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) August 1, 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 August 1, 2012, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the second quarter 2012 and published supplemental information for the second 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 August 1, 2012.
99.2    Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Second 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: August 1, 2012

 

 

3


EXHIBIT INDEX

 

Exhibit No.

  

Description

99.1    Press release dated August 1, 2012.
99.2    Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Second Quarter 2012.

 

4

EX-99.1

Exhibit 99.1

Piedmont Office Realty Trust Reports Second Quarter Results

ATLANTA, August 1, 2012—Piedmont Office Realty Trust, Inc. (“Piedmont” or the “Company”) (NYSE:PDM), an owner of Class A commercial office properties located predominantly in the ten largest U.S. office markets, today announced its results for the quarter ended June 30, 2012.

Highlights for the Three Months Ended June 30, 2012:

 

   

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

 

   

Continued to advance its portfolio refinement strategy by selling 26200 Enterprise Way in Lake Forest, CA at a gain of $10.0 million, or $0.06 per diluted share, and acquiring a two acre development site in Atlanta, GA;

 

   

Completed approximately 600,000 square feet of total leasing during the quarter;

 

   

Repurchased approximately 2.6 million shares of its common stock at an average price of $16.66 per share pursuant to the Company’s previously announced stock repurchase program.

Donald A. Miller, CFA, President and Chief Executive Officer stated, “I am pleased with our results this quarter from both a financial and operational perspective. We achieved our internal expectations due to careful management of our expenses and made significant progress on the leasing front, including laying the groundwork which we believe will lead us to close some critical lease transactions during third quarter of 2012. I expect that leasing momentum, plus the commencement of several significant leases during the third quarter, will translate into improved leasing and occupancy metrics as we move into the second half of the year.”

Results for the Quarter ended June 30, 2012

Piedmont’s net income available to common stockholders for the second quarter of 2012, which includes the gain mentioned above, was $30.7 million, or $0.18 per diluted share, as compared with $21.0 million, or $0.12 per diluted share, for the second quarter of 2011. FFO was $60.3 million, or $0.35 per diluted share, for the quarter ended June 30, 2012 as compared to $65.1 million, or $0.38 per diluted share, for the quarter ended June 30, 2011, reflecting an anticipated $0.03 per quarter decrease in FFO contribution 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 in the second half of 2012.

Adjusted FFO (“AFFO”) for the second quarter of 2012 totaled $36.2 million, or $0.21 per diluted share, as compared to $50.6 million, or $0.29 per diluted share, in the second quarter of 2011, reflecting the anticipated decrease noted above and increased capital expenditures during the current quarter as compared to the previous period associated with significant leasing activity, particularly at US Bancorp Center in Minneapolis, Aon Center in Chicago, and 200 Bridgewater in northern New Jersey.


Total revenues for the quarter ended June 30, 2012 were $133.7 million, as compared with $135.6 million for the same period a year ago, primarily reflecting additional rental revenues from properties acquired during the last twelve months offset by a $3.6 million reduction in tenant reimbursements and a $1.3 million reduction in lease termination revenue.

Property operating costs were $53.7 million in the second quarter of 2012 compared to $53.0 million in the second quarter of 2011, reflecting added operating costs from the acquisition of five properties over the last twelve months. General and administrative expense decreased $2.5 million as compared to the prior year’s second quarter primarily due to lower legal expense, lower costs associated with our deferred stock compensation plan, lower bad debt expense, and the recognition of a tax benefit associated with the refund of a prior period franchise tax in the current period.

The current quarter’s other expense when compared to the same quarter a year ago decreased approximately $2.6 million, primarily reflecting reduced interest expense as a result of the payoff of $230 million in secured notes over the past eight months.

Leasing Update

During the second quarter of 2012, the Company executed approximately 595,000 total square feet of leasing throughout its portfolio. Of the leases signed during the quarter, approximately 234,000 square feet, was renewal-related and 362,000 square feet, or 61%, was with new tenants. The same store stabilized portfolio was 87.9% leased as of June 30, 2012 as compared to 88.5% leased a year earlier, primarily reflecting negative net absorption associated with several recent large lease expirations. The Company’s overall office portfolio, including value add properties, was 85.0% leased as of June 30, 2012, with a weighted average lease term remaining of 6.5 years. Details outlining Piedmont’s 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 second quarter Piedmont completed the disposition of 26200 Enterprise Way, a two-story, approximately 145,000-square-foot office/flex building in Lake Forest, CA for $28.2 million, exclusive of closing costs. The disposition furthers the Company’s portfolio refinement strategy, and resulted in a gain of $10.0 million, or $0.06 per diluted share, which is included in Piedmont’s statement of operations for the quarter.

Additionally, believing that its common stock is trading at a discount to current net asset value, the Company repurchased approximately 2.6 million shares of its common stock during the quarter at an average price of $16.66 per share pursuant to its stock repurchase plan announced during fourth quarter 2011.


Piedmont is nearing completion of a new $500 unsecured million line of credit. The facility is anticipated to become fully executed in August of 2012 and will be a replacement for Piedmont’s current $500 million line that is due to mature on August 30, 2012.

Piedmont’s gross assets amounted to $5.2 billion as of June 30, 2012. Total debt was approximately $1.4 billion as of June 30, 2012 as compared to $1.5 billion as of December 31, 2011. The Company’s total debt-to-gross assets ratio was 26.7% as of June 30, 2012 as compared with 27.5% as of December 31, 2011, reflecting the payoff of two secured notes payable during 2012, including one for $45 million during the second quarter. As of June 30, 2012, Piedmont had cash and capacity on its unsecured line of credit of approximately $390.5 million.

Dividend

On August 1, 2012, the Board of Directors of Piedmont declared a dividend for the third quarter of 2012 in the amount of $0.20 per common share outstanding to stockholders of record as of the close of business on August 31, 2012. Such dividends are to be paid on September 21, 2012.

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 2011 of the 100% leased 35 W. Wacker building in Chicago and management’s view of current market conditions and 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 Thursday, August 2, 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 396608. A replay of the conference call will be available until August 16, 2012, and can be accessed by dialing 1-877-870-5176 or 1-858-384-5517 for international participants, followed by pass code 396608. 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 second 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 June 30, 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 June 30, 2012, Piedmont’s 74 wholly-owned office buildings were comprised of over 20 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 anticipated leasing volumes for the remainder of 2012 and such volume’s impact on future leasing and occupancy metrics, the Company’s estimated range of Core FFO and Core FFO per diluted share for the year ending December 31, 2012, and the expected completion of a new $500 million line of credit.

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)

 

 

 

     June 30,
2012
    December 31,
2011
 
     (unaudited)        

Assets:

    

Real estate assets, at cost:

    

Land

   $ 629,476      $ 640,196   

Buildings and improvements

     3,754,954        3,759,596   

Buildings and improvements, accumulated depreciation

     (837,285     (792,342

Intangible lease asset

     149,544        198,667   

Intangible lease asset, accumulated amortization

     (82,742     (119,419

Construction in progress

     24,154        17,353   
  

 

 

   

 

 

 

Total real estate assets

     3,638,101        3,704,051   

Investment in unconsolidated joint ventures

     37,580        38,181   

Cash and cash equivalents

     26,869        139,690   

Tenant receivables, net of allowance for doubtful accounts

     22,884        24,722   

Straight line rent receivable

     111,731        104,801   

Notes receivable

     19,000        —     

Due from unconsolidated joint ventures

     569        788   

Restricted cash and escrows

     48,046        9,039   

Prepaid expenses and other assets

     7,385        9,911   

Goodwill

     180,097        180,097   

Deferred financing costs, less accumulated amortization

     4,597        5,977   

Deferred lease costs, less accumulated amortization

     231,449        230,577   
  

 

 

   

 

 

 

Total assets

   $ 4,328,308      $ 4,447,834   
  

 

 

   

 

 

 

Liabilities:

    

Line of credit and notes payable

   $ 1,400,525      $ 1,472,525   

Accounts payable, accrued expenses, and accrued capital expenditures

     126,207        122,986   

Deferred income

     23,668        27,321   

Intangible lease liabilities, less accumulated amortization

     44,246        49,037   

Interest rate swap

     6,922        2,537   
  

 

 

   

 

 

 

Total liabilities

     1,601,568        1,674,406   

Stockholders’ equity :

    

Common stock

     1,702        1,726   

Additional paid in capital

     3,665,284        3,663,662   

Cumulative distributions in excess of earnings

     (934,933     (891,032

Other comprehensive loss

     (6,922     (2,537
  

 

 

   

 

 

 

Piedmont stockholders’ equity

     2,725,131        2,771,819   

Non-controlling interest

     1,609        1,609   
  

 

 

   

 

 

 

Total stockholders’ equity

     2,726,740        2,773,428   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 4,328,308      $ 4,447,834   
  

 

 

   

 

 

 

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

   $ 1,325,610      $ 1,323,796   

Total Gross Assets (1)

   $ 5,248,335      $ 5,359,595   

Number of shares of common stock outstanding at end of period

     170,235        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     Six Months Ended  
     6/30/2012     6/30/2011     6/30/2012     6/30/2011  

Revenues:

        

Rental income

   $ 105,992      $ 103,205      $ 211,275      $ 203,035   

Tenant reimbursements

     27,010        30,640        53,728        57,520   

Property management fee revenue

     626        363        1,199        1,193   

Other rental income

     88        1,347        212        4,751   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     133,716        135,555        266,414        266,499   

Operating expenses:

        

Property operating costs

     53,699        52,950        106,442        101,743   

Depreciation

     27,798        25,702        55,167        50,663   

Amortization

     11,478        14,040        24,221        24,314   

General and administrative

     4,865        7,342        10,122        13,954   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     97,840        100,034        195,952        190,674   
  

 

 

   

 

 

   

 

 

   

 

 

 

Real estate operating income

     35,876        35,521        70,462        75,825   

Other income (expense):

        

Interest expense

     (15,943     (17,762     (32,480     (33,402

Interest and other income (expense)

     285        (238     382        3,221   

Equity in income of unconsolidated joint ventures

     246        338        416        547   

Gain on consolidation of a variable interest entity

     —          (388     —          1,532   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (15,412     (18,050     (31,682     (28,102
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     20,464        17,471        38,780        47,723   

Discontinued operations :

        

Operating income

     240        3,560        1,325        7,279   

Gain on sale of real estate assets

     10,008        —          27,838        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations

     10,248        3,560        29,163        7,279   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     30,712        21,031        67,943        55,002   

Less: Net income attributable to noncontrolling interest

     (4     (4     (8     (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Piedmont

   $ 30,708      $ 21,027      $ 67,935      $ 54,994   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding — diluted

     172,209        172,986        172,520        172,908   

Per Share Information — diluted:

        

Income from continuing operations

   $ 0.12      $ 0.10      $ 0.22      $ 0.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations

   $ 0.06      $ 0.02      $ 0.17      $ 0.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

   $ 0.18      $ 0.12      $ 0.39      $ 0.32   
  

 

 

   

 

 

   

 

 

   

 

 

 


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     Six Months Ended  
     6/30/2012     6/30/2011     6/30/2012     6/30/2011  

Net income attributable to Piedmont

   $ 30,708      $ 21,027      $ 67,935      $ 54,994   

Depreciation (1) (2)

     28,033        27,879        55,842        55,033   

Amortization (1)

     11,539        15,878        24,379        27,984   

Gain on sale of real estate assets (1)

     (10,008     (45     (27,838     (45

Gain on consolidation of variable interest entity

     —          388        —          (1,532
  

 

 

   

 

 

   

 

 

   

 

 

 

Funds from operations

     60,272        65,127        120,318        136,434   

Acquisition costs

     84        716        81        690   
  

 

 

   

 

 

   

 

 

   

 

 

 

Core funds from operations

     60,356        65,843        120,399        137,124   

Depreciation of non real estate assets

     108        168        201        338   

Stock-based and other non-cash compensation expense

     289        896        623        1,864   

Deferred financing cost amortization

     590        2,002        1,392        2,609   

Straight-line effects of lease revenue (1)

     (5,477     (2,596     (7,042     (359

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

     (1,785     (1,670     (3,316     (3,033

Income from amortization of discount on purchase of mezzanine loans

     —          —          —          (484

Acquisition costs

     (84     (716     (81     (690

Non-incremental capital expenditures (3)

     (17,781     (13,349     (25,847     (30,480
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted funds from operations

   $ 36,216      $ 50,578      $ 86,329      $ 106,889   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding — diluted

     172,209        172,986        172,520        172,908   

Funds from operations per share (diluted)

   $ 0.35      $ 0.38      $ 0.70      $ 0.79   

Core funds from operations per share (diluted)

