thousands)

 

Impact of Strategic Transactions on Leased Percentage

The Company’s stated long-term growth strategy includes the recycling of capital from certain stabilized or non-core assets into office properties located in focused concentration and opportunistic markets. Some of the recently acquired properties are value-add properties which are defined as low-occupancy properties acquired at attractive bases with earnings growth and capital appreciation potential achievable through leasing up such assets to a stabilized occupancy. Because the value-add properties have large vacancies, they negatively affect Piedmont’s overall leased percentage. In order to identify the effect they have on Piedmont’s overall leased percentage, the following information is being provided. The analysis below: 1) removes the impact of the value-add properties from Piedmont’s overall office portfolio total under the heading “Stabilized Portfolio Analysis”; and 2) provides a year-over-year comparison of leased percentage on the same subset of properties under the heading “Same Store Analysis”.

 

     Three Months Ended March 31, 2012          Three Months Ended March 31, 2011  
  

 

 

      

 

 

 
     Leased Square
Footage
    Rentable Square
Footage
    Percent
Leased (1)
         Leased Square
Footage
    Rentable Square
Footage
    Percent
Leased (1)
 
  

 

 

      

 

 

 

As of December 31, 20xx

     18,124        20,942        86.5%           18,214        20,408        89.2%   

New leases

     621               796       

Expired leases

     (1,010            (904    

Other

     (7     -                 (1     (4  
  

 

 

      

 

 

 

Subtotal

     17,728        20,942        84.7%           18,105        20,404        88.7%   

Acquisitions during period

              668        1,112     

Dispositions during period

     (325     (325          -            -         

As of March 31, 20xx (2) (3)

     17,403        20,617        84.4%           18,773        21,516        87.3%   
  

 

 

      

 

 

 
               
               

Same Store Analysis

               

Less acquisitions/dispositions after March 31, 2011 (4) (5)

     (659     (906     72.7%           (1,685     (1,824     92.4%   
   

Same Store Total (6)

     16,744        19,711        84.9%           17,088        19,692        86.8%   
  

 

 

      

 

 

 

Stabilized Portfolio Analysis

               

Less value-add properties (5)

     (752     (1,582     47.5%           (668     (1,254     53.3%   
               
   

Stabilized Total

     16,651        19,035        87.5%           18,105        20,262        89.4%   
  

 

 

      

 

 

 

 

 

(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) End of period leased square footage for 2012 includes short-term space leased on behalf of NASA in accordance with requirements stipulated under its lease to allow it to restructure its space at Two Independence Square in Washington, D.C. As of March 31, 2012, the total short-term space amounts to approximately 63,000 square feet and it will be occupied until an estimated date of September 30, 2013.

(4) Dispositions completed during the previous twelve months are deducted from the previous period data and acquisitions completed during the previous twelve months are deducted from the current period data.

(5) For additional information on acquisitions/dispositions completed during the last year and value-add properties, please refer to pages 32 and 33, respectively.

(6) Excluding executed but not commenced leases for currently vacant spaces, comprising approximately 684,000 square feet for the current period and 379,000 square feet for the prior period, Piedmont's same store commenced leased percentage was 81.5% and 84.9%, respectively.

 

22


Piedmont Office Realty Trust, Inc.

Rental Rate Roll Up / Roll Down Analysis (1)

(in thousands)

 

 

 

     Three Months Ended March 31, 2012  
  

 

 

 
     Square Feet      % of Total Signed
During Period
    % of Rentable Square
Footage
    % Change Cash
Rents (2)
    % Change Accrual
Rents (3) (4)
 
  

 

 

 

Leases executed for spaces vacant less than one year

     355         81     1.7     (4.5 %)      0.2

Leases executed for spaces excluded from analysis (5)

     82         19      

 

 

(1) 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). Spaces that had been vacant for greater than one year were excluded from this analysis.

(2) For the purposes of this analysis, the cash rents last in effect for the previous leases were compared to the initial cash rents of the new leases in order to calculate the percentage change.

(3) For the purposes of this analysis, the accrual basis rents for the previous leases were compared to the accrual basis rents of the new leases in order to calculate the percentage change. For newly signed leases which have variations in accrual basis rents, whether because of known future expansions, contractions, lease expense recovery structure changes, or other similar reasons, the weighted average of such accrual basis rents is used for the purposes of 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, unless the Company is notified otherwise by the tenant. This assumption is made based upon the historical tenant improvement allowance usage patterns of the Company’s tenants.

(5) Represents leases signed at our consolidated office assets that do not qualify for inclusion in the analysis primarily because the spaces for which the new leases were signed had been vacant for greater than one year. Leases signed with Piedmont entities are excluded from the analysis.

 

23


Piedmont Office Realty Trust, Inc.

Lease Expiration Schedule

As of March 31, 2012

(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    3,215    15.6   $0    0.0    N/A

2012(2)

   27,783    5.2    920    4.5   4,802    0.9    17.3

2013

   67,315    12.5    1,597    7.7   21,631    4.0    32.1

2014

   55,472    10.3    1,617    7.8   3,556    0.7    6.4

2015

   43,364    8.1    1,543    7.5   32    0.0    0.1

2016

   30,705    5.7    1,075    5.2   1,507    0.3    4.9

2017

   34,487    6.4    1,097    5.3   799    0.1    2.3

2018

   50,658    9.4    1,693    8.2   8,733    1.6    17.2

2019

   46,269    8.6    1,759    8.5   19,405    3.6    41.9

2020

   24,776    4.6    965    4.7   9,403    1.7    38.0

2021

   14,323    2.7    500    2.4   0    0.0    0.0

2022

   23,601    4.4    856    4.2   0    0.0    0.0

2023

   31,848    5.9    1,398    6.8   0    0.0    0.0

2024

   22,715    4.2    679    3.3   0    0.0    0.0

2025

   3,637    0.7    164    0.8   0    0.0    0.0

Thereafter

   60,732    11.3    1,539    7.5   32,438    6.1    53.4
  

 

 

 

Total / Weighted Average

   $537,685    100.0    20,617    100.0   $102,306    19.0   
  

 

 

 

 

LOGO

(1) Annualized rental income associated with newly executed leases for currently occupied space is incorporated herein only at the expiration date for the current lease. Annualized rental income associated with such new leases is removed from the expiry year of the current lease and added to the expiry year of the new lease. These adjustments effectively incorporate known roll ups and roll downs into the expiration schedule.

