Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) October 31, 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 October 31, 2012, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the third quarter 2012 and published supplemental information for the third 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 October 31, 2012.
99.2    Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Third Quarter 2012.


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: October 31, 2012


EXHIBIT INDEX

 

Exhibit No.

  

Description

99.1    Press release dated October 31, 2012.
99.2    Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Third Quarter 2012.
EX-99.1

Exhibit 99.1

Piedmont Office Realty Trust Reports Third Quarter Results

ATLANTA, October 31, 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 September 30, 2012.

Highlights for the Three Months Ended September 30, 2012:

 

   

Achieved Core Funds From Operations (“CFFO”) of $0.37 for the quarter;

 

   

Current quarter’s $0.33 Funds From Operations (“FFO”) includes $7.5 million, or $0.04 per diluted share, impact of accrued potential litigation settlement;

 

   

Completed over 1 million square feet of total leasing during the quarter including two significant leases in the Chicago market;

 

   

Continued to advance its portfolio refinement strategy by selling its last two industrial properties;

 

   

Replaced an expiring $500 million line of credit with a new, comparable facility that matures in 2016;

 

   

Repurchased approximately 2.2 million shares of its common stock at an average price of $16.95 per share pursuant to the Company’s previously announced stock repurchase program.

Donald A. Miller, CFA, President and Chief Executive Officer stated, “This quarter was significant in that it marked the beginning of the upturn in our occupancy metrics that we indicated would happen in the second half of 2012. We delivered solid financial results and achieved significant leasing activity during the third quarter, including the execution of major leases that we have been working on for the past several quarters. This activity translates into positive momentum for Piedmont and is evidence that we have worked through the majority of the leasing exposure related to the large multi-year lease expiration period that we have been experiencing the last few years.”

Results for the Quarter ended September 30, 2012

Piedmont’s net income available to common stockholders for the third quarter of 2012 was $10.8 million or $0.06 per diluted share, as compared with $51.0 million, or $0.29 per diluted share, for the third quarter of 2011. The current quarter’s results reflect $7.5 million, or approximately $0.04 per diluted share, of litigation settlement expense to record the recent proposed settlement of our two class action lawsuits. The prior year’s results also included $30.5 million, or $0.17 per diluted share, related to the operations and gains on sale of three assets sold during the quarter ended September 30, 2011. FFO was $55.2 million, or $0.33 per diluted share, for the quarter ended September 30, 2012 as compared to $68.9 million, or $0.40 per diluted share, for the quarter ended September 30, 2011, reflecting the $0.04 per diluted share charge related to the potential litigation settlement and the $0.03 per diluted share per quarter decrease in FFO contribution as a result of the sale of 35 W. Wacker during the fourth quarter of 2011. Core FFO (after adding back the charge related to the potential litigation settlement mentioned above) was $62.7 million, or $0.37 per diluted share.

Adjusted FFO (“AFFO”) for the third quarter of 2012 totaled $20.4 million, or $0.12 per diluted share, as compared to $51.0 million, or $0.29 per diluted share, in the third quarter of 2011, reflecting the decreases noted above and an approximately $24.1 million increase in non-incremental capital expenditures associated with tenant build outs for new leases, particularly at Aon Center in Chicago.

Total revenues for the quarter ended September 30, 2012 were $134.9 million, as compared with $132.5 million for the same period a year ago, reflecting additional rental revenues from properties acquired during the last twelve months as well as an increase in occupancy as certain large leases commenced during the second and third quarters of 2012.

Property operating costs were $51.7 million in the third quarter of 2012 compared to $50.7 million in the third quarter of 2011, reflecting added operating costs from the acquisition of three properties over the last twelve months, as well as an increase in occupancy as certain large leases commenced during the second and third quarters of 2012. General and administrative expense was $5.5 million for the quarter ended September 30, 2012 as compared to $4.7 million for the same quarter a year ago. The current quarter’s other expense was largely consistent with the quarter ended September 30, 2011 except for the expense related to the potential litigation settlement noted above.

Leasing Update

During the third quarter of 2012, the Company executed over 1 million total square feet of leasing throughout its portfolio. Of the leases signed during the quarter, substantially all were new leases, including two new leases in the Chicago market which were each greater than 300,000 square feet. The same store stabilized portfolio was 90.0% leased as of September 30, 2012 as compared to 87.9% leased a year earlier, primarily reflecting positive net absorption associated with several recent large lease transactions for previously vacant space. The Company’s overall office portfolio, including value add properties, was 87.0% leased as of September 30, 2012, with a weighted average lease term remaining of 7.0 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 third quarter Piedmont completed the dispositions of 110 and 112 Hidden Lake Circle, in Duncan, SC for $25.6 million, exclusive of closing costs. The dispositions further the Company’s portfolio refinement strategy in that 110 and 112 Hidden Lake were the Company’s last two industrial assets, as well as its last two properties in the South Carolina market.

Additionally, Piedmont completed the replacement of its $500 million unsecured line of credit which would have matured in August 2012. The new facility matures in 2016; however, under the terms of the agreement, Piedmont may avail itself of two six-month extension options. Piedmont may select from multiple interest rate options with each draw, including the prime rate and various-length LIBOR locks. All LIBOR selections are subject to a spread (currently 117.5 bps) over the selected rate based on Piedmont’s current (BBB) credit rating.

Believing that its common stock is trading at a discount to current net asset value, the Company also repurchased approximately 2.2 million shares of its common stock during the quarter at an average price of $16.95 per share pursuant to its stock repurchase plan announced during the fourth quarter of 2011. Under the $300 million, Board-approved share repurchase program, the Company has purchased approximately 5 million shares since December 2011.

Piedmont’s gross assets amounted to $5.2 billion as of September 30, 2012. Total debt was approximately $1.4 billion as of September 30, 2012 as compared to $1.5 billion as of December 31, 2011, reflecting the payoff of two secured notes during the year. The Company’s total debt-to-gross assets ratio as of September 30, 2012 remained consistent with year end 2011 at 27.5%. As of September 30, 2012, Piedmont had cash and capacity on its unsecured line of credit of approximately $352.8 million.

Dividend

On October 30, 2012, the Board of Directors of Piedmont declared a dividend for the fourth quarter of 2012 in the amount of $0.20 per common share outstanding to stockholders of record as of the close of business on November 30, 2012. Such dividends are to be paid on December 21, 2012.

Guidance for 2012

Based on management’s expectations, the Company revised its financial guidance for full-year 2012 to the upper end of the previously announced range. The revised guidance is as follows:

 

    Low         High  

Core FFO

  $ 240     -     $ 250  Million 

Core FFO per diluted share

  $ 1.40      -     $ 1.45   

These estimates reflect the $0.13 FFO reduction related to 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 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 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 web cast for Thursday, November 1, 2012 at 10:00 A.M. Eastern Daylight Time. The live audio web cast of the call may be accessed on the Company’s website at www.piedmontreit.com in the Investor Relations section. Dial-in numbers are 1-877-941-8418 for participants in the United States and 1-480-629-9809 for international participants. The conference identification number is 4573746. A replay of the conference call will be available until November 15, 2012, and can be accessed by dialing 1-877-870-5176 or 1-858-384-5517 for international participants, followed by pass code 4573746. A web cast replay will also be available after the conference call in the Investor Relations section of the Company’s website. During the audio web cast and conference call, the Company’s management team will review third 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 September 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 September 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 whether the Company’s occupancy metrics will continue to improve in future quarters; those related to the consummation of a litigation settlement; whether the Company’s stock is trading at a discount to NAV; and the Company’s estimated range of Core FFO and Core FFO per diluted share for the year ending December 31, 2012.

The following are some of the factors that could cause the Company’s actual results and its expectations to differ materially from those described in the Company’s forward-looking statements: the Company’s ability to successfully identify and consummate suitable acquisitions; the demand for office space, rental rates and property values may continue to lag the general economic recovery; 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; 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)

 

     September 30,
2012
    December 31,
2011
 
     (unaudited)        

Assets:

    

Real estate assets, at cost:

    

Land

   $ 627,812      $ 640,196   

Buildings and improvements

     3,760,847        3,759,596   

Buildings and improvements, accumulated depreciation

     (857,993     (792,342

Intangible lease asset

     138,716        198,667   

Intangible lease asset, accumulated amortization

     (79,640     (119,419

Construction in progress

     22,808        17,353   
  

 

 

   

 

 

 

Total real estate assets

     3,612,550        3,704,051   

Investment in unconsolidated joint ventures

     37,369        38,181   

Cash and cash equivalents

     20,763        139,690   

Tenant receivables, net of allowance for doubtful accounts

     24,768        24,722   

Straight line rent receivable

     116,447        104,801   

Notes receivable

     19,000        —     

Due from unconsolidated joint ventures

     533        788   

Restricted cash and escrows

     23,001        9,039   

Prepaid expenses and other assets

     13,552        9,911   

Goodwill

     180,097        180,097   

Deferred financing costs, less accumulated amortization

     7,022        5,977   

Deferred lease costs, less accumulated amortization

     230,729        230,577   
  

 

 

   

 

 

 

Total assets

   $ 4,285,831      $ 4,447,834   
  

 

 

   

 

 

 

Liabilities:

    

Line of credit and notes payable

   $ 1,436,025      $ 1,472,525   

Accounts payable, accrued expenses, and accrued capital expenditures

     109,125        122,986   

Deferred income

     24,110        27,321   

Intangible lease liabilities, less accumulated amortization

     42,375        49,037   

Interest rate swap

     8,916        2,537   
  

 

 

   

 

 

 

Total liabilities

     1,620,551        1,674,406   

Stockholders’ equity :

    

Common stock

     1,680        1,726   

Additional paid in capital

     3,665,870        3,663,662   

Cumulative distributions in excess of earnings

     (994,967     (891,032

Other comprehensive loss

     (8,916     (2,537
  

 

 

   

 

 

 

Piedmont stockholders’ equity

     2,663,667        2,771,819   

Non-controlling interest

     1,613        1,609   
  

 

 

   

 

 

 

Total stockholders’ equity

     2,665,280        2,773,428   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 4,285,831      $ 4,447,834   
  

 

 

   

 

 

 

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

     1,392,261        1,323,796   

Total Gross Assets (1)

     5,223,464        5,359,595   

Number of shares of common stock outstanding at end of period

     168,044        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     Nine Months Ended  
     9/30/2012     9/30/2011     9/30/2012     9/30/2011  

Revenues:

        

Rental income

   $ 106,826      $ 104,121      $ 317,177      $ 306,450   

Tenant reimbursements

     27,470        28,234        81,120        85,703   

Property management fee revenue

     520        110        1,719        1,303   

Other rental income

     75        13        287        4,415   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     134,891        132,478        400,303        397,871   

Operating expenses:

        

Property operating costs

     51,645        50,707        157,835        152,207   

Depreciation

     28,489        25,891        83,252        76,193   

Amortization

     15,302        14,808        39,474        39,098   

General and administrative

     5,508        4,731        15,629        18,868   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     100,944        96,137        296,190        286,366   
  

 

 

   

 

 

   

 

 

   

 

 

 

Real estate operating income

     33,947        36,341        104,113        111,505   

Other income (expense):

        

Interest expense

     (16,247     (16,236     (48,727     (49,638

Interest and other income (expense)

     383        (91     765        3,130   

Equity in income of unconsolidated joint ventures

     322        485        739        1,032   

Litigation settlement expense

     (7,500     —          (7,500     —     

Gain on consolidation of a variable interest entity

     —          —          —          1,532   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (23,042     (15,842     (54,723     (43,944
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     10,905        20,499        49,390        67,561   

Discontinued operations :

        

Operating income

     184        3,775        1,805        11,715   

Gain on sale of real estate assets

     (254     26,756        27,583        26,756   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations

     (70     30,531        29,388        38,471   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     10,835        51,030        78,778        106,032   

Less: Net income attributable to noncontrolling interest

     (4     (4     (12     (12
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Piedmont

   $ 10,831      $ 51,026      $ 78,766      $ 106,020   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding—diluted