   $ 0.35      $ 0.38      $ 0.70      $ 0.79   

Adjusted funds from operations per share (diluted)

   $ 0.21      $ 0.29      $ 0.50      $ 0.62   

 

(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     Six Months Ended  
     6/30/2012     6/30/2011     6/30/2012     6/30/2011  

Net income attributable to Piedmont

   $ 30,708      $  21,027      $ 67,935      $ 54,994   

Net income attributable to non-controlling interest

     4        121        8        243   

Interest Expense

     15,943        19,313        32,480        36,487   

Depreciation(1)

     28,141        28,047        56,043        55,371   

Amortization(1)

     11,539        15,878        24,379        27,984   

Gain on sale of real estate assets (1)

     (10,008     (45     (27,838     (45

Gain on consolidation of variable interest entity

     —          388        —          (1,532
  

 

 

   

 

 

   

 

 

   

 

 

 

Core EBITDA*

     76,327        84,729        153,007        173,502   

General & administrative expenses(1)

     4,866        7,392        10,184        14,096   

Management fee revenue

     (626     (363     (1,199     (1,193

Interest and other income

     (305     253        (403     (3,206

Lease termination income

     (88     (1,347     (212     (4,751

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

     165        43        264        479   

Straight line rent adjustment(1)

     (5,642     (2,639     (7,306     (667

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

     (1,785     (1,670     (3,316     (3,204
  

 

 

   

 

 

   

 

 

   

 

 

 

Core Net Operating Income (cash basis)*

     72,912        86,398        151,019        175,056   

Acquisitions

     (3,886     (3,446     (7,036     (3,444

Dispositions

     (296     (7,376     (1,692     (14,873

Industrial properties

     (245     (242     (487     (479

Unconsolidated joint ventures

     (598     (696     (1,188     (1,354
  

 

 

   

 

 

   

 

 

   

 

 

 

Same Store NOI*

   $ 67,887      $ 74,638      $ 140,616      $ 154,906   
  

 

 

   

 

 

   

 

 

   

 

 

 

Change period over period in same store NOI

     -9.0 %        -9.2 %   

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

     4.8          4.7     

Annualized Core EBITDA (Core EBITDA x 4)

   $ 305,308        $ 306,014     

 

(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

June 30, 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
 

 

Notice to Readers:

Please refer to page 44 for a discussion of important risks related to the business of Piedmont Office Realty Trust, Inc., 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 statements about leasing, financial operations, leasing prospects, etc. 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. When the Company sells properties, it restates historical income statements with the financial results of the sold assets presented in discontinued operations.


Piedmont Office Realty Trust, Inc.

Corporate Data

 

 

Piedmont Office Realty Trust, Inc. (also referred to herein as “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 June 30, 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
    June 30, 2012    
          As of
    December 31, 2011    
 

Number of consolidated office properties (2)

     74            79   

Rentable square footage (in thousands) (2)

     20,482            20,942   

Percent leased (3)

     85.0%            86.5%   

Percent leased - stabilized portfolio (4)

     88.1%            89.1%   

Capitalization (in thousands):

        

Total debt - principal amount outstanding

     $1,400,525            $1,472,525   

Equity market capitalization (5)

     $2,929,741            $2,941,611   

Total market capitalization (5)

     $4,330,266            $4,414,136   

Total debt / Total market capitalization

     32.3%            33.4%   

Total debt / Total gross assets

     26.7%            27.5%   

Common stock data

        

High closing price during quarter

     $17.80            $17.50   

Low closing price during quarter

     $16.19            $15.42   

Closing price of common stock at period end

     $17.21            $17.04   

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

     172,520            172,981   

Shares of common stock issued and outstanding (in thousands)

     170,235            172,630   

Rating / outlook

        

Standard & Poor’s

     BBB / Stable            BBB / Stable   

Moody’s

     Baa2 / Stable            Baa2 / Stable   

Employees

     118            116   

 

 

 

(1)

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

(2)

As of June 30, 2012, our consolidated office portfolio consisted of 74 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 in Portland, OR, comprised of four office properties totaling 326,000 square feet and developable land totaling 18.2 acres. During the second quarter of 2012, we sold 26200 Enterprise Way, a 145,000 square foot office building located in Lake Forest, CA, and we purchased approximately 2.0 acres of developable land in Atlanta, GA. For additional detail on asset transactions during 2012, please refer to page 32.

(3)

Calculated as leased square footage on June 30, 2012 plus square footage associated with executed new leases for currently vacant spaces divided by total rentable square footage (defined in note 2 above), expressed as a percentage. This measure is presented for our 74 consolidated 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. The first six months of 2012 reflect the disposition of five well-leased properties totaling 470,000 square feet. Our dispositions of well-leased assets during the previous three quarters have resulted in a decrease in leased percentage; if those assets were not sold, our stabilized leased percentage would have been 88.9% as of June 30, 2012 as compared to 89.7% as of December 31, 2011.

(5)

Based on a share price of $17.21 as of June 29, 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 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

Computershare      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 June 30, 2012

 

 

 

Financial Results (1)                    

- Funds from operations (FFO) for the quarter ended June 30, 2012 was $60.3 million, or $0.35 per share (diluted), compared to $65.1 million, or $0.38 per share (diluted), for the same quarter in 2011. FFO for the six months ended June 30, 2012 was $120.3 million, or $0.70 per share (diluted), compared to $136.4 million, or $0.79 per share (diluted), for the same period in 2011. The decrease in FFO for both the three months and the six months ended June 30, 2012 as compared to the same periods in 2011 was principally related to the following factors: 1) decreased operating income due to the disposition of certain assets with meaningful operating income contributions, notably 35 West Wacker Drive, offset somewhat by operating income contributions from newly acquired assets, 2) lower overall occupancy in 2012 as compared to 2011, and 3) reduced termination fee income of $1.3 million and $4.5 million, respectively, for the three and six months ended June 30, 2012 as compared to 2011. The reduction in FFO in 2012 as compared to 2011 was also offset somewhat by reduced General & Administrative expenses, related primarily to lower legal expense and lower deferred stock compensation expense, and reduced interest expense attributable to decreased total debt outstanding due to the repayment of several loans during the last twelve months.

 

- Core funds from operations (Core FFO) for the quarter ended June 30, 2012 was $60.4 million, or $0.35 per share (diluted), compared to $65.8 million, or $0.38 per share (diluted), for the same quarter in 2011. Core FFO for the six months ended June 30, 2012 was $120.4 million, or $0.70 per share (diluted), compared to $137.1 million, or $0.79 per share (diluted), for the same period in 2011. The decrease in Core FFO for the three months and the six months ended June 30, 2012 as compared to the same periods in 2011 was principally related to the items described for changes in FFO above.

 

- Adjusted funds from operations (AFFO) for the quarter ended June 30, 2012 was $36.2 million, or $0.21 per share (diluted), compared to $50.6 million, or $0.29 per share (diluted), for the same quarter in 2011. AFFO for the six months ended June 30, 2012 was $86.3 million, or $0.50 per share (diluted), compared to $106.9 million, or $0.62 per share (diluted), for the same period in 2011. The decrease in AFFO for the three months ended June 30, 2012 as compared to the same period in 2011 was primarily related to the items described above for the FFO variance, as well as increased rental abatements associated with newly commenced leases in 2012 as compared to 2011, and an increase in non-incremental capital expenditures in 2012 as compared to 2011. The decrease in AFFO for the six months ended June 30, 2012 as compared to the same period in 2011 was primarily related to the items described above for the FFO variance, as well as increased rental abatements associated with newly commenced leases in 2012 as compared to 2011, offset somewhat by a decrease in non-incremental capital expenditures in 2012 as compared to 2011.

 

- During the quarter ended June 30, 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 six months ended June 30, 2012 was 57.3% of Core FFO and 79.9% of AFFO.

Operations                                     

- On a square footage leased basis, our total office portfolio was 85.0% leased as of June 30, 2012, as compared to 86.5% as of December 31, 2011 and 84.4% as of March 31, 2012. On a stabilized square footage leased basis, our portfolio was 88.1% leased as of June 30, 2012. The stabilized leased percentage excludes the impact of value-add acquisitions completed in 2010 and 2011 (see page 33) that have not yet reached stabilization, including 500 West Monroe Street in Chicago, IL, The Medici in Atlanta, GA, Suwanee Gateway One in Suwanee, GA, and 400 TownPark in Lake Mary, FL. During the last year, our same store stabilized leased percentage declined from 88.5% at June 30, 2011 to 87.9% at June 30, 2012. The primary reason for the decline in the leased rate for our same store stabilized assets during that period is negative net absorption associated with several recent lease expirations (after taking into account leases signed to backfill the affected spaces), including space at 200 Bridgewater Crossing in Bridgewater, NJ associated with the sanofi-aventis lease expiration and at Aon Center in Chicago, IL associated with the Kirkland & Ellis lease expiration. Please refer to page 22 for additional leased percentage information.

 

- The weighted average remaining lease term of our portfolio was 6.5 years(2) as of June 30, 2012 as compared to 6.4 years at December 31, 2011.

 

- During the three months ended June 30, 2012, the Company completed 595,000 square feet of total leasing. Of the total office leasing activity during the quarter, we signed renewal leases for 234,000 square feet and new tenant leases for 362,000 square feet. No leases were signed for our industrial or joint venture assets during the quarter. During the first half of the year, we completed 1,041,000 square feet of leasing for our consolidated office properties and 1,414,000 square feet of leasing inclusive of activity associated with our industrial and unconsolidated joint venture assets. The average committed capital cost for leases signed during the first half of the year at our consolidated office properties was $4.75 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 six months ended June 30, 2012 was $2.48 and average committed capital cost per square foot per year of lease term for new leases signed during the same time period was $5.83 (see page 28).

 

(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 June 30, 2012) is weighted based on Annualized Lease Revenue, as defined on page 35.

 

5


Piedmont Office Realty Trust, Inc.

Financial Highlights

As of June 30, 2012

 

 

 

  - During the three months ended June 30, 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
 Piper Jaffray & Co.    US Bancorp Center    Minneapolis, MN    123,882       2025    New (former sub-tenant)

 Brother International Corporation

   200 Bridgewater Crossing    Bridgewater, NJ    101,724         2023    New

 HD Vest

   Las Colinas Corporate Center I    Irving, TX    81,069       2023    Renewal
 Dendreon Corporation    200 Bridgewater Crossing    Bridgewater, NJ    39,937         2023    New

 Global Knowledge Training, LLC

   Windy Point I    Schaumburg, IL    22,028       2020    Renewal / Expansion

 Comptroller of the Currency

   400 Virginia Avenue    Washington, DC    21,042         2017    Renewal

Leasing Update                                         

 

  - As of March 31, 2012, there were three tenants whose leases contributed greater than 1% to our Annualized Lease Revenue and were scheduled to expire during the second quarter of 2012 or the eighteen month period following the end of the second 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

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. National Park Service is now in holdover status. The Company anticipates that the National Park Service will remain in 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%   Q1 2013   The tenant is expected to vacate at lease expiration. The Company is actively marketing the space for lease.
BP   Aon Center   Chicago, IL   776,359   5.9%   Q4 2013   Lease negotiations with the primary sublessee, Aon Corporation, are near completion. Aon is expected to lease approximately 400,000 square feet on a direct basis with no downtime between the expiration of the BP lease and the commencement of the Aon lease. Additionally, long-term leases comprising approximately 37% of the square footage leased by BP have been entered into with: Thoughtworks, Integrys Energy Group, and Federal Home Loan Bank. After the execution of the Aon lease, leases comprising approximately 88% of the square footage leased by BP will have been signed.

 

 

(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 June 30, 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. Lease renewals are excluded from this schedule.

 

Tenant Name    Property    Property Location    Square Feet
Leased
         Space Status    Estimated
Commencement Date
   New / Expansion
KPMG    Aon Center    Chicago, IL    239,189       Vacant    Q3 2012    New

United Healthcare Services, Inc.

   Aon Center    Chicago, IL    55,059         Vacant    Q3 2012    New

GE (1)

   500 West Monroe Street    Chicago, IL    86,028       Vacant    Q4 2012 - Q4 2014    Expansion
Brother International Corporation    200 Bridgewater Crossing    Bridgewater, NJ    101,724         Vacant    Q1 2013    New

Thoughtworks, Inc.

   Aon Center    Chicago, IL    52,529       Not Vacant    Q4 2013    New

Federal Home Loan Bank of Chicago

   Aon Center    Chicago, IL    79,054         Not Vacant    Q4 2013    New

Integrys Business Support, LLC

   Aon Center    Chicago, IL    159,432         Not Vacant    Q2 2014    New

Piper Jaffray & Co.