(2) Leases and other revenue-producing agreements on a month-to-month basis, aggregating 15,261 square feet and Annualized Lease Revenue of $500,063, are assigned a lease expiration date of a year and a day beyond the period end date. Includes leases with an expiration date of March 31, 2012 aggregating 32,300 square feet and Annualized Lease Revenue of $1,519,357.

 

24


Piedmont Office Realty Trust, Inc.

Lease Expirations by Quarter

As of March 31, 2012

(in thousands)

 

 

 

     Q2 2012 (1)    Q3 2012    Q4 2012    Q1 2013
     Expiring
Square
  Footage  
     Expiring Lease  
Revenue (2)
  

Expiring

Square
  Footage  

     Expiring Lease  
Revenue (2)
   Expiring
Square
  Footage  
     Expiring Lease  
Revenue (2)
   Expiring
Square
  Footage  
     Expiring Lease  
Revenue (2)
  

 

  

 

  

 

  

 

Atlanta

   0    $0    5    $103    62    $1,218    0    $0

Austin

   0    0    0    0    0    0    0    0

Boston

   0    0    0    0    4    189    0    31

Central & South Florida

   1    1    0    0    4    113    0    0

Chicago

   17    501    79    2,508    15    480    47    1,681

Cleveland

   0    0    0    0    102    1,580    0    0

Dallas

   9    248    0    4    97    2,388    0    0

Denver

   0    0    0    0    0    0    0    0

Detroit

   21    592    0    0    0    0    0    0

Houston

   0    0    0    0    11    345    0    0

Los Angeles

   4    170    0    1    22    865    2    50

Minneapolis

   0    0    3    112    14    404    16    516

Nashville

   0    0    0    0    0    0    0    0

New York

   7    178    2    70    150    3,319    11    306

Philadelphia

   0    0    0    0    0    0    0    0

Phoenix

   0    0    0    0    0    0    0    0

Portland

   0    0    0    0    0    0    0    0

Washington, D.C.

   32    1,746    230    10,481    28    1,507    9    365
  

 

  

 

  

 

  

 

Total / Weighted Average (3)

   91    $3,436    319    $13,279    509    $12,408    85    $2,949
  

 

  

 

  

 

  

 

 

 

(1) Includes leases with an expiration date of March 31, 2012 aggregating 32,300 square feet and Expiring Lease Revenue of $1,424,452. No such adjustments are made to other periods presented.

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

(3) Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule on the previous page as the Lease Expiration Schedule accounts for the revenue effects of newly signed leases. Reflected herein are expiring revenues based on in place rental rates.

 

25


Piedmont Office Realty Trust, Inc.

Lease Expirations by Year

As of March 31, 2012

(in thousands)

 

 

 

     12/31/2012 (1)    12/31/2013    12/31/2014    12/31/2015    12/31/2016
  

 

  

 

  

 

  

 

  

 

     Expiring
Square
Footage
     Expiring Lease  
Revenue (2)
   Expiring
Square
  Footage  
     Expiring Lease  
Revenue (2)
   Expiring
Square
  Footage  
     Expiring Lease  
Revenue (2)
   Expiring
Square
  Footage  
     Expiring Lease  
Revenue (2)
   Expiring
Square
  Footage  
     Expiring Lease  
Revenue (2)
  

 

  

 

  

 

  

 

  

 

Atlanta

   67    $1,321    19    $592    28    $591    29    $504    18    $193

Austin

   0    0    0    0    0    0    0    0    195    6,042

Boston

   4    189    0    31    27    1,884    135    2,791    3    185

Central & South Florida

   4    114    22    568    18    449    17    384    115    2,842

Chicago

   111    3,490    640    25,437    30    3,584    198    5,458    82    2,376

Cleveland

   102    1,580    27    586    0    0    0    0    13    294

Dallas

   107    2,639    13    338    41    1,004    284    6,357    7    150

Denver

   0    0    0    0    0    0    0    0    156    2,934

Detroit

   21    592    86    750    6    124    132    3,881    31    671

Houston

   11    345    1    1    0    0    0    0    0    17

Los Angeles

   27    1,036    74    2,590    5    1,550    425    14,799    88    2,711

Minneapolis

   17    515    54    1,789    807    22,858    100    3,539    33    1,039

Nashville

   0    0    0    0    0    0    0    0    0    0

New York

   159    3,567    32    1,459    102    4,262    66    2,390    280    8,987

Philadelphia

   0    0    0    0    0    0    0    0    0    0

Phoenix

   0    0    0    0    0    0    132    1,947    0    0

Portland

   0    0    0    0    0    0    0    0    0    0

Washington, D.C.

   290    13,736    629    30,618    553    19,282    25    1,100    54    2,377
  

 

  

 

  

 

  

 

  

 

Total / Weighted Average (3)

   920    $29,124    1,597    $64,759    1,617    $55,588    1,543    $43,150    1,075    $30,818
  

 

  

 

  

 

  

 

  

 

 

 

(1) Includes leases with an expiration date of March 31, 2012 aggregating 32,300 square feet and Expiring Lease Revenue of $1,424,452. No such adjustments are made to other periods presented.

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

(3) Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule on page 24 as the Lease Expiration Schedule accounts for the revenue effects of newly signed leases. Reflected herein are expiring revenues based on in place rental rates.

 

26


Piedmont Office Realty Trust, Inc.