     168,929        173,045        171,295        172,996   

Per Share Information — diluted:

        

Income from continuing operations

   $ 0.06      $ 0.12      $ 0.29      $ 0.39   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations

   $ 0.00      $ 0.17      $ 0.17      $ 0.22   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

   $ 0.06      $ 0.29      $ 0.46      $ 0.61   
  

 

 

   

 

 

   

 

 

   

 

 

 


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     Nine Months Ended  
     9/30/2012     9/30/2011     9/30/2012     9/30/2011  

Net income attributable to Piedmont

   $ 10,831      $ 51,026      $ 78,766      $ 106,020   

Depreciation (1) (2)

     28,763        28,102        84,605        83,135   

Amortization (1)

     15,366        16,616        39,744        44,601   

(Gain)/Loss on sale of real estate assets (1)

     254        (26,826     (27,583     (26,872

Gain on consolidation of variable interest entity

     —          —          —          (1,532
  

 

 

   

 

 

   

 

 

   

 

 

 

Funds from operations

     55,214        68,918        175,532        205,352   

Litigation settlement expense

     7,500        —          7,500        —     

Acquisition costs

     7        285        88        975   
  

 

 

   

 

 

   

 

 

   

 

 

 

Core funds from operations

     62,721        69,203        183,120        206,327   

Depreciation of non real estate assets

     196        84        397        422   

Stock-based and other non-cash compensation expense

     869        1,111        1,492        2,975   

Deferred financing cost amortization

     663        879        2,056        2,546   

Straight-line effects of lease revenue (1)

     (4,193     (4,129     (11,236     (4,488

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

     (1,315     (1,817     (4,631     (4,850

Income from amortization of discount on purchase of mezzanine loans

     —          —          —          (484

Amortization of note payable step up

     —          471        —          1,413   

Acquisition costs

     (7     (285     (88     (975

Non-incremental capital expenditures (3)

     (38,583     (14,529     (64,430     (45,009
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted funds from operations

     20,351        50,988        106,680        157,877   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding—diluted

     168,929        173,045        171,295        172,996   

Funds from operations per share (diluted)

   $ 0.33      $ 0.40      $ 1.03      $ 1.19   

Core funds from operations per share (diluted)

   $ 0.37      $ 0.40      $ 1.07      $ 1.19   

Adjusted funds from operations per share (diluted)

   $ 0.12      $ 0.29      $ 0.62      $ 0.91   


 

(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 litigation settlement expense, acquisition-related costs, and other significant 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 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.


Piedmont Office Realty Trust, Inc.

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

Unaudited (in thousands)

 

 

     Three Months Ended     Nine Months Ended  
     9/30/2012     9/30/2011     9/30/2012     9/30/2011  

Net income attributable to Piedmont

   $ 10,831      $ 51,026      $ 78,766      $ 106,020   

Net income attributable to non-controlling interest

     4        135        12        378   

Interest Expense

     16,247        17,804        48,727        54,291   

Depreciation(1)

     28,959        28,186        85,002        83,557   

Amortization(1)

     15,366        16,616        39,744        44,601   

(Gain)/Loss on sale of real estate assets (1)

     254        (26,826     (27,583     (26,872

Litigation settlement expense

     7,500        —          7,500        —     

Gain on consolidation of variable interest entity

     —          —          —          (1,532)   
  

 

 

   

 

 

   

 

 

   

 

 

 

Core EBITDA*

     79,161        86,941        232,168        260,443   

General & administrative expenses(1)

     5,576        4,747        15,760        18,843   

Management fee revenue

     (520     (110     (1,719     (1,303

Interest and other income

     (383     74        (785     (3,132

Lease termination income

     (75     33        (287     (4,718

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

     122        260        385        739   

Straight line rent adjustment(1)

     (4,337     (4,296     (11,643     (4,963

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

     (1,293     (1,911     (4,609     (5,115
  

 

 

   

 

 

   

 

 

   

 

 

 

Core Net Operating Income (cash basis)*

     78,251        85,738        229,270        260,794   

Acquisitions

     (3,576     (3,393     (10,612     (6,837

Dispositions

     (321     (7,699     (2,499     (23,051

Unconsolidated joint ventures

     (735     (818     (1,923     (2,172
  

 

 

   

 

 

   

 

 

   

 

 

 

Same Store NOI*

   $ 73,619      $ 73,828      $ 214,236      $ 228,734   
  

 

 

   

 

 

   

 

 

   

 

 

 

Change period over period in same store NOI

     (0.3 )%      N/A        (6.3 )%      N/A   

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

     4.9         

Annualized Core EBITDA (Core EBITDA x 4)

   $ 316,644         


 

(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 significant non-recurring 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

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

Number of consolidated office properties (2)

     74            79   

Rentable square footage (in thousands) (2)

     20,488            20,942   

Percent leased (3)

     87.0%            86.5%   

Percent leased - stabilized portfolio (4)

     90.1%            89.1%   

Capitalization (in thousands):

        

Total debt - principal amount outstanding

     $1,436,025            $1,472,525   

Equity market capitalization (5)

     $2,913,889            $2,941,611   

Total market capitalization (5)

     $4,349,914            $4,414,136   

Total debt / Total market capitalization

     33.0%            33.4%   

Total debt / Total gross assets

     27.5%            27.5%   

Common stock data

        

High closing price during quarter

     $17.92            $17.50   

Low closing price during quarter

     $16.64            $15.42   

Closing price of common stock at period end

     $17.34            $17.04   

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

     171,295            172,981   

Shares of common stock issued and outstanding (in thousands)

     168,044            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 September 30, 2012, our consolidated office portfolio consisted of 74 properties (exclusive of our equity interests in five properties owned through unconsolidated joint ventures). 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. Until September 21, 2012, we owned two industrial properties located in Duncan, SC. Information regarding these industrial assets is excluded from this line item.

(3) 

Calculated as leased square footage on September 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 unconsolidated joint venture properties. Please refer to page 22 for additional analyses regarding Piedmont's leased percentage.

(4) 

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

(5) 

Based on a share price of $17.34 as of September 28, 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

Governance Committee

  

Director, Vice Chairman of the

Board of Directors and Chairman

of Compensation Committee

  

Chief Executive Officer, President

and Director

Raymond G. Milnes, Jr.    Jeffery L. Swope    Michael R. Buchanan

Director and Chairman of Audit

Committee

  

Director and Chairman of Capital

Committee

   Director
Wesley E. Cantrell    William H. Keogler, Jr.    Donald S. Moss
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 September 30, 2012

 

 

Financial Results (1)                    

Funds from operations (FFO) for the quarter ended September 30, 2012 was $55.2 million, or $0.33 per share (diluted), compared to $68.9 million, or $0.40 per share (diluted), for the same quarter in 2011. FFO for the nine months ended September 30, 2012 was $175.5 million, or $1.03 per share (diluted), compared to $205.4 million, or $1.19 per share (diluted), for the same period in 2011. The decrease in FFO for the three months and the nine months ended September 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, 3) accrued potential litigation settlement expenses of $7.5 million in 2012 and 4) for the nine months only, reduced termination fee income in 2012 as compared to 2011. The reduction in FFO in 2012 as compared to 2011 was offset somewhat by 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 September 30, 2012 was $62.7 million, or $0.37 per share (diluted), compared to $69.2 million, or $0.40 per share (diluted), for the same quarter in 2011. Core FFO for the nine months ended September 30, 2012 was $183.1 million, or $1.07 per share (diluted), compared to $206.3 million, or $1.19 per share (diluted), for the same period in 2011. The decrease in Core FFO for the three months and the nine months ended September 30, 2012 as compared to the same periods in 2011 was principally related to the items described above for changes in FFO, with the exception of the accrued potential litigation settlement expenses, which were added back to Core FFO since they were related to significant non-recurring items.

 

Adjusted funds from operations (AFFO) for the quarter ended September 30, 2012 was $20.4 million, or $0.12 per share (diluted), compared to $51.0 million, or $0.29 per share (diluted), for the same quarter in 2011. AFFO for the nine months ended September 30, 2012 was $106.7 million, or $0.62 per share (diluted), compared to $157.9 million, or $0.91 per share (diluted), for the same period in 2011. The decrease in AFFO for the three months and the nine months ended September 30, 2012 as compared to the same periods in 2011 was primarily related to the items described above for changes in FFO, as well as increased non-incremental capital expenditures in 2012 as compared to 2011 attributable to the high volume of recent leasing activity. The decrease in AFFO for the nine months ended September 30, 2012 as compared to the same period in 2011 was also affected by increased straight line rent adjustments associated with rental abatements on newly commenced leases in 2012 as compared to 2011.

Operations                                     

- On a square footage leased basis, our total office portfolio was 87.0% leased as of September 30, 2012, as compared to 86.5% as of December 31, 2011 and 85.0% as of June 30, 2012. During the twelve-month period ending September 30, 2012, our same store stabilized leased percentage increased from 87.9% at September 30, 2011 to 90.0% at September 30, 2012. The same store stabilized leased percentage excludes the impact of value-add acquisitions completed in 2010 and 2011 (see page 33) from our same store portfolio. The primary reason for the increase in the leased percentage for our same store stabilized assets during that period is positive net absorption associated with several recent large lease transactions for previously vacant space, notably the Catamaran lease at Windy Point II in Schaumburg, IL and the US Foods lease at River Corporate Center in Tempe, AZ. Please refer to page 22 for additional leased percentage information.

 

- The weighted average remaining lease term of our portfolio was 7.0 years(2) as of September 30, 2012 as compared to 6.4 years at December 31, 2011.

 

- During the three months ended September 30, 2012, the Company completed 1,052,000 square feet of total leasing. Of the total office leasing activity during the quarter, we signed renewal leases for 39,000 square feet and new tenant leases for 1,013,000 square feet (including a 396,000 square foot direct lease with Aon Corporation). A new lease for 26,000 square feet was signed at a joint venture asset during the quarter. During the first nine months of the year, we completed 2,068,000 square feet of leasing for our consolidated office properties and 2,467,000 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 nine months of the year at our consolidated office properties was $5.52 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 nine months ended September 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 $5.95 (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 September 30, 2012) is weighted based on Annualized Lease Revenue, as defined on page 35.

 

5


Piedmont Office Realty Trust, Inc.

Financial Highlights

As of September 30, 2012

 

 

 

  - During the three months ended September 30, 2012, we executed eight leases greater than 20,000 square feet at our consolidated office properties. Please see information on those leases listed below.

 

 Tenant Name    Property    Property Location    Square Feet
Leased
   Expiration Year    Lease Type
 Aon Corporation    Aon Center    Chicago, IL    396,406    2028    New (former sub-tenant)

 Catamaran, Inc.

   Windy Point II    Schaumburg, IL    300,686    2024    New

 Guidance Software, Inc.

   1055 East Colorado Boulevard    Pasadena, CA    86,790    2024    New

 General Electric Company

   500 West Monroe Street    Chicago, IL    53,972    2027    New

 BGC Brokers US, LP

   500 West Monroe Street    Chicago, IL    31,999    2028    New

 Starr Indemnity & Liability Company, Inc.

   500 West Monroe Street    Chicago, IL    26,966    2028    Renewal / Expansion
 Schlumberger Technology Corp.    1200 Enclave Parkway    Houston, TX    26,358    2024    Expansion

 Hospital Management Services of Florida, Inc.

   Sarasota Commerce Center II    Sarasota, FL    21,821    2020    Expansion

Leasing Update                                         

 

  - As of September 30, 2012, there were three tenants whose leases contributed greater than 1% to our Annualized Lease Revenue (ALR) and were in holdover or were scheduled to expire during the eighteen month period following the end of the third 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 ALR (%)
  Expiration (2)   Current Leasing Status

United States of America

(National Park Service)

  1201 Eye Street   Washington, D.C.   219,750   1.8%   Holdover   National Park Service is now in holdover status. The Company anticipates that the National Park Service will sign a medium-term lease renewal for its existing space at the building.
Comptroller of the Currency   One
Independence
Square
  Washington, D.C.   333,815   3.8%   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   5.8%   Q4 2013   During the third quarter, Aon Corporation signed a 396,000 square foot, 15-year lease for space it currently subleases from BP. There will be 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. In total, leases comprising approximately 88% of the square footage leased by BP 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 September 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
GE Capital (1)    500 West Monroe Street    Chicago, IL    86,028    Vacant    Q4 2012 - Q4 2014    Expansion

General Electric Company

   500 West Monroe Street    Chicago, IL    53,972    Vacant    Q1 2013    New

Catamaran, Inc.