   US Bancorp Center    Minneapolis, MN    123,882         Not Vacant    Q2 2014    New

(1) The square footage presented includes the 19th floor premises, which is leased through fourth quarter 2012. GE is required to lease that space one year after the commencement of the renewal term.

Occupancy versus NOI Analysis            

  - Piedmont has been in a period of high lease rollover since 2010. This high lease rollover has resulted in a decrease in leased percentage and economic leased percentage. This, in turn, has effected a lower Same Store NOI than might otherwise be anticipated given the overall leased percentage and the historical relationship between leased percentage and Same Store NOI. The decreased economic leased percentage is attributable to two factors:

1) leases which have been contractually entered into for currently vacant space which have not commenced (amounting to approximately 600,000 square feet of leases as of June 30, 2012, or 2.8% of the office portfolio); and

2) leases which have commenced but the tenants have not commenced paying full rent due to rental abatements (amounting to 1.3 million square feet of leases as of June 30, 2012, or a 4.7% impact to leased percentage on an economic basis).

As the executed but not commenced leases become effective and as the rental abatement periods expire, there will be greater Same Store NOI growth than might otherwise be expected based on changes in overall leased percentage alone during that time period.

Financing and Capital Activity            

  - As of June 30, 2012, our ratio of debt to total gross assets was 26.7%, our ratio of debt to gross real estate assets was 30.7%, and our ratio of debt to total market capitalization was 32.3%. These debt ratios are based on total principal amount outstanding for our various loans at June 30, 2012.

 

  - On May 31, 2012, Piedmont completed the sale of 26200 Enterprise Way, a 144,906 square foot office building located in Lake Forest, CA. The property was sold for $28.25 million, or $195 per square foot. Piedmont recorded a gain on the sale of the asset of approximately $10 million. The sale allowed the Company to divest a two-story property that was not deemed to be consistent with its long-term strategic objectives for location and building quality.

 

  - On June 28, 2012, Piedmont completed the purchase of approximately 2.0 acres of land adjacent to The Medici, one of the Company’s recent value-add acquisitions, in Atlanta, GA. The site is commonly referred to as Gavitello by brokers. Located within the Buckhead area of Atlanta, the site is part of a mixed-use, high-end office and residential complex. The site is zoned for office development and will accommodate a building consisting of approximately 250,000 square feet. The acquisition adds to the Company’s developable land holdings and allows the Company to control a site that is directly competitive to The Medici.

 

  - 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.

 

  - 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 were paid on June 22, 2012.

 

7


Piedmont Office Realty Trust, Inc.

Financial Highlights

As of June 30, 2012

 

 

 

  - During the second quarter of 2012, the Company repurchased approximately 2.6 million shares of common stock at an average purchase price of $16.66 per share, or approximately $42.8 million in aggregate (before consideration of transaction costs). Since the stock repurchase program’s inception last fall, the Company has repurchased a total of 2.8 million shares at an average price of $16.62 per share, or approximately $46.1 million in aggregate (before consideration of transaction costs). Any future repurchases of the Company’s common stock will be made at the discretion of the Company. As of quarter end, there was Board-approved capacity for additional repurchases totaling approximately $250 million under the stock repurchase plan.

 

  - The ongoing shareholder litigation is awaiting the judge’s ruling on our motion to dismiss the one remaining item in the case. Piedmont believes that the case is without merit and intends to continue to vigorously defend. See Piedmont’s Form 10-Q dated as of June 30, 2012 for further disclosure.

Subsequent Events                              

 

  - Piedmont is close to finalizing a new $500 million unsecured revolving credit facility. The terms of the facility will be provided after the transaction has closed. The Company’s current revolver will be terminated prior to the effectiveness of the transaction.

 

  - On August 1, 2012, the Board of Directors of Piedmont declared dividends for the third quarter of 2012 in the amount of $0.20 per common share outstanding to stockholders of record as of the close of business on August 31, 2012. The dividends are to be paid on September 21, 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

 

 

      6/30/2012      

   

 

      3/31/2012      

   

 

      12/31/2011      

   

 

      9/30/2011      

   

 

      6/30/2011      

 

Percent leased (1)

    85.0%        84.4%        86.5%        86.4%        86.5%   

Percent leased - stabilized portfolio (1) (2)

    88.1%        87.5%        89.1%        88.8%        89.0%   

Rental income

    $105,992        $105,282        $105,982        $104,460        $103,205   

Total revenues

    $133,716        $132,697        $135,992        $132,805        $135,555   

Total operating expenses

    $97,840        $98,111        $103,509        $96,386        $100,034   

Real estate operating income

    $35,876        $34,586        $32,483        $36,419        $35,521   

Core EBITDA

    $76,327        $76,680        $82,523        $86,941        $84,729   

Core FFO

    $60,356        $60,043        $65,270        $69,203        $65,843   

Core FFO per share - diluted

    $0.35        $0.35        $0.38        $0.40        $0.38   

AFFO

    $36,216        $50,113        $44,728        $50,988        $50,578   

AFFO per share - diluted

    $0.21        $0.29        $0.26        $0.29        $0.29   

Gross dividends

    $34,418        $34,526        $54,441        $54,441        $54,440   

Dividends per share

    $0.200        $0.200        $0.315        $0.315        $0.315   

Selected Balance Sheet Data

                             

Total real estate assets

    $3,638,101        $3,657,677        $3,704,051        $3,926,638        $3,899,639   

Total gross real estate assets

    $4,558,128        $4,590,544        $4,615,812        $4,875,854        $4,828,700   

Total assets

    $4,328,308        $4,326,698        $4,447,834        $4,613,118        $4,560,206   

Net debt (3)

    $1,325,610        $1,298,738        $1,323,796        $1,600,650        $1,583,812   

Total liabilities

    $1,601,568        $1,550,040        $1,674,406        $1,896,195        $1,838,983   

Ratios

                             

Core EBITDA margin (4)

    56.9%        57.1%        55.8%        59.8%        56.1%   

Fixed charge coverage ratio (5)

    4.8 x        4.6 x        4.7 x        4.9 x        4.4 x   

Net debt to core EBITDA (6) (7)

    4.3 x        4.2 x        4.0 x        4.6 x        4.7 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. The decrease in net debt during the fourth quarter of 2011 was primarily attributable to the application of proceeds from the sale of 35 West Wacker Drive.

(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 Company’s net debt declined during the fourth quarter of 2011 with the application of the proceeds from the sale of 35 West Wacker Drive, thereby positively affecting the net debt to core EBITDA ratios.

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

 

9


Piedmont Office Realty Trust, Inc.

Consolidated Balance Sheets

Unaudited (in thousands)

 

 

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

Assets:

         

Real estate, at cost:

         

Land assets

    $ 629,476         $ 631,745         $ 640,196         $ 693,229         $ 693,962    

Buildings and improvements

    3,754,954         3,750,475         3,759,596         3,930,126         3,894,258    

Buildings and improvements, accumulated depreciation

    (837,285)        (813,679)        (792,342)        (807,917)        (792,881)   

Intangible lease asset

    149,544         191,599         198,667         232,973         225,182    

Intangible lease asset, accumulated amortization

    (82,742)        (119,188)        (119,419)        (141,299)        (136,180)   

Construction in progress

    24,154         16,725         17,353         19,526         15,298    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate assets

    3,638,101         3,657,677         3,704,051         3,926,638         3,899,639    

Investment in unconsolidated joint ventures

    37,580         37,901         38,181         38,391         41,271    

Cash and cash equivalents

    26,869         28,679         139,690         16,128         21,404    

Tenant receivables, net of allowance for doubtful accounts

    22,884         24,932         24,722         32,066         31,143    

Straight line rent receivable

    111,731         106,723         104,801         110,818         107,463    

Notes receivable

    19,000         19,000         -             -             -        

Due from unconsolidated joint ventures

    569         449         788         643         537    

Escrow deposits and restricted cash

    48,046         25,108         9,039         47,747         32,309    

Prepaid expenses and other assets

    7,385         12,477         9,911         13,978         14,577    

Goodwill

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

Deferred financing costs, less accumulated amortization

    4,597         5,187         5,977         4,788         4,396    

Deferred lease costs, less accumulated amortization

    231,449         228,468         230,577         241,824         227,370    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    $ 4,328,308         $ 4,326,698         $ 4,447,834         $ 4,613,118         $ 4,560,206    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

         

Line of credit and notes payable

    $ 1,400,525         $ 1,352,525         $ 1,472,525         $ 1,664,525         $ 1,637,054    

Accounts payable, accrued expenses, and accrued capital expenditures

    126,207         116,292         122,986         143,106         126,111    

Deferred income

    23,668         32,031         27,321         32,514         32,161    

Intangible lease liabilities, less accumulated amortization

    44,246         46,640         49,037         56,050         43,657    

Interest rate swap

    6,922         2,552         2,537         -             -        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    1,601,568         1,550,040         1,674,406           1,896,195         1,838,983    

Stockholders’ equity:

         

Common stock

    1,702         1,726         1,726         1,728         1,728    

Additional paid in capital

    3,665,284         3,664,202         3,663,662         3,663,155         3,662,522    

Cumulative distributions in excess of earnings

    (934,933)        (888,331)        (891,032)        (952,370)        (948,956)   

Other comprehensive loss

    (6,922)        (2,552)        (2,537)        -             (44)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Piedmont stockholders’ equity

    2,725,131         2,775,045         2,771,819         2,712,513         2,715,250    

Non-controlling interest

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    2,726,740         2,776,658         2,773,428         2,716,923         2,721,223    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable common stock and stockholders’ equity

    $ 4,328,308         $ 4,326,698       $ 4,447,834         $ 4,613,118         $ 4,560,206    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Common stock outstanding at end of period

    170,235         172,630         172,630         172,827           172,827    

 

 

 

10


Piedmont Office Realty Trust, Inc.

Consolidated Statements of Income

Unaudited (in thousands except for per share data)

 

 

 

     Three Months Ended  
  

 

 

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

 

 

 

Revenues:

              

Rental income

       $ 105,992            $ 105,282            $ 105,982            $ 104,460            $ 103,205    

Tenant reimbursements

     27,010          26,718          29,409          28,268          30,640    

Property management fee revenue

     626          574          281          110          363    

Other rental income

     88          123          320          (33)         1,347    
  

 

 

 

      Total revenues

     133,716          132,697          135,992          132,805          135,555    

Operating expenses:

              

Property operating costs

     53,699          52,743          55,107          50,814          52,950    

Depreciation

     27,798          27,368          26,794          26,071          25,702    

Amortization

     11,478          12,743          15,403          14,824          14,040    

Impairment loss

     -              -              -              -              -        

General and administrative

     4,865          5,257          6,205          4,677          7,342    
  

 

 

 

      Total operating expenses

     97,840          98,111          103,509          96,386          100,034    
  

 

 

 

Real estate operating income

     35,876          34,586          32,483          36,419          35,521    

Other income (expense):

              

Interest expense

     (15,943)         (16,537)         (16,179)         (16,236)         (17,762)   

Interest and other income (expense)

     285          97          (357)         (91)         (238)   

Equity in income of unconsolidated joint ventures

     246          170          587          485          338    

Gain / (loss) on consolidation of variable interest entity

     -              -              -              -              (388)   

Gain / (loss) on extinguishment of debt

     -              -              1,039          -              -        
  

 

 

 

      Total other income (expense)

     (15,412)         (16,270)         (14,910)         (15,842)         (18,050)   
  

 

 

 

Income from continuing operations

     20,464          18,316          17,573          20,577          17,471    

Discontinued operations:

              

Operating income, excluding impairment loss

     240          1,085          5,550          3,697          3,560    

Gain / (loss) on sale of properties

     10,008          17,830          95,901          26,756          -        
  

 

 

 

      Income / (loss) from discontinued operations (1)

     10,248          18,915          101,451          30,453          3,560    
  

 

 

 

Net income

     30,712          37,231          119,024          51,030          21,031    

Less: Net income attributable to noncontrolling interest

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

 

 

 

Net income attributable to Piedmont

       $ 30,708            $ 37,227            $ 119,020            $ 51,026            $ 21,027    
  

 

 

 

Weighted average common shares outstanding - diluted

     172,209          172,874          173,036          173,045          172,986    

Net income per share available to common stockholders - diluted                

       $ 0.18            $ 0.22            $ 0.69            $ 0.29            $ 0.12    
  

 

 

 

 

 

(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; Deschutes, Rhein, Rogue, Willamette, and Portland Land Parcels in Beaverton, OR, which were all sold on March 19, 2012; and 26200 Enterprise Way in Lake Forest, CA, which was sold on May 31, 2012.