Capital Expenditures & Commitments

For the quarter ended March 31, 2012

Unaudited ($ in thousands)

 

 

         For the Three Months Ended
    

 

 

   
                     3/31/2012                  12/31/2011                  9/30/2011                  6/30/2011                 3/31/2011                
    

 

 

   
 

Non-incremental

               
 

Bldg / construction / dev

     $1,426         $3,650         $1,063         $1,315        $1,484     
 

Tenant improvements

     5,367         8,463         4,748         7,367        7,567     
 

Leasing costs

     1,273         3,279         8,718         4,667        8,080     
    

 

 

   
 

Total non-incremental

     8,066         15,392         14,529         13,349        17,131     
 

Incremental

               
 

Bldg / construction / dev

     2,241         2,040         1,646         983        1,173     
 

Tenant improvements

     5,938         10,862         7,154         4,770        3,749     
 

Leasing costs

     1,925         12,791         1,464         1,372        1,467     
    

 

 

   
 

Total incremental

     10,104         25,693         10,264         7,125        6,389     
    

 

 

   
 

Total capital expenditures

     $18,170         $41,085         $24,793         $20,474        $23,520     
    

 

 

   
                 
               
                     
   

Tenant improvement commitments (1)

  

   
   

Tenant improvement commitments outstanding as of December 31, 2011

  

    $143,814     
   

New tenant improvement commitments related to leases executed during period

  

    5,254     
   

Tenant improvement expenditures

  

     (11,305    
   

Less: Tenant improvement expenditures fulfilled through accrued liabilities already presented on Piedmont’s balance sheet, expired commitments or other adjustments

   

     (483    
   

Tenant improvement commitments fulfilled, expired or other adjustments

  

    (11,788  
                 

 

 

   
   

Total as of March 31, 2012

  

    $137,280     
                 

 

 

   
   

Tenant improvement commitments - Incremental capital when fulfilled

  

    $48,071     
   

Tenant improvement commitments - Non-incremental capital when fulfilled

  

    89,209     
                 

 

 

   
   

Total as of March 31, 2012

  

              $ 137,280     
                 

 

 

   
                                                   

 

 

NOTE: The information presented on this page is for all consolidated assets, inclusive of our industrial properties. During the third quarter of 2011, Piedmont revised its definitions of incremental and non-incremental capital expenditures in order to conform with the more broadly accepted definitions for such terms by other office REITs. Our revised definitions of these measures can be found on pages 35 and 36. Capital expenditures have been restated for all prior periods in order to provide a consistent basis for comparison.

(1) 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 four largest commitments total approximately $75.8 million, or 55% of total outstanding commitments.

 

27


Piedmont Office Realty Trust, Inc.

Contractual Tenant Improvements and Leasing Commissions

 

 

 

              For the Year Ended
       

For the Three Months Ended          

March 31, 2012          

   2011    2010    2009    

Renewal Leases

                  
   

Number of leases

  6    48    37    34    
   

Square feet

  274,518    2,280,329    1,241,481    1,568,895    
   

Tenant improvements per square foot (1)

  $0.00    $33.29    $14.40    $12.01    
   

Leasing commissions per square foot

  $1.79    $9.97    $8.40    $5.51    
   

Total per square foot

  $1.79    $43.26    $22.80    $17.52    
     
   

Tenant improvements per square foot per year of lease term

  $0.00    $3.93    $1.74    $1.44    
   

Leasing commissions per square foot per year of lease term

  $0.53    $1.18    $1.02    $0.66    
   

Total per square foot per year of lease term (2)

  $0.53    $5.11    $2.76    $2.10    
         

  New Leases

                  
   

Number of leases

  16    76    56    28    
   

Square feet

  162,166    1,588,271    866,212    700,295    
   

Tenant improvements per square foot (1)

  $20.53    $41.21    $32.65    $45.04    
   

Leasing commissions per square foot

  $20.25    $15.38    $11.28    $17.12    
   

Total per square foot

  $40.78    $56.59    $43.93    $62.16    
     
   

Tenant improvements per square foot per year of lease term

  $2.51    $4.19    $4.16    $4.05    
   

Leasing commissions per square foot per year of lease term

  $2.47    $1.57    $1.44    $1.54    
   

Total per square foot per year of lease term

  $4.98    $5.76    $5.60    $5.59    
   

  Total

              
   

Number of leases

  22    124    93    62    
   

Square feet

  436,684    3,868,600    2,107,693    2,269,190    
   

Tenant improvements per square foot (1)

  $7.62    $36.54    $21.90    $22.21    
   

Leasing commissions per square foot

  $8.65    $12.19    $9.59    $9.09    
   

Total per square foot

  $16.27    $48.73    $31.49    $31.30    
     
   

Tenant improvements per square foot per year of lease term

  $1.48    $4.05    $2.70    $2.42    
   

Leasing commissions per square foot per year of lease term

  $1.67    $1.35    $1.18    $0.99    
   

Total per square foot per year of lease term

  $3.15    $5.40    $3.88    $3.41    

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 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, unless the Company is notified otherwise by the tenant. This assumption is made based upon the historical tenant improvement allowance usage patterns of the Company’s tenants.

(2) During 2011, we completed two large, 15-year lease renewals with significant capital commitments: NASA at Two Independence Square in Washington, D.C. and GE at 500 West Monroe Street in Chicago, IL. If the costs associated with these renewals were to be removed from the average committed capital cost calculation, the average committed capital cost per square foot per year of lease term for renewal leases in 2011 would be $2.80.

 

28


Piedmont Office Realty Trust, Inc.

Geographic Diversification

As of March 31, 2012

 

 

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  
(%)

Washington, D.C.