   Windy Point II    Schaumburg, IL    300,686    Vacant    Q1 2013    New
Brother International Corporation    200 Bridgewater Crossing    Bridgewater, NJ    101,724    Vacant    Q1 2013    New
Guidance Software, Inc.    1055 East Colorado Boulevard    Pasadena, CA    66,489    Vacant    Q3 2013    New
Guidance Software, Inc.    1055 East Colorado Boulevard    Pasadena, CA    20,301    Not Vacant    Q3 2013    New
Aon Corporation    Aon Center    Chicago, IL    396,406    Not Vacant    Q4 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 706,000 square feet of leases as of September 30, 2012, or 3.4% 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 1.6 million square feet of leases as of September 30, 2012, or a 5.7% impact to leased percentage on an economic basis). Please see the chart below for a listing of major contributors.

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.

 

  - Due to the current economic environment, many new leases provide for rental abatement concessions to tenants. Those rental abatements typically occur at the beginning of a new lease's term. Since 2010, Piedmont has withstood a period of concentrated lease expirations. Due to the large number of new leases in the Company's portfolio, abatements provided under those new leases have impacted the Company's cash net operating income and AFFO. Presented below is a schedule of leases greater than 50,000 square feet that are currently under some form of rent abatement.

 

Tenant Name    Property    Property Location    Square Feet
Leased
   Abatement Structure    Abatement Expiration
US Foods, Inc.    River Corporate Center    Tempe, AZ    133,225    Base Rent    Q1 2013

State Street Bank

   1200 Crown Colony Drive    Quincy, MA    234,668    Base Rent    Q1 2013

KPMG

   Aon Center    Chicago, IL    238,701    Gross Rent    Q3 2013
United HealthCare    Aon Center    Chicago, IL    55,059    Gross Rent    Q4 2013

Synchronoss Technologies

   200 Bridgewater Crossing    Bridgewater, NJ    78,581    Base Rent (Partial)    Q4 2012

HD Vest

   Las Colinas Corporate Center I    Irving, TX    81,069    Base Rent    Q1 2013

Schlumberger Technology Corporation

   1200 Enclave Parkway    Houston, TX    131,790    Gross Rent / Base Rent (Partial)    Q1 2014

Financing and Capital Activity            

 

  - As of September 30, 2012, our ratio of debt to total gross assets was 27.5%, our ratio of debt to gross real estate assets was 31.6%, and our ratio of debt to total market capitalization was 33.0%. These debt ratios are based on total principal amount outstanding for our various loans at September 30, 2012.

 

  - On September 21, 2012, Piedmont completed the sale of its two remaining industrial properties, located at 110 and 112 Hidden Lake Circle in Duncan, SC. The buildings are comprised of 787,380 square feet and are 100% leased. The properties were sold for $25.9 million, or $33 per square foot. Piedmont recorded a loss on the sale of the assets of approximately $0.25 million. The sale allowed the Company to divest its only remaining industrial properties in order to focus its operations on the ownership and management of office properties, achieving one of the Company's stated strategic objectives.

 

7


Piedmont Office Realty Trust, Inc.

Financial Highlights

As of September 30, 2012

 

 

 

  - On August 21, 2012, Piedmont closed on a new $500 million unsecured line of credit in order to replace an expiring credit facility of equal size. The revolver has a term of four years, with two six-month extension options, for a total potential term of five years. The interest rate for LIBOR-based loans is LIBOR + 117.5 basis points and the annual facility fee is 22.5 basis points. The facility is structured to allow for an increase in size up to a total commitment of $1.0 billion at the election of Piedmont; however, no existing bank has an obligation to participate in any such increase. JP Morgan Securities and RBC Capital Markets were Joint Lead Arrangers for the loan. The syndicate consists of a total of 11 banks. The Company's previous revolver was terminated concurrently with the closing of the new facility.

 

  - 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 were paid on September 21, 2012. The Company's dividend payout percentage for the nine months ended September 30, 2012 was 56.0% of Core FFO and 96.2% of AFFO.

 

  - During the third quarter of 2012, the Company repurchased approximately 2.2 million shares of common stock at an average purchase price of $16.95 per share, or approximately $37.1 million in aggregate (before consideration of transaction costs). Since the stock repurchase program's inception last fall, the Company has repurchased a total of 5.0 million shares at an average price of $16.77 per share, or approximately $83.2 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 $217 million under the stock repurchase plan.

Subsequent Events                              

 

  - On October 15, 2012, Piedmont completed the purchase of approximately 3.0 acres of land adjacent to Glenridge Highlands II, one of the Company’s properties in Atlanta, GA. Commonly referred to as Glenridge Highlands III, the site is located within the Central Perimeter submarket of Atlanta and is well located adjacent to the intersection of Interstate 285 and state highway Georgia 400. The location offers ease of access for commuter traffic and the ability for tenants to attract employees from across the northern portion of the Atlanta metropolitan area. The site is zoned for office development and will accommodate a building consisting of approximately 113,000 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 Glenridge Highlands II.

 

  - On October 30, 2012, the Board of Directors of Piedmont declared dividends for the fourth quarter of 2012 in the amount of $0.20 per common share outstanding to stockholders of record as of the close of business on November 30, 2012. The dividends are to be paid on December 21, 2012.

 

  - Since 2007, the Company has been a defendant in two class action lawsuits alleging inadequate disclosures in 2007 in SEC filings related to its internalization, response to a tender offer, and amendments to the Company’s charter. In August 2012, the court ruling in one of the cases granted Piedmont's motion for dismissal, and, in October 2012, the court ruling in the other case granted summary judgment in Piedmont’s favor and dismissed all charges. The plaintiffs appealed both rulings. Subsequent to the appeals, the Company reached tentative settlements with the plaintiffs in both cases totaling $7.5 million. The claims are within available insurance limits and the Company will seek recovery of these settlements from its insurance carriers after approval of the settlements by the court. See Piedmont’s Form 10-Q dated as of September 30, 2012 for further disclosure.

 

  - Subsequent to quarter end, Piedmont entered into a lease renewal with US Bancorp for 395,000 square feet at US Bancorp Center in Minneapolis, MN. The lease renewal is for a term of 10 years and further mitigates lease expiration exposure for the Company in 2014. As of the signing of this lease renewal, of the 635,000 square feet currently leased by US Bancorp at US Bancorp Center, a total of approximately 519,000 square feet has been released under long-term leases.

Guidance for 2012                               

 

  - The Company is adjusting its financial guidance for calendar year 2012 to the upper end of its previously published range as follows:

 

     Low        High

Core Funds from Operations

   $240   -  $250 million

Core Funds from Operations per diluted share

   $1.40  -  $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

 

 

      9/30/2012      

   

 

      6/30/2012      

   

 

      3/31/2012      

   

 

      12/31/2011      

   

 

      9/30/2011      

 

Percent leased (1)

    87.0%        85.0%        84.4%        86.5%        86.4%   

Percent leased - stabilized portfolio (1) (2)

    90.1%        88.1%        87.5%        89.1%        88.8%   

Rental income

    $106,826        $105,408        $104,943        $105,643        $104,121   

Total revenues

    $134,891        $133,091        $132,320        $135,623        $132,478   

Total operating expenses

    $100,944        $97,467        $97,778        $103,195        $96,137   

Real estate operating income

    $33,947        $35,624        $34,542        $32,428        $36,341   

Core EBITDA

    $79,161        $76,327        $76,680        $82,523        $86,941   

Core FFO

    $62,721        $60,356        $60,043        $65,270        $69,203   

Core FFO per share - diluted

    $0.37        $0.35        $0.35        $0.38        $0.40   

AFFO

    $20,351        $36,216        $50,113        $44,728        $50,988   

AFFO per share - diluted

    $0.12        $0.21        $0.29        $0.26        $0.29   

Gross dividends

    $33,675        $34,418        $34,526        $54,441        $54,441   

Dividends per share

    $0.200        $0.200        $0.200        $0.315        $0.315   

Selected Balance Sheet Data

                             

Total real estate assets

    $3,612,550        $3,638,101        $3,657,677        $3,704,051        $3,926,638   

Total gross real estate assets

    $4,550,183        $4,558,128        $4,590,544        $4,615,812        $4,875,854   

Total assets

    $4,285,831        $4,328,308        $4,326,698        $4,447,834        $4,613,118   

Net debt (3)

    $1,392,261        $1,325,610        $1,298,738        $1,323,796        $1,600,650   

Total liabilities

    $1,620,551        $1,601,568        $1,550,040        $1,674,406        $1,896,195   

Ratios

                             

Core EBITDA margin (4)

    58.5%        56.9%        57.1%        55.8%        59.8%   

Fixed charge coverage ratio (5)

    4.9 x        4.8 x        4.6 x        4.7 x        4.9 x   

Net debt to core EBITDA (6) (7)

    4.4 x        4.3 x        4.2 x        4.0 x        4.6 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)

 

 

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

Assets:

         

Real estate, at cost:

         

Land assets

    $ 627,812         $ 629,476         $ 631,745         $ 640,196         $ 693,229    

Buildings and improvements

    3,760,847         3,754,954         3,750,475         3,759,596         3,930,126    

Buildings and improvements, accumulated depreciation

    (857,993)        (837,285)        (813,679)        (792,342)        (807,917)   

Intangible lease asset

    138,716         149,544         191,599         198,667         232,973    

Intangible lease asset, accumulated amortization

    (79,640)        (82,742)        (119,188)        (119,419)        (141,299)   

Construction in progress

    22,808         24,154         16,725         17,353         19,526    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate assets

    3,612,550         3,638,101         3,657,677         3,704,051         3,926,638    

Investment in unconsolidated joint ventures

    37,369         37,580         37,901         38,181         38,391    

Cash and cash equivalents

    20,763         26,869         28,679         139,690         16,128    

Tenant receivables, net of allowance for doubtful accounts

    24,768         22,884         24,932         24,722         32,066    

Straight line rent receivable

    116,447         111,731         106,723         104,801         110,818    

Notes receivable

    19,000         19,000         19,000         -             -        

Due from unconsolidated joint ventures

    533         569         449         788         643    

Escrow deposits and restricted cash

    23,001         48,046         25,108         9,039         47,747    

Prepaid expenses and other assets

    13,552         7,385         12,477         9,911         13,978    

Goodwill

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

Deferred financing costs, less accumulated amortization

    7,022         4,597         5,187         5,977         4,788    

Deferred lease costs, less accumulated amortization

    230,729         231,449         228,468         230,577         241,824    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    $ 4,285,831         $ 4,328,308         $ 4,326,698         $ 4,447,834         $ 4,613,118    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

         

Line of credit and notes payable

    $ 1,436,025         $ 1,400,525         $ 1,352,525         $ 1,472,525         $ 1,664,525    

Accounts payable, accrued expenses, and accrued capital expenditures

    109,125         126,207         116,292         122,986         143,106    

Deferred income

    24,110         23,668         32,031         27,321         32,514    

Intangible lease liabilities, less accumulated amortization

    42,375         44,246         46,640         49,037         56,050    

Interest rate swap

    8,916         6,922         2,552         2,537         -        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    1,620,551         1,601,568         1,550,040         1,674,406         1,896,195    

Stockholders’ equity:

         

Common stock

    1,680         1,702         1,726         1,726         1,728    

Additional paid in capital

    3,665,870         3,665,284         3,664,202         3,663,662         3,663,155    

Cumulative distributions in excess of earnings

    (994,967)        (934,933)        (888,331)        (891,032)        (952,370)   

Other comprehensive loss

    (8,916)        (6,922)        (2,552)        (2,537)        -        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Piedmont stockholders’ equity

    2,663,667         2,725,131         2,775,045         2,771,819         2,712,513    

Non-controlling interest

    1,613         1,609         1,613         1,609         4,410    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    2,665,280         2,726,740         2,776,658         2,773,428         2,716,923    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable common stock and stockholders’ equity

    $ 4,285,831         $ 4,328,308         $ 4,326,698         $ 4,447,834         $ 4,613,118    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Common stock outstanding at end of period

    168,044         170,235         172,630         172,630         172,827    

 

 

 

10


Piedmont Office Realty Trust, Inc.