 

11


Piedmont Office Realty Trust, Inc.

Consolidated Statements of Income

Unaudited (in thousands except for per share data)

 

 

 

    Three Months Ended     Six Months Ended  
      6/30/2012         6/30/2011         Change         Change         6/30/2012         6/30/2011         Change         Change    

Revenues:

               

Rental income

    $     105,992          $     103,205          $     2,787          2.7%         $     211,275          $     203,035          $     8,240          4.1%    

Tenant reimbursements

    27,010          30,640          (3,630)         -11.8%         53,728          57,520          (3,792)         -6.6%    

Property management fee revenue

    626          363          263          72.5%         1,199          1,193          6          0.5%    

Other rental income

    88          1,347          (1,259)         -93.5%         212          4,751          (4,539)         -95.5%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    133,716          135,555          (1,839)         -1.4%         266,414          266,499          (85)         0.0%    

Operating expenses:

               

Property operating costs

    53,699          52,950          (749)         -1.4%         106,442          101,743          (4,699)         -4.6%    

Depreciation

    27,798          25,702          (2,096)         -8.2%         55,167          50,663          (4,504)         -8.9%    

Amortization

    11,478          14,040          2,562          18.2%         24,221          24,314          93          0.4%    

Impairment loss

    -              -              -              0.0%         -              -              -              0.0%    

General and administrative

    4,865          7,342          2,477          33.7%         10,122          13,954          3,832          27.5%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    97,840          100,034          2,194          2.2%         195,952          190,674          (5,278)         -2.8%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Real estate operating income

    35,876          35,521          355          1.0%         70,462          75,825          (5,363)         -7.1%    

Other income (expense):

               

Interest expense

    (15,943)         (17,762)         1,819          10.2%         (32,480)         (33,402)         922          2.8%    

Interest and other income (expense)

    285          (238)         523          219.7%         382          3,221          (2,839)         -88.1%    

Equity in income of unconsolidated joint ventures

    246          338          (92)         -27.2%         416          547          (131)         -23.9%    

Gain / (loss) on consolidation of variable interest entity

    -              (388)         388          100.0%         -              1,532          (1,532)         -100.0%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

    (15,412)         (18,050)         2,638          14.6%         (31,682)         (28,102)         (3,580)         -12.7%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    20,464          17,471          2,993          17.1%         38,780          47,723          (8,943)         -18.7%    

Discontinued operations:

               

Operating income, excluding impairment loss

    240          3,560          (3,320)         -93.3%         1,325          7,279          (5,954)         -81.8%    

Gain / (loss) on sale of properties

    10,008          -              10,008          0.0%         27,838          -              27,838          0.0%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income / (loss) from discontinued operations (1)

    10,248          3,560          6,688          187.9%         29,163          7,279          21,884          300.6%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    30,712          21,031          9,681          46.0%         67,943          55,002          12,941          23.5%    

Less: Net income attributable to noncontrolling interest

    (4)         (4)         -              0.0%         (8)         (8)         -              0.0%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Piedmont

    $     30,708          $     21,027          $   9,681          46.0%         $     67,935          $     54,994          $     12,941          23.5%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding - diluted

    172,209          172,986              172,520          172,908         

Net income per share available to common stockholders - diluted

    $     0.18          $     0.12              $     0.39          $     0.32         
 

 

 

   

 

 

       

 

 

   

 

 

     

 

 

(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; Deschutes, Rhein, Rogue, Willamette, and Portland Land Parcels in Beaverton, OR, which were all sold on March 19, 2012; and 26200 Enterprise Way in Lake Forest, CA, which was sold on May 31, 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     Six Months Ended  
        6/30/2012             6/30/2011             6/30/2012             6/30/2011      

Net income attributable to Piedmont

    $ 30,708          $ 21,027          $ 67,935          $ 54,994     

Depreciation (1) (2)

    28,033          27,879          55,842          55,033     

Amortization (1)

    11,539          15,878          24,379          27,984     

Impairment loss (1)

    -              -              -              -         

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

    (10,008)         (45)         (27,838)         (45)    

(Gain) / loss on consolidation of VIE

    -              388          -              (1,532)    
 

 

 

   

 

 

   

 

 

   

 

 

 

Funds from operations

    60,272          65,127          120,318          136,434     

Acquisition costs

    84          716          81          690     
 

 

 

   

 

 

   

 

 

   

 

 

 

Core funds from operations

    60,356          65,843          120,399          137,124     

Depreciation of non real estate assets

    108          168          201          338     

Stock-based and other non-cash compensation expense

    289          896          623          1,864     

Deferred financing cost amortization (1)

    590          1,060          1,392          1,667     

Amortization of fair market adjustments on notes payable

    -              942          -              942     

Straight-line effects of lease revenue (1)

    (5,477)         (2,596)         (7,042)         (359)    

Amortization of lease-related intangibles (1)

    (1,785)         (1,670)         (3,316)         (3,033)    

Income from amortization of discount on purchase of mezzanine loans

    -              -              -              (484)    

Acquisition costs

    (84)         (716)         (81)         (690)    

Non-incremental capital expenditures (3)

    (17,781)         (13,349)         (25,847)         (30,480)    
 

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted funds from operations

    $ 36,216          $ 50,578          $ 86,329          $ 106,889     
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding - diluted

    172,209          172,986          172,520          172,908     

Funds from operations per share (diluted)

    $ 0.35          $ 0.38          $ 0.70          $ 0.79     

Core funds from operations per share (diluted)

    $ 0.35          $ 0.38          $ 0.70          $ 0.79     

Adjusted funds from operations per share (diluted)

    $ 0.21          $ 0.29          $ 0.50          $ 0.62     

 

 

 

(1)

Includes adjustments for consolidated 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.

 

13


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Cash Basis)

Unaudited (in thousands)

 

 

 

     Three Months Ended      Six Months Ended  
         6/30/2012              6/30/2011              6/30/2012              6/30/2011      

Net income attributable to Piedmont

     $ 30,708           $ 21,027           $ 67,935           $ 54,994     

Net income attributable to noncontrolling interest

     4           121           8           243     

Interest expense

     15,943           19,313           32,480           36,487     

Depreciation (1)

     28,141           28,047           56,043           55,371     

Amortization (1)

     11,539           15,878           24,379           27,984     

Impairment loss (1)

     -               -               -               -         

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

     (10,008)          (45)          (27,838)          (45)    

(Gain) / loss on consolidation of VIE

     -               388           -               (1,532)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Core EBITDA

     76,327           84,729           153,007           173,502     

General & administrative expenses (1)

     4,866           7,392           10,184           14,096     

Management fee revenue

     (626)          (363)          (1,199)          (1,193)    

Interest and other income (1)

     (305)          253           (403)          (3,206)    

Lease termination income

     (88)          (1,347)          (212)          (4,751)    

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

     165           43           264           479     

Straight-line effects of lease revenue (1)

     (5,642)          (2,639)          (7,306)          (667)    

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

     (1,785)          (1,670)          (3,316)          (3,204)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Core net operating income - cash basis

     72,912           86,398           151,019           175,056     

Net operating income from:

           

Acquisitions (2)

     (3,886)          (3,446)          (7,036)          (3,444)    

Dispositions (3)

     (296)          (7,376)          (1,692)          (14,873)    

Industrial properties

     (245)          (242)          (487)          (479)    

Unconsolidated joint ventures

     (598)          (696)          (1,188)          (1,354)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Same Store NOI - Cash Basis

     $ 67,887           $ 74,638           $ 140,616           $ 154,906     
  

 

 

    

 

 

    

 

 

    

 

 

 

Change period over period

     -9.0%             N/A             -9.2%             N/A       

 

 

   

Same Store Net Operating Income

Top Seven Markets

  

  

   
          Three Months Ended      Six Months Ended       
          6/30/2012      6/30/2011      6/30/2012      6/30/2011       
          $      %        $      %        $      %        $      %         
      

 

 

    

 

 

    

 

 

    

 

 

     
   

Washington, D.C. (4)

   $ 17,996         26.5         $ 17,731         23.7         $ 37,046         26.3         $ 35,753         23.1         
   

New York (5)

     11,111         16.4           14,093         18.9           23,429         16.7           27,678         17.9         
   

Chicago (6)

     9,573         14.1           12,815         17.2           18,999         13.5           25,208         16.3         
   

Minneapolis

     5,277         7.8           4,937         6.6           10,270         7.3           9,980         6.4         
   

Dallas

     3,529         5.2           3,390         4.5           7,334         5.2           7,203         4.6         
   

Los Angeles (7)

     3,232         4.7           3,858         5.2           6,408         4.6           7,459         4.8         
   

Boston (8)

     2,696         4.0           2,598         3.5           5,240         3.7           6,469         4.2         
   

Other (9)

     14,473         21.3           15,216         20.4           31,890         22.7           35,156         22.7         
      

 

 

    

 

 

    

 

 

    

 

 

     
   

Total

     $         67,887         100.0           $         74,638         100.0           $         140,616         100.0           $         154,906         100.0         
        

 

 

    

 

 

    

 

 

    

 

 

     

(1) Includes amounts attributable to consolidated 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; 400 TownPark in Lake Mary, FL purchased on November 10, 2011; and Gavitello Land Parcels in Atlanta, GA, purchased on June 28, 2012.

(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; Deschutes, Rhein, Rogue, Willamette, and Portland Land Parcels in Beaverton, OR, sold on March 19, 2012; and 26200 Enterprise Way in Lake Forest, CA, sold on May 31, 2012.

(4) The increase in Washington, D.C. Same Store Net Operating Income for the six months ended June 30, 2012 as compared to the same period in 2011 was primarily related to increased rental 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 New York Same Store Net Operating Income for the three months and the six months ended June 30, 2012 as compared to the same periods in 2011 was primarily related to the lease expirations of and the downtime and rental abatements associated with newly signed leases to backfill the spaces formerly occupied by sanofi-aventis at 200 & 400 Bridgewater Crossing in Bridgewater, NJ.

(6) The decrease in Chicago Same Store Net Operating Income for the three months and the six months ended June 30, 2012 as compared to the same periods in 2011 was primarily related to the expiration of the Zurich American Insurance Company lease at Windy Point II in Schaumburg, IL in August 2011, as well as the expiration of the Kirkland & Ellis lease at Aon Center in Chicago, IL in December 2011. The loss of the Zurich and Kirkland & Ellis leases reduced rental revenues by approximately $5.2 million and $10.4 million, respectively, for the three months and the six months ended June 30, 2012; these amounts are offset partially by incremental operating expense savings due to the vacancy of those tenants. Additionally, the negative contributions are offset somewhat by the commencement of several new leases during the last year (although there are several replacement leases that are in abatement or have yet to commence).

(7) The decrease in Los Angeles Same Store Net Operating Income for the three months and the six months ended June 30, 2012 as compared to the same periods in 2011 was primarily related to a net lease expiration of approximately 65,000 square feet at 1055 East Colorado Boulevard in Pasadena, CA.

(8) The decrease in Boston Same Store Net Operating Income for the six months ended June 30, 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.

(9) The decrease in Other Same Store Net Operating Income for the three months ended June 30, 2012 as compared to the same period in 2011 was primarily related to a rental abatement concession in 2012 associated with a new lease with Grand Canyon Education at Desert Canyon 300 in Phoenix, AZ. The decrease in Other Same Store Net Operating Income for the six months ended June 30, 2012 as compared to the same period in 2011 was primarily attributable to four factors: 1) the rental abatement concession described above at Desert Canyon 300 in Phoenix, AZ, 2) a rental abatement concession in 2012 associated with a new lease with Chrysler Group, LLC at 1075 West Entrance Drive in Auburn Hills, MI, 3) a decrease in rental revenue associated with a lower lease renewal rental rate at 5601 Headquarters Drive in Plano, TX, and 4) a decrease in rental revenue associated with lease expirations in 2011 at Las Colinas Corporate Center II in Irving, TX.