   14       $121,965       22.7       3,055       14.8       2,803       91.8  

Chicago

   6       119,173       22.2       4,772       23.1       3,439       72.1  

New York

   7       75,891       14.1       2,659       12.9       2,335       87.8  

Minneapolis

   4       43,293       8.1       1,612       7.8       1,473       91.4  

Los Angeles

   5       29,128       5.4       1,144       5.6       937       81.9  

Boston

   6       26,619       5.0       1,023       5.0       1,012       98.9  

Dallas

   7       24,831       4.6       1,276       6.2       1,139       89.3  

Detroit

   4       17,611       3.3       930       4.5       794       85.4  

Atlanta

   6       15,275       2.8       1,042       5.1       639       61.3  

Philadelphia

   1       14,267       2.7       761       3.7       761       100.0  

Houston

   2       13,544       2.5       463       2.2       431       93.1  

Phoenix

   4       9,074       1.7       554       2.7       467       84.3  

Central & South Florida

   4       7,727       1.4       476       2.3       332       69.7  

Nashville

   1       7,125       1.3       312       1.5       312       100.0  

Austin

   1       6,042       1.1       195       0.9       195       100.0  

Cleveland

   2       3,185       0.6       187       0.9       178       95.2  

Denver

   1         2,935         0.5         156         0.8         156         100.0  

Total / Weighted Average

   75       $537,685       100.0       20,617       100.0       17,403       84.4  
  

 

 

LOGO

 

29


Piedmont Office Realty Trust, Inc.

Geographic Diversification by Location Type

As of March 31, 2012

 

 

          CBD / URBAN INFILL         SUBURBAN         TOTAL
Location    State    Number
of
Properties
   Percentage
of
Annualized
Lease
Revenue
(%)
   Rentable
Square
Footage (in
Thousands)
   Percentage
of
Rentable
Square
Footage
(%)
             Number
of
Properties
   Percentage
of
Annualized
Lease
Revenue
(%)
   Rentable
Square
Footage (in
Thousands)
   Percentage
of
Rentable
Square
Footage
(%)
        Number
of
Properties
   Percentage
of
Annualized
Lease
Revenue
(%)
   Rentable
Square
Footage (in
Thousands)
   Percentage
of
Rentable
Square
Footage
(%)

 

Washington, D.C.

   DC, VA, MD
   9    20.2    2,574    12.5          5    2.5    481    2.3       14    22.7    3,055    14.8

Chicago

   IL    2    18.8    3,647    17.7          4    3.4    1,125    5.4       6    22.2    4,772    23.1

New York

   NY, NJ    1    7.3    1,027    5.0          6    6.8    1,632    7.9       7    14.1    2,659    12.9

Minneapolis

   MN    1    5.2    927    4.5          3    2.9    685    3.3       4    8.1    1,612    7.8

Los Angeles

   CA    3    4.4    865    4.2          2    1.0    279    1.4       5    5.4    1,144    5.6

Boston

   MA    2    2.2    173    0.8          4    2.8    850    4.2       6    5.0    1,023    5.0

Dallas

   TX    0    0.0    0    0.0          7    4.6    1,276    6.2       7    4.6    1,276    6.2

Detroit

   MI    1    1.9    493    2.4          3    1.4    437    2.1       4    3.3    930    4.5

Atlanta

   GA    2    1.7    558    2.7          4    1.1    484    2.4       6    2.8    1,042    5.1

Philadelphia

   PA    1    2.7    761    3.7          0    0.0    0    0.0       1    2.7    761    3.7

Houston

   TX    0    0.0    0    0.0          2    2.5    463    2.2       2    2.5    463    2.2

Phoenix

   AZ    0    0.0    0    0.0          4    1.7    554    2.7       4    1.7    554    2.7

Central & South Florida

   FL    0    0.0    0    0.0          4    1.4    476    2.3       4    1.4    476    2.3

Nashville

   TN    1    1.3    312    1.5          0    0.0    0    0.0       1    1.3    312    1.5

Austin

   TX    0    0.0    0    0.0          1    1.1    195    0.9       1    1.1    195    0.9

Cleveland

   OH    0    0.0    0    0.0          2    0.6    187    0.9       2    0.6    187    0.9

Denver

   CO    0    0.0    0    0.0              1    0.5    156    0.8         1    0.5    156    0.8

Total / Weighted Average

      23    65.7    11,337    55.0          52    34.3    9,280    45.0       75    100.0    20,617    100.0
  

 

 

30


Piedmont Office Realty Trust, Inc.

Industry Diversification

As of March 31, 2012

 

 

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

  7   1.6   $102,306   19.0   2,400   13.8

Depository Institutions

  13   3.0   50,702   9.4   1,732   9.9

Business Services

  63   14.5   40,096   7.5   1,405   8.1

Petroleum Refining & Related Industries

  1   0.2   31,749   5.9   776   4.4

Engineering, Accounting, Research, Management & Related Services

  30   6.9   30,953   5.8   941   5.4

Nondepository Credit Institutions

  13   3.0   30,903   5.7   1,096   6.3

Insurance Carriers

  22   5.1   30,380   5.6   1,366   7.8

Communications

  34   7.8   18,177   3.4   610   3.5

Security & Commodity Brokers, Dealers, Exchanges & Services

  25   5.7   16,983   3.2   608   3.5

Educational Services

  10   2.3   15,561   2.9   434   2.5

Food & Kindred Products

  6   1.4   14,755   2.7   428   2.5

Transportation Equipment

  4   0.9   13,827   2.6   518   3.0

Electronic & Other Electrical Equipment & Components, Except Computer

  9   2.1   13,314   2.5   660   3.8

Fabricated Metal Products, Except Machinery & Transportation Equipment

  4   0.9   12,322   2.3   419   2.4

Insurance Agents, Brokers & Services

  7   1.6   11,504   2.1   430   2.5

Other

  187   43.0   104,153   19.4   3,580   20.6

 

Total

  435   100.0   $537,685   100.0   17,403   100.0
 

 

 

LOGO

 

31


Piedmont Office Realty Trust, Inc.

