PDM 9.30.14 8K Q3 2014 ER and Supp Schedules


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 29, 2014
 
Piedmont Office Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
 
Commission File Number:  001-34626
 
Maryland
 
58-2328421
(State or other jurisdiction of
 
(IRS Employer
incorporation)
 
Identification No.)

11695 Johns Creek Parkway
Suite 350
Johns Creek, GA 30097-1523
(Address of principal executive offices, including zip code)
 
770-418-8800
(Registrant's telephone number, including area code)
 
(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:
[  ]   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 29, 2014, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the third quarter 2014 and published supplemental information for the third quarter 2014 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 29, 2014.
 
 
 
99.2
 
Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Third Quarter 2014.









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)
 
 
 
 
 
Date: October 29, 2014
 
By:
 
/s/    Robert E. Bowers
 
 
 
 
Robert E. Bowers
 
 
 
 
Chief Financial Officer and Executive Vice President

 





EXHIBIT INDEX


Exhibit No.
 
Description
99.1
 
Press release dated October 29, 2014.
 
 
 
99.2
 
Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Third Quarter 2014.




PDM 9.30.14 EX 99.1 Q3 2014 EARNINGS RELEASE


EXHIBIT 99.1

Piedmont Office Realty Trust Reports Third Quarter 2014 Results
ATLANTA, October 29, 2014 --Piedmont Office Realty Trust, Inc. ("Piedmont" or the "Company") (NYSE:PDM), an owner of primarily Class A office properties located predominantly in nine of the largest U.S. office markets, today announced its results for the quarter ended September 30, 2014.

Highlights for the Three Months Ended September 30, 2014:

Achieved Core Funds From Operations ("CFFO") of $0.38 per diluted share for the quarter ended September 30, 2014;
Completed approximately 684,000 square feet of leasing during the third quarter with approximately 389,000 square feet of the activity related to new tenants; 
Acquired 1155 Perimeter Center West, a Class-A office building located in the Central Perimeter submarket of Atlanta, GA, furthering the Company's strategy of aggregating assets in select sub-markets; and
Further expanded its regional teams with the addition of Thomas R. Prescott as Executive Vice President of the Midwest region.

Donald A. Miller, CFA, President and Chief Executive Officer said, "Third quarter was a solid quarter for us from both a financial and leasing perspective. In particular, I am pleased that the majority of our leasing activity during the third quarter related to new leases, as the leasing of currently vacant space remains our top priority.”

Results for the Third Quarter ended September 30, 2014

Piedmont's net income available to common stockholders for the third quarter of 2014 was $9.2 million, or $0.06 per diluted share, as compared with $19.1 million, or $0.12 per diluted share, for the third quarter of 2013. The prior quarter's results included $0.02 per diluted share in non-recurring insurance recoveries whereas the current quarter's results reflect $0.03 per diluted share of additional depreciation expense resulting from properties acquired as well as several large tenant build outs over the last twelve months.

Revenues for the quarter ended September 30, 2014 were $144.6 million, as compared with $143.4 million for the same period a year ago, primarily attributable to increased reimbursement revenue as a result of the expiration of lease abatements for operating expenses on certain recently commenced leases.

Property operating costs were $62.0 million for the quarter ended September 30, 2014, as compared to the prior period of $58.1 million, primarily as a result of additional expenses associated with properties acquired since the third quarter of 2013, as well as increased occupancy at certain assets. General and administrative expenses were $5.8 million for the third quarter of both the current and prior year.






Funds From Operations ("FFO") for the current quarter totaled $58.7 million, or $0.38 per diluted share, compared to $65.0 million, or $0.39 per diluted share, for the quarter ended September 30, 2013. The prior quarter FFO results include $0.02 per diluted share in net insurance recoveries related to Hurricane Sandy casualty losses.

Core FFO, which excludes acquisition costs and the insurance recoveries mentioned above, totaled $58.8 million, or $0.38 per diluted share, for the current quarter, as compared to $61.1 million, or $0.37 per diluted share, for the quarter ended September 30, 2013. Per share results reflect a reduction in weighted average shares outstanding as a result of shares repurchased pursuant to the Company's stock repurchase plan.

Adjusted FFO (“AFFO”) for the third quarter of 2014 totaled $21.8 million, or $0.14 per diluted share, compared to $34.0 million, or $0.21 per diluted share, in the third quarter of 2013 primarily due to increased capital expenditures associated with large tenant build outs at Aon Center in Chicago, IL and 1901 Market Street in Philadelphia, PA, among others.

Leasing Update

During the third quarter of 2014, the Company executed approximately 684,000 square feet of leasing throughout its markets with approximately 389,000 square feet of the activity related to new tenants.

As of September 30, 2014, the Company had approximately 1.7 million square feet of commenced leases that were in some form of abatement, as well as approximately 0.6 million square feet of executed leases for currently vacant space yet to commence. Same store net operating income (on a cash basis) for the quarter was $68.2 million, a 2% increase over the second quarter of 2014, but a 2.5% decrease from the third quarter of the prior year, reflecting the large number of leases currently in abatement, as well as the non-recurrence of certain rental income recognized in the third quarter of 2013 related to a lease restructuring transaction.

The Company's overall portfolio was 87.5% leased as of September 30, 2014, up from 87.0% as of the end of second quarter of 2014 and up from 86.7% a year ago. Further, the stabilized portfolio was 89.0% leased as of September 30, 2014. The weighted average lease term remaining was approximately 7.3 years as of quarter end, also up slightly compared to second quarter of 2014. Details outlining Piedmont's significant upcoming lease expirations and the status of current leasing activity can be found in the Company's quarterly supplemental information package available at www.piedmontreit.com.

Capital Markets and Other Activities

During the three months ended September 30, 2014, Piedmont acquired 1155 Perimeter Center West, a Class-A property located in the Central Perimeter submarket of Atlanta, Georgia.  The 376,694 square foot property includes a 12-story office building, and an adjoining trading floor and data center, as well as an 8-level parking structure.  Piedmont purchased the property for $80.75 million or $214 per square foot.  The building serves as the corporate headquarters for its three tenants.  This transaction, together with the Company's existing assets, brings the Atlanta area portfolio to approximately 1.5 million square feet and furthers the Company's strategy of expanding its presence in desirable sub-markets within specifically identified office markets.
Also during the quarter, Thomas R. Prescott joined the Company as its Executive Vice President for the Midwest Region. Prescott, who will report to Donald A. Miller, CFA, President & CEO of Piedmont, will





be responsible for all of the Midwest Region's leasing, asset management, acquisitions, dispositions, and development projects. Piedmont's Midwest Region is currently comprised of approximately 6.5 million square feet of office space, located in metropolitan Chicago and Minneapolis.

Subsequent to Quarter End

Fourth Quarter Dividend Declaration

On October 29, 2014, the board of directors of Piedmont declared dividends for the fourth quarter 2014 in the amount of $0.21 per share on its common stock to stockholders of record as of the close of business on November 28, 2014, payable on December 19, 2014.

Land Acquisition

On October 28, 2014, Piedmont entered into a binding agreement to purchase approximately 25.2 acres of land adjacent to its 400 TownPark property in Lake Mary, FL. The land is located within a mixed-use development consisting of office, retail, residential and a hotel. If consummated, the acquisition would add to Piedmont's developable land holdings and allow Piedmont to control a site that is complementary to the 400 TownPark building.


Guidance for 2014

Based on management's expectations, the Company is narrowing its guidance for full-year 2014 as follows:

(in millions, except per share data)
 
Low
 
High
Net Income
 
$35
-
$37
Add: Depreciation, Amortization, and Other
 
195

-
198
Less: Gain on Sale of Real Estate Assets
 
(2
)
-
(2)
Core FFO
 
$228
-
$233
Core FFO per diluted share
 
$1.48
-
$1.50

These estimates reflect management's view of current market conditions and incorporate certain economic and operational assumptions and projections. Actual results could differ from these estimates. Note that individual quarters may fluctuate on both a cash basis and an accrual basis due to lease commencements and expirations, the timing of repairs and maintenance, capital expenditures, capital markets activities and one-time revenue or expense events. In addition, the Company's guidance is based on information available to management as of the date of this release.

Non-GAAP Financial Measures

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






Conference Call Information

Piedmont has scheduled a conference call and an audio web cast for Thursday, October 30, 2014 at 10:00 A.M. Eastern daylight time. The live audio web cast of the call may be accessed on the Company's website at www.piedmontreit.com in the Investor Relations section. Dial-in numbers are (877) 407-0778 for participants in the United States and Canada and (201)689-8565 for international participants. A replay of the conference call will be available through November 12, 2014, and may be accessed by dialing (877)660-6853 for participants in the United States and Canada and (201)612-7415 for international participants, followed by conference identification code 13591744. 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 2014 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, 2014 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 the ownership and management of high-quality Class A office buildings located primarily in nine of the largest U.S. office markets, including Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Minneapolis, New York and Washington, D.C. Approximately 73% of Annualized Lease Revenue is from tenants that are investment grade-rated or governmental tenants, or large, nationally-recognized companies not requiring investment ratings. The Company is headquartered in Atlanta, GA, with local management offices in each of its major markets. Investment grade-rated by Standard & Poor's (BBB) and Moody's (Baa2), Piedmont has maintained a relatively low leverage strategy throughout its sixteen 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 our use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "believe," "continue" or similar words or phrases that are predictions of future events or trends and which do not relate solely to historical matters. Examples of such statements in this press release include the Company's estimated range of Net Income, Depreciation, Amortization and Other, Gain on Sale of Real Estate Assets, Core FFO and Core FFO per diluted share for the year ending December 31, 2014.

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: market and





economic conditions remain challenging and the demand for office space, rental rates and property values may continue to lag the general economic recovery causing the Company's business, results of operations, cash flows, financial condition and access to capital to be adversely affected or otherwise impact performance, including the potential recognition of impairment charges; the success of the Company's real estate strategies and investment objectives, including the Company's ability to identify and consummate suitable acquisitions; 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 on terms similar to existing leases; changes in the economies and other conditions of the office market in general and of the specific markets in which the Company operates, particularly in Chicago, Washington, D.C., and the New York metropolitan area; economic and regulatory changes, including accounting standards, that impact the real estate market generally; additional risks and costs associated with directly managing properties occupied by government tenants; adverse market and economic conditions may continue to adversely affect the Company and could cause the Company to recognize impairment charges or otherwise impact the Company's performance; availability of financing and the Company's lending banks' ability to honor existing line of credit commitments; costs of complying with governmental laws and regulations; uncertainties associated with environmental and other regulatory matters; potential changes in political environment and reduction in federal and/or state funding of the Company's governmental tenants; the Company may be subject to litigation, which could have a material adverse effect on the Company's financial condition; the Company's ability to continue to qualify as a real estate investment trust 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, 2013, 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, 2014
 
December 31, 2013
 
(unaudited)
 
 
Assets:
 
 
 
Real estate assets, at cost:
 
 
 
Land
$
696,429

 
$
688,761

Buildings and improvements
4,307,467

 
4,144,509

Buildings and improvements, accumulated depreciation
(1,063,515
)
 
(979,934
)
Intangible lease assets
150,336

 
146,197

Intangible lease assets, accumulated amortization
(75,409
)
 
(71,820
)
Construction in progress
43,106

 
24,270

Total real estate assets
4,058,414

 
3,951,983

Investments in and amounts due from unconsolidated joint ventures
7,638

 
14,388

Cash and cash equivalents
8,815

 
6,973

Tenant receivables, net of allowance for doubtful accounts
28,403

 
31,145

Straight line rent receivables
163,917

 
139,406

Restricted cash and escrows
908

 
394

Prepaid expenses and other assets
36,733

 
24,771

Goodwill
180,097

 
180,097

Interest rate swaps
434

 
24,176

Deferred financing costs, less accumulated amortization
7,969

 
8,759

Deferred lease costs, less accumulated amortization
284,974

 
283,996

Total assets
$
4,778,302

 
$
4,666,088

Liabilities:
 
 
 
Unsecured debt, net of discount
$
1,784,412

 
$
1,014,680

Secured debt
449,427

 
987,525

Accounts payable, accrued expenses, and accrued capital expenditures
135,320

 
128,818

Deferred income
21,958

 
22,267

Intangible lease liabilities, less accumulated amortization
44,981

 
47,113

Interest rate swaps
3,358

 
4,526

Total liabilities
2,439,456

 
2,204,929

Stockholders' equity :
 
 
 
Common stock
1,543

 
1,575

Additional paid in capital
3,669,541

 
3,668,906

Cumulative distributions in excess of earnings
(1,345,609
)
 
(1,231,209
)
Other comprehensive income
11,758

 
20,278

Piedmont stockholders' equity
2,337,233

 
2,459,550

Non-controlling interest
1,613

 
1,609

Total stockholders' equity
2,338,846

 
2,461,159

Total liabilities and stockholders' equity
$
4,778,302

 
$
4,666,088

 
 
 
 
Number of shares of common stock outstanding at end of period
154,325

 
157,461







Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
Consolidated Statements of Income
 
 
 
 
 
 
 
Unaudited (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
9/30/2014
 
9/30/2013
 
9/30/2014
 
9/30/2013
Revenues:
 
 
 
 
 
 
 
Rental income
$
114,529

 
$
115,170

 
$
338,720

 
$
329,177

Tenant reimbursements
29,579

 
27,329

 
79,253

 
76,895

Property management fee revenue
533

 
890

 
1,568

 
2,034

Total revenues
144,641

 
143,389

 
419,541

 
408,106

Expenses:
 
 
 
 
 
 
 
Property operating costs
62,027

 
58,137

 
177,434

 
162,516

Depreciation
35,366

 
30,295

 
103,154

 
89,289

Amortization
14,235

 
13,685

 
42,407

 
33,895

General and administrative
5,814

 
5,849

 
17,514

 
16,677

Total operating expenses
117,442

 
107,966

 
340,509

 
302,377

Real estate operating income
27,199

 
35,423

 
79,032

 
105,729

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(18,654
)
 
(19,331
)
 
(55,592
)
 
(53,932
)
Other income (expense)
524

 
(596
)
 
68

 
(1,944
)
Net recoveries from casualty events and litigation settlements
(8
)
 
3,919

 
4,514

 
7,311

Equity in income/(loss) of unconsolidated joint ventures
89

 
46

 
(510
)
 
604

Loss on consolidation of VIE

 
(898
)
 

 
(898
)
Total other income (expense)
(18,049
)
 
(16,860
)
 
(51,520
)
 
(48,859
)
Income from continuing operations
9,150

 
18,563

 
27,512

 
56,870

Discontinued operations:
 
 
 
 
 
 
 
Operating income
16

 
537

 
996

 
2,391

Impairment loss

 

 

 
(6,402
)
Gain on sale of real estate assets

 

 
1,198

 
16,258

Income from discontinued operations
16

 
537

 
2,194

 
12,247

Gain on sale of real estate

 

 
1,140

 

Net income
9,166

 
19,100

 
30,846

 
69,117

Less: Net income attributable to noncontrolling interest
(4
)
 
(4
)
 
(12
)
 
(12
)
Net income attributable to Piedmont
$
9,162

 
$
19,096

 
$
30,834

 
$
69,105

Weighted average common shares outstanding - diluted
154,561

 
164,796

 
154,665

 
166,734

Per Share Information -- diluted:
 
 
 
 
 
 
 
Income from continuing operations
$
0.06

 
$
0.11

 
$
0.19

 
$
0.34

Income from discontinued operations
$

 
$
0.01

 
$
0.01

 
$
0.07

Net income available to common stockholders
$
0.06

 
$
0.12

 
$
0.20

 
$
0.41






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
 
9/30/2014
 
9/30/2013
 
9/30/2014
 
9/30/2013
Net income attributable to Piedmont
$
9,162

 
$
19,096

 
$
30,834

 
$
69,105

Depreciation (1) (2)
35,286

 
31,050

 
103,132

 
91,905

Amortization (1)
14,248

 
13,939

 
42,660

 
34,509

Impairment loss (1)

 

 

 
6,402

Gain on sale of real estate assets (1)

 

 
(2,169
)
 
(16,258
)
Loss on consolidation

 
898

 

 
898

Funds from operations*
58,696

 
64,983

 
174,457

 
186,561

Acquisition costs
110

 
60

 
539

 
1,374

Net recoveries from casualty events and litigation settlements
8

 
(3,919
)
 
(4,514
)
 
(7,328
)
Core funds from operations*
58,814

 
61,124

 
170,482

 
180,607

Deferred financing cost amortization
598

 
674

 
2,076

 
1,911

Amortization of note payable step-up
(120
)
 

 
(126
)
 

Amortization of discount on Senior Notes
47

 
30

 
128

 
47

Depreciation of non real estate assets
141

 
97

 
370

 
300

Straight-line effects of lease revenue (1)
(6,780
)
 
(5,076
)
 
(23,950
)
 
(14,655
)
Stock-based and other non-cash compensation expense
1,139

 
719

 
3,046

 
1,489

Net effect of amortization of above or below-market in-place lease intangibles (1)
(1,010
)
 
(1,757
)
 
(3,653
)
 
(4,067
)
Acquisition costs
(110
)
 
(60
)
 
(539
)
 
(1,374
)
Non-incremental capital expenditures (3)
(30,890
)
 
(21,705
)
 
(70,862
)
 
(59,992
)
Adjusted funds from operations*
$
21,829

 
$
34,046

 
$
76,972

 
$
104,266

Weighted average common shares outstanding - diluted
154,561

 
164,796

 
154,665

 
166,734

Funds from operations per share (diluted)
$
0.38

 
$
0.39

 
$
1.13

 
$
1.12

Core funds from operations per share (diluted)
$
0.38

 
$
0.37

 
$
1.10

 
$
1.08

Adjusted funds from operations per share (diluted)
$
0.14

 
$
0.21

 
$
0.50

 
$
0.63


(1) Includes adjustments for consolidated properties, including discontinued operations, and for our proportionate share of amounts attributable to 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, impairment losses, and gains or losses on consolidation, 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 adjusting for certain non-recurring items such as gains or losses on the early extinguishment of debt, acquisition-related costs and other significant non-recurring 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, Property Net Operating Income, Same Store Net Operating Income
Unaudited (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
9/30/2014
 
9/30/2013
 
9/30/2014
 
9/30/2013
 
 
 
 
 
 
 
 
Net income attributable to Piedmont
$
9,162

 
$
19,096

 
$
30,834

 
$
69,105

Net income attributable to noncontrolling interest
4

 
4

 
12

 
12

Interest expense
18,654

 
19,331

 
55,592

 
53,932

Depreciation (1)
35,427

 
31,147

 
103,502

 
92,204

Amortization (1)
14,248

 
13,939

 
42,660

 
34,509

Acquisition costs
110

 
60

 
539

 
1,374

Impairment loss

 

 

 
6,402

Net recoveries from casualty events and litigation settlements
8

 
(3,919
)
 
(4,514
)
 
(7,328
)
Gain on sale of real estate assets (1)

 

 
(2,169
)
 
(16,258
)
Loss on consolidation

 
898

 

 
898

Core EBITDA*
77,613

 
80,556

 
226,456

 
234,850

General & administrative expenses (1)
5,808

 
5,921

 
17,550

 
16,940

Management fee revenue
(299
)
 
(636
)
 
(839
)
 
(1,248
)
Other expense/(income) (1)
21

 
550

 
54

 
560

Straight line effects of lease revenue (1)
(6,780
)
 
(5,076
)
 
(23,950
)
 
(14,655
)
Amortization of lease-related intangibles (1)
(1,010
)
 
(1,757
)
 
(3,653
)
 
(4,067
)
Property Net Operating Income (cash basis)*
75,353

 
79,558

 
215,618

 
232,380

Acquisitions
(6,887
)
 
(6,056
)
 
(18,072
)
 
(10,621
)
Dispositions
(6
)
 
(1,184
)
 
(1,523
)
 
(3,874
)
Other investments
(213
)
 
(2,328
)
 
258

 
(7,539
)
Same Store NOI (cash basis)*
$
68,247

 
$
69,990

 
$
196,281

 
$
210,346

Change period over period in same store NOI
(2.5
)%
 
N/A

 
(6.7
)%
 
N/A


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


*Definitions

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.