 

14


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Accrual Basis)

Unaudited (in thousands)

 

 

 

     Three Months Ended      Six Months Ended  
         6/30/2012              6/30/2011              6/30/2012              6/30/2011      

Net income attributable to Piedmont

      $ 30,708            $ 21,027            $ 67,935            $ 54,994     

Net income attributable to noncontrolling interest

     4           121           8           243     

Interest expense

     15,943           19,313           32,480           36,487     

Depreciation (1)

     28,141           28,047           56,043           55,371     

Amortization (1)

     11,539           15,878           24,379           27,984     

Impairment loss (1)

     -               -               -               -         

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

     (10,008)          (45)          (27,838)          (45)    

(Gain) / loss on consolidation of VIE

     -               388           -               (1,532)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Core EBITDA

     76,327           84,729           153,007           173,502     

General & administrative expenses (1)

     4,866           7,392           10,184           14,096     

Management fee revenue

     (626)          (363)          (1,199)          (1,193)    

Interest and other income (1)

     (305)          253           (403)          (3,206)    

Lease termination income

     (88)          (1,347)          (212)          (4,751)    

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

     165           43           264           479     
  

 

 

    

 

 

    

 

 

    

 

 

 

Core net operating income - accrual basis

     80,339           90,707           161,641           178,927     

Net operating income from:

           

Acquisitions (2)

     (5,120)          (3,591)          (9,309)          (3,590)    

Dispositions (3)

     (308)          (8,958)          (1,690)          (17,961)    

Industrial properties

     (496)          (257)          (749)          (513)    

Unconsolidated joint ventures

     (563)          (653)          (1,127)          (1,269)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Same Store NOI - Accrual Basis

      $ 73,852            $ 77,248            $ 148,766            $ 155,594     
  

 

 

    

 

 

    

 

 

    

 

 

 

Change period over period

     -4.4%           N/A           -4.4%           N/A     

 

 

   

Same Store Net Operating Income

Top Seven Markets

                                                                           
      Three Months Ended      Six Months Ended       
          6/30/2012      6/30/2011      6/30/2012      6/30/2011       
          $      %        $      %        $      %        $      %         
      

 

 

    

 

 

    

 

 

    

 

 

     
   

Washington, D.C. (4)

       $ 19,437         26.3           $ 18,228         23.6           $ 39,893         26.8           $ 36,305         23.3         
   

New York (5)

     11,988         16.2           13,688         17.7           24,587         16.5           27,317         17.5         
   

Chicago (6)

     9,177         12.4           12,308         15.9           18,306         12.3           24,401         15.7         
   

Minneapolis (7)

     5,552         7.5           5,911         7.6           10,888         7.3           11,920         7.7         
   

Dallas

     3,883         5.3           3,601         4.7           7,811         5.3           7,635         4.9         
   

Los Angeles (8)

     3,101         4.2           3,699         4.8           6,436         4.3           7,109         4.6         
   

Boston

     2,989         4.1           2,831         3.7           5,856         4.0           6,354         4.1         
   

Other (9)

     17,725         24.0           16,982         22.0           34,989         23.5           34,553         22.2         
    

 

 

    

 

 

    

 

 

    

 

 

     
   

Total

       $         73,852         100.0           $     77,248         100.0           $     148,766         100.0           $     155,594         100.0         
    

 

 

    

 

 

    

 

 

    

 

 

     

(1) Includes amounts attributable to consolidated 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; 400 TownPark in Lake Mary, FL purchased on November 10, 2011; and Gavitello Land Parcels in Atlanta, GA, purchased on June 28, 2012.

(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; Deschutes, Rhein, Rogue, Willamette, and Portland Land Parcels in Beaverton, OR, sold on March 19, 2012; and 26200 Enterprise Way in Lake Forest, CA, sold on May 31, 2012.

(4) The increase in Washington, D.C. Same Store Net Operating Income for the three months and the six months ended June 30, 2012 as compared to the same periods in 2011 was primarily attributable to two factors: 1) 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 2) increased rental revenue as a result of the commencement of several new leases at Piedmont Pointe I and II in Bethesda, MD.

(5) The decrease in New York Same Store Net Operating Income for the three months and the six months ended June 30, 2012 as compared to the same periods in 2011 was primarily related to the lease expirations of and the downtime associated with newly signed leases to backfill the spaces formerly occupied by sanofi-aventis at 200 & 400 Bridgewater Crossing in Bridgewater, NJ.

(6) The decrease in Chicago Same Store Net Operating Income for the three months and the six months ended June 30, 2012 as compared to the same periods in 2011 was primarily related to the expiration of the Zurich American Insurance Company lease at Windy Point II in Schaumburg, IL in August 2011, as well as the expiration of the Kirkland & Ellis lease at Aon Center in Chicago, IL in December 2011. The loss of the Zurich and Kirkland & Ellis leases reduced rental revenues by approximately $4.6 million and $9.2 million, respectively, for the three months and the six months ended June 30, 2012; these amounts are offset partially by incremental operating expense savings due to the vacancy of those tenants. Additionally, the negative contributions 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 and the six months ended June 30, 2012 as compared to the same periods in 2011 was primarily related to the net loss of approximately 76,000 leased square feet associated with the expiration of the HSBC Card Services lease at Crescent Ridge II in Minnetonka, MN.

(8) The decrease in Los Angeles Same Store Net Operating Income for the three months ended June 30, 2012 as compared to the same period in 2011 was primarily related to a net lease expiration of approximately 65,000 square feet at 1055 East Colorado Boulevard in Pasadena, CA.

(9) The increase in Other Same Store Net Operating Income for the three months ended June 30, 2012 as compared to the same period in 2011 was primarily related to three factors: 1) an increase in rental revenue due to downtime between the EDS and Chrysler Group leases in 2011 at 1075 West Entrance Drive in Auburn Hills, MI, 2) an increase in rental revenue due to the commencement of the US Foods lease at River Corporate Center in Tempe, AZ, and 3) an increase in rental revenue due to the commencement of several new leases at Glenridge Highlands II in Atlanta, GA.

 

15


Piedmont Office Realty Trust, Inc.

Capitalization Analysis

Unaudited ($ and shares in thousands)

 

 

 

     As of
    June 30, 2012    
     As of
    December 31, 2011    
 

 

Common stock price (1)

     $17.21         $17.04   

 

Total shares outstanding

     170,235         172,630   

 

Equity market capitalization (1)

     $2,929,741         $2,941,611   

 

Total debt - principal amount outstanding

     $1,400,525         $1,472,525   

 

Total market capitalization (1)

     $4,330,266         $4,414,136   

 

Total debt / Total market capitalization

     32.3%         33.4%   

 

Total gross real estate assets

     $4,558,128         $4,615,812   

 

Total debt / Total gross real estate assets (2)

     30.7%         31.9%   

 

Total debt / Total gross assets (3)

     26.7%         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 June 30, 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

   $113,000(2)   0.73%   2.0 months   

Fixed Rate

   1,287,525   4.59%   38.3 months   

 

  

Total

   $1,400,525   4.28%   35.4 months   

 

  
         
         
         
         

Unsecured & Secured Debt

Debt (1)    Principal Amount
Outstanding
  Weighted Average
Stated Interest Rate
  Weighted Average
Maturity
  

 

LOGO

 

  

Unsecured

   $413,000   2.15%(3)   38.9 months   

Secured

   987,525   5.17%   33.9 months   

 

  

Total

   $1,400,525   4.28%   35.4 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

   $0       $113,000       0.73%   8.1%  

2013

   0       0       N/A   0.0%  

2014

   575,000       0       4.89%   41.0%  

2015

   105,000       0       5.29%   7.5%  

2016

   167,525       300,000       3.71%   33.4%  

2017

   140,000       0       5.76%   10.0%  

 

 

Total

   $987,525       $413,000       4.28%   100.0%  

 

 

(1) All of Piedmont’s outstanding debt as of June 30, 2012 was interest-only debt.

(2) Amount represents the outstanding balance as of June 30, 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.

 

17


Piedmont Office Realty Trust, Inc.

Debt Detail

Unaudited ($ in thousands)

 

 

 

Facility   Property    Rate(1)   Maturity      Principal Amount
Outstanding as of
June 30, 2012
 

 

 

Secured

         

$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 (2)    4.84%     6/7/2014         350,000   

$105.0 Million Fixed-Rate Loan

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

$125.0 Million Fixed-Rate Loan

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

$42.5 Million Fixed-Rate Loan

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

$140.0 Million WDC Fixed-Rate Loans

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

 

 

Subtotal / Weighted Average (4)

     5.17%        $987,525   

Unsecured

         

$500.0 Million Unsecured Facility (5)

  N/A       0.73%(6)     8/30/2012         $113,000   

$300.0 Million Unsecured Term Loan

  N/A       2.69%(7)     11/22/2016         300,000   

 

 

Subtotal / Weighted Average (4)

     2.15%        $413,000   

 

 

Total Debt - Principal Amount Outstanding / Weighted Average Stated Rate (4)

   4.28%        $1,400,525   

 

 

(1) All of Piedmont’s outstanding debt as of June 30, 2012, was interest-only debt.

(2) The nine property collateralized pool includes 1200 Crown Colony Drive, Braker Pointe III, 2 Gatehall Drive, One and Two Independence Square, 2120 West End Avenue, 200 and 400 Bridgewater Crossing, and Fairway Center II.

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

(4) Weighted average is based on the total balance outstanding and interest rate at June 30, 2012.

(5) All of Piedmont’s outstanding debt as of June 30, 2012, was term debt with the exception of $113 million outstanding on our unsecured line of credit. Piedmont is close to finalizing a new $500 million unsecured revolving credit facility. The terms of the facility will be provided after the transaction has closed. The Company’s current revolver will be terminated prior to the effectiveness of the transaction.

(6) 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 June 30, 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 June 30, 2012) over the selected rate based on Piedmont’s current credit rating.

(7) 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 June 30, 2012

Unaudited

 

 

 

Debt Covenant Compliance (1)            Required                       Actual           

 

Maximum Leverage Ratio

     0.60         0.35   

 

Minimum Fixed Charge Coverage Ratio (2)

     1.50         4.62   

 

Maximum Secured Indebtedness Ratio

     0.40         0.25   

 

Minimum Unencumbered Leverage Ratio

     1.60         4.81   

 

Minimum Unencumbered Interest Coverage Ratio (3)

     1.75         19.68   

 

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 credit agreements 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
June 30, 2012
   Six months ended
June 30, 2012
   Year ended
December 31, 2011        

 

Net debt to core EBITDA

   4.3 x    4.3 x    3.9 x

 

Fixed charge coverage ratio (5)

   4.8 x    4.7 x    4.8 x

 

Interest coverage ratio (6)

   4.8 x    4.7 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 June 30, 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 June 30, 2012 and December 31, 2011.

 

19


Piedmont Office Realty Trust, Inc.

Tenant Diversification (1)

As of June 30, 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)   $73,357   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)   27,862   5.2   973   5.6

State of New York

  AA / Aa2   1   2019   19,839   3.7   481   2.8

Independence Blue Cross

  No rating available   1   2023   14,267   2.6   761   4.4

Nestle

  AA / Aa2   1   2015   13,818   2.6   392   2.2

GE

  AA+ / Aa3   2   2027   12,912   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   9,002   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+ / A2   1   2021   7,304   1.4   205   1.2

Caterpillar Financial

  A / A2   1   2022   7,275   1.3   312   1.8

Harvard University

  AAA / Aaa   2   2017   6,652   1.2   105   0.6

Raytheon

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

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- / A3   2   2018   5,455   1.0   235   1.3

Other

          Various   221,105   41.1   7,906   45.4

Total

              $538,350   100.0   17,418   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) Unless indicated otherwise, Lease Expiration 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 $18.9 million of Annualized Lease Revenue, expires in 2014.

 

20


Piedmont Office Realty Trust, Inc.

Tenant Credit Rating & Lease Distribution Information

As of June 30, 2012

 

 

 

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

    AAA / Aaa

     $10,091       1.9     

    AA / Aa

     175,513       32.6     

    A / A

     107,326       20.0     

    BBB / Baa

     69,070       12.8     

    BB / Ba

     14,593       2.7     

    B / B

     19,326       3.6     

    Below

     1,248       0.2     

    Not rated (2)

     141,183       26.2     
    

 

 

    

 

    

    Total

     $538,350       100.0     
    

 

 

    

 

    

 

Lease Distribution

As of June 30, 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

   185    34.7      $16,282       3.0      151       0.9

2,501 - 10,000

   140    26.3      25,172       4.7      755       4.3

10,001 - 20,000

   66    12.4      28,550       5.3      964       5.5

20,001 - 40,000

   60    11.2      52,140       9.7      1,738       10.0

40,001 - 100,000

   31    5.8      57,048       10.6      1,851       10.6

Greater than 100,000

   51    9.6      359,158       66.7      11,959       68.7

 

Total

   533    100.0      $538,350       100.0      17,418       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”; 2) provides a year-over-year comparison of leased percentage on the same subset of properties under the heading “Same Store Analysis”; and 3) provides a year-over-year comparison of leased percentage on the same subset of stabilized properties under the heading “Same Store Stabilized Analysis”.