Property Investment Activity

As of March 31, 2012

 

 

 

Acquisitions Over Prior Eighteen Months                

 

Property Name   Location     Acquisition  
Date
 

Percent
  Ownership  

(%)

    Year Built     Purchase
  Price ($’s in  
thousands)
  Rentable
Square
  Footage (in  
thousands)
  Percent
Leased at
  Acquisition  
(%)

 

Meridian Crossings

  Richfield, MN   10/1/2010   100   1997-1998   $65,611   384   96

1200 Enclave Parkway

  Houston, TX   3/30/2011   100   1999   18,500   150   18

500 West Monroe Street (1)

  Chicago, IL   3/31/2011   100   1991   227,500   962   49

The Dupree

  Atlanta, GA   4/29/2011   100   1997   20,450   138   83

The Medici

  Atlanta, GA   6/7/2011   100   2008   13,210   152   22

225 and 235 Presidential Way

  Woburn, MA   9/13/2011   100   2000-2001   85,300   440   100

400 TownPark

  Lake Mary, FL   11/10/2011   100   2008   23,865   176   19
         

 

          $454,436   2,402   62
         

 

Dispositions Over Prior Eighteen Months                

 

Property Name   Location     Disposition  
Date
 

Percent
  Ownership  

(%)

    Year Built       Sale Price ($’s  
in thousands)
  Rentable
Square
  Footage (in  
thousands)
  Percent
Leased at
  Disposition  
(%)

 

111 Sylvan Avenue

  Englewood Cliffs, NJ   12/8/2010   100   1953-1967   $55,000   410   100

14400 Hertz Quail Springs Parkway (2)

  Oklahoma City, OK   10/15/2010   4   1997   5,300   57   100

360 Interlocken Boulevard (2)

  Broomfield, CO   6/2/2011   4   1996   9,150   52   100

Eastpointe Corporate Center

  Issaquah, WA   7/1/2011   100   2001   32,000   156   19

47300 Kato Road (2)

  Fremont, CA   8/25/2011   78   1982   3,825   58   0

5000 Corporate Court

  Holtsville, NY   8/31/2011   100   2000   39,250   264   82

35 West Wacker Drive (2)

  Chicago, IL   12/15/2011   96.5   1989   401,000   1,118   100

Willamette

  Beaverton, OR   3/19/2012   100   1988   7,050   73   100

Rogue

  Beaverton, OR   3/19/2012   100   1998   13,550   105   100

Deschutes

  Beaverton, OR   3/19/2012   100   1989   7,150   73   50

Rhein

  Beaverton, OR   3/19/2012   100   1990   10,250   74   100

Portland Land Parcels

  Beaverton, OR   3/19/2012   100   N/A   5,942   N/A   N/A
         

 

          $589,467   2,440   89
         

 

(1) Investment in this property was converted from a structured finance investment to an owned real estate asset through a UCC foreclosure of an equity ownership interest on March 31, 2011. The purchase price presented equates to the book basis for the real estate assets comprising the property. Percent leased at acquisition reflects the space leased by Marsh USA as vacant, as the tenant had already announced plans to vacate prior to Piedmont’s assumption of ownership of the asset.

(2) Sale price and rentable square footage are gross figures and have not been adjusted for Piedmont’s ownership percentage.

 

32


Piedmont Office Realty Trust, Inc.

Value-Add Activity

As of March 31, 2012

 

 

Presented below are properties that were acquired employing a value-add strategy. Once a property acquired under a value-add strategy reaches 80% leased, it is deemed stabilized for the purposes of supplemental reporting and will be removed from the value-add classification.

 

Value-Add Properties                         

 

Property Name    Location    Acquisition
Date
   Percent
Ownership
(%)
   Year Built    Purchase
Price ($’s in
thousands)
   Rentable
Square
Footage (in
thousands)
   Current
Percent
Leased (%)
   Percent
Leased
at
Acquisition
(%)

 

Suwanee Gateway One

   Suwanee, GA    9/28/2010    100    2008    $7,875    142    0    0

1200 Enclave Parkway

   Houston, TX    3/30/2011    100    1999    18,500    150    79    18

500 West Monroe Street (1)

   Chicago, IL    3/31/2011    100    1991    227,500    962    55    49

The Medici

   Atlanta, GA    6/7/2011    100    2008    13,210    152    33    22

400 TownPark

   Lake Mary, FL    11/10/2011    100    2008    23,865    176    31    19
              

 

               $290,950    1,582    48    36
              

 

(1) Property was acquired through the foreclosure of an equity ownership interest. Percent leased at acquisition reflects the space leased by Marsh USA as vacant, as the tenant had already announced plans to vacate prior to Piedmont's assumption of ownership of the asset.

 

33


Piedmont Office Realty Trust, Inc.

Other Investments

As of March 31, 2012

 

 

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       $9,524    313.4    100

110 Hidden Lake Circle

   Duncan, SC    100    1987       13,928    474.0    100
              

 

               $23,452    787.4    100
              

 

Unconsolidated Joint Venture Properties    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 (%)

 

20/20 Building

   Leawood, KS    57    1992    $2,553    $4,499    68.3    91

4685 Investment Drive

   Troy, MI    55    2000    5,067    9,211    77.1    100

5301 Maryland Way

   Brentwood, TN    55    1989    10,735    19,515    201.2    100

8560 Upland Drive

   Parker, CO    72    2001    7,434    10,341    148.2    57

Two Park Center

   Hoffman Estates, IL    72    1999    11,142    15,498    193.7    39
           

 

            $36,931    $59,064    688.5    72
           

 

Land Parcels    Location                        Acres     

 

Enclave Parkway

   Houston, TX                4.5   

Durham Avenue

   South Plainfield, NJ                8.9   

State Highway 161

   Irving, TX                4.5   
                 

 

  
                  17.9   
                 

 

  

 

34


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 included within pages 38-40.

Adjusted Funds From Operations (“AFFO”): AFFO is calculated by deducting from Core FFO non-incremental capital expenditures and acquisition-related costs 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 a) rental abatements and b) 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 (excluding abatements) 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 gains or losses on the early extinguishment of debt, acquisition-related costs 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 and impairment losses, adding back depreciation and amortization on real estate assets, and after the same adjustments for unconsolidated partnerships and joint ventures. These adjustments 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 (“Leasing Costs”) incurred to lease space that was vacant at acquisition, Leasing Costs for spaces vacant for greater than one year, Leasing Costs for spaces at newly acquired properties for which in-place leases expire shortly after acquisition, improvements associated with the expansion of a building and renovations that change the underlying classification of a building are included in this measure.

 

35


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, in addition to other capital expenditures that qualify as Incremental Capital Expenditures, as defined above.

 

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.

 

36


Piedmont Office Realty Trust, Inc.