Property Net Operating Income ("Property NOI"): Property NOI is defined as real estate operating income with the add-back of corporate general and administrative expense, depreciation and amortization, and impairment losses and the deduction of net operating income associated with property management performed by Piedmont for other organizations. We may present this measure on an accrual basis or a cash basis. When presented on a cash basis,





the effects of straight lined rents and fair value lease revenue are eliminated. The Company uses this measure to assess its operating results and believes it is important in assessing operating performance. Property 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 Property 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 unconsolidated joint venture assets. We may present this measure on an accrual basis or a cash basis. When presented on a cash basis, the effects of straight lined rents and fair value lease revenue are eliminated. We believe Same Store NOI is an important measure of comparison of our properties' operating performance from one period to another. Other REITs may calculate Same Store NOI differently and our calculation should not be compared to that of other REITs.


PDM 9.30.14 EX 99.2 Q3 2014 SUPPLEMENTAL PKG



EXHIBIT 99.2








Quarterly Supplemental Information
September 30, 2014










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
 
 
Page
 
 
 
 
 
Introduction
 
 
Other Investments
 
Corporate Data
 
Other Investments Detail
Investor Information
 
Supporting Information
 
Financial Highlights
 
Definitions
Key Performance Indicators
 
Research Coverage
Financials
 
 
Non-GAAP Reconciliations & Other Detail
Balance Sheets
 
Property Detail
Income Statements
 
Risks, Uncertainties and Limitations
Funds From Operations / Adjusted Funds From Operations
 
 
 
Same Store Analysis
 
 
 
Capitalization Analysis
 
 
 
Debt Summary
 
 
 
Debt Detail
 
 
 
Debt Analysis
 
 
 
Operational & Portfolio Information - Office Investments
 
 
 
 
Tenant Diversification
 
 
 
Tenant Credit Rating & Lease Distribution Information
 
 
 
Leased Percentage Information
 
 
 
Rental Rate Roll Up / Roll Down Analysis
 
 
 
Lease Expiration Schedule
 
 
 
Quarterly Lease Expirations
 
 
 
Annual Lease Expirations
 
 
 
Capital Expenditures & Commitments
 
 
 
Contractual Tenant Improvements & Leasing Commissions
 
 
 
Geographic Diversification
 
 
 
Geographic Diversification by Location Type
 
 
 
Industry Diversification
 
 
 
Property Investment Activity
 
 
 
Value-Add Activity
 
 
 



Notice to Readers:
Please refer to page 49 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 quarterly supplemental information 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. Prior to the second quarter of 2014, when the Company sold properties or was under a binding contract to sell properties, it restated historical income statements with the financial results of the sold or under contract 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 high-quality Class A office buildings located primarily in some of the largest U.S. office markets. Approximately 90% of the Company's Annualized Lease Revenue ("ALR") is generated from properties located in Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Minneapolis, New York, and Washington, D.C.  Approximately 73% of the Company's ALR is from tenants that are investment grade-rated or governmental tenants or large, nationally-recognized companies not requiring investment ratings. Piedmont 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, the Company has maintained a relatively low leverage strategy throughout its sixteen year operating history.

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
 
As of
 
September 30, 2014
 
December 31, 2013
Number of consolidated office properties (1)
74

 
78

Rentable square footage (in thousands) (1)
21,472

 
21,490

Percent leased (2)
87.5
%
 
87.2
%
Percent leased - stabilized portfolio (3)
89.0
%
 
89.7
%
Capitalization (in thousands):
 
 
 
Total debt - principal amount outstanding
$2,236,049
 
$2,003,525
Equity market capitalization
$2,722,296
 
$2,601,254
Total market capitalization
$4,958,345
 
$4,604,779
Total debt / Total market capitalization
45.1
%
 
43.5
%
Total debt / Total gross assets
37.8
%
 
35.0
%
Common stock data
 
 
 
High closing price during quarter
$19.87
 
$18.90
Low closing price during quarter
$17.64
 
$15.96
Closing price of common stock at period end
$17.64
 
$16.52
Weighted average fully diluted shares outstanding during quarter (in thousands)
154,561

 
160,450

Shares of common stock issued and outstanding (in thousands)
154,325

 
157,461

Rating / outlook
 
 
 
Standard & Poor's
BBB / Stable

 
BBB / Stable

Moody's
Baa2 / Stable

 
Baa2 / Stable

Employees
128

 
121





(1)
As of September 30, 2014, our consolidated office portfolio consisted of 74 properties (exclusive of our equity interest in one property owned through an unconsolidated joint venture and one out of service property, 3100 Clarendon Boulevard). During the first quarter of 2014, we sold 11107 and 11109 Sunset Hills Boulevard, two office properties comprised of 142,000 square feet, located in Reston, VA. During the second quarter of 2014, we sold 1441 West Long Lake Road, a 108,000 square foot office building located in Troy, MI, 4685 Investment Drive, a 77,000 square foot office building located in Troy, MI, and 2020 West 89th Street, a 68,000 square foot office building located in Leawood, KS, and acquired 5 Wall Street, a 182,000 square foot office building located in Burlington, MA. During the third quarter of 2014, we acquired 1155 Perimeter Center West, a 377,000 square foot office building located in Atlanta, GA. For additional detail on asset transactions, please refer to page 37.
(2)
Calculated as leased square footage plus square footage associated with executed new leases for currently vacant spaces divided by total rentable square footage, all as of the relevant date, expressed as a percentage. This measure is presented for our consolidated office properties and excludes unconsolidated joint venture properties and one out of service property. Please refer to page 26 for additional analyses regarding Piedmont's leased percentage.
(3)
Please refer to page 38 for information regarding value-add properties, data for which is removed from stabilized portfolio totals.

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
Raymond L. Owens
Chief Executive Officer, President
Chief Financial Officer, Executive
Chief Accounting Officer and
Executive Vice President,
and Director
Vice President, and Treasurer
Senior Vice President
Capital Markets
 
 
 
 
Joseph H. Pangburn
Thomas R. Prescott
Carroll A. Reddic, IV
Robert K. Wiberg
Executive Vice President,
Executive Vice President,
Executive Vice President,
Executive Vice President,
Southwest Region
Midwest Region
Real Estate Operations and Assistant
Mid-Atlantic Region and
 
 
Secretary
Head of Development
 
 
 
 
Board of Directors
 
 
 
 
W. Wayne Woody
Michael R. Buchanan
Wesley E. Cantrell
William H. Keogler, Jr.
Director, Chairman of the Board of
Director
Director
Director
Directors and Chairman of
 
 
 
Governance Committee
 
 
 
 
 
 
 
Frank C. McDowell
Donald A. Miller, CFA
Raymond G. Milnes, Jr.
Donald S. Moss
Director, Vice Chairman of the
Chief Executive Officer, President
Director and Chairman of
Director
Board of Directors and Chairman
and Director
Audit Committee
 
of Compensation Committee
 
 
 
 
 
 
 
Jeffery L. Swope
 
 
 
Director and Chairman of
 
 
 
Capital Committee
 
 
 


Transfer Agent
Corporate Counsel
 
 
Computershare
King & Spalding
P.O. Box 30170
1180 Peachtree Street, NE
College Station, TX 77842-3170
Atlanta, GA 30309
Phone: 866.354.3485
Phone: 404.572.4600



4



Piedmont Office Realty Trust, Inc.
Financial Highlights
As of September 30, 2014


Financial Results (1) 

Funds from operations (FFO) for the quarter ended September 30, 2014 was $58.7 million, or $0.38 per share (diluted), compared to $65.0 million, or $0.39 per share (diluted), for the same quarter in 2013. FFO for the nine months ended September 30, 2014 was $174.5 million, or $1.13 per share (diluted), compared to $186.6 million, or $1.12 per share (diluted), for the same period in 2013. The decrease in dollar amount of FFO for the three months and the nine months ended September 30, 2014 as compared to the same periods in 2013 was principally related to reduced operating income attributable to tenant transition-related downtime at Aon Center in Chicago, IL, and 6021 Connection Drive in Irving, TX, and lease expirations at 3100 Clarendon Boulevard and 4250 North Fairfax Drive in Arlington, VA, offset somewhat by operating income contributions from newly acquired properties, leases that have recently commenced, and leases under which operating expense recovery abatements have burned off. An additional contributor to the decrease in dollar amount of FFO was reduced insurance recoveries in 2014 related to casualty events and litigation settlements. The change in per share FFO for the three months and the nine months ended September 30, 2014 as compared to the same periods in 2013 was also impacted by the reduced weighted average shares outstanding in 2014 as a result of the Company's stock repurchase program. Since the beginning of 2013, Piedmont has repurchased 13.4 million shares at an average price of $16.96 per share. No shares were repurchased during the third quarter of 2014.

Core funds from operations (Core FFO) for the quarter ended September 30, 2014 was $58.8 million, or $0.38 per share (diluted), compared to $61.1 million, or $0.37 per share (diluted), for the same quarter in 2013. Core FFO for the nine months ended September 30, 2014 was $170.5 million, or $1.10 per share (diluted), compared to $180.6 million, or $1.08 per share (diluted), for the same period in 2013. Core FFO is defined as FFO with incremental adjustments for certain non-recurring items such as net recoveries or losses from casualty events and litigation settlements, acquisition-related costs and other significant non-recurring items. The change in Core FFO for the three months and the nine months ended September 30, 2014 as compared to the same periods in 2013 is primarily attributable to the items described above for changes in FFO, with the exception of the insurance recoveries related to casualty events and litigation settlements, which were removed from Core FFO since they are considered to be non-recurring.

Adjusted funds from operations (AFFO) for the quarter ended September 30, 2014 was $21.8 million, or $0.14 per share (diluted), compared to $34.0 million, or $0.21 per share (diluted), for the same quarter in 2013. AFFO for the nine months ended September 30, 2014 was $77.0 million, or $0.50 per share (diluted), compared to $104.3 million, or $0.63 per share (diluted), for the same period in 2013. The decrease in AFFO for the three months and the nine months ended September 30, 2014 as compared to the same periods in 2013 was primarily related to the items described above for changes in FFO and Core FFO, in addition to the deduction of increased straight line rent adjustments in 2014 when compared to 2013 and increased non-incremental capital expenditures in 2014. Piedmont experienced a period of high lease expirations from 2011 to 2013. Given the leasing environment over the last several years, many of the recent lease transactions include rental abatements, which typically occur at the beginning of a new lease's term. Many of the replacement or renewal leases with rental abatements are in the early stages of the new leases' terms, resulting in increased straight line rent adjustments for the Company. The increase in capital expenditures in 2014 when compared to 2013 is also related to the high volume of new lease transactions recently completed by the Company.

Operations & Leasing

On a square footage leased basis, our total office portfolio was 87.5% leased as of September 30, 2014, as compared to 87.0% in the prior quarter and 86.7% a year earlier. Please refer to page 26 for additional leased percentage information.

The weighted average remaining lease term of our portfolio was 7.3 years(2) as of September 30, 2014 as compared to 7.1 years at December 31, 2013.

As previously disclosed, Piedmont commenced the redevelopment of its 3100 Clarendon Boulevard property, a 252,000 square foot office and retail property located in Arlington, VA, during the first quarter of 2014. The building's existing retail tenants will remain in occupancy during the redevelopment. Therefore, from an accounting standpoint, the office component of the building will be out of service and the retail portion of the building, comprised of approximately 28,000 square feet, will remain in service during the redevelopment. However, for the purposes of statistical reporting throughout this supplemental report, the entire building has been removed from Piedmont's operating portfolio. For additional information regarding the redevelopment of 3100 Clarendon Boulevard, please refer to the Financing and Capital Activity section within the Financial Highlights of this report.
(1)
FFO, Core FFO and AFFO are supplemental non-GAAP financial measures. See page 40 for definitions of non-GAAP financial measures. See pages 14 and 42 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, 2014) is weighted based on Annualized Lease Revenue, as defined on page 40.

5



During the three months ended September 30, 2014, the Company completed 684,000 square feet of total leasing. Of the total leasing activity during the quarter, we signed renewal leases for 295,000 square feet and new tenant leases for 389,000 square feet. During the nine months ended September 30, 2014, we completed 1,859,000 square feet of total leasing activity, inclusive of activity associated with our unconsolidated joint venture assets. The consolidated office portion of this total was 1,794,000 square feet, consisting of 803,000 square feet of renewal leases and 991,000 square feet of new tenant leases. The average committed capital cost for all leases signed during the nine months ended September 30, 2014 at our consolidated office properties was $5.03 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, 2014 was $4.73 and the same measure for new leases was $5.22 (see page 33).

During the three months ended September 30, 2014, we executed seven leases greater than 20,000 square feet at our consolidated office properties. Information on those leases is set forth below.
Tenant
Property
Property Location
Square Feet
Leased
Expiration
Year
Lease Type
Jones Lang LaSalle
Aon Center
Chicago, IL
199,730
2032
Renewal / Expansion
Mitsubishi Hitachi Power Systems
400 TownPark
Lake Mary, FL
75,321
2026
New
Lochbridge
150 West Jefferson
Detroit, MI
48,915
2027
New
Engle Martin & Associates
Glenridge Highlands Two
Atlanta, GA
39,719
2026
New
Oracle
400 Bridgewater Crossing
Bridgewater, NJ
33,555
2020
Renewal
Aon Service Corporation
Crescent Ridge II
Minnetonka, MN
32,326
2025
New
Caelus Energy
One Lincoln Park
Dallas, TX
21,425
2022
Renewal / Expansion

As of September 30, 2014, there was one tenant whose lease was scheduled to expire at or during the eighteen month period following the end of the third quarter of 2014 which individually contributed greater than 1% in net Annualized Lease Revenue ("ALR") expiring over the next eighteen months. Information regarding the leasing status of the space associated with that tenant's lease is presented below.
 
 
 
 
 
 
 
Tenant
Property
Property Location
Net
Square
Footage
Expiring
Net Percentage of
Current Quarter
Annualized Lease
Revenue Expiring
(%)
Expiration (1)
Current Leasing Status
KeyBank
2 Gatehall Drive
Parsippany, NJ
200,000
1.1%
Q1 2016
The tenant is not expected to renew its lease. The space is currently being marketed.
 
 
 
 
 
 
 
 
Piedmont focuses its marketing efforts on large corporate office space users. The average size of lease in the Company's portfolio is approximately 30,000 square feet. Due to the large size and length of term of new leases, 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
Property
Property Location
Square Feet
Leased
Space Status
Estimated
Commencement
Date
New /
Expansion
Preferred Apartment Advisors
The Medici
Atlanta, GA
70,499
Vacant
Q4 2014
New
Mitsubishi Hitachi Power Systems
400 TownPark
Lake Mary, FL
75,321
Vacant
Q1 2015
New
Schlumberger Technology Corporation
1430 Enclave Parkway
Houston, TX
53,258
Not Vacant
Q2 2015
New
Catamaran
Windy Point II
Schaumburg, IL
50,686
Vacant
Q1 2015
New






6



Occupancy versus NOI Analysis

Piedmont had been in a period of high lease rollover from 2010 to 2013. This rollover and the overall economic slowdown during this period have resulted in a decrease in leased percentage, some rental rate rolldowns, and an even larger decrease in economic leased percentage due to rental abatement concessions provided under many of the new leases and lease renewals. In turn, these abatements and lower rental rates have resulted in a lower cash basis Same Store NOI than might otherwise be anticipated given the overall leased percentage and the historical relationship between leased percentage and Same Store NOI. As of September 30, 2014, our overall leased percentage was 87.5% and our economic leased percentage was 78.7%. The difference between overall leased percentage and 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 566,000 square feet of leases as of September 30, 2014, or 2.7% 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 1.7 million square feet of leases as of September 30, 2014, or a 6.1% impact to leased percentage on an economic basis). Please see the chart below for a listing of major contributors to this factor.

As the executed but not commenced leases begin and 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 recently negotiated leases provide for rental abatement concessions to tenants. Rental abatements typically occur at the beginning of a new lease's term. Since 2010, Piedmont has signed approximately 14.2 million square feet of leases within its consolidated office portfolio. Due to the large number of new leases in the Company's portfolio, abatements provided under those new leases have impacted the Company's current cash net operating income and AFFO. Presented below is a schedule of leases with abatements of greater than 50,000 square feet that are either currently under abatement or will be so within the next twelve months.

Tenant
Property
Property Location
Square Feet
Remaining Abatement Schedule
Lease Expiration
Catamaran
Windy Point II
Schaumburg, IL
250,000
February through October 2014
Q1 2025
Union Bank
800 North Brand Boulevard
Glendale, CA
51,706
February through November 2014
Q4 2024
TMW Systems
Eastpoint I
Mayfield Heights, OH
59,804
January through December 2014
Q4 2024
GE Capital
500 West Monroe Street
Chicago, IL
52,845
December 2013 through December 2014
Q4 2027
Epsilon Data Management
6021 Connection Drive
Irving, TX
221,898
June 6, 2014 through January 6, 2015
Q2 2026
Piper Jaffray
US Bancorp Center
Minneapolis, MN
123,882
June 2014 through May 2015
Q4 2025
Miller Canfield
150 West Jefferson
Detroit, MI
109,261
January through March 2015 (entire space);
month of January 2016 (69,974 square feet)
Q2 2026
Catamaran
Windy Point II
Schaumburg, IL
50,686
March 2015 through April 2016
Q1 2025
Aon
Aon Center
Chicago, IL
413,778
January through May 2015 & 2016 (382,076 square feet);
January 2014 through March 2015 (31,702 square feet)
Q4 2028
Integrys
Aon Center
Chicago, IL
167,026
May through September 2014, 2015 & 2016
Q2 2029
Thoughtworks
Aon Center
Chicago, IL
52,529
January through March 2015, 2016 & 2017
Q4 2023
Americredit
Chandler Forum
Chandler, AZ
113,171
September 2015, 2016, 2017 (62,521 square feet);
September through November 2014 (50,650 square feet)
Q4 2021
Mitsubishi Hitachi Power Systems
400 TownPark
Lake Mary, FL
75,321
February and March 2015, 2016, 2017, and 2018
Q1 2026
Guidance Software
1055 East Colorado Boulevard
Pasadena, CA
86,790
August through December 2014; August through October 2020
Q2 2024


Financing and Capital Activity

As of September 30, 2014, our ratio of debt to total gross assets was 37.8%. This debt ratio is based on total principal amount outstanding for our various loans at September 30, 2014.
On July 30, 2014, the Board of Directors of Piedmont declared a dividend for the third quarter of 2014 of $0.20 per common share outstanding to stockholders of record as of
the close of business on August 29, 2014. The dividend was paid on September 19, 2014. The Company's dividend payout percentage for the nine months ended September 30, 2014 was 54% of Core FFO and 120% of AFFO.