 

           Three Months Ended June 30, 2012            Three Months Ended June 30, 2011       
      

 

 

       

 

 

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

 

 

       

 

 

     
   

As of March 31, 20xx

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

New leases

     363                1,018           
   

Expired leases

     (213             (1,075        
   

Other

     10        10              (2     11         
      

 

 

       

 

 

     
   

Subtotal

     17,563        20,627        85.1%            18,714        21,527        86.9%       
   

Acquisitions during period

               147        290         
   

Dispositions during period

     (145     (145           -            -             
   

As of June 30, 20xx (2) (3)

     17,418        20,482        85.0%            18,861        21,817        86.5%       
      

 

 

       

 

 

     
                                                                 
                    
           Six Months Ended June 30, 2012            Six Months Ended June 30, 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

     984                1,814           
   

Expired leases

     (1,223             (1,979        
   

Other

     3        10              (3     7         
      

 

 

       

 

 

     
   

Subtotal

     17,888        20,952        85.4%            18,046        20,415        88.4%       
   

Acquisitions during period

     -            -                  815        1,402         
   

Dispositions during period

     (470     (470           -            -             
   

As of June 30, 20xx (2) (3)

     17,418        20,482        85.0%            18,861        21,817        86.5%       
                                                                 
                    
                   
   

Stabilized Portfolio Analysis

                    
   

Less value-add properties (4)

     (627     (1,432     43.8%            (701     (1,406     49.9%       
   

Stabilized Total (2) (3)

     16,791        19,050        88.1%            18,160        20,411        89.0%       
      

 

 

       

 

 

     
                                                                 
                    
                   
   

Same Store Analysis

                    
   

Less acquisitions/dispositions after June 30, 2011 (4) (5)

     (500     (616     81.2%            (1,830     (1,969     92.9%       
   

Same Store Total (2) (3) (6)

     16,918        19,866        85.2%            17,031        19,848        85.8%       
      

 

 

       

 

 

     
   

Same Store Stabilized Analysis

                    
   

Less value-add same store properties (4)

     (688     (1,406     48.9%            (701     (1,406     49.9%       
   

Same Store Stabilized Total (2) (3)

     16,230        18,460        87.9%            16,330        18,442        88.5%       
      

 

 

       

 

 

     
                                                                 
                    

 

(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 June 30, 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) For additional information on acquisitions/dispositions completed during the last year and value-add properties, please refer to pages 32 and 33, respectively.

(5) 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.

(6) Excluding executed but not commenced leases for currently vacant spaces, comprising approximately 579,000 square feet for the current period and 603,000 square feet for the prior period, Piedmont’s same store commenced leased percentage was 82.2% and 82.8%, respectively.

 

22


Piedmont Office Realty Trust, Inc.

Rental Rate Roll Up / Roll Down Analysis (1)

(in thousands)

 

 

 

    Three Months Ended June 30, 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

    450        76     2.2     (16.1 %)      (8.8 %) 

Leases executed for spaces excluded from analysis (5)

    145        24      

 

     Six Months Ended June 30, 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

     805         77     3.9     (11.3 %)      (5.3 %) 

Leases executed for spaces excluded from analysis (5)

     236         23      

 

 

(1) The population analyzed consists of consolidated 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) with lease terms greater than one year. Spaces with downtime 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 June 30, 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    3,064    15.0    $0    0.0    N/A

2012(2)

   20,934    3.9    754    3.7    6,949    1.3    33.2

2013

   66,338    12.3    1,540    7.5    22,190    4.1    33.4

2014

   51,812    9.6    1,493    7.3    3,572    0.7    6.9

2015

   43,884    8.2    1,551    7.6    33    0.0    0.1

2016

   29,390    5.5    1,025    5.0    1,435    0.3    4.9

2017

   37,803    7.0    1,196    5.8    1,845    0.3    4.9

2018

   51,593    9.6    1,726    8.4    8,733    1.6    16.9

2019

   47,332    8.8    1,777    8.7    19,839    3.7    41.9

2020

   25,566    4.8    992    4.8    9,403    1.7    36.8

2021

   14,447    2.7    502    2.5    0    0.0    0.0

2022

   21,748    4.0    711    3.5    0    0.0    0.0

2023

   37,626    7.0    1,627    7.9    0    0.0    0.0

2024

   22,225    4.1    694    3.4    0    0.0    0.0

2025

   7,258    1.3    295    1.4    0    0.0    0.0

Thereafter

   60,394    11.2    1,535    7.5    28,953    5.4    47.9
  

 

  

 

Total / Weighted Average

   $538,350    100.0    20,482    100.0    $102,952    19.1   
  

 

  

 

 

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 10,600 square feet and Annualized Lease Revenue of $364,996, are assigned a lease expiration date of a year and a day beyond the period end date. Includes leases with an expiration date of June 30, 2012 aggregating 10,251 square feet and Annualized Lease Revenue of $757,275.

 

24


Piedmont Office Realty Trust, Inc.

Lease Expirations by Quarter

As of June 30, 2012

(in thousands)

 

 

 

     Q3 2012 (1)    Q4 2012    Q1 2013    Q2 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

   20    $405    47    $916    0    $0    8    $267

Austin

   0    0    0    0    0    0    0    0

Boston

   0    0    4    189    0    32    0    0

Central & South Florida

   0    0    4    113    0    0    0    0

Chicago

   83    2,598    15    481    47    1,681    43    1,267

Cleveland

   3    0    102    1,580    0    0    0    0

Dallas

   0    4    16    352    0    0    5    134

Denver

   0    0    0    0    0    0    0    0

Detroit

   0    0    0    0    0    0    0    0

Houston

   0    0    11    345    0    0    0    0

Los Angeles

   0    1    43    1,748    2    50    47    1,523

Minneapolis

   3    112    5    115    16    524    5    160

Nashville

   0    0    0    0    0    0    0    0

New York

   8    323    150    3,318    11    306    5    124

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.(3)

   230    10,503    10    516    343    21,357    71    330
  

 

  

 

  

 

  

 

Total / Weighted Average (4)    347    $13,946    407    $9,673    419    $23,950    184    $3,805
  

 

  

 

  

 

  

 

 

 

(1) Includes leases with an expiration date of June 30, 2012 aggregating 10,251 square feet and Expiring Lease Revenue of $341,508. 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) Approximately 220,000 square feet and $10.0 million of expiring lease revenue in the third quarter of 2012 is related to the lease with the United States of America (National Park Service), which is expected to hold over.

(4) 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 June 30, 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    $582    29    $623    29    $504    18    $194

Austin

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

Boston

   4    189    0    32    27    1,884    135    2,791    3    185

Central & South Florida

   4    113    22    568    18    458    17    388    65    1,592

Chicago

   98    3,079    621    24,188    29    3,516    187    5,130    82    2,381

Cleveland

   105    1,580    10    218    0    0    0    0    13    294

Dallas

   16    356    18    455    41    1,010    287    6,417    7    150

Denver

   0    0    0    0    0    0    0    0    156    2,919

Detroit

   0    0    86    750    6    124    132    3,890    31    678

Houston

   11    345    0    0    0    0    0    0    0    17

Los Angeles

   43    1,749    57    1,869    5    1,550    428    14,882    88    2,637

Minneapolis

   8    227    48    1,586    687    18,841    103    3,656    33    1,039

Nashville

   0    0    0    0    0    0    0    0    0    0

New York

   158    3,641    39    1,632    96    4,028    66    2,401    280    8,988

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.(3)

   240    11,019    620    31,233    555    19,226    35    1,718    54    2,388
  

 

  

 

  

 

  

 

  

 

Total / Weighted Average (4)

   754    $23,619    1,540    $63,113    1,493    $51,260    1,551    $43,724    1,025    $29,504
  

 

  

 

  

 

  

 

  

 

 

 

(1) Includes leases with an expiration date of June 30, 2012 aggregating 10,251 square feet and Expiring Lease Revenue of $341,508. 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) Approximately 220,000 square feet and $10.0 million of expiring lease revenue in 2012 is related to the lease with the United States of America (National Park Service), which is expected to hold over.

(4) 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 June 30, 2012

Unaudited ($ in thousands)

 

 

         For the Three Months Ended      
    

 

 

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

 

 

   
 

Non-incremental

               
 

Bldg / construction / dev

     $1,959         $1,426         $3,650         $1,063        $1,315     
 

Tenant improvements

     4,809         5,367         8,463         4,748        7,367     
 

Leasing costs

     11,013         1,273         3,279         8,718        4,667     
    

 

 

   
 

Total non-incremental

     17,781         8,066         15,392         14,529        13,349     
 

Incremental

               
 

Bldg / construction / dev

     5,721         2,241         2,040         1,646        983     
 

Tenant improvements

     12,044         5,938         10,862         7,154        4,770     
 

Leasing costs

     1,687         1,925         12,791         1,464        1,372     
    

 

 

   
 

Total incremental

     19,452         10,104         25,693         10,264        7,125     
    

 

 

   
 

Total capital expenditures

     $37,233         $18,170         $41,085         $24,793        $20,474     
    

 

 

   
                 
               
                     
   

Tenant improvement commitments (1)

  

   
   

Tenant improvement commitments outstanding as of March 31, 2012

  

    $137,280     
   

New tenant improvement commitments related to leases executed during period

  

    15,589     
   

Tenant improvement expenditures

  

     (16,853    
   

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

   

             (28    
             

 

 

     
   

Tenant improvement commitments fulfilled, expired or other adjustments

  

    (16,881  
                 

 

 

   
   

Total as of June 30, 2012

  

             $135,988     
                 

 

 

   
   

Tenant improvement commitments - Incremental capital when fulfilled

  

    $38,798     
   

Tenant improvement commitments - Non-incremental capital when fulfilled

  

    97,190     
                 

 

 

   
   

Total as of June 30, 2012

  

              $ 135,988     
                 

 

 

   
                                                     

 

 

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

(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 56% 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    
June 30, 2012
  For the Six Months Ended    
June 30, 2012
   2011    2010    2009

Renewal Leases

                      
   

Number of leases

  13   21    48    37    34    
   

Square feet

  233,673   515,585    2,280,329    1,241,481    1,568,895    
   

Tenant improvements per square foot (1)

  $14.24   $6.45    $33.29    $14.40    $12.01    
   

Leasing commissions per square foot

  $8.04   $4.60    $9.97    $8.40    $5.51    
   

Total per square foot

  $22.28   $11.05    $43.26    $22.80    $17.52    
       
   

Tenant improvements per square foot per year of lease term

  $2.43   $1.45    $3.93    $1.74    $1.44    
   

Leasing commissions per square foot per year of lease term

  $1.37   $1.03    $1.18    $1.02    $0.66    
   

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

  $3.80   $2.48    $5.11    $2.76    $2.10    
           

  New Leases

                      
   

Number of leases

  27   44    76    56    28    
   

Square feet

  361,675   525,184    1,588,271    866,212    700,295    
   

Tenant improvements per square foot (1)

  $45.89   $37.94    $41.21    $32.65    $45.04    
   

Leasing commissions per square foot

  $14.95   $16.55    $15.38    $11.28    $17.12    
   

Total per square foot

  $60.84   $54.49    $56.59    $43.93    $62.16    
       
   

Tenant improvements per square foot per year of lease term

  $4.63   $4.06    $4.19    $4.16    $4.05    
   

Leasing commissions per square foot per year of lease term

  $1.51   $1.77    $1.57    $1.44    $1.54    
   

Total per square foot per year of lease term

  $6.14   $5.83    $5.76    $5.60    $5.59    
     

  Total

                  
   

Number of leases

  40   65    124    93    62    
   

Square feet

  595,348   1,040,769    3,868,600    2,107,693    2,269,190    
   

Tenant improvements per square foot (1)

  $33.47   $22.34    $36.54    $21.90    $22.21    
   

Leasing commissions per square foot

  $12.24   $10.63    $12.19    $9.59    $9.09    
   

Total per square foot

  $45.71   $32.97    $48.73    $31.49    $31.30    
       
   

Tenant improvements per square foot per year of lease term

  $4.02   $3.22    $4.05    $2.70    $2.42    
   

Leasing commissions per square foot per year of lease term

  $1.47   $1.53    $1.35    $1.18    $0.99    
   

Total per square foot per year of lease term

  $5.49   $4.75    $5.40    $3.88    $3.41    

NOTE: This information is presented for our consolidated office assets only. Beginning with 2012, all leases for consolidated office properties, including short-term leases (leases for a term of less than one year), are included in the information presented above. Prior to 2012, short-term leases were excluded from this information. Management believes that short-term leases completed prior to 2012 would have an immaterial impact to the data presented herein.