Research Coverage

 

 

Paul E. Adornato, CFA

   John W. Guinee, III    Brendan Maiorana   

BMO Capital Markets

   Stifel, Nicolaus & Company    Wells Fargo   
3 Times Square, 26th Floor    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   

Paul Morgan

   Anthony Paolone, CFA    David B. Rodgers, CFA   

Morgan Stanley

   JP Morgan    RBC Capital Markets   
555 California Street, 21st Floor    277 Park Avenue    Arbor Court   
San Francisco, CA 94104    New York, NY 10172    30575 Bainbridge Road, Suite 250
Phone: (415) 576-2627    Phone: (212) 622-6682    Solon, OH 44139   
      Phone: (440) 715-2647   

Michael Knott, CFA

   Stephen C. Swett      

Green Street Advisors

   Morgan Keegan & Co.      
660 Newport Center Drive, Suite 800    535 Madison Avenue      
Newport Beach, CA 92660    10th Floor      
Phone: (949) 640-8780    New York, NY 10022      
   Phone: (212) 508-7585      

 

37


Piedmont Office Realty Trust, Inc.

FFO, Core FFO, & AFFO Reconciliations

Unaudited (in thousands)

 

 

 

    Three Months Ended  
        3/31/2012             12/31/2011             9/30/2011             6/30/2011             3/31/2011      

Net income attributable to Piedmont

  $ 37,227       $ 119,020       $ 51,026       $ 21,027       $ 33,967    

Depreciation

    27,809         27,287         28,102         27,879         27,154    

Amortization

    12,840         15,531         16,616         15,878         12,106    

(Gain) / loss on sale of properties

    (17,830)        (95,901)        (26,826)        (45)        -       

(Gain) / loss on consolidation of VIE

    -            -            -            388         (1,920)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Funds from operations

    60,046         65,937         68,918         65,127         71,307    

Acquisition costs

    (3)        372         285         716         (26)   

(Gain) / loss on extinguishment of debt

    -            (1,039)        -            -            -       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core funds from operations

    60,043         65,270         69,203         65,843         71,281    

Depreciation of non real estate assets

    93         77         84         168         170    

Stock-based and other non-cash compensation expense

    334         1,730         1,111         896         968    

Deferred financing cost amortization

    803         649         879         1,060         607    

Amortization of fair market adjustments on notes payable

    -            -            471         942         -       

Straight-line effects of lease revenue

    (1,565)        (5,019)        (4,129)        (2,596)        2,237   

Amortization of lease related intangibles

    (1,532)        (2,215)        (1,817)        (1,670)        (1,363)   

Income from amortization of discount on purchase of mezzanine loans

    -            -            -            -            (484)   

Acquisition costs

           (372)        (285)        (716)        26    

Non-incremental capital expenditures

    (8,066)        (15,392)        (14,529)        (13,349)        (17,131)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted funds from operations

  $ 50,113       $ 44,728       $ 50,988       $ 50,578       $ 56,311    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

38


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Cash Basis)

Unaudited (in thousands)

 

 

 

    Three Months Ended  
        3/31/2012             12/31/2011             9/30/2011             6/30/2011             3/31/2011      

Net income attributable to Piedmont

  $ 37,227        $ 119,020        $ 51,026        $ 21,027        $ 33,967     

Net income attributable to noncontrolling interest

    4          91          135          121          123     

Interest expense

    16,537          17,457          17,804          19,313          17,174     

Loss on extinguishment of debt

    -              (1,039)         -              -              -         

Depreciation

    27,902          27,364          28,186          28,047          27,324     

Amortization

    12,840          15,531          16,616          15,878          12,106     

(Gain) / loss on sale of properties

    (17,830)         (95,901)         (26,826)         (45)         -         

(Gain) / loss on consolidation of VIE

    -              -              -              388          (1,920)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core EBITDA

    76,680          82,523          86,941          84,729          88,774     

General & administrative expenses

    5,318          6,241          4,747          7,392          6,704     

Management fee revenue

    (574)         (281)         (110)         (363)         (830)    

Interest and other income

    (97)         357          74          253          (3,460)    

Lease termination income

    (124)         (319)         33          (1,347)         (3,404)    

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

    100          185          260          43          436     

Straight-line effects of lease revenue

    (1,664)         (5,180)         (4,296)         (2,639)         1,972     

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

    (1,532)         (2,239)         (1,911)         (1,670)         (1,534)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core net operating income - cash basis

    78,107          81,287          85,738          86,398          88,658     

Net operating income from:

         

Acquisitions

    (3,150)         (4,489)         (3,393)         (3,446)         2     

Dispositions

    (954)         (5,709)         (7,152)         (7,388)         (7,327)    

Industrial properties

    (242)         (242)         (254)         (242)         (237)    

Unconsolidated joint ventures

    (590)         (1,013)         (818)         (696)         (658)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Same Store NOI - Cash Basis

  $ 73,171        $ 69,834        $ 74,121        $ 74,626        $ 80,438     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

39


Piedmont Office Realty Trust, Inc.

Unconsolidated Joint Venture NOI Reconciliation

Pro-rata (in thousands)

 

 

 

     Three Months Ended  
     3/31/2012      12/31/2011      9/30/2011     6/30/2011     3/31/2011  

Equity in Income of Unconsolidated JVs

     $ 170         $ 587         $ 485        $ 338        $ 209   

Interest expense

     -           -           -          -          -     

Depreciation

     296         293         296        300        302   

Amortization

     41         33         33        33        30   

(Gain) / loss on sale of properties

     -           -           (71     (45     -     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Core EBITDA

     507         913         743        626        541   

General & administrative expenses

     57         49         29        27        75   

Interest and other income

     -           -           (1     -          -     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Core net operating income (accrual basis)

     564         962         771        653        616   

Straight-line effects of lease revenue

     26         51         47        43        42   

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

     -           -           -          -          -     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Core net operating income (cash basis)

     $ 590         $ 1,013         $ 818        $ 696        $ 658   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

40


Piedmont Office Realty Trust, Inc.