7



Dispositions (1) 
There were no dispositions completed during the quarter ended September 30, 2014.
For additional information on dispositions completed during the previous eighteen months, please refer to page
.

Acquisitions
On August 28, 2014, Piedmont acquired 1155 Perimeter Center West, a twelve-story, 377,000 square foot office building in Atlanta, GA. The purchase price was $80.8 million, or $214 per square foot. The 100% leased, LEED-certified building was constructed in 2000. Well-located within the Central Perimeter submarket, the project is located adjacent to the Sandy Springs station of Atlanta's mass transit railway system and is easily accessed by commuters. Additionally, the property affords tenants quick, walkable access to the area's deep retail amenity base. The acquisition allowed the Company to further its strategic objective of increasing ownership in targeted submarkets within its core operating markets, and it complements Piedmont's ownership of the nearby Glenridge Highlands Two. Additional details regarding the acquisition are available in a transaction summary that is posted on the Investor Relations page of the Company's website, www.piedmontreit.com.

Finance
On August 21, 2014, Piedmont closed on the extension of the $300 million unsecured term loan that was originally put in place in 2011. The maturity date of the loan was extended from November 22, 2016 to January 15, 2020. In addition to the extension of the maturity date, the interest rate was reduced by 30 basis points. The interest rate options available under the credit facility are all floating interest rates. However, Piedmont had previously entered into interest rate swaps to effectively fix the interest rate under this loan. The interest rate swaps that were previously existing will continue to be applied to this loan, resulting in an effective fixed rate of 2.39% through the termination date of the swaps of November 22, 2016. No additional funds were borrowed under the facility through this transaction. Subsequent to quarter end, the Company entered into three forward-starting interest rate swaps in order to fix the interest rate under this facility from November 22, 2016 to the maturity date of January 15, 2020; please find additional information on the swaps under the heading Subsequent Events below.

On August 6, 2014, Piedmont entered into two interest rate swaps in order to fix the interest rate for the remaining unhedged portion of the $300 million unsecured term loan that was put in place at the end of 2013. The swaps have a combined notional amount of $100 million and a blended rate of 1.55%, resulting in an effective fixed rate of 2.75% inclusive of the spread for the term loan. When combined with the existing $200 million notional amount of swaps for the $300 million unsecured 2013 term loan, the blended effective fixed rate under the facility is 2.78%.

Development
During the first quarter of 2014, Piedmont commenced the redevelopment of its 3100 Clarendon Boulevard property, a 252,000 square foot office and retail property located adjacent to the Clarendon Metro Station in Arlington, VA. Until the end of 2013, the property had been predominantly leased to the U.S. Government (Defense Intelligence Agency) for the previous 15+ years. The expiration of the U.S. Government's lease afforded Piedmont the opportunity to upgrade and reposition the property in order to attract private sector tenants and to capture the incremental value potential for the location (attributable primarily to nearby amenities desirable to tenants, including housing, retail, and transportation). The project remains on schedule; the office tower redevelopment should be completed during the first several months of 2015 and the retail portion of the redevelopment should be completed during the first half of 2015. During the redevelopment, the office component of the building will be out of service and the retail portion of the building, comprised of approximately 28,000 square feet, will remain in service. However, for the purposes of statistical reporting on the Company's assets in this supplemental report, the entire building will be removed from Piedmont's operating portfolio. It is anticipated that the costs to redevelop the building will be approximately $31 million to $33 million, approximately $7.4 million of which had been recorded in work in progress as of September 30, 2014. Following the completion of the redevelopment, the Company anticipates incurring additional re-leasing costs.

During the fourth quarter of 2013, Piedmont announced the development of Enclave Place, a 301,000 square foot office building located in Houston, TX. The 11-story building is being constructed on Piedmont's 4.7 acre development site adjacent to its 1430 Enclave Parkway property and located within a deed-restricted and architecturally-controlled office park in Houston's Energy Corridor. Ground was broken in April 2014, and physical construction is targeted to be completed during the third quarter of 2015. The development costs are anticipated to be approximately $85 million to $90 million, inclusive of leasing costs. Approximately $20.6 million had been recorded in work in progress as of September 30, 2014. The development of Enclave Place follows Piedmont's recent success in buying the near-vacant 1200 Enclave Parkway for approximately $124 per square foot in 2011, leasing it to stabilization, and then selling it for approximately $326 per square foot two years after acquisition.




(1)
On April 1, 2014, Piedmont early-adopted the provisions of Financial Accounting Standards Board ASU 2014-08. As such, Piedmont will no longer reclassify to discontinued operations the operating income associated with newly-sold single assets or small portfolios which do not represent a strategic shift or significant impact on Piedmont's future operations. There will be no restatement for prior periods and all operating income associated with assets either sold or under binding contract to sell as of the end of the first quarter of 2014 will continue to be reflected in discontinued operations. Assuming future sales do not meet the new criteria for reclassification as discontinued operations, such future sales will not be presented in discontinued operations.



8



Stock Repurchase Program
During the third quarter of 2014, the Company did not repurchase any shares of common stock under its share repurchase program. Since the stock repurchase program began in December 2011, the Company has repurchased a total of 18.9 million shares at an average price of $16.92 per share, or approximately $319.5 million in aggregate (before consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases under the stock repurchase plan totaled approximately $37.2 million.

Subsequent Events

On October 29, 2014, the Board of Directors of Piedmont declared a dividend for the fourth quarter of 2014 of $0.21 per common share outstanding to stockholders of record as of the close of business on November 28, 2014. The dividend is to be paid on December 19, 2014.

Subsequent to the end of the third quarter of 2014, Piedmont entered into three forward-starting interest rate swaps in order to fix the future interest rate for the $300 million unsecured term loan that was put in place in 2011, the maturity date of which was recently extended to 2020. The swaps fix the effective interest rate for the loan for the period of time from the original maturity date of November 22, 2016 to the new maturity date of January 15, 2020. The swaps have a combined notional amount of $300 million and a blended rate of 2.20%, resulting in an effective fixed rate for the extension period of 3.35% inclusive of the spread for the loan.

On October 28, 2014, Piedmont entered into a binding agreement to purchase approximately 25.2 acres of land adjacent to its 400 TownPark property in Lake Mary, FL. The land is located within a mixed-use development consisting of office, retail, residential and a hotel. The development is located at the intersection of Interstate 4 and Highway 417. The Company believes that the site will become even more desirable over the next several years upon the completion of Orlando's ring road, which has been fully approved and runs adjacent to the property. The site will accommodate over 650,000 square feet of office space and is currently entitled for approximately 160,000 square feet of office space. The acquisition adds to the Company's developable land holdings and allows the Company to control a site that is directly competitive to 400 TownPark.

Guidance for 2014

The Company is adjusting its financial guidance for calendar year 2014 to the upper end of its previously published range. This guidance is based upon management's expectations at this time. The revised financial guidance is as follows:
 
Low
 
High
Core Funds from Operations
$228 million
 
$233 million
Core Funds from Operations per diluted share
$1.48
 
$1.50

These estimates reflect management’s view of current market conditions and incorporate certain economic and operational assumptions and projections. Actual results could differ from these estimates. Note that individual quarters may fluctuate on both a cash basis and an accrual basis due to the timing of 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.

9



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 page 40 and reconciliations are provided beginning on page 42.
 
Three Months Ended
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Selected Operating Data
 
 
 
 
 
 
 
 
 
Percent leased (1)
87.5
%
 
87.0
%
 
86.7
%
 
87.2
%
 
86.7
%
Percent leased - stabilized portfolio (1) (2)
89.0
%
 
88.9
%
 
88.8
%
 
89.7
%
 
89.5
%
Rental income
$114,529
 
$113,287
 
$110,904
 
$113,929
 
$115,170
Total revenues
$144,641
 
$138,580
 
$136,320
 
$141,504
 
$143,389
Total operating expenses
$117,442
 
$112,024
 
$111,043
 
$106,353
 
$107,966
Real estate operating income
$27,199
 
$26,556
 
$25,277
 
$35,151
 
$35,423
Core EBITDA
$77,613
 
$74,745
 
$74,098
 
$79,627
 
$80,556
Core FFO
$58,814
 
$56,614
 
$55,054
 
$59,866
 
$61,124
Core FFO per share - diluted
$0.38
 
$0.37
 
$0.36
 
$0.37
 
$0.37
AFFO
$21,829
 
$23,105
 
$32,038
 
$12,752
 
$34,046
AFFO per share - diluted
$0.14
 
$0.15
 
$0.21
 
$0.08
 
$0.21
Gross dividends
$30,865
 
$30,865
 
$30,858
 
$32,158
 
$32,880
Dividends per share
$0.200
 
$0.200
 
$0.200
 
$0.200
 
$0.200
Selected Balance Sheet Data
 
 
 
 
 
 
 
 
 
Total real estate assets
$4,058,414
 
$3,968,329
 
$3,924,352
 
$3,951,983
 
$3,872,952
Total gross real estate assets
$5,197,338
 
$5,072,559
 
$4,998,289
 
$5,003,737
 
$4,905,913
Total assets
$4,778,302
 
$4,661,826
 
$4,611,945
 
$4,666,088
 
$4,576,553
Net debt (3)
$2,226,326
 
$2,098,704
 
$2,024,503
 
$1,996,158
 
$1,808,168
Total liabilities
$2,439,456
 
$2,304,641
 
$2,232,987
 
$2,204,929
 
$2,055,870
Ratios
 
 
 
 
 
 
 
 
 
Core EBITDA margin (4)
53.7
%
 
53.9
%
 
53.8
%
 
55.5
%
 
55.3
%
Fixed charge coverage ratio (5)
4.0 x

 
4.0 x

 
3.8 x

 
4.0 x

 
4.2 x

Average net debt to Core EBITDA (6)
6.9 x

 
6.8 x

 
6.9 x

 
5.9 x

 
5.4 x

(1)
Please refer to page 26 for additional leased percentage information.
(2)
Please refer to page 38 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 increase in net debt over the last year is primarily attributable to three property acquisitions completed during the fourth quarter of 2013 and two property acquisitions completed year-to-date in 2014, as well as capital expenditures and stock repurchases, all of which were largely funded with debt.
(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 preferred dividends during any of the periods presented; the Company had capitalized interest of $541,349 for the quarter ended September 30, 2014, $460,251 for the quarter ended June 30, 2014, $384,843 for the quarter ended March 31, 2014, and $31,486 for the quarter ended December 31, 2013; the Company had principal amortization of $193,560 for the quarter ended September 30, 2014 and $64,223 for the quarter ended June 30, 2014.
(6)
Core EBITDA is annualized for the purposes of this calculation. The average net debt to Core EBITDA ratios for the third and fourth quarters of 2013 and the first, second and third quarters of 2014 are higher than our historical performance on this measure primarily as a result of increased net debt attributable to five property acquisitions completed during 2013 and two property acquisitions completed during 2014, as well as capital expenditures and stock repurchases, all of which were largely funded with debt. This measure has also been impacted by downtime associated with recent re-tenanting efforts, as well as rent roll downs. For the purposes of this calculation, we use the average daily balance of debt outstanding during the period, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the period.

10



Piedmont Office Realty Trust, Inc.
Consolidated Balance Sheets
Unaudited (in thousands)

 
September 30, 2014
 
June 30, 2014
 
March 31, 2014
 
December 31, 2013
 
September 30, 2013
Assets:

 
 
 
 
 
 
 
 
Real estate, at cost:

 
 
 
 
 
 
 
 
Land assets
$
696,429

 
$
690,559

 
$
684,831

 
$
688,761

 
$
677,467

Buildings and improvements
4,307,467

 
4,202,053

 
4,144,220

 
4,144,509

 
4,028,454

Buildings and improvements, accumulated depreciation
(1,063,515
)
 
(1,030,098
)
 
(1,003,577
)
 
(979,934
)
 
(962,217
)
Intangible lease asset
150,336

 
145,179

 
140,391

 
146,197

 
137,614

Intangible lease asset, accumulated amortization
(75,409
)
 
(74,132
)
 
(70,360
)
 
(71,820
)
 
(70,744
)
Construction in progress
43,106

 
34,768

 
28,847

 
24,270

 
62,378

Total real estate assets
4,058,414

 
3,968,329

 
3,924,352

 
3,951,983

 
3,872,952

Investments in and amounts due from unconsolidated joint ventures
7,638

 
7,549

 
13,855

 
14,388

 
18,668

Cash and cash equivalents
8,815

 
8,563

 
9,271

 
6,973

 
15,972

Tenant receivables, net of allowance for doubtful accounts
28,403

 
25,024

 
22,196

 
31,145

 
31,006

Straight line rent receivable
163,917

 
156,010

 
148,491

 
139,406

 
136,505

Escrow deposits and restricted cash
908

 
911

 
751

 
394

 
385

Prepaid expenses and other assets
36,733

 
32,132

 
28,154

 
24,771

 
28,725

Goodwill
180,097

 
180,097

 
180,097

 
180,097

 
180,097

Interest rate swap
434

 

 
464

 
24,176

 
19,192

Deferred financing costs, less accumulated amortization
7,969

 
8,386

 
8,545

 
8,759

 
7,990

Deferred lease costs, less accumulated amortization
284,974

 
274,825

 
275,769

 
283,996

 
265,061

Total assets
$
4,778,302

 
$
4,661,826

 
$
4,611,945

 
$
4,666,088

 
$
4,576,553

Liabilities:
 
 
 
 
 
 
 
 
 
Unsecured debt
$
1,784,412

 
$
1,657,408

 
$
1,617,297

 
$
1,014,680

 
$
835,650

Secured debt
449,427

 
449,677

 
412,525

 
987,525

 
987,525

Accounts payable, accrued expenses, and accrued capital expenditures
135,320

 
126,273

 
130,530

 
128,818

 
159,675

Deferred income
21,958

 
21,923

 
23,042

 
22,267

 
26,575

Intangible lease liabilities, less accumulated amortization
44,981

 
43,389

 
45,227

 
47,113

 
41,435

Interest rate swaps
3,358

 
5,971

 
4,366

 
4,526

 
5,010

Total liabilities
2,439,456

 
2,304,641

 
2,232,987

 
2,204,929

 
2,055,870

Stockholders' equity:
 
 
 
 
 
 
 
 
 
Common stock
1,543

 
1,543

 
1,543

 
1,575

 
1,613

Additional paid in capital
3,669,541

 
3,668,836

 
3,669,561

 
3,668,906

 
3,668,424

Cumulative distributions in excess of earnings
(1,345,609
)
 
(1,323,907
)
 
(1,305,321
)
 
(1,231,209
)
 
(1,165,794
)
Other comprehensive loss
11,758

 
9,104

 
11,562

 
20,278

 
14,827

Piedmont stockholders' equity
2,337,233

 
2,355,576

 
2,377,345

 
2,459,550

 
2,519,070

Non-controlling interest
1,613

 
1,609

 
1,613

 
1,609

 
1,613

Total stockholders' equity
2,338,846

 
2,357,185

 
2,378,958

 
2,461,159

 
2,520,683

Total liabilities, redeemable common stock and stockholders' equity
$
4,778,302

 
$
4,661,826

 
$
4,611,945

 
$
4,666,088

 
$
4,576,553

Common stock outstanding at end of period
154,325

 
154,324

 
154,278

 
157,461

 
161,271


11



Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)

 
 
Three Months Ended
 
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Revenues:
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
114,529

 
$
113,287

 
$
110,904

 
$
113,929

 
$
115,170

Tenant reimbursements
 
29,579

 
24,745

 
24,929

 
27,358

 
27,329

Property management fee revenue
 
533

 
548

 
487

 
217

 
890

 
 
144,641

 
138,580

 
136,320

 
141,504

 
143,389

Expenses:
 
 
 
 
 
 
 
 
 
 
Property operating costs
 
62,027

 
57,136

 
58,271

 
58,263

 
58,137

Depreciation
 
35,366

 
34,144

 
33,644

 
31,691

 
30,295

Amortization
 
14,235

 
13,599

 
14,573

 
11,195

 
13,685

General and administrative
 
5,814

 
7,145

 
4,555

 
5,204

 
5,849

 
 
117,442

 
112,024

 
111,043

 
106,353

 
107,966

Real estate operating income
 
27,199

 
26,556

 
25,277

 
35,151

 
35,423

Other income / (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(18,654
)
 
(18,012
)
 
(18,926
)
 
(19,651
)
 
(19,331
)
Other income / (expense)
 
524

 
(366
)
 
(90
)
 
(392
)
 
(596
)
Net recoveries / (loss) from casualty events and litigation settlements (1)
 
(8
)
 
1,480

 
3,042

 
4,500

 
3,919

Equity in income / (loss) of unconsolidated joint ventures (2)
 
89

 
(333
)
 
(266
)
 
(4,280
)
 
46

Gain / (loss) on consolidation
 

 

 

 

 
(898
)
 
 
(18,049
)
 
(17,231
)
 
(16,240
)
 
(19,823
)
 
(16,860
)
Income from continuing operations
 
9,150

 
9,325

 
9,037

 
15,328

 
18,563

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss
 
16

 
514

 
466

 
506

 
537

Impairment loss
 

 

 

 
(1,242
)
 

Gain / (loss) on sale of properties
 

 
1,304

 
(106
)
 
15,034

 

Income / (loss) from discontinued operations (3)
 
16

 
1,818

 
360

 
14,298

 
537

Gain on sale of real estate
 

 
1,140

 

 

 

Net income
 
9,166

 
12,283

 
9,397

 
29,626

 
19,100

Less: Net income attributable to noncontrolling interest
 
(4
)
 
(4
)
 
(4
)
 
(3
)
 
(4
)
Net income attributable to Piedmont
 
$
9,162

 
$
12,279

 
$
9,393

 
$
29,623

 
$
19,096

Weighted average common shares outstanding - diluted
 
154,561

 
154,445

 
155,025

 
160,450

 
164,796

Net income per share available to common stockholders - diluted
 
$
0.06

 
$
0.08

 
$
0.06

 
$
0.18

 
$
0.12

(1)
Presented on this line are net expenses and insurance reimbursements related to 1) two class action lawsuits settled in 2013 and 2) damage caused by Hurricane Sandy in October 2012.
(2)
During the fourth quarter of 2013, Piedmont recorded an impairment charge of $4.4 million related to its equity ownership interest in Two Park Center in Hoffman Estates, IL. Please refer to page 39 for additional information about Piedmont's unconsolidated joint venture interests as of September 30, 2014.
(3)
Reflects operating results for 350 Spectrum Loop in Colorado Springs, CO, which was sold on November 1, 2013; 8700 South Price Road in Tempe, AZ, which was sold on December 30, 2013; 11107 and 11109 Sunset Hills Road in Reston, VA, which were sold on March 19, 2014; and 1441 West Long Lake Road and 4685 Investment Drive in Troy, MI, which were sold on April 30, 2014. In the future, it is less likely that any additional single-asset or small portfolio dispositions will be reclassed to discontinued operations; please find additional information on this change in the Financing and Capital Activity section of Financial Highlights.