(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 June 30, 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       $120,785       22.4       3,055       14.9       2,803       91.8  

Chicago

   6       118,879       22.1       4,772       23.3       3,438       72.0  

New York

   7       80,250       14.9       2,658       13.0       2,476       93.2  

Minneapolis

   4       43,781       8.1       1,613       7.9       1,480       91.8  

Los Angeles

   4       27,294       5.1       999       4.9       799       80.0  

Boston

   6       25,804       4.8       1,023       5.0       1,013       99.0  

Dallas

   7       24,942       4.6       1,276       6.2       1,139       89.3  

Detroit

   4       17,235       3.2       930       4.5       779       83.8  

Atlanta

   6       15,258       2.8       1,042       5.1       639       61.3  

Philadelphia

   1       14,267       2.7       761       3.7       761       100.0  

Houston

   2       13,552       2.5       463       2.3       434       93.7  

Phoenix

   4       9,074       1.7       564       2.7       477       84.6  

Central & South Florida

   4       7,854       1.5       476       2.3       337       70.8  

Nashville

   1       7,275       1.4       312       1.5       312       100.0  

Austin

   1       6,042       1.1       195       1.0       195       100.0  

Cleveland

   2       3,139       0.6       187       0.9       180       96.3  

Denver

   1         2,919         0.5         156         0.8         156         100.0  

Total / Weighted Average

   74       $538,350       100.0       20,482       100.0       17,418       85.0  
  

 

 

LOGO

 

29


Piedmont Office Realty Trust, Inc.

Geographic Diversification by Location Type

As of June 30, 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   20.0   2,574   12.6        5   2.4   481   2.3      14   22.4   3,055   14.9

Chicago

  IL   2   18.6   3,647   17.8        4   3.5   1,125   5.5      6   22.1   4,772   23.3

New York

  NY, NJ   1   7.4   1,027   5.0        6   7.5   1,631   8.0      7   14.9   2,658   13.0

Minneapolis

  MN   1   5.2   928   4.6        3   2.9   685   3.3      4   8.1   1,613   7.9

Los Angeles

  CA   3   4.5   865   4.2        1   0.6   134   0.7      4   5.1   999   4.9

Boston

  MA   2   2.2   173   0.9        4   2.6   850   4.1      6   4.8   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   1.8   493   2.4        3   1.4   437   2.1      4   3.2   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   2.3      2   2.5   463   2.3

Phoenix

  AZ   0   0.0   0   0.0        4   1.7   564   2.7      4   1.7   564   2.7

Central & South Florida

  FL   0   0.0   0   0.0        4   1.5   476   2.3      4   1.5   476   2.3

Nashville

  TN   1   1.4   312   1.5        0   0.0   0   0.0      1   1.4   312   1.5

Austin

  TX   0   0.0   0   0.0        1   1.1   195   1.0      1   1.1   195   1.0

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   65.5   11,338   55.4        51   34.5   9,144   44.6      74   100.0   20,482   100.0
   

 

 

 

 

 

 

30


Piedmont Office Realty Trust, Inc.

Industry Diversification

As of June 30, 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    $102,952    19.1    2,400    13.8

Depository Institutions

   13    2.9    49,922    9.3    1,732    9.9

Business Services

   64    14.5    40,467    7.5    1,411    8.1

Petroleum Refining & Related Industries

   1    0.2    31,749    5.9    776    4.4

Nondepository Credit Institutions

   15    3.4    31,363    5.8    1,104    6.3

Engineering, Accounting, Research, Management & Related Services

   29    6.6    30,827    5.7    938    5.4

Insurance Carriers

   22    5.0    30,357    5.6    1,366    7.8

Communications

   34    7.7    18,186    3.4    610    3.5

Security & Commodity Brokers, Dealers, Exchanges & Services

   28    6.3    17,369    3.3    620    3.6

Educational Services

   9    2.0    15,842    3.0    440    2.5

Food & Kindred Products

   6    1.4    14,775    2.7    428    2.5

Transportation Equipment

   4    0.9    13,838    2.6    518    3.0

Fabricated Metal Products, Except Machinery & Transportation Equipment

   4    0.9    12,278    2.3    418    2.4

Electronic & Other Electrical Equipment & Components, Except Computer

   9    2.0    11,422    2.1    518    3.0

Measuring, Analyzing, And Controlling Instruments; Medical and Other Goods

   8    1.8    11,364    2.1    659    3.8

Other

   189    42.8    105,639    19.6    3,480    20.0

 

Total

   442    100.0    $538,350    100.0    17,418    100.0
  

 

 

LOGO

 

31


Piedmont Office Realty Trust, Inc.

Property Investment Activity

As of June 30, 2012

 

 

 

Acquisitions Over Previous 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  
(%)

 

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

Gavitello Land Parcels

  Atlanta, GA   6/28/2012   100   N/A   2,500   N/A   N/A
         

 

          $391,325   2,018   55
         

 

Dispositions Over Previous 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  
(%)

 

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 (3)

  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

26200 Enterprise Way

  Lake Forest, CA   5/31/2012   100   2000   28,250   145   100
         

 

          $557,417   2,118   87
         

 

(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 represents the estimated fair value of the real estate assets comprising the property as of the date of the transaction. 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.

(3) The property would have been 100% leased upon sale had Piedmont not exercised a landlord termination option for one full floor in anticipation of a potential lease with Nike, Inc., the ultimate purchaser of the property.

 

32


Piedmont Office Realty Trust, Inc.

Value-Add Activity

As of June 30, 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

500 West Monroe Street (1)

  Chicago, IL    3/31/2011    100    1991    227,500    962    54    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    34    19
                      
             

 

              $272,450    1,432    44    37
             

 

Properties Removed From Value-Add Classification This Quarter                         

 

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
(%)

 

1200 Enclave Parkway

  Houston, TX    3/30/2011    100    1999    $18,500    150    81    18

(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 June 30, 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       $9,446    313.4    100

110 Hidden Lake Circle

   Duncan, SC    100    1987       15,441    474.0    100
              

 

               $24,887    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    $2,529    $4,456    68.3    91

4685 Investment Drive

   Troy, MI    55    2000    5,028    9,141    77.1    100

5301 Maryland Way

   Brentwood, TN    55    1989    10,662    19,382    201.2    100

8560 Upland Drive

   Parker, CO    72    2001    7,747    10,776    148.2    57

Two Park Center

   Hoffman Estates, IL    72    1999    11,055    15,377    193.7    39
           

 

            $37,021    $59,132    688.5    72
           

 

Land Parcels    Location                        Acres     

 

Gavitello

   Atlanta, GA                2.0   

Enclave Parkway

   Houston, TX                4.7   

Durham Avenue

   South Plainfield, NJ                8.9   

State Highway 161

   Irving, TX                4.5   
                 

 

  
                  20.1   
                 

 

  

 

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   

Michael Knott, CFA

   Richard Moore   

Chris Caton

  

Green Street Advisors

   RBC Capital Markets    Morgan Stanley   
660 Newport Center Drive, Suite 800    Arbor Court    555 California Street, 21st Floor
Newport Beach, CA 92660    30575 Bainbridge Road, Suite 250    San Francisco, CA 94104   
Phone: (949) 640-8780    Solon, OH 44139    Phone: (415) 576-2637   
   Phone: (440) 715-2646      

Anthony Paolone, CFA

        

JP Morgan

        
277 Park Avenue         
New York, NY 10172         
Phone: (212) 622-6682         

 

37


Piedmont Office Realty Trust, Inc.

FFO, Core FFO, & AFFO Reconciliations

Unaudited (in thousands)

 

 

 

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

Net income attributable to Piedmont

  $ 30,708       $ 37,227       $ 119,020       $ 51,026       $ 21,027       $ 67,935       $ 54,994    

Depreciation

    28,033         27,809         27,287         28,102         27,879         55,842         55,033    

Amortization

    11,539         12,840         15,531         16,616         15,878         24,379         27,984    

Impairment loss

    -            -            -            -            -            -            -       

(Gain) / loss on sale of properties

    (10,008)        (17,830)        (95,901)        (26,826)        (45)        (27,838)        (45)   

(Gain) / loss on consolidation of VIE

    -            -            -            -            388         -            (1,532)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Funds from operations

    60,272         60,046         65,937         68,918         65,127         120,318         136,434    

Acquisition costs

    84         (3)        372         285         716         81         690    

(Gain) / loss on extinguishment of debt

    -            -            (1,039)        -            -            -            -       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core funds from operations

    60,356         60,043         65,270         69,203         65,843         120,399         137,124    

Depreciation of non real estate assets

    108         93         77         84         168         201         338    

Stock-based and other non-cash compensation expense

    289         334         1,730         1,111         896         623         1,864    

Deferred financing cost amortization

    590         803         649         879         1,060         1,392         1,667    

Amortization of fair market adjustments on notes payable

    -            -            -            471         942         -            942    

Straight-line effects of lease revenue

    (5,477)        (1,565)        (5,019)        (4,129)        (2,596)        (7,042)        (359)   

Amortization of lease related intangibles

    (1,785)        (1,532)        (2,215)        (1,817)        (1,670)        (3,316)        (3,033)   

Income from amortization of discount on purchase of mezzanine loans

    -            -            -            -            -            -            (484)   

Acquisition costs

    (84)               (372)        (285)        (716)        (81)        (690)   

Non-incremental capital expenditures

    (17,781)        (8,066)        (15,392)        (14,529)        (13,349)        (25,847)        (30,480)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted funds from operations

  $ 36,216       $ 50,113       $ 44,728       $ 50,988       $ 50,578       $ 86,329       $ 106,889    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

38


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Cash Basis)

Unaudited (in thousands)

 

 

 

    Three Months Ended     Six Months Ended  
 

 

 

   

 

 

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

Net income attributable to Piedmont

  $ 30,708        $ 37,227        $ 119,020        $ 51,026        $ 21,027        $ 67,935        $ 54,994     

Net income attributable to noncontrolling interest

    4          4          91          135          121          8          243     

Interest expense

    15,943          16,537          17,457          17,804          19,313          32,480          36,487     

(Gain) / loss on extinguishment of debt

    -              -              (1,039)         -              -              -              -         

Depreciation

    28,141          27,902          27,364          28,186          28,047          56,043          55,371     

Amortization

    11,539          12,840          15,531          16,616          15,878          24,379          27,984     

Impairment loss

    -              -              -              -              -              -              -         

(Gain) / loss on sale of properties

    (10,008)         (17,830)         (95,901)         (26,826)         (45)         (27,838)         (45)    

(Gain) / loss on consolidation of VIE

    -              -              -              -              388          -              (1,532)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core EBITDA

    76,327          76,680          82,523          86,941          84,729          153,007          173,502     

General & administrative expenses

    4,866          5,318          6,241          4,747          7,392          10,184          14,096     

Management fee revenue

    (626)         (574)         (281)         (110)         (363)         (1,199)         (1,193)    

Interest and other income

    (305)         (97)         357          74          253          (403)         (3,206)    

Lease termination income

    (88)         (123)         (320)         33          (1,347)         (212)         (4,751)    

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

    165          99          186          260          43          264          479     

Straight-line effects of lease revenue

    (5,642)         (1,664)         (5,180)         (4,296)         (2,639)         (7,306)         (667)    

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

    (1,785)         (1,532)         (2,239)         (1,911)         (1,670)         (3,316)         (3,204)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core net operating income - Cash Basis

    72,912          78,107          81,287          85,738          86,398          151,019          175,056     

Net operating income from:

             

Acquisitions

    (3,886)         (3,150)         (4,489)         (3,393)         (3,446)         (7,036)         (3,444)    

Dispositions

    (296)         (1,395)         (6,121)         (7,445)         (7,376)         (1,692)         (14,873)    

Industrial properties

    (245)         (242)         (242)         (254)         (242)         (487)         (479)    

Unconsolidated joint ventures

    (598)         (590)         (1,013)         (818)         (696)         (1,188)         (1,354)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Same Store NOI - Cash Basis

  $ 67,887        $ 72,730        $ 69,422        $ 73,828        $ 74,638        $ 140,616        $ 154,906     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

39


Piedmont Office Realty Trust, Inc.