Discontinued Operations

Unaudited (in thousands)

 

 

 

     Three Months Ended  
  

 

 

 
     3/31/2012     12/31/2011     9/30/2011     6/30/2011     3/31/2011  
  

 

 

 

Revenues:

          

Rental income

     $           797      $           7,142      $           8,419      $           9,526      $           9,508   

Tenant reimbursements

     231        4,344        3,730        5,492        5,596   

Property management fee revenue

     -            -            -            -            -       

Other rental income

     -            -            -            -            -       
  

 

 

 

Total revenues

     1,028        11,486        12,149        15,018        15,104   

Operating expenses:

          

Property operating costs

     106        4,641        3,619        6,366        6,335   

Depreciation

     153        192        1,736        1,961        1,985   

Amortization

     8        39        1,693        1,738        1,738   

General and administrative

     3        (12     41        22        16   
  

 

 

 

Total operating expenses

     270        4,860        7,089        10,087        10,074   

Interest expense

     -            (1,278     (1,568     (1,551     (1,534

Interest and other income (expense)

     -            -            16        (15     -       

Net income attributable to noncontrolling interest

     -            (87     (131     (117     (119
  

 

 

 

Total other income (expense)

     -            (1,365     (1,683     (1,683     (1,653

  Operating income, excluding impairment loss and gain on sale

     $ 758      $ 5,261      $ 3,377      $ 3,248      $ 3,377   

Gain / (loss) on sale of properties

     17,830        95,901        26,756        -            -       
  

 

 

 

Income from discontinued operations

     $ 18,588      $ 101,162      $ 30,133      $ 3,248      $ 3,377   
  

 

 

 

 

41


Piedmont Office Realty Trust, Inc.

Property Detail

As of March 31, 2012

 

 

 

Building Name    City    State    Percent
Ownership
    Year
Built
     Rentable
Square
Footage
Owned (in
thousands)
     Leased
Percentage
    Commenced
Leased
Percentage
 

Atlanta

                  

11695 Johns Creek Parkway

   Johns Creek    GA      100.0     2001         101         91.1     91.1

3750 Brookside Parkway

   Alpharetta    GA      100.0     2001         103         91.3     91.3

Glenridge Highlands Two

   Atlanta    GA      100.0     2000         406         71.2     71.2

Suwanee Gateway One

   Suwanee    GA      100.0     2008         142         0.0     0.0

The Dupree

   Atlanta    GA      100.0     1997         138         82.6     82.6

The Medici

   Atlanta    GA      100.0     2008         152         32.9     32.9

Metropolitan Area Subtotal / Weighted Average

                1,042         61.3     61.3

Austin

                  

Braker Pointe III

   Austin    TX      100.0     2001         195         100.0     100.0

Metropolitan Area Subtotal / Weighted Average

                195         100.0     100.0

Boston

                  

1200 Crown Colony Drive

   Quincy    MA      100.0     1990         235         100.0     100.0

90 Central Street

   Boxborough    MA      100.0     2001         175         96.6     96.6

1414 Massachusetts Avenue

   Cambridge    MA      100.0     1873         78         100.0     100.0

One Brattle Square

   Cambridge    MA      100.0     1991         95         94.7     94.7

225 Presidential Way

   Woburn    MA      100.0     2001         202         100.0     100.0

235 Presidential Way

   Woburn    MA      100.0     2000         238         100.0     100.0

Metropolitan Area Subtotal / Weighted Average

                1,023         98.9     98.9

Chicago

                  

Windy Point I

   Schaumburg    IL      100.0     1999         187         96.8     96.8

Windy Point II

   Schaumburg    IL      100.0     2001         300         15.7     15.7

Aon Center

   Chicago    IL      100.0     1972         2,685         81.8     69.9

Two Pierce Place

   Itasca    IL      100.0     1991         486         76.3     76.3

2300 Cabot Drive

   Lisle    IL      100.0     1998         152         76.3     76.3

500 West Monroe Street

   Chicago    IL      100.0     1991         962         55.0     48.9

Metropolitan Area Subtotal / Weighted Average

                4,772         72.1     64.1

Cleveland

                  

Eastpoint I

   Mayfield Heights    OH      100.0     2000         102         100.0     100.0

Eastpoint II

   Mayfield Heights    OH      100.0     2000         85         89.4     89.4

Metropolitan Area Subtotal / Weighted Average

                187         95.2     95.2

Dallas

                  

3900 Dallas Parkway

   Plano    TX      100.0     1999         120         100.0     100.0

5601 Headquarters Drive

   Plano    TX      100.0     2001         166         100.0     100.0

6031 Connection Drive

   Irving    TX      100.0     1999         229         88.6     86.9

6021 Connection Drive

   Irving    TX      100.0     2000         223         100.0     100.0

6011 Connection Drive

   Irving    TX      100.0     1999         152         100.0     100.0

Las Colinas Corporate Center I

   Irving    TX      100.0     1998         159         88.1     88.1

Las Colinas Corporate Center II

   Irving    TX      100.0     1998         227         59.5     59.5

Metropolitan Area Subtotal / Weighted Average

                1,276         89.3     88.9

Denver

                  

350 Spectrum Loop

   Colorado Springs    CO      100.0     2001         156         100.0     100.0

Metropolitan Area Subtotal / Weighted Average

                156         100.0     100.0

Detroit

                  

1441 West Long Lake Road

   Troy    MI      100.0     1999         107         73.8     73.8

150 West Jefferson

   Detroit    MI      100.0     1989         493         78.1     78.1

Auburn Hills Corporate Center

   Auburn Hills    MI      100.0     2001         120         100.0     100.0

1075 West Entrance Drive

   Auburn Hills    MI      100.0     2001         210         100.0     100.0

Metropolitan Area Subtotal / Weighted Average

                930         85.4     85.4

Central & South Florida

                  

Sarasota Commerce Center II

   Sarasota    FL      100.0     1999         152         84.9     66.4

5601 Hiatus Road

   Tamarac    FL      100.0     2001         100         100.0     100.0

2001 NW 64th Street

   Ft. Lauderdale    FL      100.0     2001         48         100.0     77.1

400 TownPark

   Lake Mary    FL      100.0     2008         176         31.3     31.3

Metropolitan Area Subtotal / Weighted Average

                476         69.7     61.6

Houston

                  

1430 Enclave Parkway

   Houston    TX      100.0     1994         313         100.0     100.0

1200 Enclave Parkway

   Houston    TX      100.0     1999         150         78.7     78.7

Metropolitan Area Subtotal / Weighted Average

                463         93.1     93.1

 

42


Piedmont Office Realty Trust, Inc.