Consolidated Statements of Income

Unaudited (in thousands except for per share data)

 

 

 

    Three Months Ended  
 

 

 

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

 

 

 

Revenues:

         

Rental income

      $ 106,826           $ 105,408           $ 104,943           $ 105,643           $ 104,121    

Tenant reimbursements

    27,470         26,969         26,680         29,379         28,234    

Property management fee revenue

    520         626         574         281         110    

Other rental income

    75         88         123         320         13    
 

 

 

 

      Total revenues

    134,891         133,091         132,320         135,623         132,478    

Operating expenses:

         

Property operating costs

    51,645         53,571         52,619         54,992         50,707    

Depreciation

    28,489         27,586         27,176         26,611         25,891    

Amortization

    15,302         11,445         12,726         15,387         14,808    

Impairment loss

    -             -             -             -             -        

General and administrative

    5,508         4,865         5,257         6,205         4,731    
 

 

 

 

      Total operating expenses

    100,944         97,467         97,778         103,195         96,137    
 

 

 

 

Real estate operating income

    33,947         35,624         34,542         32,428         36,341    

Other income (expense):

         

Interest expense

    (16,247)        (15,943)        (16,537)        (16,179)        (16,236)   

Interest and other income (expense)

    383         285         97         (357)        (91)   

Equity in income of unconsolidated joint ventures

    322         246         170         587         485    

Litigation settlement expense

    (7,500)        -             -             -             -        

Gain / (loss) on extinguishment of debt

    -             -             -             1,039         -        
 

 

 

 

      Total other income (expense)

    (23,042)        (15,412)        (16,270)        (14,910)        (15,842)   
 

 

 

 

Income from continuing operations

    10,905         20,212         18,272         17,518         20,499    

Discontinued operations:

         

Operating income, excluding impairment loss

    184         492         1,129         5,605         3,775    

Gain / (loss) on sale of properties

    (254)        10,008         17,830         95,901         26,756    
 

 

 

 

      Income / (loss) from discontinued operations (1)

    (70)        10,500         18,959         101,506         30,531    
 

 

 

 

Net income

    10,835         30,712         37,231         119,024         51,030    

Less: Net income attributable to noncontrolling interest

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

 

 

 

Net income attributable to Piedmont

      $ 10,831           $ 30,708           $ 37,227           $ 119,020           $ 51,026    
 

 

 

 

Weighted average common shares outstanding - diluted

    168,929         172,209         172,874         173,036         173,045    

Net income per share available to common stockholders - diluted

      $ 0.06           $ 0.18           $ 0.22           $ 0.69           $ 0.29    
 

 

 

 

 

 

(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; 26200 Enterprise Way in Lake Forest, CA, which was sold on May 31, 2012; and 110 and 112 Hidden Lake Circle in Duncan, SC, which were sold on September 21, 2012.

 

11


Piedmont Office Realty Trust, Inc.

Consolidated Statements of Income

Unaudited (in thousands except for per share data)

 

 

 

    Three Months Ended     Nine Months Ended  
      9/30/2012         9/30/2011         Change         Change         9/30/2012         9/30/2011         Change         Change    

Revenues:

               

Rental income

    $     106,826          $     104,121          $     2,705          2.6%         $     317,177          $     306,450          $     10,727          3.5%    

Tenant reimbursements

    27,470          28,234          (764)         -2.7%         81,120          85,703          (4,583)         -5.3%    

Property management fee revenue

    520          110          410          372.7%         1,719          1,303          416          31.9%    

Other rental income

    75          13          62          476.9%         287          4,415          (4,128)         -93.5%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    134,891          132,478          2,413          1.8%         400,303          397,871          2,432          0.6%    

Operating expenses:

               

Property operating costs

    51,645          50,707          (938)         -1.8%         157,835          152,207          (5,628)         -3.7%    

Depreciation

    28,489          25,891          (2,598)         -10.0%         83,252          76,193          (7,059)         -9.3%    

Amortization

    15,302          14,808          (494)         -3.3%         39,474          39,098          (376)         -1.0%    

Impairment loss

    -              -              -              0.0%         -              -              -              0.0%    

General and administrative

    5,508          4,731          (777)         -16.4%         15,629          18,868          3,239          17.2%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    100,944          96,137          (4,807)         -5.0%         296,190          286,366          (9,824)         -3.4%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Real estate operating income

    33,947          36,341          (2,394)         -6.6%         104,113          111,505          (7,392)         -6.6%    

Other income (expense):

               

Interest expense

    (16,247)         (16,236)         (11)         -0.1%         (48,727)         (49,638)         911          1.8%    

Interest and other income (expense)

    383          (91)         474          520.9%         765          3,130          (2,365)         -75.6%    

Equity in income of unconsolidated joint ventures

    322          485          (163)         -33.6%         739          1,032          (293)         -28.4%    

Litigation settlement expense

    (7,500)         -              (7,500)         0.0%         (7,500)         -              (7,500)         0.0%    

Gain / (loss) on consolidation of variable interest entity

    -              -              -              0.0%         -              1,532          (1,532)         -100.0%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

    (23,042)         (15,842)         (7,200)         -45.4%         (54,723)         (43,944)         (10,779)         -24.5%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    10,905          20,499          (9,594)         -46.8%        49,390          67,561          (18,171)         -26.9%    

Discontinued operations:

               

Operating income, excluding impairment loss

    184          3,775          (3,591)         -95.1%         1,805          11,715          (9,910)         -84.6%    

Gain / (loss) on sale of properties

    (254)         26,756          (27,010)         -100.9%         27,583          26,756          827          3.1%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income / (loss) from discontinued operations (1)

    (70)         30,531          (30,601)         -100.2%         29,388          38,471          (9,083)         -23.6%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    10,835          51,030          (40,195)         -78.8%         78,778          106,032          (27,254)         -25.7%    

Less: Net income attributable to noncontrolling interest

    (4)         (4)         -              0.0%         (12)         (12)         -              0.0%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Piedmont

    $     10,831          $     51,026          $     (40,195)         -78.8%         $     78,766          $     106,020          $     (27,254)         -25.7%    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding - diluted

    168,929          173,045              171,295          172,996         

Net income per share available to common stockholders - diluted

    $     0.06          $     0.29              $     0.46          $     0.61         
 

 

 

   

 

 

       

 

 

   

 

 

     

 

 

(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; 26200 Enterprise Way in Lake Forest, CA, which was sold on May 31, 2012; and 110 and 112 Hidden Lake Circle in Duncan, SC, which were sold on September 21, 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      Nine Months Ended  
         9/30/2012              9/30/2011              9/30/2012              9/30/2011      

Net income attributable to Piedmont

     $ 10,831           $ 51,026           $ 78,766           $ 106,020     

Depreciation (1) (2)

     28,763           28,102           84,605           83,135     

Amortization (1)

     15,366           16,616           39,744           44,601     

Impairment loss (1)

     -               -               -               -         

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

     254           (26,826)          (27,583)          (26,872)    

(Gain) / loss on consolidation of VIE

     -               -               -               (1,532)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Funds from operations

     55,214           68,918           175,532           205,352     

Litigation settlement expense

     7,500           -               7,500           -         

Acquisition costs

     7           285           88           975     
  

 

 

    

 

 

    

 

 

    

 

 

 

Core funds from operations

     62,721           69,203           183,120           206,327     

Depreciation of non real estate assets

     196           84           397           422     

Stock-based and other non-cash compensation expense

     869           1,111           1,492           2,975     

Deferred financing cost amortization (1)

     663           879           2,056           2,546     

Amortization of fair market adjustments on notes payable

     -               471           -               1,413     

Straight-line effects of lease revenue (1)

     (4,193)          (4,129)          (11,236)          (4,488)    

Amortization of lease-related intangibles (1)

     (1,315)          (1,817)          (4,631)          (4,850)    

Income from amortization of discount on purchase of mezzanine loans

     -               -               -               (484)    

Acquisition costs

     (7)          (285)          (88)          (975)    

Non-incremental capital expenditures (3)

     (38,583)          (14,529)          (64,430)          (45,009)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted funds from operations

     $ 20,351           $ 50,988           $ 106,680           $ 157,877     
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding - diluted

     168,929           173,045           171,295           172,996     

Funds from operations per share (diluted)

     $ 0.33           $ 0.40           $ 1.03           $ 1.19     

Core funds from operations per share (diluted)

     $ 0.37           $ 0.40           $ 1.07           $ 1.19     

Adjusted funds from operations per share (diluted)

     $ 0.12           $ 0.29           $ 0.62           $ 0.91     

 

 

 

(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      Nine Months Ended  
         9/30/2012              9/30/2011              9/30/2012              9/30/2011      

Net income attributable to Piedmont

     $ 10,831           $ 51,026           $ 78,766           $ 106,020     

Net income attributable to noncontrolling interest

     4           135           12           378     

Interest expense

     16,247           17,804           48,727           54,291     

Depreciation (1)

     28,959           28,186           85,002           83,557     

Amortization (1)

     15,366           16,616           39,744           44,601     

Impairment loss (1)

     -               -               -               -         

Litigation settlement expense

     7,500           -               7,500           -         

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

     254           (26,826)          (27,583)          (26,872)    

(Gain) / loss on consolidation of VIE

     -               -               -               (1,532)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Core EBITDA

     79,161           86,941           232,168           260,443     

General & administrative expenses (1)

     5,576           4,747           15,760           18,843     

Management fee revenue

     (520)          (110)          (1,719)          (1,303)    

Interest and other income (1)

     (383)          74           (785)          (3,132)    

Lease termination income

     (75)          33           (287)          (4,718)    

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

     122           260           385           739     

Straight-line effects of lease revenue (1)

     (4,337)          (4,296)          (11,643)          (4,963)    

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

     (1,293)          (1,911)          (4,609)          (5,115)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Property net operating income - cash basis

     78,251           85,738           229,270           260,794     

Net operating income from:

           

Acquisitions (2)

     (3,576)          (3,393)          (10,612)          (6,837)    

Dispositions (3)

     (321)          (7,699)          (2,499)          (23,051)    

Unconsolidated joint ventures

     (735)          (818)          (1,923)          (2,172)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Same store NOI - cash basis

     $ 73,619           $ 73,828           $ 214,236           $ 228,734     
  

 

 

    

 

 

    

 

 

    

 

 

 

Change period over period

     -0.3%             N/A             -6.3%             N/A       

 

 

   

Same Store Net Operating Income

Top Seven Markets

  

  

   
          Three Months Ended      Nine Months Ended       
          9/30/2012      9/30/2011      9/30/2012      9/30/2011       
          $      %        $      %        $      %        $      %         
      

 

 

    

 

 

    

 

 

    

 

 

     
   

Washington, D.C. (4)

   $ 20,233         27.5         $ 18,068         24.5         $ 57,277         26.7         $ 53,820         23.5         
   

New York (5)

     11,143         15.1           13,758         18.6           34,573         16.1           41,438         18.1         
   

Chicago (6)

     11,306         15.4           14,989         20.3           30,309         14.2           40,201         17.6         
   

Minneapolis (7)

     5,439         7.4           4,456         6.0           15,711         7.3           14,435         6.3         
   

Dallas

     3,380         4.6           3,796         5.1           10,713         5.0           11,001         4.8         
   

Los Angeles (8)

     3,701         4.9           2,490         3.4           10,109         4.7           9,947         4.4         
   

Boston

     3,067         4.2           2,493         3.4           8,306         3.9           8,965         3.9         
   

Other (9)

     15,350         20.9           13,778         18.7           47,238         22.1           48,927         21.4         
      

 

 

    

 

 

    

 

 

    

 

 

     
   

Total

     $         73,619         100.0           $         73,828         100.0           $         214,236         100.0           $         228,734         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 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; 26200 Enterprise Way in Lake Forest, CA, sold on May 31, 2012; and 110 and 112 Hidden Lake Circle in Duncan, SC, sold on September 21, 2012.