12



Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)

 
Three Months Ended
 
Nine Months Ended
 
9/30/2014
9/30/2013
 
Change ($)
Change (%)
 
9/30/2014
9/30/2013
 
Change ($)
Change (%)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
114,529

$
115,170

 
$
(641
)
(0.6
)%
 
$
338,720

$
329,177

 
$
9,543

2.9
 %
Tenant reimbursements
29,579

27,329

 
2,250

8.2
 %
 
79,253

76,895

 
2,358

3.1
 %
Property management fee revenue
533

890

 
(357
)
(40.1
)%
 
1,568

2,034

 
(466
)
(22.9
)%
 
144,641

143,389

 
1,252

0.9
 %
 
419,541

408,106

 
11,435

2.8
 %
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
62,027

58,137

 
(3,890
)
(6.7
)%
 
177,434

162,516

 
(14,918
)
(9.2
)%
Depreciation
35,366

30,295

 
(5,071
)
(16.7
)%
 
103,154

89,289

 
(13,865
)
(15.5
)%
Amortization
14,235

13,685

 
(550
)
(4.0
)%
 
42,407

33,895

 
(8,512
)
(25.1
)%
General and administrative
5,814

5,849

 
35

0.6
 %
 
17,514

16,677

 
(837
)
(5.0
)%
 
117,442

107,966

 
(9,476
)
(8.8
)%
 
340,509

302,377

 
(38,132
)
(12.6
)%
Real estate operating income
27,199

35,423

 
(8,224
)
(23.2
)%
 
79,032

105,729

 
(26,697
)
(25.3
)%
Other income / (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(18,654
)
(19,331
)
 
677

3.5
 %
 
(55,592
)
(53,932
)
 
(1,660
)
(3.1
)%
Other income / (expense)
524

(596
)
 
1,120

187.9
 %
 
68

(1,944
)
 
2,012

103.5
 %
Net recoveries / (loss) from casualty events and litigation settlements (1)
(8
)
3,919

 
(3,927
)
(100.2
)%
 
4,514

7,311

 
(2,797
)
(38.3
)%
Equity in income / (loss) of unconsolidated joint ventures
89

46

 
43

93.5
 %
 
(510
)
604

 
(1,114
)
(184.4
)%
Gain / (loss) on consolidation

(898
)
 
898

100.0
 %
 

(898
)
 
898

100.0
 %
 
(18,049
)
(16,860
)
 
(1,189
)
(7.1
)%
 
(51,520
)
(48,859
)
 
(2,661
)
(5.4
)%
Income from continuing operations
9,150

18,563

 
(9,413
)
(50.7
)%
 
27,512

56,870

 
(29,358
)
(51.6
)%
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss
16

537

 
(521
)
(97.0
)%
 
996

2,391

 
(1,395
)
(58.3
)%
Impairment loss


 

 %
 

(6,402
)
 
6,402

100.0
 %
Gain / (loss) on sale of properties


 

 %
 
1,198

16,258

 
(15,060
)
(92.6
)%
Income / (loss) from discontinued operations (2)
16

537

 
(521
)
(97.0
)%
 
2,194

12,247

 
(10,053
)
(82.1
)%
Gain on sale of real estate


 

 %
 
1,140


 
1,140

 %
Net income
9,166

19,100

 
(9,934
)
(52.0
)%
 
30,846

69,117

 
(38,271
)
(55.4
)%
Less: Net income attributable to noncontrolling interest
(4
)
(4
)
 

 %
 
(12
)
(12
)
 

 %
Net income attributable to Piedmont
$
9,162

$
19,096

 
$
(9,934
)
(52.0
)%
 
$
30,834

$
69,105

 
$
(38,271
)
(55.4
)%
Weighted average common shares outstanding - diluted
154,561

164,796

 
 
 
 
154,665

166,734

 
 
 
Net income per share available to common stockholders - diluted
$
0.06

$
0.12

 
 
 
 
$
0.20

$
0.41

 
 
 

(1)
Presented on this line are net expenses and insurance reimbursements related to 1) two class action lawsuits settled in 2013 and 2) damage caused by Hurricane Sandy in October 2012.
(2)
Reflects operating results for 1111 Durham Avenue in South Plainfield, NJ, which was sold on March 28, 2013; 1200 Enclave Parkway in Houston, TX, which was sold on May 1, 2013; 350 Spectrum Loop in Colorado Springs, CO, which was sold on November 1, 2013; 8700 South Price Road in Tempe, AZ, which was sold on December 30, 2013; 11107 and 11109 Sunset Hills Road in Reston, VA, which were sold on March 19, 2014; and 1441 West Long Lake Road and 4685 Investment Drive in Troy, MI, which were sold on April 30, 2014. In the future, it is less likely that any additional single-asset or small portfolio dispositions will be reclassed to discontinued operations; please find additional information on this change in the Financing and Capital Activity section of Financial Highlights.

13



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
 
 
9/30/2014
 
9/30/2013
 
9/30/2014
 
9/30/2013
 
 
 
 
 
 
 
 
 
Net income attributable to Piedmont
 
$
9,162

 
$
19,096

 
$
30,834

 
$
69,105

Depreciation (1) (2)
 
35,286

 
31,050

 
103,132

 
91,905

Amortization (1)
 
14,248

 
13,939

 
42,660

 
34,509

Impairment loss (1)
 

 

 

 
6,402

Loss / (gain) on sale of properties (1)
 

 

 
(2,169
)
 
(16,258
)
Loss / (gain) on consolidation
 

 
898

 

 
898

Funds from operations
 
58,696

 
64,983

 
174,457

 
186,561

Adjustments:
 
 
 
 
 
 
 
 
Acquisition costs
 
110

 
60

 
539

 
1,374

Net (recoveries) / loss from casualty events and litigation settlements (1)
 
8

 
(3,919
)
 
(4,514
)
 
(7,328
)
Core funds from operations
 
58,814

 
61,124

 
170,482

 
180,607

Adjustments:
 
 
 
 
 
 
 
 
Deferred financing cost amortization
 
598

 
674

 
2,076

 
1,911

Amortization of note payable step-up
 
(120
)
 

 
(126
)
 

Amortization of discount on senior notes
 
47

 
30

 
128

 
47

Depreciation of non real estate assets
 
141

 
97

 
370

 
300

Straight-line effects of lease revenue (1)
 
(6,780
)
 
(5,076
)
 
(23,950
)
 
(14,655
)
Stock-based and other non-cash compensation expense
 
1,139

 
719

 
3,046

 
1,489

Amortization of lease-related intangibles (1)
 
(1,010
)
 
(1,757
)
 
(3,653
)
 
(4,067
)
Acquisition costs
 
(110
)
 
(60
)
 
(539
)
 
(1,374
)
Non-incremental capital expenditures (3)
 
(30,890
)
 
(21,705
)
 
(70,862
)
 
(59,992
)
Adjusted funds from operations
 
$
21,829

 
$
34,046

 
$
76,972

 
$
104,266

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
 
154,561

 
164,796

 
154,665

 
166,734

 
 
 
 
 
 
 
 
 
Funds from operations per share (diluted)
 
$
0.38

 
$
0.39

 
$
1.13

 
$
1.12

Core funds from operations per share (diluted)
 
$
0.38

 
$
0.37

 
$
1.10

 
$
1.08

Adjusted funds from operations per share (diluted)
 
$
0.14

 
$
0.21

 
$
0.50

 
$
0.63




(1)
Includes adjustments for consolidated properties, including discontinued operations, and for our proportionate share of amounts attributable to unconsolidated joint ventures.
(2)
Excludes depreciation of non real estate assets.
(3)
Non-incremental capital expenditures are defined on page 40.

14



Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)

 
Three Months Ended
 
Nine Months Ended
 
9/30/2014

9/30/2013
 
9/30/2014
 
9/30/2013
Net income attributable to Piedmont
$
9,162

 
$
19,096

 
$
30,834

 
$
69,105

Net income attributable to noncontrolling interest
4

 
4

 
12

 
12

Interest expense (1)
18,654

 
19,331

 
55,592

 
53,932

Depreciation (1)
35,427

 
31,147

 
103,502

 
92,204

Amortization (1)
14,248

 
13,939

 
42,660

 
34,509

Acquisition costs
110

 
60

 
539

 
1,374

Impairment loss (1)

 

 

 
6,402

Net (recoveries) / loss from casualty events and litigation settlements (1)
8

 
(3,919
)
 
(4,514
)
 
(7,328
)
Loss / (gain) on sale of properties (1)

 

 
(2,169
)
 
(16,258
)
Loss / (gain) on consolidation

 
898

 

 
898

Core EBITDA
77,613

 
80,556

 
226,456

 
234,850

General & administrative expenses (1)
5,808

 
5,921

 
17,550

 
16,940

Management fee revenue (2)
(299
)
 
(636
)
 
(839
)
 
(1,248
)
Other (income) / expense (1) (3)
21

 
550

 
54

 
560

Straight-line effects of lease revenue (1)
(6,780
)
 
(5,076
)
 
(23,950
)
 
(14,655
)
Amortization of lease-related intangibles (1)
(1,010
)
 
(1,757
)
 
(3,653
)
 
(4,067
)
Property net operating income (cash basis)
75,353

 
79,558

 
215,618

 
232,380

Deduct net operating (income) / loss from:
 
 
 
 
 
 
 
Acquisitions (4)
(6,887
)
 
(6,056
)
 
(18,072
)
 
(10,621
)
Dispositions (5)
(6
)
 
(1,184
)
 
(1,523
)
 
(3,874
)
Other investments (6)
(213
)
 
(2,328
)
 
258

 
(7,539
)
Same store net operating income (cash basis)
$
68,247

 
$
69,990

 
$
196,281

 
$
210,346

Change period over period
(2.5
)%
 
N/A

 
(6.7
)%
*
N/A







* Explanation for Change in Same Store Net Operating Income for the Nine Months Ended September 30, 2014
 
 
 
 
 
Property
Location
Amount
Explanation
 
Aon Center
Chicago, IL
$
(10,948
)
Expiration of the BP lease in December 2013; income from BP recognized the entirety of the first three quarters of 2013; replacement leases covering 97% of the former BP space provided replacement tenants with rental abatements during some portion of the first nine months of the year.
 
6021 Connection Drive
Irving, TX
(6,325
)
Expiration of the Nokia lease in December 2013; income from Nokia recognized the entirety of the first nine months of 2013; lease restructuring income from Nokia recognized in 2013; replacement lease with Epsilon Data Management commenced at the end of the second quarter of 2014; rent is abated for the first several months of the Epsilon lease.
 
Subtotal
 
$
(17,273
)
 
 
Amount of Variance Explained
 
123
%
Greater than 100% explained; difference represents net operating income growth at other assets within the portfolio.
 
 
 
 
 
 


15




Same Store Net Operating Income
 
 
 
 
 
 
 
 
 
 
 
Top Seven Markets
Three Months Ended
 
Nine Months Ended
 
9/30/2014
 
9/30/2013
 
9/30/2014
 
9/30/2013
 
$
%
 
$
%
 
$
%
 
$
%
New York (7)
$
12,611

18.5

 
$
11,404

16.3

 
$
36,021

18.4

 
$
35,849

17.0

Washington, D.C. (8)
10,622

15.6

 
13,094

18.7

 
34,435

17.5

 
42,962

20.4

Chicago (9) (10)
10,261

15.0

 
9,672

13.8

 
21,223

10.8

 
27,340

13.0

Minneapolis (11)
4,507

6.6

 
5,531

7.9

 
15,204

7.7

 
16,374

7.8

Boston
4,943

7.2

 
4,880

7.0

 
14,834

7.6

 
14,509

6.9

Dallas (12)
3,144

4.6

 
6,199

8.9

 
9,765

5.0

 
13,842

6.6

Los Angeles
2,697

4.0

 
3,151

4.5

 
9,573

4.9

 
9,772

4.7

Other (13)
19,462

28.5

 
16,059

22.9

 
55,226

28.1

 
49,698

23.6

Total
$
68,247

100.0

 
$
69,990

100.0

 
$
196,281

100.0

 
$
210,346

100.0

 
 
 
 
 
 
 
 
 
 
 
 
(1)
Includes amounts attributable to consolidated properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures.
(2)
Presented net of related operating expenses incurred to earn the revenue; therefore, the information presented on this line will not tie to the data presented on the income statements.
(3)
Figures presented on this line may not tie back to the relevant sources as some activity is attributable to property operations and is, therefore, presented in property net operating income.
(4)
Acquisitions consist of Arlington Gateway in Arlington, VA, purchased on March 4, 2013; 5 & 15 Wayside Road in Burlington, MA, purchased on March 22, 2013; Royal Lane Land in Irving, TX, purchased on August 1, 2013; 5301 Maryland Way in Brentwood, TN, the remaining equity interest in which was purchased on August 12, 2013; 6565 North MacArthur Boulevard in Irving, TX, purchased on December 5, 2013; One Lincoln Park in Dallas, TX, purchased on December 20, 2013; 161 Corporate Center in Irving, TX, purchased on December 30, 2013; 5 Wall Street in Burlington, MA, purchased on June 27, 2014; and 1155 Perimeter Center West in Atlanta, GA, purchased on August 28, 2014.
(5)
Dispositions consist of 1111 Durham Avenue in South Plainfield, NJ, sold on March 28, 2013; 1200 Enclave Parkway in Houston, TX, sold on May 1, 2013; 350 Spectrum Loop in Colorado Springs, CO, sold on November 1, 2013; 8700 South Price Road in Tempe, AZ, sold on December 30, 2013; 11107 and 11109 Sunset Hills Road in Reston, VA, sold on March 19, 2014; 1441 West Long Lake Road and 4685 Investment Drive in Troy, MI, sold on April 30, 2014; and 2020 West 89th Street in Leawood, KS, sold on May 19, 2014.
(6)
Other investments consist of operating results from our investments in unconsolidated joint ventures and our redevelopment projects. Additional information on our unconsolidated joint ventures and redevelopment projects can be found on page 39. The operating results from both the office and retail portions of 3100 Clarendon Boulevard in Arlington, VA, are included in this line item, consisting of net operating income/(loss) of $56,000 and ($230,000) for the three months and the nine months ended September 30, 2014, respectively, and net operating income of $2.0 million and $5.8 million for the three months and the nine months ended September 30, 2013, respectively.
(7)
The increase in New York Same Store Net Operating Income for the three months ended September 30, 2014 as compared to the same period in 2013 was primarily attributable to increased rental income at 200 Bridgewater Crossing in Bridgewater, NJ, associated with the end of the rental abatement periods under several new leases.
(8)
The decrease in Washington, D.C. Same Store Net Operating Income for the three months and the nine months ended September 30, 2014 as compared to the same periods in 2013 was primarily attributable to the expiration of several leases at 4250 North Fairfax Drive in Arlington, VA, and 9211 Corporate Boulevard in Rockville, MD, offset somewhat by increased rental income associated with the renewal of the National Park Service lease at 1201 Eye Street in Washington, D.C. An additional contributor to the decrease in Washington, D.C. Same Store Net Operating Income for the nine months ended September 30, 2014 as compared to the same period in 2013 was the expiration of the Office of the Comptroller of the Currency lease at One Independence Square in Washington, D.C.
(9)
The increase in Chicago Same Store Net Operating Income for the three months ended September 30, 2014 as compared to the same period in 2013 was primarily related to the expirations of the rental abatement periods associated with several new leases at 500 West Monroe Street in Chicago, IL. The decrease in Chicago Same Store Net Operating Income for the nine months ended September 30, 2014 as compared to the same period in 2013 was primarily related to tenant transitions at Aon Center in Chicago, IL. The main contributors to the decrease in net operating income contribution from Aon Center were: 1) downtime between the expiration of the BP lease and the commencement of one of the replacement leases with Integrys, 2) gross rental abatements associated with several of the replacement leases for the space formerly occupied by BP, and 3) rental rate roll downs associated with several new leases replacing the expired BP lease.
(10)
The percentage contribution from Chicago to our total Same Store Net Operating Income is smaller than our geographic concentration percentage in Chicago, which is presented on an ALR basis (see page 34), primarily because of the large number of leases with gross rent abatements and a number of leases yet to commence for currently vacant spaces (the projected gross rent for which is included in our ALR calculation). As the gross rent abatements burn off and as executed but not commenced leases begin, the Same Store Net Operating Income percentage contribution from Chicago should increase and should be more closely aligned with our Chicago concentration percentage as presented on page 34.
(11)
The decrease in Minneapolis Same Store Net Operating Income for the three months and the nine months ended September 30, 2014 as compared to the same periods in 2013 was primarily related to a renewal-related contraction by US Bancorp and downtime and/or rental abatements associated with several replacement leases for spaces formerly occupied by US Bancorp at US Bancorp Center in Minneapolis, MN.
(12)
The decrease in Dallas Same Store Net Operating Income for the three months and the nine months ended September 30, 2014 as compared to the same periods in 2013 was primarily related to a tenant transition at 6021 Connection Drive in Irving, TX. Specifically, the decrease in net operating income contribution from 6021 Connection Drive was predominantly related to: 1) the downtime between the expiration of the Nokia lease at the end of 2013 and the commencement of the Epsilon lease, which occurred at the end of the second quarter of 2014, 2) rental abatement concessions provided to Epsilon for the first several months of its lease term, and 3) the recognition of lease restructuring income from Nokia in 2013.
(13)
The increase in Other Same Store Net Operating Income for the three months and the nine months ended September 30, 2014 as compared to the same periods in 2013 was primarily related to: 1) the restructured Independence Blue Cross lease at 1901 Market Street in Philadelphia, PA, 2) increased rental income at Glenridge Highlands Two in Atlanta, GA, attributable to increased economic occupancy at the building, and 3) the expiration of the rental abatement period for a new tenant and the sale of density rights at Sarasota Commerce Center II in Sarasota, FL.


16



Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Accrual Basis)
Unaudited (in thousands)

 
Three Months Ended
 
Nine Months Ended
 
9/30/2014
 
9/30/2013
 
9/30/2014
 
9/30/2013
Net income attributable to Piedmont
$
9,162

 
$
19,096

 
$
30,834

 
$
69,105

Net income attributable to noncontrolling interest
4

 
4

 
12

 
12

Interest expense (1)
18,654

 
19,331

 
55,592

 
53,932

Depreciation (1)
35,427

 
31,147

 
103,502

 
92,204

Amortization (1)
14,248

 
13,939

 
42,660

 
34,509

Acquisition costs
110

 
60

 
539

 
1,374

Impairment loss (1)

 

 

 
6,402

Net (recoveries) / loss from casualty events and litigation settlements (1)
8

 
(3,919
)
 
(4,514
)
 
(7,328
)
Loss / (gain) on sale of properties (1)

 

 
(2,169
)
 
(16,258
)
Loss / (gain) on consolidation

 
898

 

 
898

Core EBITDA
77,613

 
80,556

 
226,456

 
234,850

General & administrative expenses (1)
5,808

 
5,921

 
17,550

 
16,940

Management fee revenue (2)
(299
)
 
(636
)
 
(839
)
 
(1,248
)
Other (income) / expense (1) (3)
21

 
550

 
54

 
560

Property net operating income (accrual basis)
83,143

 
86,391

 
243,221

 
251,102

Deduct net operating (income) / loss from:
 
 
 
 
 
 
 
Acquisitions (4)
(7,781
)
 
(6,832
)
 
(20,609
)
 
(11,831
)
Dispositions (5)
(6
)
 
(1,437
)
 
(1,469
)
 
(4,880
)
Other investments (6)
(222
)
 
(2,345
)
 
230

 
(7,628
)
Same store net operating income (accrual basis)
$
75,134

 
$
75,777

 
$
221,373

 
$
226,763

Change period over period
(0.8
)%
 
N/A

 
(2.4
)%
*
N/A








* Explanation for Change in Same Store Net Operating Income for the Nine Months Ended September 30, 2014
 
 
 
 
 
Property
Location
Amount
Explanation
 
Aon Center
Chicago, IL
$
(7,170
)
Expiration of the BP lease in December 2013; income from BP recognized the entirety of the first nine months of 2013; replacement leases covering 97% of the former BP space provided replacement tenants with operating expense recovery abatements during some portion of the first nine months of the year or only recently commenced.
 