Unconsolidated Joint Venture NOI Reconciliation

Pro-rata (in thousands)

 

 

 

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

Equity in Income of Unconsolidated JVs

     $ 246        $ 170         $ 587         $ 485        $ 338        $ 416        $ 547   

Interest expense

     -          -           -           -          -          -          -     

Depreciation

     300        296         293         296        300        596        602   

Amortization

     41        41         33         33        33        82        63   

(Gain) / loss on sale of properties

     -          -           -           (71     (45     -          (45
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Core EBITDA

     587        507         913         743        626        1,094        1,167   

General & administrative expenses

     (3     57         49         29        27        54        102   

Interest and other income

     (21     -           -           (1     -          (21     -     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Core net operating income (accrual basis)

     563        564         962         771        653        1,127        1,269   

Straight-line effects of lease revenue

     35        26         51         47        43        61        85   

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

     -          -           -           -          -          -          -     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Core net operating income (cash basis)

     $ 598        $ 590         $ 1,013         $ 818        $ 696        $ 1,188        $ 1,354   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

40


Piedmont Office Realty Trust, Inc.

Discontinued Operations

Unaudited (in thousands)

 

 

 

     Three Months Ended     Six Months Ended  
  

 

 

   

 

 

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

 

 

   

 

 

 

Revenues:

                 

Rental income

     $           313       $           1,273       $           7,607      $           8,895      $         10,002        $           1,586       $         20,001   

Tenant reimbursements

     64         254         4,366        3,756        5,516        318         11,126   

Property management fee revenue

     -             -             -            -            -            -             -       

Other rental income

     -             -             -            -            -            -             -       
  

 

 

   

 

 

 

Total revenues

     377         1,527         11,973        12,651        15,518        1,904         31,127   

Operating expenses:

                 

Property operating costs

     69         145         4,698        3,651        6,402        214         12,760   

Depreciation

     43         237         277        1,820        2,045        280         4,106   

Amortization

     20         57         95        1,759        1,805        77         3,607   

General and administrative

     5         3         (12     41        23        8         40   
  

 

 

   

 

 

 

Total operating expenses

     137         442         5,058        7,271        10,275        579         20,513   

Interest expense

     -             -             (1,278     (1,568     (1,551     -             (3,085

Interest and other income (expense)

     -             -             -            16        (15     -             (15

Net income attributable to noncontrolling interest

     -             -             (87     (131     (117     -             (235
  

 

 

   

 

 

 

Total other income (expense)

     -             -             (1,365     (1,683     (1,683     -             (3,335

  Operating income, excluding impairment loss and gain on sale

     240         1,085         5,550        3,697        3,560        1,325         7,279   

Gain / (loss) on sale of properties

     10,008         17,830         95,901        26,756        -            27,838         -       
  

 

 

   

 

 

 

Income from discontinued operations

     $ 10,248       $ 18,915       $ 101,451      $ 30,453      $ 3,560        $ 29,163       $ 7,279   
  

 

 

   

 

 

 

 

41


Piedmont Office Realty Trust, Inc.

Property Detail

As of June 30, 2012

 

 

 

Building Name   City   State    Percent
Ownership
    Year
Built
     Rentable
Square
Footage
Owned (in
thousands)
    Leased
Percentage
    Commenced
Leased
Percentage
    Economic
Leased
Percentage  (1)
 

Atlanta

                 

11695 Johns Creek Parkway

  Johns Creek   GA      100.0     2001         101        91.1     91.1     88.1

3750 Brookside Parkway

  Alpharetta   GA      100.0     2001         103        91.3     91.3     91.3

Glenridge Highlands Two

  Atlanta   GA      100.0     2000         406        71.2     71.2     60.3

Suwanee Gateway One

  Suwanee   GA      100.0     2008         142        0.0     0.0     0.0

The Dupree

  Atlanta   GA      100.0     1997         138        82.6     82.6     82.6

The Medici

  Atlanta   GA      100.0     2008         152        32.9     32.9     23.7

Metropolitan Area Subtotal / Weighted Average

          1,042        61.3     61.3     55.5

Austin

                 

Braker Pointe III

  Austin   TX      100.0     2001         195        100.0     100.0     100.0

Metropolitan Area Subtotal / Weighted Average

          195        100.0     100.0     100.0

Boston

                 

1200 Crown Colony Drive

  Quincy   MA      100.0     1990         235        100.0     100.0     22.1

90 Central Street

  Boxborough   MA      100.0     2001         175        97.1     97.1     97.1

1414 Massachusetts Avenue

  Cambridge   MA      100.0     1873         78        100.0     100.0     100.0

One Brattle Square

  Cambridge   MA      100.0     1991         95        94.7     94.7     94.7

225 Presidential Way

  Woburn   MA      100.0     2001         202        100.0     100.0     100.0

235 Presidential Way

  Woburn   MA      100.0     2000         238        100.0     100.0     100.0

Metropolitan Area Subtotal / Weighted Average

          1,023        99.0     99.0     81.1

Chicago

                 

Windy Point I

  Schaumburg   IL      100.0     1999         187        100.0     96.8     96.8

Windy Point II

  Schaumburg   IL      100.0     2001         300        15.7     15.7     15.7

Aon Center

  Chicago   IL      100.0     1972         2,685        81.8     70.8     67.7

Two Pierce Place

  Itasca   IL      100.0     1991         486        77.4     76.3     76.1

2300 Cabot Drive

  Lisle   IL      100.0     1998         152        76.3     76.3     76.3

500 West Monroe Street

  Chicago   IL      100.0     1991         962        53.7     47.6     47.6

Metropolitan Area Subtotal / Weighted Average

          4,772        72.0     64.4     62.7

Cleveland

                 

Eastpoint I

  Mayfield Heights   OH      100.0     2000         102        100.0     100.0     100.0

Eastpoint II

  Mayfield Heights   OH      100.0     2000         85        91.8     91.8     71.8

Metropolitan Area Subtotal / Weighted Average

          187        96.3     96.3     87.2

Dallas

                 

3900 Dallas Parkway

  Plano   TX      100.0     1999         120        100.0     100.0     40.8

5601 Headquarters Drive

  Plano   TX      100.0     2001         166        100.0     100.0     100.0

6031 Connection Drive

  Irving   TX      100.0     1999         229        88.6     88.6     79.5

6021 Connection Drive

  Irving   TX      100.0     2000         223        100.0     100.0     100.0

6011 Connection Drive

  Irving   TX      100.0     1999         152        100.0     100.0     100.0

Las Colinas Corporate Center I

  Irving   TX      100.0     1998         159        89.9     88.1     83.0

Las Colinas Corporate Center II

  Irving   TX      100.0     1998         227        58.1     57.3     48.0

Metropolitan Area Subtotal / Weighted Average

          1,276        89.3     88.9     79.4

Denver

                 

350 Spectrum Loop

  Colorado Springs   CO      100.0     2001         156        100.0     100.0     100.0

Metropolitan Area Subtotal / Weighted Average

          156        100.0     100.0     100.0

Detroit

                 

1441 West Long Lake Road

  Troy   MI      100.0     1999         107        79.4     73.8     73.8

150 West Jefferson

  Detroit   MI      100.0     1989         493        73.8     73.8     73.4

Auburn Hills Corporate Center

  Auburn Hills   MI      100.0     2001         120        100.0     100.0     100.0

1075 West Entrance Drive

  Auburn Hills   MI      100.0     2001         210        100.0     100.0     100.0

Metropolitan Area Subtotal / Weighted Average

          930        83.8     83.1     82.9

Central & South Florida

                 

Sarasota Commerce Center II

  Sarasota   FL      100.0     1999         152        84.9     84.2     65.8

5601 Hiatus Road

  Tamarac   FL      100.0     2001         100        100.0     100.0     100.0

2001 NW 64th Street

  Ft. Lauderdale   FL      100.0     2001         48        100.0     77.1     77.1

400 TownPark

  Lake Mary   FL      100.0     2008         176        34.1     31.3     20.5

Metropolitan Area Subtotal / Weighted Average

          476        70.8     67.2     57.4

Houston

                 

1430 Enclave Parkway

  Houston   TX      100.0     1994         313        100.0     100.0     100.0

1200 Enclave Parkway

  Houston   TX      100.0     1999         150        80.7     79.3     9.3

Metropolitan Area Subtotal / Weighted Average

          463        93.7     93.3     70.6

 

42


Piedmont Office Realty Trust, Inc.

Property Detail

As of June 30, 2012

 

 

 

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

Economic

Leased
Percentage (1)

 

Los Angeles

                  

800 North Brand Boulevard

  Glendale   CA      100.0     1990         518         80.3     80.3     80.3

1055 East Colorado Boulevard

  Pasadena   CA      100.0     2001         175         62.3     62.3     50.9

Fairway Center II

  Brea   CA      100.0     2002         134         95.5     95.5     77.6

1901 Main Street

  Irvine   CA      100.0     2001         172         84.9     80.8     80.8

Metropolitan Area Subtotal / Weighted Average

  

       999         80.0     79.3     74.9

Minneapolis

                  

Crescent Ridge II

  Minnetonka   MN      100.0     2000         301         74.8     74.8     68.8

US Bancorp Center

  Minneapolis   MN      100.0     2000         928         95.6     95.3     90.6

One Meridian Crossings

  Richfield   MN      100.0     1997         195         100.0     100.0     100.0

Two Meridian Crossings

  Richfield   MN      100.0     1998         189         91.5     91.5     91.5

Metropolitan Area Subtotal / Weighted Average

  

       1,613         91.8     91.6     87.8

Nashville

                  

2120 West End Avenue

  Nashville   TN      100.0     2000         312         100.0     100.0     100.0

Metropolitan Area Subtotal / Weighted Average

  

       312         100.0     100.0     100.0

New York

                  

1111 Durham Avenue

  South Plainfield   NJ      100.0     1975         237         61.2     61.2     61.2

2 Gatehall Drive

  Parsippany   NJ      100.0     1985         405         100.0     100.0     100.0

200 Bridgewater Crossing

  Bridgewater   NJ      100.0     2002         299         73.6     27.4     20.7

Copper Ridge Center

  Lyndhurst   NJ      100.0     1989         268         97.0     93.3     92.2

60 Broad Street

  New York   NY      100.0     1962         1,027         99.8     99.8     99.8

600 Corporate Drive

  Lebanon   NJ      100.0     2005         125         100.0     100.0     100.0

400 Bridgewater Crossing

  Bridgewater   NJ      100.0     2002         297         99.7     99.7     99.7

Metropolitan Area Subtotal / Weighted Average

  

       2,658         93.2     87.6     86.7

Philadelphia

                  

1901 Market Street

  Philadelphia   PA      100.0     1987         761         100.0     100.0     100.0

Metropolitan Area Subtotal / Weighted Average

  

       761         100.0     100.0     100.0

Phoenix

                  

River Corporate Center

  Tempe   AZ      100.0     1998         133         100.0     100.0     0.0

8700 South Price Road

  Tempe   AZ      100.0     2000         132         100.0     100.0     100.0

Desert Canyon 300

  Phoenix   AZ      100.0     2001         149         100.0     100.0     100.0

Chandler Forum

  Chandler   AZ      100.0     2003         150         42.0     42.0     42.0

Metropolitan Area Subtotal / Weighted Average

  

       564         84.6     84.6     61.0

Washington, D.C.

                  

11107 Sunset Hills Road

  Reston   VA      100.0     1985         101         100.0     98.0     98.0

1201 Eye Street

  Washington   DC      49.5 (2)      2001         269         100.0     100.0     100.0

1225 Eye Street

  Washington   DC      49.5 (2)      1986         225         87.1     84.9     75.1

3100 Clarendon Boulevard

  Arlington   VA      100.0     1987         250         100.0     100.0     100.0

400 Virginia Avenue

  Washington   DC      100.0     1985         224         93.8     93.8     93.8

4250 North Fairfax Drive

  Arlington   VA      100.0     1998         304         100.0     100.0     100.0

9211 Corporate Boulevard

  Rockville   MD      100.0     1989         115         100.0     100.0     100.0

9221 Corporate Boulevard

  Rockville   MD      100.0     1989         115         100.0     100.0     100.0

One Independence Square

  Washington   DC      100.0     1991         334         100.0     100.0     100.0

9200 Corporate Boulevard

  Rockville   MD      100.0     1982         109         100.0     100.0     100.0

11109 Sunset Hills Road

  Reston   VA      100.0     1984         41         0.0     0.0     0.0

Two Independence Square

  Washington   DC      100.0     1991         561         100.0     100.0     100.0

Piedmont Pointe I

  Bethesda   MD      100.0     2007         186         68.8     65.6     65.1

Piedmont Pointe II

  Bethesda   MD      100.0     2008         221         50.2     42.1     18.6

Metropolitan Area Subtotal / Weighted Average

  

       3,055         91.8     90.7     88.3

 

Grand Total

 

                             

 

20,482

 

  

 

    

 

85.0

 

 

   

 

82.2

 

 

   

 

77.5

 

 

(1) 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 (after proportionate adjustments for tenants receiving only partial rent abatements).

(2) Although Piedmont 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.

 

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