(4) The increase in Washington, D.C. Same Store Net Operating Income for the three months and the nine months ended September 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 21-month 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 nine months ended September 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 nine months ended September 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 and subsequent downtime before the commencement of the Catamaran lease in the first quarter of 2013, as well as the expiration of the Kirkland & Ellis lease at Aon Center in Chicago, IL in December 2011 and subsequent downtime before the commencement of the KPMG lease in August 2012. The loss of the Zurich and Kirkland & Ellis leases reduced revenues by approximately $4.3 million and $14.7 million, respectively, for the three months and the nine months ended September 30, 2012; these amounts are offset partially by incremental operating expense savings due to the vacancy of those tenants.

(7) The increase in Minneapolis Same Store Net Operating Income for the three months ended September 30, 2012 as compared to the same period in 2011 was primarily related to rent commencement in December 2011 for the US Bank leases at One Meridian Crossings and Two Meridian Crossings in Richfield, MN. The increase in Minneapolis Same Store Net Operating Income for the nine months ended September 30, 2012 as compared to the same period in 2011 was primarily related to the item described above, offset somewhat by the net loss of approximately 76,000 leased square feet associated with the December 2011 expiration of the HSBC Card Services lease at Crescent Ridge II in Minnetonka, MN.

(8) The increase in Los Angeles Same Store Net Operating Income for the three months ended September 30, 2012 as compared to the same period in 2011 was primarily related to increased rental revenue associated with several new leases at 1901 Main Street in Irvine, CA, 1055 East Colorado Boulevard in Pasadena, CA, and Fairway Center II in Brea, CA, in addition to contractual rental rate increases at 800 North Brand Boulevard in Glendale, CA.

(9) The increase in Other Same Store Net Operating Income for the three months ended September 30, 2012 as compared to the same period in 2011 was primarily related to rent commencements associated with a new lease with Grand Canyon Education at Desert Canyon 300 in Phoenix, AZ and a new lease with Chrysler Group, LLC at 1075 West Entrance Drive in Auburn Hills, MI. The decrease in Other Same Store Net Operating Income for the nine months ended September 30, 2012 as compared to the same period in 2011 was primarily attributable to: 1) a rental abatement concession associated with a new lease with Grand Canyon Education at Desert Canyon 300 in Phoenix, AZ, 2) a decrease in rental revenue associated with a lower lease renewal rental rate at 5601 Headquarters Drive in Plano, TX, and 3) a decrease in rental revenue associated with lease expirations in 2011 and rental abatement concessions related to new leasing 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      Nine Months Ended  
         9/30/2012              9/30/2011              9/30/2012              9/30/2011      

Net income attributable to Piedmont

      $  10,831            $  51,026            $  78,766            $  106,020     

Net income attributable to noncontrolling interest

     4           135           12           378     

Interest expense

     16,247           17,804           48,727           54,291     

Depreciation (1)

     28,959           28,186           85,002           83,557     

Amortization (1)

     15,366           16,616           39,744           44,601     

Impairment loss (1)

     -               -               -               -         

Litigation settlement expense

     7,500           -               7,500           -         

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

     254           (26,826)          (27,583)          (26,872)    

(Gain) / loss on consolidation of VIE

     -               -               -               (1,532)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Core EBITDA

     79,161           86,941           232,168           260,443     

General & administrative expenses (1)

     5,576           4,747           15,760           18,843     

Management fee revenue

     (520)          (110)          (1,719)          (1,303)    

Interest and other income (1)

     (383)          74           (785)          (3,132)    

Lease termination income

     (75)          33           (287)          (4,718)    

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

     122           260           385           739     
  

 

 

    

 

 

    

 

 

    

 

 

 

Property net operating income - accrual basis

     83,881           91,945           245,522           270,872     

Net operating income from:

           

Acquisitions (2)

     (4,822)          (3,595)          (14,131)          (7,185)    

Dispositions (3)

     (404)          (9,102)          (2,844)          (27,576)    

Unconsolidated joint ventures

     (700)          (772)          (1,827)          (2,041)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Same store NOI - accrual basis

      $ 77,955            $ 78,476            $ 226,720            $ 234,070     
  

 

 

    

 

 

    

 

 

    

 

 

 

Change period over period

     -0.7%           N/A           -3.1%           N/A     

 

 

   

Same Store Net Operating Income

Top Seven Markets

                                                                           
          Three Months Ended      Nine Months Ended       
          9/30/2012      9/30/2011      9/30/2012      9/30/2011       
          $      %        $      %        $      %        $      %         
      

 

 

    

 

 

    

 

 

    

 

 

     
   

Washington, D.C. (4)

       $ 21,130         27.1           $ 18,987         24.2           $ 61,022         26.9           $ 55,287         23.6         
   

New York (5)

     11,446         14.7           13,273         16.9           36,035         15.9           40,592         17.3         
   

Chicago (6)

     11,651         14.9           14,644         18.7           29,958         13.2           39,049         16.7         
   

Minneapolis (7)

     5,639         7.2           5,546         7.0           16,528         7.3           17,466         7.5         
   

Dallas

     3,854         4.9           3,730         4.8           11,664         5.1           11,366         4.9         
   

Los Angeles (8)

     3,330         4.3           2,406         3.1           9,766         4.3           9,514         4.1         
   

Boston

     3,347         4.4           2,843         3.6           9,204         4.1           9,199         3.9         
   

Other (9)

     17,558         22.5           17,047         21.7           52,543         23.2           51,597         22.0         
      

 

 

    

 

 

    

 

 

    

 

 

     
   

      Total

       $         77,955         100.0           $     78,476         100.0           $     226,720         100.0           $     234,070         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 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; 26200 Enterprise Way in Lake Forest, CA, sold on May 31, 2012; and 110 and 112 Hidden Lake Circle in Duncan, SC, sold on September 21, 2012.

(4) The increase in Washington, D.C. Same Store Net Operating Income for the three months and the nine months ended September 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 21-month 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 nine months ended September 30, 2012 as compared to the same periods in 2011 was primarily related to the expiration of the sanofi-aventis lease, resulting in a net decrease in leased square footage of 79,000 square feet, and the downtime associated with newly signed leases to backfill the space formerly occupied by sanofi-aventis at 200 Bridgewater Crossing in Bridgewater, NJ.

(6) The decrease in Chicago Same Store Net Operating Income for the three months and the nine months ended September 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 and subsequent downtime before the commencement of the Catamaran lease in the first quarter of 2013, as well as the expiration of the Kirkland & Ellis lease at Aon Center in Chicago, IL in December 2011 and subsequent downtime before the commencement of the KPMG lease in August 2012. The loss of the Zurich and Kirkland & Ellis leases reduced revenues by approximately $4.1 million and $14.1 million, respectively, for the three months and the nine months ended September 30, 2012; these amounts are offset partially by incremental operating expense savings due to the vacancy of those tenants.

(7) The decrease in Minneapolis Same Store Net Operating Income for the nine months ended September 30, 2012 as compared to the same period in 2011 was primarily related to the net loss of approximately 76,000 leased square feet associated with the December 2011 expiration of the HSBC Card Services lease at Crescent Ridge II in Minnetonka, MN.

(8) The increase in Los Angeles Same Store Net Operating Income for the three months ended September 30, 2012 as compared to the same period in 2011 was primarily related to the commencement of several new leases at 1901 Main Street in Irvine, CA and Fairway Center II in Brea, CA.

(9) The increase in Other Same Store Net Operating Income for the nine months ended September 30, 2012 as compared to the same period in 2011 was primarily related to 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
    September 30, 2012    
     As of
    December 31, 2011    
 

 

Common stock price (1)

     $17.34         $17.04   

 

Total shares outstanding

     168,044         172,630   

 

Equity market capitalization (1)

     $2,913,889         $2,941,611   

 

Total debt - principal amount outstanding

     $1,436,025         $1,472,525   

 

Total market capitalization (1)

     $4,349,914         $4,414,136   

 

Total debt / Total market capitalization

     33.0%         33.4%   

 

Total gross real estate assets

     $4,550,183         $4,615,812   

 

Total debt / Total gross real estate assets (2)

     31.6%         31.9%   

 

Total debt / Total gross assets (3)

     27.5%         27.5%   

 

 

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

(2) 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) 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 September 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

   $148,500(2)   1.40%   58.7 months   

Fixed Rate

   1,287,525   4.59%   35.3 months   

 

  

Total

   $1,436,025   4.26%   37.7 months   

 

  
         
         
         
         

Unsecured & Secured Debt

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

 

LOGO

 

  

Unsecured

   $448,500   2.26%(3)   52.7 months   

Secured

   987,525   5.17%   30.9 months   

 

  

Total

   $1,436,025   4.26%   37.7 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       $0      N/A   0.0%  

2013

   0       0      N/A   0.0%  

2014

   575,000       0      4.89%   40.0%  

2015

   105,000       0      5.29%   7.3%  

2016

   167,525       300,000      3.71%   32.6%  

2017

   140,000       148,500(4)      3.51%   20.1%  

 

 

Total

   $987,525       $448,500      4.26%   100.0%  

 

 

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

(2) Amount represents the outstanding balance as of September 30, 2012, on the $500 million unsecured revolving credit facility.

(3) The weighted average interest rate is a weighted average rate for amounts outstanding under our $500 million unsecured revolving credit facility and our $300 million unsecured term loan. The $300 million unsecured term loan has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix the interest rate on this loan at 2.69% through its maturity date of November 22, 2016, assuming no credit rating change for the Company.

(4) The initial maturity date of the $500 million unsecured revolving credit facility is August 19, 2016; however, there are two, six-month extension options available under the facility providing for a final extended maturity date of August 21, 2017. For the purposes of this schedule, we reflect the maturity date of the facility as the final extended maturity date of August 2017.

 

17


Piedmont Office Realty Trust, Inc.

Debt Detail

Unaudited ($ in thousands)

 

 

 

Facility   Property    Rate(1)   Maturity    

Principal Amount
Outstanding as of

September 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       1.40%(6)     8/21/2017        $148,500   

$300.0 Million Unsecured Term Loan

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

 

 

Subtotal / Weighted Average (4)

     2.26%       $448,500   

 

 

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

   4.26%       $1,436,025   

 

 

(1) All of Piedmont’s outstanding debt as of September 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 September 30, 2012.

(5) All of Piedmont’s outstanding debt as of September 30, 2012, was term debt with the exception of $148.5 million outstanding on our unsecured revolving credit facility. On August 21, 2012, Piedmont closed on a new $500 million unsecured revolving credit facility that replaced the previous facility that was set to expire on August 30, 2012. The new facility has an initial maturity date of August 19, 2016 and has two six-month extension options for a total extension of up to one year to August 21, 2017. The final extended maturity date is presented on this schedule.

(6) The interest rate on the $500 million unsecured revolving credit facility is equal to the weighted average interest rate on all outstanding draws as of September 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 (1.175% as of September 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 September 30, 2012

Unaudited

 

 

 

Debt Covenant Compliance (1)            Required                       Actual           

 

Maximum Leverage Ratio

     0.60         0.28   

 

Minimum Fixed Charge Coverage Ratio (2)

     1.50         4.54   

 

Maximum Secured Indebtedness Ratio

     0.40         0.19   

 

Minimum Unencumbered Leverage Ratio

     1.60         5.90   

 

Minimum Unencumbered Interest Coverage Ratio (3)

     1.75         17.50   

(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.