6021 Connection Drive
Irving, TX
(4,553
)
Expiration of the Nokia lease in December 2013; income from Nokia recognized the entirety of the first nine months of 2013; lease restructuring income from Nokia recognized in 2013; replacement lease with Epsilon Data Management commenced at the end of the second quarter of 2014.
 
Subtotal
 
$
(11,723
)
 
 
Amount of Variance Explained
 
217
%
Greater than 100% explained; difference represents net operating income growth at other assets within the portfolio.
 
 
 
 
 
 



17




Same Store Net Operating Income
 
 
 
 
 
 
 
 
 
 
 
Top Seven Markets
Three Months Ended
 
Nine Months Ended
 
9/30/2014
 
9/30/2013
 
9/30/2014
 
9/30/2013
 
$
%
 
$
%
 
$
%
 
$
%
New York
$
11,953

15.9

 
$
12,325

16.3

 
$
37,391

16.9

 
$
38,466

17.0

Washington, D.C. (7)
11,147

14.8

 
12,899

17.0

 
36,113

16.3

 
43,177

19.0

Chicago (8) (9)
12,768

17.0

 
12,350

16.3

 
33,290

15.0

 
37,019

16.3

Minneapolis (10)
4,970

6.6

 
5,865

7.7

 
16,468

7.4

 
17,404

7.7

Boston
4,917

6.6

 
4,883

6.5

 
14,829

6.7

 
14,789

6.5

Los Angeles (11)
3,650

4.9

 
3,206

4.2

 
11,729

5.3

 
9,684

4.3

Dallas (12)
4,742

6.3

 
5,979

7.9

 
11,188

5.1

 
13,639

6.0

Other (13)
20,987

27.9

 
18,270

24.1

 
60,365

27.3

 
52,585

23.2

Total
$
75,134

100.0

 
$
75,777

100.0

 
$
221,373

100.0

 
$
226,763

100.0

 
 
 
 
 
 
 
 
 
 
 
 

(1)
Includes amounts attributable to consolidated properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures.
(2)
Presented net of related operating expenses incurred to earn the revenue; therefore, the information presented on this line will not tie to the data presented on the income statements.
(3)
Figures presented on this line may not tie back to the relevant sources as some activity is attributable to property operations and is, therefore, presented in property net operating income.
(4)
Acquisitions consist of Arlington Gateway in Arlington, VA, purchased on March 4, 2013; 5 & 15 Wayside Road in Burlington, MA, purchased on March 22, 2013; Royal Lane Land in Irving, TX, purchased on August 1, 2013; 5301 Maryland Way in Brentwood, TN, the remaining equity interest in which was purchased on August 12, 2013; 6565 North MacArthur Boulevard in Irving, TX, purchased on December 5, 2013; One Lincoln Park in Dallas, TX, purchased on December 20, 2013; 161 Corporate Center in Irving, TX, purchased on December 30, 2013; 5 Wall Street in Burlington, MA, purchased on June 27, 2014; and 1155 Perimeter Center West in Atlanta, GA, purchased on August 28, 2014.
(5)
Dispositions consist of 1111 Durham Avenue in South Plainfield, NJ, sold on March 28, 2013; 1200 Enclave Parkway in Houston, TX, sold on May 1, 2013; 350 Spectrum Loop in Colorado Springs, CO, sold on November 1, 2013; 8700 South Price Road in Tempe, AZ, sold on December 30, 2013; 11107 and 11109 Sunset Hills Road in Reston, VA, sold on March 19, 2014; 1441 West Long Lake Road and 4685 Investment Drive in Troy, MI, sold on April 30, 2014; and 2020 West 89th Street in Leawood, KS, sold on May 19, 2014.
(6)
Other investments consist of operating results from our investments in unconsolidated joint ventures and our redevelopment projects. Additional information on our unconsolidated joint ventures and redevelopment projects can be found on page 39. The operating results from both the office and retail portions of 3100 Clarendon Boulevard in Arlington, VA, are included in this line item, consisting of net operating income/(loss) of $58,000 and ($220,000) for the three months and the nine months ended September 30, 2014, respectively, and net operating income of $2.0 million and $5.8 million for the three months and the nine months ended September 30, 2013, respectively.
(7)
The decrease in Washington, D.C. Same Store Net Operating Income for the three months and the nine months ended September 30, 2014 as compared to the same periods in 2013 was primarily attributable to the expiration of several leases at One Independence Square in Washington, D.C., 4250 North Fairfax Drive in Arlington, VA, and 9211 Corporate Boulevard in Rockville, MD, offset somewhat by increased rental income associated with the renewal of the National Park Service lease at 1201 Eye Street in Washington, D.C.
(8)
The increase in Chicago Same Store Net Operating Income for the three months ended September 30, 2014 as compared to the same period in 2013 was primarily related to the expirations of the operating expense recovery abatement periods associated with several new leases at 500 West Monroe Street in Chicago, IL. The decrease in Chicago Same Store Net Operating Income for the nine months ended September 30, 2014 as compared to the same period in 2013 was primarily related to tenant transitions at Aon Center in Chicago, IL. The main contributors to the decrease in net operating income contribution from Aon Center were: 1) downtime between the expiration of the BP lease and the commencement of one of the replacement leases with Integrys, 2) operating expense recovery abatements (which abatements are not included in straight line rent adjustments) associated with several of the replacement leases for the space formerly occupied by BP, and 3) rental rate roll downs associated with several new leases replacing the expired BP lease.
(9)
The percentage contribution from Chicago to our total Same Store Net Operating Income is smaller than our geographic concentration percentage in Chicago, which is presented on an ALR basis (see page 34), primarily because of the large number of leases with operating expense recovery abatements (which abatements are not included in straight line rent adjustments) and a number of leases yet to commence for currently vacant spaces (the projected gross rents for which are included in our ALR calculation). As operating expense recovery abatements burn off and as executed but not commenced leases begin, the Same Store Net Operating Income percentage contribution from Chicago should increase and should be more closely aligned with our Chicago concentration percentage as presented on page 34.
(10)
The decrease in Minneapolis Same Store Net Operating Income for the three months and the nine months ended September 30, 2014 as compared to the same periods in 2013 was primarily related to a renewal-related contraction by US Bancorp and downtime associated with a replacement lease for space formerly occupied by US Bancorp at US Bancorp Center in Minneapolis, MN.
(11)
The increase in Los Angeles Same Store Net Operating Income for the nine months ended September 30, 2014 as compared to the same period in 2013 was primarily related to increased rental income associated with the new lease with Guidance Software at 1055 East Colorado Boulevard in Pasadena, CA, which commenced in mid-2013, along with increased rental income associated with new leases with Union Bank and Front Porch Communities at 800 North Brand Boulevard in Glendale, CA, both of which commenced in early 2014.
(12)
The decrease in Dallas Same Store Net Operating Income for the three months and the nine months ended September 30, 2014 as compared to the same periods in 2013 was primarily related to a tenant transition at 6021 Connection Drive in Irving, TX. Specifically, the decrease in net operating income contribution from 6021 Connection Drive was predominantly related to: 1) the downtime between the expiration of the Nokia lease at the end of 2013 and the commencement of the Epsilon lease, which occurred at the end of the second quarter of 2014, and 2) the recognition of lease restructuring income from Nokia in 2013.
(13)
The increase in Other Same Store Net Operating Income for the three months ended September 30, 2014 as compared to the same period in 2013 was primarily related to: 1) increased rental income under the restructured Independence Blue Cross lease at 1901 Market Street in Philadelphia, PA, and 2) the sale of density rights at Sarasota Commerce Center II in Sarasota, FL. The increase in Other Same Store Net Operating Income for the nine months ended September 30, 2014 as compared to the same period in 2013 was primarily related to: 1) increased rental income under the restructured Independence Blue Cross lease at 1901 Market Street in Philadelphia, PA, 2) increased rental income at Glenridge Highlands Two in Atlanta, GA, attributable to several new leases commencing in 2013 and 2014, and 3) increased rental income at Eastpoint I in Mayfield Heights, OH, related to the commencement of a new lease with TMW Systems in early 2014.





18



Piedmont Office Realty Trust, Inc.
Capitalization Analysis
Unaudited (in thousands except for per share data)


 
 
As of
 
As of
 
 
September 30, 2014
 
December 31, 2013
 
 
 
 
 
Common stock price (1)
 
$
17.64

 
$
16.52

Total shares outstanding
 
154,325

 
157,461

Equity market capitalization (1)
 
$
2,722,296

 
$
2,601,254

Total debt - principal amount outstanding
 
$
2,236,049

 
$
2,003,525

Total market capitalization (1)
 
$
4,958,345

 
$
4,604,779

Total debt / Total market capitalization
 
45.1
%
 
43.5
%
Total gross real estate assets
 
$
5,197,338

 
$
5,003,737

Total debt / Total gross real estate assets (2)
 
43.0
%
 
40.0
%
Total debt / Total gross assets (3)
 
37.8
%
 
35.0
%










(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.

19



Piedmont Office Realty Trust, Inc.
Debt Summary
As of September 30, 2014
Unaudited ($ in thousands)

Floating Rate & Fixed Rate Debt
Debt (1)
Principal Amount
Outstanding
Weighted Average Stated
Interest Rate
Weighted Average
Maturity
 
 
 
 
 
Floating Rate
$440,000
(2) 
1.34%
34.7 months
 
 
 
 
 
Fixed Rate
1,796,049

 
3.90%
71.6 months
 
 
 
 
 
Total
$2,236,049
 
3.39%
64.3 months
    

 
Unsecured & Secured Debt
Debt (1)
Principal Amount
Outstanding
Weighted Average Stated
Interest Rate
Weighted Average
Maturity
 
 
 
 
 
 
Unsecured
$1,790,000
 
2.85%
(3) 
73.6 months
 
 
 
 
 
 
Secured
446,049

 
5.55%
 
27.0 months
 
 
 
 
 
 
Total
$2,236,049
 
3.39%
 
64.3 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
 
 
 
 
 
 
2014
$—
$—
 
N/A
—%
2015
105,000
 
5.29%
4.7%
2016
167,525
 
5.55%
7.5%
2017
140,000
440,000
(4) 
2.40%
25.9%
2018
 
N/A
—%
2019 +
33,524
1,350,000
 
3.40%
61.9%
 
 
 
 
 
 
Total
$446,049
$1,790,000
 
3.39%
100.0%
(1)
All of Piedmont's outstanding debt as of September 30, 2014 was interest-only debt with the exception of the $33.5 million of debt associated with 5 Wall Street located in Burlington, MA.
(2)
Amount represents the outstanding balance as of September 30, 2014, on the $500 million unsecured revolving credit facility. Both the $300 million unsecured term loan that closed in 2011 and the $300 million unsecured term loan that closed in 2013 have stated variable rates. However, Piedmont entered into $300 million in notional amount of interest rate swap agreements which effectively fix the interest rate on the 2011 unsecured term loan at 2.39% through November 22, 2016 (please see page 21 for information on additional swap agreements for this loan that will become effective after November 22, 2016), assuming no credit rating change for the Company, and $300 million in notional amount of interest rate swap agreements which effectively fix the interest rate on the 2013 unsecured term loan at 2.78% through its maturity date of January 31, 2019, assuming no credit rating change for the Company. The 2011 unsecured term loan and the 2013 unsecured term loan, therefore, are reflected as fixed rate debt.
(3)
The weighted average interest rate is a weighted average rate for amounts outstanding under our $500 million unsecured revolving credit facility, our unsecured senior notes and our unsecured term loans. As presented herein, the weighted average stated interest rate is calculated based upon the principal amounts outstanding.
(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.

20



Piedmont Office Realty Trust, Inc.
Debt Detail
Unaudited ($ in thousands)

Facility
Property
Stated Rate (1)
Maturity
Principal Amount Outstanding as of September 30, 2014
 
 
 
 
 
 
Secured
 
 
 
 
 
$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 (2)
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

$35.0 Million Fixed-Rate Loan (3)
5 Wall Street
5.55
%
 
9/1/2021
33,524

Subtotal / Weighted Average (4)
 
5.55
%
 

$
446,049

 
 
 
 
 
 
Unsecured
 
 
 
 
 
$500.0 Million Unsecured Line of Credit (5)
N/A
1.34
%
(6) 
8/21/2017
$
440,000

$350.0 Million Unsecured Senior Notes (7)
N/A
3.40
%
 
6/1/2023
350,000

$400.0 Million Unsecured Senior Notes (8)
N/A
4.45
%
 
3/15/2024
400,000

$300.0 Million Unsecured 2011 Term Loan
N/A
2.39
%
(9) 
1/15/2020
300,000

$300.0 Million Unsecured 2013 Term Loan
N/A
2.78
%
(10) 
1/31/2019
300,000

Subtotal / Weighted Average (4)
 
2.85
%
 
 
$
1,790,000

 
 
 
 
 
 
Total Debt - Principal Amount Outstanding / Weighted Average Stated Rate (4)
3.39
%
 
 
$
2,236,049

GAAP Accounting Adjustments (11)
 
 
 
 
(2,210
)
Total Debt - GAAP Amount Outstanding
 
 
 
$
2,233,839


(1)
All of Piedmont’s outstanding debt as of September 30, 2014, was interest-only debt with the exception of the $33.5 million of debt associated with 5 Wall Street located in Burlington, MA.
(2)
The four property collateralized pool includes 1430 Enclave Parkway, Windy Point I and II, and 1055 East Colorado Boulevard.
(3)
The loan is amortizing based upon a 25-year amortization schedule.
(4)
Weighted average is based on the principal amount outstanding and interest rate at September 30, 2014.
(5)
All of Piedmont’s outstanding debt as of September 30, 2014, was term debt with the exception of $440 million outstanding on our unsecured revolving credit facility. The $500 million unsecured revolving credit facility has an initial maturity date of August 19, 2016; however, there are two, six-month extension options available under the facility providing 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 presented for the $500 million unsecured revolving credit facility is the weighted average interest rate for all outstanding draws as of September 30, 2014. 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, 2014) over the selected rate based on Piedmont’s current credit rating.
(7)
The $350 million unsecured senior notes were offered for sale at 99.601% of the principal amount. The resulting effective cost of the financing is approximately 3.45% before the consideration of transaction costs and proceeds from interest rate hedges. After the application of proceeds from interest rate hedges, the effective cost of the financing is approximately 3.43%.
(8)
The $400 million unsecured senior notes were offered for sale at 99.791% of the principal amount. The resulting effective cost of the financing is approximately 4.48% before the consideration of transaction costs and proceeds from interest rate hedges. After the application of proceeds from interest rate hedges, the effective cost of the financing is approximately 4.10%.
(9)
The $300 million unsecured term loan that closed in 2011 has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix the interest rate on this loan at 2.39% until November 22, 2016, assuming no credit rating change for the Company. Subsequent to quarter end, Piedmont entered into interest rate swap agreements which effectively fix the interest rate on this loan at 3.35% from November 22, 2016 to January 15, 2020, assuming no credit rating change for the Company.
(10)
The $300 million unsecured term loan that closed in 2013 has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix the interest rate on this loan at 2.78% through its maturity date of January 31, 2019, assuming no credit rating change for the Company.
(11)
The GAAP accounting adjustments relate to the original issue discounts and fees associated with the $350 million unsecured senior notes, the $400 million unsecured senior notes and the $300 million unsecured 2011 term loan, along with debt fair value adjustments associated with the assumed 5 Wall Street debt. The original issue discounts and fees, along with the debt fair value adjustments, will be amortized to interest expense over the contractual term of the related debt.

21



Piedmont Office Realty Trust, Inc.
Debt Analysis
As of September 30, 2014
Unaudited


Bank Debt Covenant Compliance (1)
Required
Actual



Maximum Leverage Ratio
0.60
0.39
Minimum Fixed Charge Coverage Ratio (2)
1.50
3.58
Maximum Secured Indebtedness Ratio
0.40
0.08
Minimum Unencumbered Leverage Ratio
1.60
2.58
Minimum Unencumbered Interest Coverage Ratio (3)
1.75
5.60

Bond Covenant Compliance (4)
Required
Actual
 
 
 
Total Debt to Total Assets
60% or less
42.7%
Secured Debt to Total Assets
40% or less
8.6%
Ratio of Consolidated EBITDA to Interest Expense
1.50 or greater
4.19
Unencumbered Assets to Unsecured Debt
150% or greater
255%


Three Months Ended
Nine Months Ended
Year Ended
Other Debt Coverage Ratios
September 30, 2014
September 30, 2014
December 31, 2013

 
 
 
Average net debt to core EBITDA (5)
6.9 x
6.9 x
5.4 x
Fixed charge coverage ratio (6)
4.0 x
4.0 x
4.3 x
Interest coverage ratio (7)
4.0 x
4.0 x
4.3 x







(1)
Debt covenant compliance calculations relate to specific calculations detailed in the relevant credit agreements.
(2)
Defined as EBITDA for the trailing four quarters (including the Company's share of EBITDA from unconsolidated interests), less one-time or non-recurring gains or losses, less a $0.15 per square foot capital reserve, and excluding the impact of straight line rent leveling adjustments and amortization of intangibles divided by the Company's share of fixed charges, as more particularly described in the credit agreements. 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 partially-owned entities and subsidiaries that are deemed to be unencumbered) less a $0.15 per square foot capital reserve divided by the Company's share of interest expense associated with unsecured financings only, as more particularly described in the credit agreements.
(4)
Please refer to the Indenture dated May 9, 2013, and the Indenture and the Supplemental Indenture dated March 6, 2014, for additional information on the relevant calculations.
(5)
For the purposes of this calculation, we use the average daily balance of debt outstanding during the period, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the period.
(6)
Fixed charge coverage is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. The Company had no preferred dividends during the periods ended September 30, 2014 and December 31, 2013. The Company had capitalized interest of $541,349 for the three months ended September 30, 2014, $1,386,443 for the nine months ended September 30, 2014, and $31,486 for the year ended December 31, 2013. The Company had principal amortization of $193,560 for the three months ended September 30, 2014 and $257,783 for the nine months ended September 30, 2014.
(7)
Interest coverage ratio is calculated as Core EBITDA divided by the sum of interest expense and capitalized interest. The Company had capitalized interest of $541,349 for the three months ended September 30, 2014, $1,386,443 for the nine months ended September 30, 2014, and $31,486 for the year ended December 31, 2013.