Property Detail

As of March 31, 2012

 

 

 

Building Name    City    State    Percent
Ownership
    Year
Built
     Rentable
Square
Footage
Owned (in
thousands)
     Leased
Percentage
    Commenced
Leased
Percentage
 

Los Angeles

                  

26200 Enterprise Way

   Lake Forest    CA      100.0     2000         145         100.0     100.0

800 North Brand Boulevard

   Glendale    CA      100.0     1990         518         80.3     80.3

1055 East Colorado Boulevard

   Pasadena    CA      100.0     2001         175         62.3     62.3

Fairway Center II

   Brea    CA      100.0     2002         134         95.5     95.5

1901 Main Street

   Irvine    CA      100.0     2001         172         80.8     80.8

Metropolitan Area Subtotal / Weighted Average

                1,144         81.9     81.9

Minneapolis

                  

Crescent Ridge II

   Minnetonka    MN      100.0     2000         301         73.4     73.4

US Bancorp Center

   Minneapolis    MN      100.0     2000         927         95.4     95.0

One Meridian Crossings

   Richfield    MN      100.0     1997         195         100.0     100.0

Two Meridian Crossings

   Richfield    MN      100.0     1998         189         91.5     91.5

Metropolitan Area Subtotal / Weighted Average

                1,612         91.4     91.2

Nashville

                  

2120 West End Avenue

   Nashville    TN      100.0     2000         312         100.0     100.0

Metropolitan Area Subtotal / Weighted Average

                312         100.0     100.0

New York

                  

1111 Durham Avenue

   South Plainfield    NJ      100.0     1975         237         61.2     61.2

2 Gatehall Drive

   Parsippany    NJ      100.0     1985         405         100.0     100.0

200 Bridgewater Crossing

   Bridgewater    NJ      100.0     2002         300         26.3     0.0

Copper Ridge Center

   Lyndhurst    NJ      100.0     1989         268         97.0     93.3

60 Broad Street

   New York    NY      100.0     1962         1,027         99.8     99.8

600 Corporate Drive

   Lebanon    NJ      100.0     2005         125         100.0     100.0

400 Bridgewater Crossing

   Bridgewater    NJ      100.0     2002         297         99.7     99.7

Metropolitan Area Subtotal / Weighted Average

                2,659         87.8     84.5

Philadelphia

                  

1901 Market Street

   Philadelphia    PA      100.0     1987         761         100.0     100.0

Metropolitan Area Subtotal / Weighted Average

                761         100.0     100.0

Phoenix

                  

River Corporate Center

   Tempe    AZ      100.0     1998         123         100.0     0.0

8700 South Price Road

   Tempe    AZ      100.0     2000         132         100.0     100.0

Desert Canyon 300

   Phoenix    AZ      100.0     2001         149         100.0     100.0

Chandler Forum

   Chandler    AZ      100.0     2003         150         42.0     42.0

Metropolitan Area Subtotal / Weighted Average

                554         84.3     62.1

Washington, D.C.

                  

11107 Sunset Hills Road

   Reston    VA      100.0     1985         101         98.0     98.0

1201 Eye Street

   Washington    DC      49.5 (1)      2001         269         100.0     100.0

1225 Eye Street

   Washington    DC      49.5 (1)      1986         225         99.1     95.6

3100 Clarendon Boulevard

   Arlington    VA      100.0     1987         250         100.0     100.0

400 Virginia Avenue

   Washington    DC      100.0     1985         224         93.3     93.3

4250 North Fairfax Drive

   Arlington    VA      100.0     1998         304         100.0     100.0

9211 Corporate Boulevard

   Rockville    MD      100.0     1989         115         100.0     100.0

9221 Corporate Boulevard

   Rockville    MD      100.0     1989         115         100.0     100.0

One Independence Square

   Washington    DC      100.0     1991         334         100.0     100.0

9200 Corporate Boulevard

   Rockville    MD      100.0     1982         109         100.0     100.0

11109 Sunset Hills Road

   Reston    VA      100.0     1984         41         0.0     0.0

Two Independence Square

   Washington    DC      100.0     1991         561         100.0     100.0

Piedmont Pointe I

   Bethesda    MD      100.0     2007         186         65.6     65.6

Piedmont Pointe II

   Bethesda    MD      100.0     2008         221         42.1     23.5

Metropolitan Area Subtotal / Weighted Average

                3,055         91.8     90.1

 

Grand Total (2)

 

                               

 

20,617

 

  

 

    

 

84.4

 

 

   

 

81.1

 

 

(1) Although Piemdont owns 49.5% of the asset, it is entitled to 100% of the cash flows under the terms of the property ownership entity’s joint venture agreement.

(2) Piedmont's economic leased percentage as of March 31, 2012 was 75%. Economic leased percentage excludes the square footage associated with executed but not commenced leases for currently vacant spaces and the square footage associated with tenants receiving rental abatements.

 

43


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; the demand for office space, rental rates and property values may continue to lag the general economic recovery; our $500 Million Unsecured Facility matures in August 2012 and a failure to renew this facility could cause our business, results of operations, cash flows, financial condition and access to capital to be adversely affected; 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; availability of financing; costs of complying with governmental laws and regulations; uncertainties associated with environmental and other regulatory matters; potential changes in the political environment and reduction in federal and/or state funding of our government tenants; we are and may continue to be subject to litigation; our ability to continue to qualify as a REIT under the Internal Revenue Code; and other factors detailed in our most recent Annual Report on Form 10-K 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.

 

44