  

      

    

   

 

Other Debt Coverage Ratios    Three months ended
September 30, 2012
   Nine months ended
September 30, 2012
   Year ended
December 31, 2011        

 

Net debt to core EBITDA

   4.4 x    4.5 x    3.9 x

 

Fixed charge coverage ratio (4)

   4.9 x    4.8 x    4.8 x

 

Interest coverage ratio (5)

   4.9 x    4.8 x    4.8 x

 

(4) 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 September 30, 2012 and December 31, 2011.

 

(5) 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 September 30, 2012 and December 31, 2011.

 

19


Piedmont Office Realty Trust, Inc.

Tenant Diversification (1)

As of September 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)   $73,107   13.3   1,586   8.9

BP(5)

  A / A2   1   2013   31,749   5.8   776   4.3

US Bancorp

  A+ / Aa3   3   2014 / 2023(6)   27,705   5.0   973   5.5

State of New York

  AA / Aa2   1   2019   19,963   3.6   481   2.7

GE

  AA+ / Aa3   2   2027   14,820   2.7   447   2.5

Independence Blue Cross

  No rating available   1   2023   14,267   2.6   761   4.3

Nestle

  AA / Aa2   1   2015   14,205   2.6   392   2.2

Shaw

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

City of New York

  AA / Aa2   1   2020   9,545   1.7   313   1.7

Lockheed Martin

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

KPMG

  No rating available   2   2027   8,949   1.6   279   1.6

Gallagher

  No rating available   1   2018   8,013   1.5   307   1.7

DDB Needham

  BBB+ / Baa1   1   2018   7,625   1.4   214   1.2

Gemini

  A+ / A2   1   2021   7,304   1.3   205   1.1

Caterpillar Financial

  A / A2   1   2022   7,275   1.3   312   1.7

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

Catamaran

  BB / Ba2   1   2024   6,530   1.2   301   1.7

KeyBank

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

Harcourt

  BBB+   1   2016   6,254   1.1   195   1.1

Edelman

  No rating available   1   2024   6,094   1.1   178   1.0

Qwest Communications

  BB / Baa3   1   2014   5,785   1.1   161   0.9

Jones Lang LaSalle

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

First Data Corporation

  B / B3   1   2020   5,691   1.0   195   1.1

Other

          Various   230,565   41.9   8,238   46.2

Total

              $549,969   100.0   17,830   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 otherwise indicated, 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. Approximately 88% of the space currently leased by BP has been re-leased under long-term leases for the period following the BP lease expiration.

(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 $18.8 million of Annualized Lease Revenue, expires in 2014.

 

20


Piedmont Office Realty Trust, Inc.

Tenant Credit Rating & Lease Distribution Information

As of September 30, 2012

 

 

 

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

    AAA / Aaa

     $79,723       14.5     

    AA / Aa

     108,171       19.7     

    A / A

     108,017       19.6     

    BBB / Baa

     69,479       12.6     

    BB / Ba

     22,284       4.1     

    B / B

     19,638       3.6     

    Below

     1,248       0.2     

    Not rated (2)

     141,409       25.7     
    

 

 

    

 

    

    Total

     $549,969       100.0     
    

 

 

    

 

    

 

Lease Distribution

As of September 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

   195    35.5      $17,004       3.1      163       0.9

2,501 - 10,000

   140    25.5      24,668       4.5      744       4.2

10,001 - 20,000

   66    12.0      28,366       5.2      955       5.4

20,001 - 40,000

   63    11.5      56,924       10.3      1,843       10.3

40,001 - 100,000

   33    6.0      59,039       10.7      1,938       10.9

Greater than 100,000

   52    9.5      363,968       66.2      12,187       68.3

 

Total

   549    100.0      $549,969       100.0      17,830       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 September 30, 2012            Three Months Ended September 30, 2011       
      

 

 

       

 

 

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

 

 

       

 

 

     
   

As of June 30, 20xx

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

New leases

     806                770           
   

Expired leases

     (400             (924        
   

Other

     6        6              4        2         
      

 

 

       

 

 

     
   

Subtotal

     17,830        20,488        87.0%            18,711        21,819        85.8%       
   

Acquisitions during period

     -            -                  440        440         
   

Dispositions during period

     -            -                  (282     (420      
   

As of September 30, 20xx (2) (3)

     17,830        20,488        87.0%            18,869        21,839        86.4%       
      

 

 

       

 

 

     
                                                                 
                    
           Nine Months Ended September 30, 2012            Nine Months Ended September 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

     1,790                2,584           
   

Expired leases

     (1,623             (2,903        
   

Other

     9        16              1        9         
      

 

 

       

 

 

     
   

Subtotal

     18,300        20,958        87.3%            17,896        20,417        87.7%       
   

Acquisitions during period

     -            -                  1,255        1,842         
   

Dispositions during period

     (470     (470           (282     (420      
   

As of September 30, 20xx (2) (3)

     17,830        20,488        87.0%            18,869        21,839        86.4%       
                                                                 
                    
                   
   

Stabilized Portfolio Analysis

                    
   

Less value-add properties (4)

     (665     (1,433     46.4%            (718     (1,406     51.1%       
   

Stabilized Total (2) (3)

     17,165        19,055        90.1%            18,151        20,433        88.8%       
      

 

 

       

 

 

     
                                                                 
                    
                   
   

Same Store Analysis

                    
   

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

     (60     (176     34.1%            (1,548     (1,549     99.9%       
   

Same Store Total (2) (3) (6)

     17,770        20,312        87.5%            17,321        20,290        85.4%       
      

 

 

       

 

 

     
   

Same Store Stabilized Analysis

                    
   

Less value-add same store properties (4)

     (753     (1,407     53.5%            (718     (1,406     51.1%       
   

Same Store Stabilized Total (2) (3)

     17,017        18,905        90.0%            16,603        18,884        87.9%       
      

 

 

       

 

 

     
                                                                 
                    

(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 September 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 706,000 square feet for the current period and 371,000 square feet for the prior period, Piedmont's same store commenced leased percentage was 84.0% and 83.5% for the current and prior periods, respectively.

 

22


Piedmont Office Realty Trust, Inc.

Rental Rate Roll Up / Roll Down Analysis (1)

(in thousands)

 

 

 

    Three Months Ended September 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 one year or less

    465        46     2.3     (16.5 %)      (9.9 %) 

Leases executed for spaces excluded from analysis (5)

    547        54      
    Nine Months Ended September 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 one year or less

    1,270        62     6.2     (13.5 %)      (7.2 %) 

Leases executed for spaces excluded from analysis (5)

    783        38      

 

 

(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.

(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.

 

23


Piedmont Office Realty Trust, Inc.

Lease Expiration Schedule

As of September 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    2,659    13.0    $0    0.0    N/A

2012(2)

   16,701    3.0    617    3.0    7,018    1.3    42.0

2013

   53,218    9.7    1,172    5.7    21,839    4.0    41.0

2014

   50,965    9.3    1,463    7.1    3,572    0.6    7.0

2015

   43,936    8.0    1,535    7.5    33    0.0    0.1

2016

   29,791    5.4    1,026    5.0    1,435    0.3    4.8

2017

   36,667    6.7    1,159    5.7    1,846    0.3    5.0

2018

   52,768    9.6    1,760    8.6    8,763    1.6    16.6

2019

   47,844    8.7    1,783    8.7    19,963    3.6    41.7

2020

   26,527    4.8    1,030    5.0    9,545    1.7    36.0

2021

   14,488    2.6    502    2.5    0    0.0    0.0

2022

   21,970    4.0    712    3.5    0    0.0    0.0

2023

   37,635    6.8    1,628    7.9    0    0.0    0.0

2024

   32,333    5.9    1,116    5.5    0    0.0    0.0

2025

   7,260    1.3    295    1.4    0    0.0    0.0

Thereafter

   77,866    14.2    2,031    9.9    28,953    5.3    37.2
  

 

  

 

Total / Weighted Average

   $549,969    100.0    20,488    100.0    $102,967    18.7   
  

 

  

 

 

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 7,768 square feet and Annualized Lease Revenue of $281,230, are assigned a lease expiration date of a year and a day beyond the period end date. Includes leases with an expiration date of September 30, 2012 aggregating 3,331 square feet and Annualized Lease Revenue of $111,643, as well as the National Park Service lease, which is comprised of 219,750 square feet and $10.0 million in Annualized Lease Revenue, or 1.8% of the Company's total Annualized Lease Revenue.

 

24


Piedmont Office Realty Trust, Inc.

Lease Expirations by Quarter

As of September 30, 2012

(in thousands)

 

 

 

     Q4 2012 (1)    Q1 2013    Q2 2013    Q3 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

   47    $917    0    $0    8    $267    11    $259

Austin

   0    0    0    0    0    0    0    0

Boston

   1    37    0    32    0    0    0    0

Central & South Florida

   4    113    0    0    0    0    14    350

Chicago

   11    287    47    1,681    24    602    0    793

Cleveland

   102    1,580    0    0    0    0    0    0

Dallas

   32    752    28    705    10    252    0    0

Denver

   0    0    0    0    0    0    0    0

Detroit

   0    0    0    0    0    0    52    0

Houston

   11    345    0    0    0    0    0    0

Los Angeles

   22    866    2    50    47    1,523    5    151

Minneapolis

   8    227    16    524    5    160    16    535

Nashville

   0    0    0    0    0    0    0    0

New York

   150    3,319    11    306    5    124    0    0

Philadelphia

   0    0    0    0    0    0    0    0

Phoenix

   0    0    0    0    0    0    0    0

Washington, D.C.(3)

   229    10,554    344    21,006    70    3,816    64    0
  

 

  

 

  

 

  

 

Total / Weighted Average (4)    617    $18,997    448    $24,304    169    $6,744    162    $2,088
  

 

  

 

  

 

  

 

 

 

(1) Includes leases with an expiration date of September 30, 2012 aggregating 3,331 square feet and Expiring Lease Revenue of $111,643. 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 fourth quarter of 2012 is related to the lease with the National Park Service, which is currently in hold over status.

(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 September 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

   47    $917    19    $582    29    $624    29    $504    18    $353

Austin

   0    0    0    0    0    0    0    0    195    6,258

Boston

   1    37    0    32    27    1,884    135    2,791    3    185

Central & South Florida

   4    113    22    571    18    458    17    388    65    1,604

Chicago

   11    287    226    8,421    26    3,381    188    5,170    82    2,386

Cleveland

   102    1,580    10    218    0    0    0    0    13    294

Dallas

   32    752    46    1,162    13    304    270    6,021    7    150

Denver

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

Detroit

   0    0    86    750    8    147    132    3,901    31    690

Houston

   11    345    0    0    0    0    0    0    0    17

Los Angeles

   22    866    57    1,876    5    1,550    428    15,250    88    2,646

Minneapolis

   8    227    48    1,586    686    18,685    103    3,679    33    1,043

Nashville

   0    0    0    0    0    0    0    0    0    0

New York

   150    3,319    37    1,534    96    4,059    66    2,431    280    8,989

Philadelphia

   0    0    0    0    0    0    0    0    0    0

Phoenix

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

Washington, D.C.(3)

   229    10,554    621    30,888    555    19,320    35    1,719    55    2,421
  

 

  

 

  

 

  

 

  

 

Total / Weighted Average (4)

   617    $18,997    1,172    $47,620    1,463    $50,412    1,535    $43,801    1,026    $29,955
  

 

  

 

  

 

  

 

  

 

 

 

(1) Includes leases with an expiration date of September 30, 2012 aggregating 3,331 square feet and Expiring Lease Revenue of $111,643. 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 National Park Service, which is currently in hold over status.