22



Piedmont Office Realty Trust, Inc.
Tenant Diversification (1) 
As of September 30, 2014
(in thousands except for number of properties)

Tenant
Credit Rating (2)
Number of
Properties
Lease Expiration (3)
Annualized Lease
Revenue
Percentage of
Annualized Lease
Revenue (%)
 Leased
Square Footage
Percentage of
Leased
Square Footage (%)
U.S. Government
AA+ / Aaa
5
 
(4)
$44,265
7.6
886
4.7
State of New York
AA+ / Aa1
1
2019

23,926
4.1
481
2.6
US Bancorp
A+ / A1
3
2023 / 2024

21,107
3.6
733
3.9
Independence Blue Cross
No rating available
1
2033

17,266
3.0
801
4.3
GE
AA+ / Aa3
2
2027

15,116
2.6
453
2.4
Aon
A- / Baa2
2
2028

14,900
2.6
460
2.4
Nestle
AA / Aa2
1
2021

11,898
2.1
401
2.1
City of New York
AA / Aa2
1
2020

9,987
1.7
313
1.7
KPMG
No rating available
2
2027

9,157
1.6
279
1.5
Technip
BBB+
1
2018

8,790
1.5
204
1.1
Gallagher
No rating available
1
2018

8,539
1.5
307
1.6
Caterpillar Financial
A / A2
1
2022

7,805
1.4
312
1.7
DDB Needham
BBB+ / Baa1
1
2018

7,734
1.3
213
1.1
Catamaran
BB+ / Ba2
1
2025

7,394
1.3
301
1.6
Jones Lang LaSalle
BBB- / Baa2
1
2032

7,164
1.2
201
1.1
Harvard University
AAA / Aaa
2
2017

7,145
1.2
110
0.6
Gemini
A / A3
1
2021

6,544
1.1
205
1.1
Harcourt
BBB+
1
2016

6,494
1.1
195
1.0
Edelman
No rating available
1
2024

6,489
1.1
184
1.0
Key Bank
A- / A3
2
2016

6,418
1.1
210
1.1
Raytheon
A / A3
2
2019

6,271
1.1
440
2.3
Epsilon Data Management
No rating available
2
2026

6,058
1.0
250
1.3
First Data Corporation
B / B3
1
2020

6,008
1.0
195
1.0
Archon Group
A- / Baa1
2
2018

5,810
1.0
235
1.3
Ralph Lauren
A / A3
1
2019

5,808
1.0
178
0.9
Integrys
A- / A3
1
2029

5,772
1.0
181
1.0
Henry M. Jackson
No rating available
2
2022
 
5,590
1.0
145
0.8
Towers Watson
No rating available
1
2017
 
5,537
1.0
123
0.7
Other


Various

285,604
49.2
9,783
52.1
Total



 
$580,596
100.0
18,779
100.0


23



Tenant Diversification
September 30, 2014 as compared to December 31, 2013


    
        









(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 2015 to 2027.







24



Piedmont Office Realty Trust, Inc.
Tenant Credit Rating & Lease Distribution Information
As of September 30, 2014


Tenant Credit Rating (1) 
 
 
 
 
 
Annualized
Lease Revenue
(in thousands)
Percentage of
Annualized Lease
Revenue (%)
 
 
 
 
 
AAA / Aaa
$54,765
9.4
 
AA / Aa
86,614
14.9
 
A / A
122,084
21.0
 
BBB / Baa
48,031
8.3
 
BB / Ba
33,449
5.8
 
B / B
26,125
4.5
 
Below
0
0.0
 
Not rated (2)
209,528
36.1
 
Total
$580,596
100.0
 
 
 
 
 



Lease Distribution
 
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
201
31.1
$21,478
3.7
186

1.0
 
2,501 - 10,000
192
29.7
33,826
5.8
1,051

5.6
 
10,001 - 20,000
80
12.4
33,387
5.8
1,133

6.0
 
20,001 - 40,000
69
10.6
59,835
10.3
1,982

10.6
 
40,001 - 100,000
52
8.0
93,519
16.1
3,087

16.4
 
Greater than 100,000
53
8.2
338,551
58.3
11,340

60.4
 
Total
647
100.0
$580,596
100.0
18,779

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.

25



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 operating 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 value 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
 
Three Months Ended
 
 
 
September 30, 2014
 
September 30, 2013
 
 
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 
As of June 30, 20xx
18,352

21,086

87.0
%
 
17,878

20,704

86.4
%
 
 
New leases
1,110



 
1,342



 
 
Expired leases
(1,060
)


 
(1,248
)


 
 
Other

9


 

56


 
 
Subtotal
18,402

21,095

87.2
%
 
17,972

20,760

86.6
%
 
 
Acquisitions during period
377

377


 
336

346


 
 
Dispositions during period



 



 
 
As of September 30, 20xx (2)
18,779

21,472

87.5
%
 
18,308

21,106

86.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Nine Months Ended
 
 
 
September 30, 2014
 
September 30, 2013
 
 
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 
As of December 31, 20xx
18,737

21,490

87.2
%
 
17,935

20,500

87.5
%
 
 
New leases
3,377



 
2,526



 
 
Expired leases
(3,313
)


 
(2,775
)


 
 
Other (3)
(247
)
(182
)

 
3

53


 
 
Subtotal
18,554

21,308

87.1
%
 
17,689

20,553

86.1
%
 
 
Acquisitions during period
559

559


 
914

940


 
 
Dispositions during period
(334
)
(395
)

 
(295
)
(387
)

 
 
As of September 30, 20xx (2)
18,779

21,472

87.5
%
 
18,308

21,106

86.7
%
 
 
 
 
 
 
 
 
 
 
 
 
Stabilized Portfolio Analysis
 
 
 
 
 
 
 
 
 
Less value-add properties (4)
(841
)
(1,309
)
64.2
%
 
(877
)
(1,637
)
53.6
%
 
 
Stabilized Total (2)
17,938

20,163

89.0
%
 
17,431

19,469

89.5
%
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Analysis
 
 
 
 
 
 
 
 
 
Less acquisitions / dispositions after September 30, 2013 or redevelopments (4) (5)
(1,142
)
(1,186
)
96.3
%
 
(867
)
(933
)
92.9
%
 
 
Same Store Total (2)
17,637

20,286

86.9
%
 
17,441

20,173

86.5
%
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Stabilized Analysis
 
 
 
 
 
 
 
 
 
Less value-add same store properties (4)
(1,135
)
(1,641
)
69.2
%
 
(877
)
(1,637
)
53.6
%
 
 
Same Store Stabilized Total (2)
16,502

18,645

88.5
%
 
16,564

18,536

89.4
%
 
 
 
 
 
 
 
 
 
 
 

26



(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)
Effective January 1, 2014, 3100 Clarendon Boulevard was taken out of service due to the redevelopment of the property. The adjustments to square footage presented on this line in 2014 primarily relate to the removal of 3100 Clarendon Boulevard from our operating portfolio. For additional information regarding the redevelopment of 3100 Clarendon Boulevard, please refer to the Financing and Capital Activity section of Financial Highlights.
(4)
For additional information on acquisitions and dispositions completed during the last year, value-add properties and redevelopments, please refer to pages 37, 38 and 39, 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.
 
 


27



Piedmont Office Realty Trust, Inc.
Rental Rate Roll Up / Roll Down Analysis (1) 
(in thousands)


 
Three Months Ended
 
 
September 30, 2014
 
 
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
292
47.1%
1.4%
(1.1)%
10.5%
 
Leases executed for spaces excluded from analysis (5)
328
52.9%



 

 
Nine Months Ended
 
 
September 30, 2014
 
 
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
1,056
58.8%
4.9%
3.8%
8.5%
 
Leases executed for spaces excluded from analysis (5)
739
41.2%



 
 
 
 
 
 
 
 














(1)
The population analyzed consists of consolidated office leases executed during the period with lease terms greater than one year. Retail leases, as well as leases associated with storage spaces, management offices, and unconsolidated joint venture assets, were excluded from this analysis.
(2)
For the purposes of this analysis, the cash rents last in effect for the previous leases were compared to the initial cash rents of the new leases in order to calculate the percentage change.
(3)
For the purposes of this analysis, the accrual basis rents for the previous leases were compared to the accrual basis rents of the new leases in order to calculate the percentage change. For newly signed leases which have variations in accrual basis rents, whether because of known future expansions, contractions, lease expense recovery structure changes, or other similar reasons, the weighted average of such accrual basis rents is used for the purposes of this analysis.
(4)
For leases under which a tenant may use, at its discretion, a portion of its tenant improvement allowance for expenses other than those related to improvements to its space, an assumption is made that the tenant elects to use any such portion of its tenant improvement allowance for improvements to its space prior to the commencement of its lease, unless the Company is notified otherwise by the tenant. This assumption is made based upon the historical tenant improvement allowance usage patterns of the Company's tenants.
(5)
Represents leases signed at our consolidated office assets that do not qualify for inclusion in the analysis primarily because the spaces for which the new leases were signed had been vacant for greater than one year.

28



Piedmont Office Realty Trust, Inc.
Lease Expiration Schedule
As of September 30, 2014
(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
 
$—
2,693
12.5
 
$—
N/A
2014 (2)
 
4,671
0.8
127
0.6
 
2015 (3)
 
22,275
3.8
758
3.5
 
2,511
0.4
11.3
2016
 
30,925
5.3
1,095
5.1
 
1,457
0.3
4.7
2017
 
58,587
10.1
1,383
6.5
 
11,241
1.9
19.2
2018
 
51,396
8.8
1,660
7.7
 
308
0.1
0.6
2019
 
75,324
13.0
2,571
12.0
 
23,926
4.1
31.8
2020
 
46,850
8.1
1,683
7.8
 
9,987
1.7
21.3
2021
 
38,489
6.6
1,281
6.0
 
2022
 
31,363
5.4
1,048
4.9
 
2023
 
29,956
5.2
1,060
4.9
 
2024
 
46,683
8.0
1,518
7.1
 
2025
 
23,615
4.1
889
4.1
 
2026
 
16,214
2.8
645
3.0
 
2027
 
55,473
9.6
1,375
6.4
 
29,097
5.0
52.5
Thereafter
 
48,775
8.4
1,686
7.9
 
Total / Weighted Average
 
$580,596
100.0
21,472
100.0
 
$78,527
13.5
 
Average Lease Term Remaining
9/30/2014
7.3 years
12/31/2013
7.1 years
(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)
Includes leases with an expiration date of September 30, 2014 aggregating 12,000 square feet and Annualized Lease Revenue of $193 thousand.
(3)
Leases and other revenue-producing agreements on a month-to-month basis, aggregating 12,000 square feet and Annualized Lease Revenue of $0.7 million, are assigned a lease expiration date of a year and a day beyond the period end date.
 
 

29



Piedmont Office Realty Trust, Inc.
Lease Expirations by Quarter
As of September 30, 2014
(in thousands)

 
 
Q4 2014 (1)
 
Q1 2015
 
Q2 2015
 
Q3 2015
 
 
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
 
$3
 
29
$535
 
$—
 
$—
Austin
 
 
 
 
Boston
 
50
 
 
 
126
2,493
Central & South Florida
 
 
19
451
 
7
182
 
Chicago
 
15
336
 
8
224
 
24
786
 
142
4,174
Dallas
 
3
73
 
34
933
 
12
283
 
26
684
Detroit
 
2
12
 
 
39
 
Houston
 
 
 
 
Los Angeles
 
 
 
 
Minneapolis
 
18
502
 
 
5
148
 
27
987
Nashville
 
 
 
 
New York
 
53
2,657
 
2
101
 
23
759
 
3
360
Philadelphia
 
 
 
 
Phoenix
 
 
 
 
Washington, D.C.
 
26
1,000
 
9
378
 
51
2,833
 
53
2,254
Other
 
10
208
 
 
 
Total / Weighted Average (3)
 
127
$4,841
 
101
$2,622
 
161
$4,991
 
377
$10,952












(1)
Includes leases with an expiration date of September 30, 2014 aggregating 12,000 square feet and expiring lease revenue of $134 thousand. No such adjustments are made to other periods presented.
(2)
Expiring lease revenue is calculated as expiring square footage multiplied by the gross rent per square foot of the tenant currently leasing the space.
(3)
Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule on the previous page as the Lease Expiration Schedule accounts for the revenue effects of newly signed leases. Reflected herein are expiring revenues based on in-place rental rates.

30



Piedmont Office Realty Trust, Inc.
Lease Expirations by Year
As of September 30, 2014
(in thousands)

 
12/31/2014 (1)
 
12/31/2015
 
12/31/2016
 
12/31/2017
 
12/31/2018
 
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
$3
 
29
$593
 
18
$369
 
45
$1,085
 
110
$2,279
Austin
 
 
195
6,500
 
1
 
Boston
50
 
126
2,493
 
3
193
 
98
6,250
 
147
6,277
Central & South Florida
 
30
721
 
71
1,843
 
161
3,945
 
40
982
Chicago
15
336
 
198
5,672
 
73
2,270
 
132
9,798
 
625
20,342
Dallas
3
73
 
91
2,358
 
61
1,544
 
222
5,628
 
387
9,525
Detroit
2
12
 
61
453
 
28
636
 
63
1,273
 
8
190
Houston
 
 
 
2
 
150
6,278
Los Angeles
 
3
68
 
93
2,938
 
54
1,929
 
25
678
Minneapolis
18
502
 
39
1,394
 
33
1,109
 
48
1,563
 
35
1,175
Nashville
 
 
201
2,579
 
 
New York
53
2,657
 
35
1,466
 
281
9,131
 
61
1,950
 
91
2,283
Philadelphia
 
 
 
 
Phoenix
 
 
 
 
Washington, D.C.
26
1,000
 
140
6,917
 
38
1,813
 
485
25,014
 
26
1,034
Other
10
208
 
6
32
 
 
14
353
 
16
369
Total / Weighted Average (3)
127
$4,841
 
758
$22,167
 
1,095
$30,925
 
1,383
$58,791
 
1,660
$51,412












(1)
Includes leases with an expiration date of September 30, 2014 aggregating 12,000 square feet and expiring lease revenue of $134 thousand. No such adjustments are made to other periods presented.
(2)
Expiring lease revenue is calculated as expiring square footage multiplied by the gross rent per square foot of the tenant currently leasing the space.
(3)
Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule on page 29 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.

31



Piedmont Office Realty Trust, Inc.
Capital Expenditures & Commitments
For the quarter ended September 30, 2014
Unaudited (in thousands)

 
For the Three Months Ended
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
Non-incremental
 
 
 
 
 
 
 
 
 
Building / construction / development
$
6,135

 
$
3,734

 
$
720

 
$
11,372

 
$
1,465

Tenant improvements
18,209

 
18,276

 
11,531

 
24,798

 
11,854

Leasing costs
6,546

 
4,141

 
1,570

 
6,815

 
8,386

Total non-incremental
30,890

 
26,151

 
13,821

 
42,985

 
21,705

Incremental
 
 
 
 
 
 
 
 
 
Building / construction / development
23,390

 
12,465

 
6,776

 
8,418

 
4,826

Tenant improvements
7,802

 
8,394

 
7,627

 
10,181

 
9,780

Leasing costs
2,400

 
2,824

 
2,386

 
2,747

 
2,043

Total incremental
33,592

 
23,683

 
16,789

 
21,346

 
16,649

Total capital expenditures
$
64,482

 
$
49,834

 
$
30,610

 
$
64,331

 
$
38,354


 
 
 
 
 
 
Non-incremental tenant improvement commitments (1)
 
 
 
 
Non-incremental tenant improvement commitments outstanding as of June 30, 2014
 
$
63,411

 
 
New non-incremental tenant improvement commitments related to leases executed during period
 
16,161

 
 
Non-incremental tenant improvement expenditures
(18,209
)
 
 
 
Less: Tenant improvement expenditures fulfilled through accrued liabilities already presented on Piedmont's balance sheet, expired commitments or other adjustments
2,030

 
 
 
Non-incremental tenant improvement commitments fulfilled, expired or other adjustments
 
(16,179
)
 
 
Total as of September 30, 2014
 
$
63,393

 
 
 
 
 
 










NOTE:
The information presented on this page is for all consolidated assets.
(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 $38.0 million, or 60% of the total outstanding commitments.

32



Piedmont Office Realty Trust, Inc.
Contractual Tenant Improvements and Leasing Commissions

 
 
For the Three Months
Ended September 30, 2014
For the Nine Months
Ended September 30, 2014
For the Year Ended
 
 
2013
2012
2011
Renewal Leases
 
 
 
 

 
 
 
 
 
Number of leases
14
 
46
 
56
45
 
48
 
 
Square feet 
294,933
 
802,767
 
2,376,177
1,150,934
 
2,280,329
 
 
Tenant improvements per square foot (1)
$51.46
 
$22.23
 
$14.24
$19.12
 
$33.29
 
 
Leasing commissions per square foot
$17.75
 
$9.43
 
$4.66
$6.64
 
$9.97
 
 
Total per square foot
$69.21
 
$31.66
 
$18.90
$25.76
 
$43.26
 
 
Tenant improvements per square foot per year of lease term
$4.97
 
$3.32
 
$1.88
$2.90
 
$3.93
 
 
Leasing commissions per square foot per year of lease term
$1.71
 
$1.41
 
$0.62
$1.01
 
$1.18
 
 
Total per square foot per year of lease term
$6.68
(2) 
$4.73
(2) 
$2.50
$3.91
(3) 
$5.11
(3) 
New Leases (4)

 

 


 

 
 
Number of leases
23
 
78
 
87
92
 
76
 
 
Square feet
324,557
 
979,529
 
1,050,428
1,765,510
 
1,588,271
 
 
Tenant improvements per square foot (1)
$47.08
 
$32.48
 
$35.74
$47.64
 
$41.21
 
 
Leasing commissions per square foot
$20.80
 
$15.02
 
$12.94
$18.49
 
$15.38
 
 
Total per square foot
$67.88
 
$47.50
 
$48.68
$66.13
 
$56.59
 
 
Tenant improvements per square foot per year of lease term
$4.49
 
$3.57
 
$4.17
$4.30
 
$4.19
 
 
Leasing commissions per square foot per year of lease term
$1.98
 
$1.65
 
$1.51
$1.67
 
$1.57
 
 
Total per square foot per year of lease term
$6.47
 
$5.22
 
$5.68
$5.97
 
$5.76
 
Total
 

 

 


 

 
 
Number of leases
37
 
124
 
143
137
 
124
 
 
Square feet
619,490
 
1,782,296
 
3,426,605
2,916,444
 
3,868,600
 
 
Tenant improvements per square foot (1)
$49.17
 
$27.86
 
$20.83
$36.39
 
$36.54
 
 
Leasing commissions per square foot
$19.35
 
$12.50
 
$7.20
$13.81
 
$12.19
 
 
Total per square foot
$68.52
 
$40.36
 
$28.03
$50.20
 
$48.73
 
 
Tenant improvements per square foot per year of lease term
$4.72
 
$3.47
 
$2.64
$3.91
 
$4.05
 
 
Leasing commissions per square foot per year of lease term
$1.86
 
$1.56
 
$0.91
$1.48
 
$1.35
 
 
Total per square foot per year of lease term
$6.58
(2) 
$5.03
(2) 
$3.55
$5.39
 
$5.40
 
NOTE:
This information is presented for our consolidated office assets only and excludes activity associated with storage and licensed spaces.
(1)
For leases under which a tenant may use, at its discretion, a portion of its tenant improvement allowance for expenses other than those related to improvements to its space, an assumption is made that the tenant elects to use any such portion of its tenant improvement allowance for improvements to its space prior to the commencement of its lease, unless the Company is notified otherwise by the tenant. This assumption is made based upon the historical tenant improvement allowance usage patterns of the Company's tenants.
(2)
During 2014, we completed one large, 15-year lease renewal and expansion with a significant capital commitment: Jones Lang LaSalle at Aon Center in Chicago, IL. If the costs associated with this lease 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 and total leases completed during the three months ended September 30, 2014 would be $3.39 and $5.84, respectively, and the same measure for renewal leases and total leases completed during the nine months ended September 30, 2014 would be $2.39 and $4.52, respectively.
(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. During 2012, we completed one large, long-term lease renewal with an above-average capital commitment with US Bancorp at US Bancorp Center in Minneapolis, MN. If the costs associated with this renewal 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 2012 would be $2.73.
(4)
Since 2010, Piedmont has selectively employed a value-add strategy for new property acquisitions. Piedmont defines value-add properties as those acquired with low occupancies at attractive bases with earnings growth and value appreciation potential achievable through leasing up such assets to stabilized occupancies. Because the value-add properties have large vacancies, many of which have not previously been leased (first generation spaces), the leasing of those vacancies negatively affects Piedmont’s contractual tenant improvements on a per foot and a per foot per year basis for new leases.