(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 September 30, 2012

Unaudited ($ in thousands)

 

 

         For the Three Months Ended      
    

 

 

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

 

 

   
 

Non-incremental

               
 

Bldg / construction / dev

     $5,257         $1,959         $1,426         $3,650        $1,063     
 

Tenant improvements

     17,347         4,809         5,367         8,463        4,748     
 

Leasing costs

     15,979         11,013         1,273         3,279        8,718     
    

 

 

   
 

Total non-incremental

     38,583         17,781         8,066         15,392        14,529     
 

Incremental

               
 

Bldg / construction / dev

     7,338         5,721         2,241         2,040        1,646     
 

Tenant improvements

     5,904         12,044         5,938         10,862        7,154     
 

Leasing costs

     8,768         1,687         1,925         12,791        1,464     
    

 

 

   
 

Total incremental

     22,010         19,452         10,104         25,693        10,264     
    

 

 

   
 

Total capital expenditures

     $60,593         $37,233         $18,170         $41,085        $24,793     
    

 

 

   
                 
               
                     
    Non-incremental tenant improvement commitments (1)       
   

Non-incremental tenant improvement commitments outstanding as of June 30, 2012

  

    $97,190     
   

New non-incremental tenant improvement commitments related to leases executed during period

  

    25,667     
   

Non-incremental tenant improvement expenditures

  

     (17,347    
   

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

   

     16,515       
               

 

 

     
   

Non-incremental tenant improvement commitments fulfilled, expired or other adjustments

  

    (832  
                 

 

 

   
   

Total as of September 30, 2012

  

             $122,025     
                 

 

 

   
                                                   

 

 

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

(1) Commitments are unexpired contractual non-incremental 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 $74.3 million, or 61% 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    
September 30, 2012
  For the Nine Months Ended    
September 30, 2012
   2011    2010    2009

Renewal Leases

                      
   

Number of leases

  6   27    48    37    34    
   

Square feet (1)

  19,247   534,832    2,280,329    1,241,481    1,568,895    
   

Tenant improvements per square foot (2)

  $11.48   $6.63    $33.29    $14.40    $12.01    
   

Leasing commissions per square foot

  $7.78   $4.71    $9.97    $8.40    $5.51    
   

Total per square foot

  $19.26   $11.34    $43.26    $22.80    $17.52    
       
   

Tenant improvements per square foot per year of lease term

  $1.54   $1.45    $3.93    $1.74    $1.44    
   

Leasing commissions per square foot per year of lease term

  $1.05   $1.03    $1.18    $1.02    $0.66    
   

Total per square foot per year of lease term (3)

  $2.59   $2.48    $5.11    $2.76    $2.10    
           

  New Leases

                      
   

Number of leases

  25   69    76    56    28    
   

Square feet (1)

  993,179   1,518,363    1,588,271    866,212    700,295    
   

Tenant improvements per square foot (2)

  $55.72   $49.57    $41.21    $32.65    $45.04    
   

Leasing commissions per square foot

  $21.06   $19.50    $15.38    $11.28    $17.12    
   

Total per square foot

  $76.78   $69.07    $56.59    $43.93    $62.16    
       
   

Tenant improvements per square foot per year of lease term

  $4.35   $4.27    $4.19    $4.16    $4.05    
   

Leasing commissions per square foot per year of lease term

  $1.64   $1.68    $1.57    $1.44    $1.54    
   

Total per square foot per year of lease term

  $5.99   $5.95    $5.76    $5.60    $5.59    
     

  Total

                  
   

Number of leases

  31   96    124    93    62    
   

Square feet

  1,012,426   2,053,195    3,868,600    2,107,693    2,269,190    
   

Tenant improvements per square foot (2)

  $54.88   $38.38    $36.54    $21.90    $22.21    
   

Leasing commissions per square foot

  $20.80   $15.65    $12.19    $9.59    $9.09    
   

Total per square foot

  $75.68   $54.03    $48.73    $31.49    $31.30    
       
   

Tenant improvements per square foot per year of lease term

  $4.32   $3.92    $4.05    $2.70    $2.42    
   

Leasing commissions per square foot per year of lease term

  $1.64   $1.60    $1.35    $1.18    $0.99    
   

Total per square foot per year of lease term

  $5.96   $5.52    $5.40    $3.88    $3.41    

NOTE: This information is presented for our consolidated office assets only and excludes activity associated with storage spaces. 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) During the third quarter of 2012, we completed an approximate 20,000 square foot, 15-year renewal with a tenant at 500 West Monroe Street in Chicago, IL that involved a relocation in the building and an expansion. For the purposes of this schedule, we are treating the lease as a new lease since the tenant will be occupying new space.

(2) 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.

(3) 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 September 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
(%)

Chicago

   6       $125,577       22.8       4,777       23.3       3,731       78.1

Washington, D.C.

   14       121,071       22.0       3,056       14.9       2,795       91.5

New York

   7       80,833       14.7       2,658       13.0       2,469       92.9

Minneapolis

   4       43,663       8.0       1,613       7.9       1,480       91.8

Los Angeles

   4       29,800       5.4       999       4.9       869       87.0

Boston

   6       25,825       4.7       1,023       5.0       1,013       99.0

Dallas

   7       24,815       4.5       1,276       6.2       1,158       90.8

Detroit

   4       17,372       3.2       930       4.5       783       84.2

Atlanta

   6       15,395       2.8       1,042       5.1       634       60.8

Houston

   2       14,402       2.6       463       2.3       461       99.6

Philadelphia

   1       14,267       2.6       761       3.7       761       100.0

Phoenix

   4       9,095       1.7       564       2.8       477       84.6

Central & South Florida

   4       8,263       1.5       476       2.3       359       75.4

Nashville

   1       7,275       1.3       312       1.5       312       100.0

Austin

   1       6,258       1.1       195       0.9       195       100.0

Cleveland

   2       3,139       0.6       187       0.9       177       94.7

Denver

   1         2,919         0.5         156         0.8         156         100.0

Total / Weighted Average

   74       $549,969       100.0       20,488       100.0       17,830       87.0
  

 

 

LOGO

 

29


Piedmont Office Realty Trust, Inc.

Geographic Diversification by Location Type

As of September 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
(%)

 

 

 

 

 

 

 

Chicago

  IL   2   18.4   3,651   17.8        4   4.4   1,126   5.5      6   22.8   4,777   23.3

Washington, D.C.

  DC, VA, MD   9   19.7   2,575   12.6        5   2.3   481   2.3      14   22.0   3,056   14.9

New York

  NY, NJ   1   7.2   1,027   5.0        6   7.5   1,631   8.0      7   14.7   2,658   13.0

Minneapolis

  MN   1   5.1   928   4.6        3   2.9   685   3.3      4   8.0   1,613   7.9

Los Angeles

  CA   3   4.8   865   4.2        1   0.6   134   0.7      4   5.4   999   4.9

Boston

  MA   2   2.2   173   0.9        4   2.5   850   4.1      6   4.7   1,023   5.0

Dallas

  TX   0   0.0   0   0.0        7   4.5   1,276   6.2      7   4.5   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

Houston

  TX   0   0.0   0   0.0        2   2.6   463   2.3      2   2.6   463   2.3

Philadelphia

  PA   1   2.6   761   3.7        0   0.0   0   0.0      1   2.6   761   3.7

Phoenix

  AZ   0   0.0   0   0.0        4   1.7   564   2.8      4   1.7   564   2.8

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   1.3   312   1.5        0   0.0   0   0.0      1   1.3   312   1.5

Austin

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

Cleveland

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

Denver

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

 

 

 

 

 

 

 

Total / Weighted Average

    23   64.8   11,343   55.4        51   35.2   9,145   44.6      74   100.0   20,488   100.0
   

 

 

 

 

 

 

30


Piedmont Office Realty Trust, Inc.

Industry Diversification

As of September 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    $102,967    18.7    2,390    13.4

Depository Institutions

   13    2.9    49,813    9.1    1,734    9.7

Business Services

   63    14.1    41,678    7.6    1,453    8.1

Petroleum Refining & Related Industries

   1    0.2    31,749    5.8    776    4.4

Nondepository Credit Institutions

   15    3.3    31,561    5.7    1,114    6.2

Insurance Carriers

   24    5.4    31,041    5.6    1,386    7.8

Engineering, Accounting, Research, Management & Related Services

   29    6.5    31,009    5.6    939    5.3

Communications

   34    7.6    18,320    3.3    610    3.4

Insurance Agents, Brokers & Services

   8    1.8    17,298    3.2    710    4.0

Security & Commodity Brokers, Dealers, Exchanges & Services

   29    6.5    16,880    3.1    617    3.5

Educational Services

   10    2.2    15,813    2.9    440    2.5

Food & Kindred Products

   6    1.3    15,163    2.8    428    2.4

Transportation Equipment

   4    0.9    13,860    2.5    518    2.9

Electronic & Other Electrical Equipment & Components, Except Computer

   10    2.2    13,759    2.5    572    3.2

Fabricated Metal Products, Except Machinery & Transportation Equipment

   4    0.9    12,340    2.2    418    2.3

Other

   191    42.6    106,718    19.4    3,725    20.9

 

Total

   448    100.0    $549,969    100.0    17,830    100.0
  

 

 

LOGO

 

31


Piedmont Office Realty Trust, Inc.

Property Investment Activity

As of September 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  
(%)

 

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

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

 

               $145,325    906    69
              

 

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 (1)

   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 (1)

   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 (1)

   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 (2)

   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

110 Hidden Lake Circle

   Duncan, SC    9/21/2012    100    1987    16,058    474    100

112 Hidden Lake Circle

   Duncan, SC    9/21/2012    100    1987    9,842    313    100
              

 

               $583,317    2,905    91
              

 

 

Acquisitions Subsequent to Quarter End                    

 

Property Name    Location        Acquisition  
Date
  

Percent

  Ownership  
(%)

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

 

Glenridge Highlands III Land

     Atlanta, GA       10/15/2012    100    N/A    $1,725    N/A    N/A

 

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

(2) 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 September 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

(%)

  Real Estate
Gross Book
Value
  Estimated Cost
to Stabilize (per
VACANT square
foot)

 

Suwanee Gateway One

   Suwanee, GA     9/28/2010      100   2008   $7,875   142   0   0   $7,953   $40 - 60

500 West Monroe Street (1)

   Chicago, IL     3/31/2011      100   1991   227,500   962   59   49   212,636   $60 - 90

The Medici

   Atlanta, GA     6/7/2011      100   2008   13,210   152   23   22   13,711   $35 - 60

400 TownPark

   Lake Mary, FL     11/10/2011      100   2008   23,865   176   34   19   23,705   $35 - 50
          

 

           $272,450   1,432   46   37   $258,005  
          

 

Properties Removed From Value-Add Classification This Year

 

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
(%)
  Real Estate
Gross Book
Value
  Estimated Cost
to Stabilize (per
VACANT square
foot)

 

1200 Enclave Parkway

   Houston, TX     3/30/2011      100   1999   $18,500   150   99   18   $24,685   N/A

(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.

 

33


Piedmont Office Realty Trust, Inc.

Other Investments

As of September 30, 2012

 

 

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    $2,481    $4,372    68.3    91

4685 Investment Drive

   Troy, MI    55    2000    4,990    9,071    77.1    100

5301 Maryland Way

   Brentwood, TN    55    1989    10,592    19,254    201.2    100

8560 Upland Drive

   Parker, CO    72    2001    7,687    10,693    148.2    74

Two Park Center

   Hoffman Estates, IL    72    1999    10,970    15,259    193.7    39
           

 

            $36,720    $58,649    688.5    76
           

 

Land Parcels    Location                        Acres   

Approximate

Current Value ($’s

in thousands)

 

Gavitello

   Atlanta, GA                2.0    $2,500

Enclave Parkway

   Houston, TX                4.7    2,600

Durham Avenue

   South Plainfield, NJ                8.9    2,200

State Highway 161

   Irving, TX                4.5    1,200
                 

 

  

 

                  20.1    $8,500
                 

 

  

 

 

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 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 significant non-recurring 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 significant 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 five 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

     Michael Knott, CFA      Chris Caton  

BMO Capital Markets

     Jed Reagan      Morgan Stanley  
3 Times Square, 26th Floor      Green Street Advisors      555 California Street, 21st Floor
New York, NY 10036      660 Newport Center Drive, Suite 800      San Francisco, CA 94104  
Phone: (212) 885-4170      Newport Beach, CA 92660      Phone: (415) 576-2637  
     Phone: (949) 640-8780       

Brendan Maiorana

     John W. Guinee, III      Richard Moore  

Wells Fargo

     Erin Aslakson      Michael Carroll  
7 St. Paul Street      Stifel, Nicolaus & Company      RBC Capital Markets
MAC R1230-011      One South Street      Arbor Court  
Baltimore, MD 21202      16th Floor      30575 Bainbridge Road, Suite 250
Phone: (443) 263-6516      Baltimore, MD 21202      Solon, OH 44139  
     Phone: (443) 224-1307      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     Nine Months Ended  
        9/30/2012             6/30/2012             3/31/2012             12/31/2011             9/30/2011             9/30/2012             9/30/2011      

Net income attributable to Piedmont

  $ 10,831       $ 30,708       $ 37,227       $ 119,020       $ 51,026       $ 78,766       $ 106,020    

Depreciation

    28,763         28,033         27,809         27,287         28,102         84,605         83,135    

Amortization

    15,366         11,539         12,840         15,531         16,616         39,744         44,601    

Impairment loss

    -            -            -            -            -            -            -       

(Gain) / loss on sale of properties

    254         (10,008)        (17,830)        (95,901)        (26,826)        (27,583)        (26,872)   

(Gain) / loss on consolidation of VIE

    -            -            -            -            -            -            (1,532)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Funds from operations

    55,214         60,272         60,046         65,937         68,918         175,532         205,352    

Litigation settlement expense

    7,500         -            -            -            -            7,500         -       

Acquisition costs

           84         (3)        372         285         88         975    

(Gain) / loss on extinguishment of debt

    -            -            -            (1,039)        -            -            -       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core funds from operations

    62,721         60,356         60,043         65,270         69,203         183,120         206,327    

Depreciation of non real estate assets

    196         108         93         77         84         397         422    

Stock-based and other non-cash compensation expense

    869         289         334         1,730         1,111         1,492         2,975    

Deferred financing cost amortization

    663         590         803         649         879         2,056         2,546    

Amortization of fair market adjustments on notes payable

    -            -            -            -            471         -            1,413    

Straight-line effects of lease revenue

    (4,193)        (5,477)        (1,565)        (5,019)        (4,129)        (11,236)        (4,488)   

Amortization of lease-related intangibles

    (1,315)        (1,785)        (1,532)        (2,215)        (1,817)        (4,631)        (4,850)   

Income from amortization of discount on purchase of mezzanine loans

    -            -            -            -            -            -            (484)   

Acquisition costs

    (7)        (84)               (372)        (285)        (88)        (975)   

Non-incremental capital expenditures

    (38,583)        (17,781)        (8,066)        (15,392)        (14,529)        (64,430)        (45,009)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted funds from operations

  $ 20,351       $ 36,216       $ 50,113       $ 44,728       $ 50,988       $ 106,680       $ 157,877    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

38


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Cash Basis)

Unaudited (in thousands)

 

 

 

    Three Months Ended     Nine Months Ended  
 

 

 

   

 

 

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

Net income attributable to Piedmont

  $ 10,831        $ 30,708        $ 37,227        $ 119,020        $ 51,026        $ 78,766        $ 106,020     

Net income attributable to noncontrolling interest

    4          4          4          91          135          12          378     

Interest expense

    16,247          15,943          16,537          17,457          17,804          48,727          54,291     

(Gain) / loss on extinguishment of debt

    -              -              -              (1,039)         -              -              -         

Depreciation

    28,959          28,141          27,902          27,364          28,186          85,002          83,557     

Amortization

    15,366          11,539          12,840          15,531          16,616          39,744          44,601     

Impairment loss

    -              -              -              -              -              -              -         

Litigation settlement expense

    7,500          -              -              -              -              7,500          -         

(Gain) / loss on sale of properties

    254          (10,008)         (17,830)         (95,901)         (26,826)         (27,583)         (26,872)    

(Gain) / loss on consolidation of VIE

    -              -              -              -              -              -              (1,532)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core EBITDA

    79,161          76,327          76,680          82,523          86,941          232,168          260,443     

General & administrative expenses

    5,576          4,866          5,318          6,241          4,747          15,760          18,843     

Management fee revenue

    (520)         (626)         (574)         (281)         (110)         (1,719)         (1,303)    

Interest and other income

    (383)         (305)         (97)         357          74          (785)         (3,132)    

Lease termination income

    (75)         (88)         (123)         (320)         33          (287)         (4,718)    

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

    122          165          99          186          260          385          739     

Straight-line effects of lease revenue

    (4,337)         (5,642)         (1,664)         (5,180)         (4,296)         (11,643)         (4,963)    

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

    (1,293)         (1,785)         (1,532)         (2,239)         (1,911)         (4,609)         (5,115)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core net operating income - Cash Basis

    78,251          72,912          78,107          81,287          85,738          229,270          260,794     

Net operating income from:

             

Acquisitions

    (3,576)         (3,886)         (3,150)         (4,489)         (3,393)         (10,612)         (6,837)    

Dispositions

    (321)         (541)         (1,637)         (6,363)         (7,699)         (2,499)         (23,051)    

Unconsolidated joint ventures

    (735)         (598)         (590)         (1,013)         (818)         (1,923)         (2,172)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Same Store NOI - Cash Basis

  $ 73,619        $ 67,887        $ 72,730        $ 69,422        $ 73,828        $ 214,236        $ 228,734     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

39


Piedmont Office Realty Trust, Inc.

Unconsolidated Joint Venture NOI Reconciliation

Pro-rata (in thousands)

 

 

 

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

Equity in Income of Unconsolidated JVs

     $  322         $  246        $  170         $ 587         $  485        $ 739        $  1,032   

Interest expense

     -           -          -           -           -          -          -     

Depreciation

     307         300        296         293         296        902        897   

Amortization

     41         41        41         33         33        123        97   

(Gain) / loss on sale of properties

     -           -          -           -           (71     -          (116
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Core EBITDA

     670         587        507         913         743        1,764        1,910   

General & administrative expenses

     30         (3     57         49         30        84        132   

Interest and other income

     -           (21     -           -           (1     (21     (1
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Core net operating income (accrual basis)

     700         563        564         962         772        1,827        2,041   

Straight-line effects of lease revenue

     35         35        26         51         46        96        131   

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

     -           -          -           -           -          -          -     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Core net operating income (cash basis)

     $ 735         $ 598        $ 590         $ 1,013         $ 818        $ 1,923        $ 2,172   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

40


Piedmont Office Realty Trust, Inc.

Discontinued Operations

Unaudited (in thousands)

 

 

 

     Three Months Ended     Nine Months Ended  
  

 

 

   

 

 

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

 

 

   

 

 

 

Revenues:

                 

Rental income

     $         434        $ 898         $ 1,613         $ 7,946        $ 9,234        $ 2,945         $ 29,941   

Tenant reimbursements

     73        104         292         4,396        3,790        469         14,967   

Property management fee revenue

     -            -             -             -            -            -             -       

Other rental income

     -            -             -             -            (46     -             303   
  

 

 

   

 

 

 

Total revenues

     507        1,002         1,905         12,342        12,978        3,414         45,211   

Operating expenses:

                 

Property operating costs

     100        197         269         4,814        3,758        566         16,762   

Depreciation

     163        255         430         459        2,000        848         6,467   

Amortization

     22        53         74         112        1,776        148         5,406   

General and administrative

     38        5         3         (13     (14     47         (157
  

 

 

   

 

 

 

Total operating expenses

     323        510         776         5,372        7,520        1,609         28,478   

Interest expense

     —          —           —           (1,278     (1,568     —           (4,653

Interest and other income (expense)

     —          —           —           —          16        —           1   

Net income attributable to noncontrolling interest

     —          —           —           (87     (131     —           (366
  

 

 

   

 

 

 

Total other income (expense)

     —          —           —           (1,365     (1,683     —           (5,018

  Operating income, excluding impairment loss and gain on sale

     184        492         1,129         5,605        3,775        1,805         11,715   

Gain / (loss) on sale of properties

     (254     10,008         17,830         95,901        26,756        27,583         26,756   
  

 

 

   

 

 

 

Income from discontinued operations

     $ (70     $         10,500         $         18,959         $         101,506        $         30,531        $         29,388         $         38,471   
  

 

 

   

 

 

 

 

41


Piedmont Office Realty Trust, Inc.

Property Detail

As of September 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         73.6     71.2     69.7

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         23.0     23.0     13.2

Metropolitan Area Subtotal / Weighted Average

          1,042         60.8     59.9     57.6

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     100.0     88.2

Windy Point II

   Schaumburg    IL      100.0     2001         301         100.0     0.0     0.0

Aon Center

   Chicago    IL      100.0     1972         2,688         80.6     80.4     68.3

Two Pierce Place

   Itasca    IL      100.0     1991         486         80.9     77.4     76.1

2300 Cabot Drive

   Lisle    IL      100.0     1998         152         75.0     75.0     75.0

500 West Monroe Street

   Chicago    IL      100.0     1991         963         59.2     46.7     43.4

Metropolitan Area Subtotal / Weighted Average

          4,777         78.1     68.9     60.8

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         88.2     88.2     88.2

Metropolitan Area Subtotal / Weighted Average

          187         94.7     94.7     94.7

Dallas

                    

3900 Dallas Parkway

   Plano    TX      100.0     1999         120         100.0     100.0     100.0

5601 Headquarters Drive

   Plano    TX      100.0     2001         166         100.0     100.0     100.0

6031 Connection Drive

   Irving    TX      100.0     1999         229         95.6     92.1     90.4

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     89.9     40.9

Las Colinas Corporate Center II

   Irving    TX      100.0     1998         227         59.5     58.1     53.3

Metropolitan Area Subtotal / Weighted Average

          1,276         90.8     89.9     82.6

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         81.3     79.4     76.6

150 West Jefferson

   Detroit    MI      100.0     1989         493         74.2     74.2     73.8

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         84.2     84.0     83.4

Central & South Florida

                    

Sarasota Commerce Center II

   Sarasota    FL      100.0     1999         152         99.3     84.9     67.1

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     100.0     85.4

400 TownPark

   Lake Mary    FL      100.0     2008         176         34.1     34.1     31.3

Metropolitan Area Subtotal / Weighted Average

          476         75.4     70.8     62.6

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         98.7     98.7     9.3

Metropolitan Area Subtotal / Weighted Average

          463         99.6     99.6     70.6

 

42


Piedmont Office Realty Trust, Inc.

Property Detail

As of September 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         98.9     61.7     61.7

Fairway Center II

   Brea    CA      100.0     2002         134         97.8     95.5     95.5

1901 Main Street

   Irvine    CA      100.0     2001         172         86.6     86.6     80.8

Metropolitan Area Subtotal / Weighted Average

  

       999         87.0     80.2     79.2

Minneapolis

                    

Crescent Ridge II

   Minnetonka    MN      100.0     2000         301         74.8     74.8     74.8

US Bancorp Center

   Minneapolis    MN      100.0     2000         928         95.6     95.6     90.7

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     91.0

Metropolitan Area Subtotal / Weighted Average

  

       1,613         91.8     91.8     88.9

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     26.4     19.7

Copper Ridge Center

   Lyndhurst    NJ      100.0     1989         268         96.3     96.3     96.3

60 Broad Street

   New York    NY      100.0     1962         1,027         99.3     99.1     99.1

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         92.9     87.5     86.8

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         87.6     87.6     78.7

3100 Clarendon Boulevard

   Arlington    VA      100.0     1987         250         100.0     100.0     100.0

400 Virginia Avenue

   Washington    DC      100.0     1985         224         89.3     89.3     89.3

4250 North Fairfax Drive

   Arlington    VA      100.0     1998         305         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     65.6

Piedmont Pointe II

   Bethesda    MD      100.0     2008         221         50.2     50.2     19.0

Metropolitan Area Subtotal / Weighted Average

  

       3,056         91.5     91.2     88.3

 

Grand Total

 

                               

 

20,488

 

  

 

    

 

87.0

 

 

   

 

83.6

 

 

   

 

77.9

 

 

(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; 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