33



Piedmont Office Realty Trust, Inc.
Geographic Diversification
As of September 30, 2014
($ and square footage in thousands)


Location
Number of
Properties
 Annualized
Lease Revenue
 Percentage of
Annualized Lease
Revenue (%)
 Rentable
Square Footage
Percentage of
Rentable Square
Footage (%)
 Leased Square Footage
Percent Leased (%)
Chicago
6
$129,507
22.3
4,834
22.5
3,880
80.3
Washington, D.C.
12
93,096
16.0
3,035
14.1
1,986
65.4
New York
6
84,217
14.5
2,434
11.4
2,359
96.9
Dallas
10
44,369
7.6
1,906
8.9
1,859
97.5
Minneapolis
4
44,173
7.6
1,617
7.5
1,437
88.9
Boston
8
40,664
7.0
1,476
6.9
1,476
100.0
Atlanta
7
30,525
5.3
1,446
6.7
1,247
86.2
Los Angeles
4
29,925
5.2
1,010
4.7
988
97.8
Detroit
3
17,587
3.0
817
3.8
738
90.3
Philadelphia
1
17,266
3.0
801
3.7
801
100.0
Houston
1
10,583
1.8
313
1.5
313
100.0
Central & South Florida
4
10,815
1.9
473
2.2
451
95.3
Nashville
2
10,384
1.8
513
2.4
513
100.0
Phoenix
3
8,238
1.4
432
2.0
395
91.4
Austin
1
6,499
1.1
195
0.9
195
100.0
Other
2
2,748
0.5
170
0.8
141
82.9








Total / Weighted Average
74
$580,596
100.0
21,472
100.0
18,779
87.5

34



Piedmont Office Realty Trust, Inc.
Geographic Diversification by Location Type
As of September 30, 2014
(square footage in thousands)


 
 
 
CBD / URBAN INFILL
 
SUBURBAN
 
TOTAL
Location
State
 
Number of
Properties
 Percentage
of
Annualized
Lease
Revenue
(%)
 Rentable
Square
Footage
Percentage
of Rentable
Square
Footage
(%)
 
Number of
Properties
 Percentage
of
Annualized
Lease
Revenue
(%)
 Rentable
Square
Footage
Percentage
of Rentable
Square
Footage
(%)
 
Number of
Properties
 Percentage
of
Annualized
Lease
Revenue
(%)
 Rentable
Square
Footage
Percentage
of Rentable
Square
Footage
(%)
Chicago
IL
 
2
17.7
3,707
17.3
 
4
4.6
1,127
5.2
 
6
22.3
4,834
22.5
Washington, D.C.
DC, VA, MD
 
9
15.5
2,696
12.5
 
3
0.5
339
1.6
 
12
16.0
3,035
14.1
New York
NY, NJ
 
1
7.6
1,028
4.8
 
5
6.9
1,406
6.6
 
6
14.5
2,434
11.4
Dallas
TX
 
1
1.1
262
1.2
 
9
6.5
1,644
7.7
 
10
7.6
1,906
8.9
Minneapolis
MN
 
1
4.5
932
4.3
 
3
3.1
685
3.2
 
4
7.6
1,617
7.5
Boston
MA
 
2
2.2
173
0.8
 
6
4.8
1,303
6.1
 
8
7.0
1,476
6.9
Atlanta
GA
 
3
4.1
960
4.5
 
4
1.2
486
2.2
 
7
5.3
1,446
6.7
Los Angeles
CA
 
3
4.5
876
4.1
 
1
0.7
134
0.6
 
4
5.2
1,010
4.7
Detroit
MI
 
1
1.9
487
2.3
 
2
1.1
330
1.5
 
3
3.0
817
3.8
Philadelphia
PA
 
1
3.0
801
3.7
 
 
1
3.0
801
3.7
Houston
TX
 
 
1
1.8
313
1.5
 
1
1.8
313
1.5
Central & South Florida
FL
 
 
4
1.9
473
2.2
 
4
1.9
473
2.2
Nashville
TN
 
1
1.3
312
1.5
 
1
0.5
201
0.9
 
2
1.8
513
2.4
Phoenix
AZ
 
 
3
1.4
432
2.0
 
3
1.4
432
2.0
Austin
TX
 
 
1
1.1
195
0.9
 
1
1.1
195
0.9
Other

 
 
2
0.5
170
0.8
 
2
0.5
170
0.8


 




 




 




Total / Weighted Average
 
25
63.4
12,234
57.0
 
49
36.6
9,238
43.0
 
74
100.0
21,472
100.0


35



Piedmont Office Realty Trust, Inc.
Industry Diversification
As of September 30, 2014
($ and square footage in thousands)

 
 
 
 
Percentage of
 
 
 
Number of
Percentage of Total
Annualized Lease
Annualized Lease
Leased Square
Percentage of Leased
Industry
Tenants
Tenants (%)
Revenue
Revenue (%)
Footage
Square Footage (%)
Governmental Entity
5
1.0
$78,527
13.5
1,690
9.0
Business Services
88
16.8
62,271
10.7
2,359
12.6
Depository Institutions
17
3.3
45,967
7.9
1,619
8.6
Engineering, Accounting, Research, Management & Related Services
40
7.6
44,885
7.7
1,225
6.5
Nondepository Credit Institutions
16
3.1
37,377
6.5
1,279
6.8
Insurance Agents, Brokers & Services
17
3.2
36,624
6.3
1,283
6.8
Insurance Carriers
23
4.4
31,487
5.4
1,283
6.8
Communications
36
6.9
22,837
3.9
732
3.9
Security & Commodity Brokers, Dealers, Exchanges & Services
29
5.5
22,308
3.9
778
4.2
Real Estate
19
3.6
14,966
2.6
475
2.5
Educational Services
8
1.5
14,583
2.5
395
2.1
Automotive Repair, Services & Parking
5
1.0
14,072
2.4
49
0.3
Food & Kindred Products
3
0.6
12,124
2.1
408
2.2
Electronic & Other Electrical Equipment & Components, Except Computer
10
1.9
11,978
2.1
428
2.3
Fabricated Metal Products, Except Machinery & Transportation Equipment
5
1.0
11,667
2.0
319
1.7
Other
202
38.6
118,923
20.5
4,457
23.7
Total
523
100.0
$580,596
100.0
18,779
100.0

36



Piedmont Office Realty Trust, Inc.
Property Investment Activity
As of September 30, 2014
($ and square footage in thousands)


Acquisitions Over Previous Eighteen Months
Property
 
Location
Acquisition Date
Percent
Ownership (%)
Year Built
Purchase Price
 Rentable Square
Footage
 Percent Leased at
Acquisition (%)
Royal Lane Land
 
Irving, TX
8/1/2013
100
N/A
$2,600
N/A
N/A
5301 Maryland Way
(1) 
Brentwood, TN
8/12/2013
100
1989
18,500
201
100
4685 Investment Drive
(1) 
Troy, MI
8/12/2013
100
2000
10,000
77
100
2020 West 89th Street
(1) 
Leawood, KS
8/12/2013
100
1992
4,250
68
85
6565 North MacArthur Boulevard
 
Irving, TX
12/5/2013
100
1998
46,600
260
93
One Lincoln Park
 
Dallas, TX
12/20/2013
100
1999
56,654
262
79
161 Corporate Center
 
Irving, TX
12/30/2013
100
1998
16,000
105
91
5 Wall Street
 
Burlington, MA
6/27/2014
100
2008
62,498
182
100
1155 Perimeter Center West
 
Atlanta, GA
8/28/2014
100
2000
80,750
377
100

 







 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$297,852
1,532
94

Dispositions Over Previous Eighteen Months
Property
 
Location
Disposition Date
Percent
Ownership (%)
Year Built
Sale Price
 Rentable Square
Footage
 Percent Leased at
Disposition (%)
1200 Enclave Parkway
 
Houston, TX
5/1/2013
100
1999
$48,750
150
100
350 Spectrum Loop
Colorado Springs, CO
11/1/2013
100
2001
30,050
156
100
8700 South Price Road
 
Tempe, AZ
12/30/2013
100
2000
21,500
132
100
11107 Sunset Hills Road
 
Reston, VA
3/19/2014
100
1985
20,000
101
100
11109 Sunset Hills Road
Reston, VA
3/19/2014
100
1984
2,600
41
1441 West Long Lake Road
Troy, MI
4/30/2014
100
1999
7,850
108
88
4685 Investment Drive
Troy, MI
4/30/2014
100
2000
11,500
77
100
2020 West 89th Street
Leawood, KS
5/19/2014
100
1992
5,800
68
90
Two Park Center
(2) 
Hoffman Estates, IL
5/29/2014
72
1999
8,825
194

 







 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$156,875
1,027
79
 
 
 
 
 
 
 
 
 
(1)
Piedmont purchased its joint venture partner's equity interest in the asset. The gross value of the asset agreed upon by the partners for the buyout is presented on this schedule as the purchase price. The additional capital invested across the three assets included in the buyout transaction amounted to $14.7 million.
(2)
The sale price and rentable square footage presented are gross figures and have not been adjusted for Piedmont's ownership percentage. Total Percent Leased at Disposition for dispositions completed during the previous eighteen months includes this property at Piedmont's pro rata share of ownership.

37



Piedmont Office Realty Trust, Inc.
Value-Add Activity
As of September 30, 2014
($ and square footage in thousands)

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
 
Location
Acquisition
Date
Percent
Ownership
(%)
Year Built
Purchase
Price
 Rentable
Square
Footage
 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
$7,953
$40 - 60
500 West Monroe Street
(1)
Chicago, IL
3/31/2011
100
1991
227,500
966
66
49
239,035
$60 - 90
5301 Maryland Way
(2)
Brentwood, TN
8/12/2013
100
1989
18,500
201
100
100
15,457
$50 - 75

 










 
 
 
 
 
 
$253,875
1,309
64
51
$262,445



Properties Removed From Value-Add Classification This Year
Property
 
Location
Acquisition Date
Percent Ownership (%)
Year Built
Purchase Price
 Rentable Square Footage
 Current Percent Leased (%)
 Percent Leased at Acquisition (%)
 Real Estate Gross Book Value
 Estimated Cost to Stabilize (per VACANT square foot)
The Medici
(3)
Atlanta, GA
6/7/2011
100
2008
$13,210
156
83
12
$16,481
$35 - 60
400 TownPark
 
Lake Mary, FL
11/10/2011
100
2008
$23,865
176
93
19
$23,820
$35 - 50
 
 
 
 
 
 
 
 
 
 
 
 


Sold Properties That Were Acquired Under Value-Add Strategy
Property
Location
Disposition Date
Acquisition Date
Percent Ownership (%)
Year Built
 Rentable Square Footage
Sale Price
Purchase Price
Percent Leased at Disposition (%)
 Percent Leased at Acquisition (%)
1200 Enclave Parkway
Houston, TX
5/1/2013
3/30/2011
100
1999
150
$48,750
$18,500
100
18
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


(1)
The 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. The percent leased at acquisition reflects the space leased by Marsh USA as vacant, as the tenant had already announced plans to vacate prior to Piedmont's assumption of ownership of the asset.
(2)
While the property was 100% leased at acquisition, it is anticipated that the single-tenant building will become vacant at the end of the current lease term and the building will have to be re-leased on a multi-tenant basis. For this reason, the building was acquired as a value-add property. Piedmont purchased its joint venture partner's equity interest in the asset. The gross value of the asset agreed upon by the partners for the buyout is presented on this schedule as the purchase price.
(3)
The percent leased at acquisition reflects the space leased by BV Card Assets as vacant, as the tenant had already announced plans to vacate prior to Piedmont's acquisition of the property.

38



Piedmont Office Realty Trust, Inc.
Other Investments
As of September 30, 2014
($ and square footage in thousands)


Unconsolidated Joint Venture Properties
Property
Location
Percent
Ownership (%)
Year Built
Piedmont Share
of Real Estate
Net Book Value
 Real Estate
Net Book Value
 Rentable
Square Footage
 Percent
Leased (%)
8560 Upland Drive
Parker, CO
72
2001
$7,226
$10,052
148.6
100








 
 
 
 
$7,226
$10,052
148.6
100


Land Parcels
Property
Location
Adjacent Piedmont Property
Acres
Approximate Current Value
Gavitello
 Atlanta, GA
The Medici
2.0
$2,500
Glenridge Highlands III
 Atlanta, GA
Glenridge Highlands Two
3.0
1,725
State Highway 161
 Irving, TX
Las Colinas Corporate Center II
4.5
1,200
Royal Lane
Irving, TX
6011, 6021 and 6031 Connection Drive
10.6
2,600


 




 
20.1
$8,025


Development and Redevelopment
Property
Location
Adjacent Piedmont Property
Construction Type
Targeted Completion Date
Anticipated Stabilization Date
Percent Leased (%)
Square Feet
Current Basis
(Accrual)
Capital Expended
(Cash)
Estimated Additional Capital Required
(Cash)
Enclave Place
 Houston, TX
1430 Enclave Parkway
Development
Q3 2015
Q4 2016
N/A
300.9
$22,471
$16,890
$68 to $73 million
3100 Clarendon Boulevard (1)
Arlington, VA
Not Applicable
Redevelopment
Q2 2015 (2)
Q4 2016
10
252.0
60,471
5,338
$49 to $51 million
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
552.9
$82,942
$22,228
$117 to $124 million







(1)
The Current Basis presented is that of the office portion of the property only. The retail portion of the property remains in service and retail tenants will remain in occupancy during the redevelopment.
(2)
The redevelopment of the office tower is anticipated to be completed during the first several months of 2015; the retail portion of the redevelopment is anticipated to be completed during the first half of 2015.


39



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 beginning on page 42.
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 has 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 non-recurring 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.
 
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, impairment losses, and gains or losses on consolidation, 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.
 
Gross Assets: Gross assets is defined as total assets with the add back of accumulated depreciation and accumulated amortization related to real estate assets.
 
Gross Real Estate Assets: Gross real estate assets is defined as total real estate assets with the add back of accumulated depreciation and accumulated amortization related to real estate assets.
 
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.
 
NOI from Unconsolidated Joint Ventures: NOI from Unconsolidated Joint Ventures is defined as Property NOI attributable to our interests in 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.
 
Property Net Operating Income ("Property NOI"): Property NOI is defined as real estate operating income with the add-back of corporate general and administrative expense, depreciation and amortization, and impairment losses and the deduction of net operating income associated with property management performed by Piedmont for other organizations. We may present this measure on an accrual basis or a cash basis. When presented on a cash basis, the effects of straight lined rents and fair value lease revenue are eliminated. The Company uses this measure to assess its operating results and believes it is important in assessing operating performance. Property 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 Property 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 unconsolidated joint venture assets. We may present this measure on an accrual basis or a cash basis. When presented on a cash basis, the effects of straight lined rents and fair value lease revenue are eliminated. We believe Same Store NOI is an important measure of comparison of our properties' operating performance from one period to another. 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 unconsolidated joint venture assets. We believe Same Store Properties is an important measure of comparison of our stabilized portfolio performance.

40



Piedmont Office Realty Trust, Inc.
Research Coverage

Equity Research Coverage
Paul E. Adornato, CFA
Jed Reagan
Anthony Paolone, CFA
Vance H. Edelson
BMO Capital Markets
Green Street Advisors
JP Morgan
Morgan Stanley
3 Times Square, 26th Floor
660 Newport Center Drive, Suite 800
383 Madison Avenue
1585 Broadway, 38th Floor
New York, NY 10036
Newport Beach, CA 92660
34th Floor
New York, NY 10036
Phone: (212) 885-4170
Phone: (949) 640-8780
New York, NY 10179
Phone: (212) 761-0078
 
 
Phone: (212) 622-6682
 
 
 
 
 
 
 
 
 
Steve Manaker, CFA
Michael J. Salinsky
David Rodgers, CFA
John W. Guinee, III
Oppenheimer & Co.
RBC Capital Markets
Robert W. Baird & Co.
Erin Aslakson
85 Broad Street
Arbor Court
200 Public Square
Stifel, Nicolaus & Company
New York, NY 10004
30575 Bainbridge Road, Suite 250
Suite 1650
One South Street
Phone: (212) 667-5950
Solon, OH 44139
Cleveland, OH 44139
16th Floor
 
Phone: (440) 715-2648
Phone: (216) 737-7341
Baltimore, MD 21202
 
 
 
Phone: (443) 224-1307
 
 
 
 
 
 
 
 
Michael Lewis, CFA
Brendan Maiorana
 
 
SunTrust Robinson Humphrey
Wells Fargo
 
 
711 Fifth Avenue, 14th Floor
7 St. Paul Street
 
 
New York, NY 10022
MAC R1230-011
 
 
Phone: (212) 319-5659
Baltimore, MD 21202
 
 
 
Phone: (443) 263-6516
 
 
 
 
 
 

Fixed Income Research Coverage
Mark S. Streeter, CFA
 
 
JP Morgan
 
 
383 Madison Avenue
 
 
3rd Floor
 
 
New York, NY 10179
 
 
Phone: (212) 834-5086
 
 
 
 
 
 
 
 
 
 
 


41



Piedmont Office Realty Trust, Inc.
Funds From Operations, Core Funds From Operations, and Adjusted Funds From Operations Reconciliations
Unaudited (in thousands)

 
 Three Months Ended
 
Nine Months Ended
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
 
9/30/2014
 
9/30/2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Piedmont
$
9,162

 
$
12,279

 
$
9,393

 
$
29,623

 
$
19,096

 
$
30,834

 
$
69,105

Depreciation
35,286

 
34,119

 
33,727

 
32,233

 
31,050

 
103,132

 
91,905

Amortization
14,248

 
13,608

 
14,804

 
11,511

 
13,939

 
42,660

 
34,509

Impairment loss

 

 

 
5,644

 

 

 
6,402

Loss / (gain) on sale of properties

 
(2,275
)
 
106

 
(15,034
)
 

 
(2,169
)
 
(16,258
)
Loss / (gain) on consolidation

 

 

 

 
898

 

 
898

Funds from operations
58,696

 
57,731

 
58,030

 
63,977

 
64,983


174,457

 
186,561

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition costs
110

 
363

 
66

 
389

 
60

 
539

 
1,374

Net (recoveries) / loss from casualty events and litigation settlements
8

 
(1,480
)
 
(3,042
)
 
(4,500
)
 
(3,919
)
 
(4,514
)
 
(7,328
)
Core funds from operations
58,814

 
56,614

 
55,054

 
59,866

 
61,124

 
170,482

 
180,607

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred financing cost amortization
598

 
615

 
863

 
676

 
674

 
2,076

 
1,911

Amortization of note payable step-up
(120
)
 
(6
)
 

 

 

 
(126
)
 

Amortization of discount on senior notes
47

 
47

 
34

 
30

 
30

 
128

 
47

Depreciation of non real estate assets
141

 
115

 
114

 
106

 
97

 
370

 
300

Straight-line effects of lease revenue
(6,780
)
 
(7,758
)
 
(9,412
)
 
(3,442
)
 
(5,076
)
 
(23,950
)
 
(14,655
)
Stock-based and other non-cash compensation expense
1,139

 
1,271

 
636

 
101

 
719

 
3,046

 
1,489

Amortization of lease-related intangibles
(1,010
)
 
(1,279
)
 
(1,364
)
 
(1,211
)
 
(1,757
)
 
(3,653
)
 
(4,067
)
Acquisition costs
(110
)
 
(363
)
 
(66
)
 
(389
)
 
(60
)
 
(539
)
 
(1,374
)
Non-incremental capital expenditures
(30,890
)
 
(26,151
)
 
(13,821
)
 
(42,985
)
 
(21,705
)
 
(70,862
)
 
(59,992
)
Adjusted funds from operations
$
21,829

 
$
23,105

 
$
32,038

 
$
12,752

 
$
34,046


$
76,972

 
$
104,266


42



Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)


 
Three Months Ended
 
Nine Months Ended
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
 
9/30/2014
 
9/30/2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Piedmont
$
9,162

 
$
12,279

 
$
9,393

 
$
29,623

 
$
19,096

 
$
30,834

 
$
69,105

Net income attributable to noncontrolling interest
4

 
4

 
4

 
3

 
4

 
12

 
12

Interest expense
18,654

 
18,012

 
18,926

 
19,651

 
19,331

 
55,592

 
53,932

Depreciation
35,427

 
34,234

 
33,841

 
32,340

 
31,147

 
103,502

 
92,204

Amortization
14,248

 
13,608

 
14,804

 
11,511

 
13,939

 
42,660

 
34,509

Acquisition costs
110

 
363

 
66

 
389

 
60

 
539

 
1,374

Impairment loss

 

 

 
5,644

 

 

 
6,402

Net (recoveries) / loss from casualty events and litigation settlements
8

 
(1,480
)
 
(3,042
)
 
(4,500
)
 
(3,919
)
 
(4,514
)
 
(7,328
)
Loss / (gain) on sale of properties

 
(2,275
)
 
106

 
(15,034
)
 

 
(2,169
)
 
(16,258
)
Loss / (gain) on consolidation

 

 

 

 
898

 

 
898

Core EBITDA
77,613

 
74,745

 
74,098

 
79,627

 
80,556

 
226,456

 
234,850

General & administrative expenses
5,808

 
7,159

 
4,582

 
5,076

 
5,921

 
17,550

 
16,940

Management fee revenue
(299
)
 
(281
)
 
(259
)
 
17

 
(636
)
 
(839
)
 
(1,248
)
Other (income) / expense
21

 
3

 
30

 
3

 
550

 
54

 
560

Straight-line effects of lease revenue
(6,780
)
 
(7,758
)
 
(9,412
)
 
(3,442
)
 
(5,076
)
 
(23,950
)
 
(14,655
)
Amortization of lease-related intangibles
(1,010
)
 
(1,279
)
 
(1,364
)
 
(1,211
)
 
(1,757
)
 
(3,653
)
 
(4,067
)
Property net operating income (cash basis)
75,353

 
72,589

 
67,675

 
80,070

 
79,558

 
215,618

 
232,380

Deduct net operating (income) / loss from:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions
(6,887
)
 
(5,808
)
 
(5,377
)
 
(4,038
)
 
(6,056
)
 
(18,072
)
 
(10,621
)
Dispositions
(6
)
 
(590
)
 
(927
)
 
(1,214
)
 
(1,184
)
 
(1,523
)
 
(3,874
)
Other investments
(213
)
 
90

 
383

 
(2,251
)
 
(2,328
)
 
258

 
(7,539
)
Same store net operating income (cash basis)
$
68,247

 
$
66,281

 
$
61,754

 
$
72,567

 
$
69,990

 
$
196,281

 
$
210,346


43



Piedmont Office Realty Trust, Inc.
Unconsolidated Joint Venture Net Operating Income Reconciliations
Pro rata and unaudited (in thousands)


 
Three Months Ended
 
Nine Months Ended
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
 
9/30/2014
 
9/30/2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of unconsolidated joint ventures
$
89

 
$
(333
)
 
$
(266
)
 
$
(4,280
)
 
$
46

 
$
(510
)
 
$
604

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation
61

 
90

 
114

 
150

 
220

 
264

 
829

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization
13

 
8

 
8

 
34

 
40

 
30

 
125

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment loss

 

 

 
4,402

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss / (gain) on sale of properties

 
169

 

 

 

 
169

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core EBITDA
163

 
(66
)
 
(144
)
 
306

 
306

 
(47
)
 
1,558

 
 
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
2

 
12

 
24

 
(128
)
 
79

 
38

 
260

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other (income) / expense

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property net operating income (accrual basis)
165

 
(54
)
 
(120
)
 
178

 
385

 
(9
)
 
1,818

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Straight-line effects of lease revenue
(7
)
 
(6
)
 
(6
)
 
(3
)
 
(9
)
 
(20
)
 
(101
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of lease-related intangibles

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property net operating income (cash basis)
$
158

 
$
(60
)
 
$
(126
)
 
$
175

 
$
376

 
$
(29
)
 
$
1,717


44



Piedmont Office Realty Trust, Inc.
Discontinued Operations
Unaudited (in thousands)


 
Three Months Ended
 
Nine Months Ended
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
9/30/2013
 
9/30/2014
 
9/30/2013
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
$

 
$
191

 
$
1,174

 
$
1,888

 
$
2,155

 
$
1,365

 
$
7,372

Tenant reimbursements
12

 
2

 
112

 
146

 
181

 
126

 
923

Property management fee revenue

 
1

 

 

 

 
1

 

Other rental income

 

 

 

 

 

 

 
12

 
194

 
1,286

 
2,034

 
2,336

 
1,492

 
8,295

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
3

 
(323
)
 
505

 
748

 
945

 
185

 
3,352

Depreciation

 

 
83

 
498

 
632

 
83

 
2,087

Amortization

 

 
223

 
281

 
215

 
223

 
489

General and administrative
(7
)
 
3

 
3

 
1

 
(8
)
 
(1
)
 
3

 
(4
)
 
(320
)
 
814

 
1,528

 
1,784

 
490

 
5,931

Other income / (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense

 

 

 

 

 

 

Other income / (expense)

 

 
(6
)
 

 
(15
)
 
(6
)
 
10

Net recoveries / (loss) from casualty events and litigation settlements

 

 

 

 

 

 
17

Net income attributable to noncontrolling interest

 

 

 

 

 

 

 

 

 
(6
)
 

 
(15
)
 
(6
)
 
27

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss and gain / (loss) on sale
16

 
514

 
466

 
506

 
537

 
996

 
2,391

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment loss

 

 

 
(1,242
)
 

 

 
(6,402
)
Gain / (loss) on sale of properties

 
1,304

 
(106
)
 
15,034

 

 
1,198

 
16,258

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations
$
16

 
$
1,818

 
$
360

 
$
14,298

 
$
537

 
$
2,194

 
$
12,247




45



Piedmont Office Realty Trust, Inc.
Property Detail
As of September 30, 2014
(in thousands)

Property
City
State
Percent
Ownership
Year Built
Rentable
Square
Footage
Owned
Leased
Percentage
Commenced
Leased
Percentage
Economic
Leased
Percentage (1)
 
 
 
 
 
 
 
 
 
Atlanta


 








11695 Johns Creek Parkway
 Johns Creek
 GA
100.0%
2001
101
87.1
%
87.1
%
87.1
%
3750 Brookside Parkway
 Alpharetta
 GA
100.0%
2001
105
91.4
%
85.7
%
85.7
%
Glenridge Highlands Two
 Atlanta
 GA
100.0%
2000
427
97.9
%
86.2
%
84.8
%
Suwanee Gateway One
 Suwanee
 GA
100.0%
2008
142
%
%
%
The Dupree
 Atlanta
 GA
100.0%
1997
138
100.0
%
100.0
%
89.1
%
The Medici
 Atlanta
 GA
100.0%
2008
156
83.3
%
38.5
%
32.1
%
1155 Perimeter Center West
 Atlanta
 GA
100.0%
2000
377
100.0
%
100.0
%
96.3
%
Metropolitan Area Subtotal / Weighted Average




1,446
86.2
%
77.5
%
74.4
%
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
%
100.0
%
90 Central Street
 Boxborough
 MA
100.0%
2001
175
100.0
%
94.9
%
94.9
%
1414 Massachusetts Avenue
 Cambridge
 MA
100.0%
1873
78
100.0
%
100.0
%
100.0
%
One Brattle Square
 Cambridge
 MA
100.0%
1991
95
100.0
%
100.0
%
100.0
%
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
%
5 & 15 Wayside Road
 Burlington
 MA
100.0%
1999 / 2001
271
100.0
%
100.0
%
100.0
%
5 Wall Street
 Burlington
 MA
100.0%
2008
182
100.0
%
100.0
%
100.0
%
Metropolitan Area Subtotal / Weighted Average




1,476
100.0
%
99.4
%
99.4
%
Chicago








Windy Point I
 Schaumburg
 IL
100.0%
1999
187
100.0
%
100.0
%
100.0
%
Windy Point II
 Schaumburg
 IL
100.0%
2001
301
100.0
%
83.1
%
%
Aon Center
 Chicago
 IL
100.0%
1972
2,741
80.4
%
79.2
%
68.5
%
Two Pierce Place
 Itasca
 IL
100.0%
1991
486
88.5
%
88.5
%
88.5
%
2300 Cabot Drive
 Lisle
 IL
100.0%
1998
153
77.1
%
73.9
%
57.5
%
500 West Monroe Street
 Chicago
 IL
100.0%
1991
966
66.3
%
61.5
%
54.3
%
Metropolitan Area Subtotal / Weighted Average




4,834
80.3
%
77.5
%
64.3
%
Cleveland








Eastpoint I
 Mayfield Heights
 OH
100.0%
2000
85
70.6
%
70.6
%
1.2
%
Eastpoint II
 Mayfield Heights
 OH
100.0%
2000
85
95.3
%
95.3
%
95.3
%
Metropolitan Area Subtotal / Weighted Average




170
82.9
%
82.9
%
48.2
%

46



Property
City
State
Percent
Ownership
Year Built
Rentable
Square
Footage
Owned
Leased
Percentage
Commenced
Leased
Percentage
Economic
Leased
Percentage (1)
 
 
 
 
 
 
 
 
 
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
232
100.0
%
100.0
%
100.0
%
6021 Connection Drive
 Irving
 TX
100.0%
2000
222
100.0
%
100.0
%
6.8
%
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
99.4
%
99.4
%
99.4
%
Las Colinas Corporate Center II
 Irving
 TX
100.0%
1998
228
99.1
%
97.8
%
89.9
%
6565 North MacArthur Boulevard
 Irving
 TX
100.0%
1998
260
92.7
%
92.7
%
92.7
%
One Lincoln Park
 Dallas
 TX
100.0%
1999
262
90.8
%
85.1
%
77.1
%
161 Corporate Center
 Irving
 TX
100.0%
1998
105
99.0
%
99.0
%
82.9
%
Metropolitan Area Subtotal / Weighted Average




1,906
97.5
%
96.6
%
82.8
%
Detroit








150 West Jefferson
 Detroit
 MI
100.0%
1989
487
83.8
%
73.7
%
70.6
%
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




817
90.3
%
84.3
%
82.5
%
Central & South Florida








Sarasota Commerce Center II
Sarasota
FL
100.0%
1999
149
93.3
%
93.3
%
93.3
%
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
%
100.0
%
400 TownPark
Lake Mary
FL
100.0%
2008
176
93.2
%
50.6
%
50.6
%
Metropolitan Area Subtotal / Weighted Average




473
95.3
%
79.5
%
79.5
%
Houston








1430 Enclave Parkway
Houston
TX
100.0%
1994
313
100.0
%
100.0
%
100.0
%
Metropolitan Area Subtotal / Weighted Average




313
100.0
%
100.0
%
100.0
%
Los Angeles








800 North Brand Boulevard
Glendale
CA
100.0%
1990
527
99.2
%
95.4
%
80.6
%
1055 East Colorado Boulevard
Pasadena
CA
100.0%
2001
176
97.2
%
97.2
%
43.8
%
Fairway Center II
Brea
CA
100.0%
2002
134
100.0
%
100.0
%
100.0
%
1901 Main Street
Irvine
CA
100.0%
2001
173
92.5
%
92.5
%
92.5
%
Metropolitan Area Subtotal / Weighted Average




1,010
97.8
%
95.8
%
78.8
%
Minneapolis








Crescent Ridge II
Minnetonka
MN
100.0%
2000
301
87.0
%
76.4
%
76.4
%
US Bancorp Center
Minneapolis
MN
100.0%
2000
932
85.7
%
85.2
%
76.4
%
One Meridian Crossings
Richfield
MN
100.0%
1997
195
100.0
%
100.0
%
100.0
%
Two Meridian Crossings
Richfield
MN
100.0%
1998
189
95.8
%
93.7
%
93.7
%
Metropolitan Area Subtotal / Weighted Average




1,617
88.9
%
86.3
%
81.3
%

47



Property
City
State
Percent
Ownership
Year Built
Rentable
Square
Footage
Owned
Leased
Percentage
Commenced
Leased
Percentage
Economic
Leased
Percentage (1)
 
 
 
 
 
 
 
 
 
Nashville








2120 West End Avenue
Nashville
TN
100.0%
2000
312
100.0
%
100.0
%
100.0
%
5301 Maryland Way
Brentwood
TN
100.0%
1989
201
100.0
%
100.0
%
100.0
%
Metropolitan Area Subtotal / Weighted Average




513
100.0
%
100.0
%
100.0
%
New York








2 Gatehall Drive
Parsippany
NJ
100.0%
1985
405
100.0
%
100.0
%
100.0
%
200 Bridgewater Crossing
Bridgewater
NJ
100.0%
2002
309
93.9
%
93.9
%
93.9
%
Copper Ridge Center
Lyndhurst
NJ
100.0%
1989
268
86.6
%
86.6
%
86.6
%
60 Broad Street
New York
NY
100.0%
1962
1,028
98.1
%
95.6
%
95.3
%
600 Corporate Drive
Lebanon
NJ
100.0%
2005
125
100.0
%
100.0
%
100.0
%
400 Bridgewater Crossing
Bridgewater
NJ
100.0%
2002
299
100.0
%
100.0
%
100.0
%
Metropolitan Area Subtotal / Weighted Average




2,434
96.9
%
95.9
%
95.8
%
Philadelphia








1901 Market Street
Philadelphia
PA
100.0%
1987
801
100.0
%
100.0
%
100.0
%
Metropolitan Area Subtotal / Weighted Average




801
100.0
%
100.0
%
100.0
%
Phoenix








River Corporate Center
Tempe
AZ
100.0%
1998
133
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
75.3
%
75.3
%
52.7
%
Metropolitan Area Subtotal / Weighted Average




432
91.4
%
91.4
%
83.6
%
Washington, D.C.








1201 Eye Street
Washington
DC
49.5% (2)
2001
269
82.2
%
82.2
%
82.2
%
1225 Eye Street
Washington
DC
49.5% (2)
1986
225
73.3
%
64.9
%
64.9
%
400 Virginia Avenue
Washington
DC
100.0%
1985
224
87.1
%
87.1
%
83.9
%
4250 North Fairfax Drive
Arlington
VA
100.0%
1998
305
36.7
%
30.8
%
30.8
%
9211 Corporate Boulevard
Rockville
MD
100.0%
1989
115
%
%
%
9221 Corporate Boulevard
Rockville
MD
100.0%
1989
115
100.0
%
100.0
%
100.0
%
One Independence Square
Washington
DC
100.0%
1991
334
0.3
%
0.3
%
0.3
%
9200 Corporate Boulevard
Rockville
MD
100.0%
1982
109
%
%
%
Two Independence Square
Washington
DC
100.0%
1991
606
100.0
%
100.0
%
100.0
%
Piedmont Pointe I
Bethesda
MD
100.0%
2007
186
68.8
%
68.8
%
68.8
%
Piedmont Pointe II
Bethesda
MD
100.0%
2008
223
58.7
%
54.7
%
54.7
%
Arlington Gateway (3)
Arlington
VA
100.0%
2005
324
96.3
%
90.1
%
88.0
%
Metropolitan Area Subtotal / Weighted Average




3,035
65.4
%
63.3
%
62.8
%









Grand Total




21,472
87.5
%
84.8
%
78.7
%









(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 proportional adjustments for tenants receiving only partial rental 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.
(3)
The property consists of approximately 334,000 square feet; however, due to the square footages referenced in several leases, the rentable square footage is currently 324,000 square feet. As the existing leases expire, the affected spaces will be re-leased to the correct square footages.

48



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: market and economic conditions remain challenging in some markets we operate in and the demand for office space, rental rates and property values may continue to lag the general economic recovery causing our business, results of operations, cash flows, financial condition and access to capital to be adversely affected or otherwise impact performance, including the potential recognition of impairment charges; the success of our real estate strategies and investment objectives, including our ability to identify and consummate suitable acquisitions; acquisitions of properties may have unknown risks and other liabilities at the time of acquisition; 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 on terms similar to existing leases; 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, including accounting standards, that impact the real estate market generally; additional risks and costs associated with directly managing properties occupied by government tenants; adverse market and economic conditions may continue to adversely affect us and could cause us to recognize impairment charges or otherwise impact our performance; availability of financing and our lending banks' ability to honor existing line of credit commitments; we have significant indebtedness and may not be able to meet our debt service obligations; costs of complying with governmental laws and regulations; uncertainties associated with environmental and other regulatory matters; potential changes in political environment and reduction in federal and/or state funding of our governmental tenants; we may be subject to litigation, which could have a material adverse effect on our financial condition; changes in tax laws impacting real estate investment trusts and real estate in general, as well as our ability to continue to qualify as a real estate investment trust 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.



49