PDM 6.30.15 8K Q2 2015 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):  July 29, 2015
 
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 July 29, 2015, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the second quarter 2015, and published supplemental information for the second quarter 2015 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 July 29, 2015.
 
 
 
99.2
 
Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Second Quarter 2015.









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: July 29, 2015
 
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 July 29, 2015.
 
 
 
99.2
 
Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Second Quarter 2015.




PDM 6.30.15 EX 99.1 Q2 2015 EARNINGS RELEASE


EXHIBIT 99.1

Piedmont Office Realty Trust Reports Second Quarter 2015 Results
ATLANTA, July 29, 2015 --Piedmont Office Realty Trust, Inc. ("Piedmont" or the "Company") (NYSE:PDM), an owner of primarily Class A office properties located in select sub-markets of major U.S. cities, today announced its results for the quarter ended June 30, 2015.

Highlights for the Three Months Ended June 30, 2015:

Achieved Core Funds From Operations ("Core FFO") of $0.39 per diluted share and Adjusted Funds from Operations ("AFFO") of $0.30 per diluted share;
Achieved 11% growth in both cash-basis Property Net Operating Income ("NOI") and Same Store NOI over second quarter of the prior year;
Completed approximately 572,000 square feet of leasing, including approximately 325,000 square feet of new leasing;
Sold three assets totaling approximately $109 million and entered into binding contracts to sell two additional properties totaling approximately $33 million;
Recast its $500 million line of credit and secured a $160 million mortgage; and
Repurchased 2.6 million shares of its common stock at an average price of $17.45 per share.

Donald A. Miller, CFA, President and Chief Executive Officer said, "Second quarter was a very busy one for us as we continued to deliver solid financial results, executed over a half million square feet of leasing, recycled out of three non-strategic assets, positioned ourselves to recycle out of three more, and successfully refinanced over half a billion of maturing debt. Overall, we are pleased with our accomplishments this quarter and believe we are well-positioned from both a balance sheet and leasing and transaction pipeline perspective as we head into the second half of the year. ”

Results for the Quarter ended June 30, 2015

Piedmont's net income available to common stockholders for the second quarter of 2015 was $30.0 million, or $0.20 per diluted share, as compared with $12.3 million, or $0.08 per diluted share, for the second quarter of 2014. The current quarter's results reflect approximately $0.14 per diluted share in non-recurring items consisting of $0.17 per diluted share gain on sales of three assets during the quarter, offset by a $0.03 per diluted share impairment charge as a result of classifying two assets as held for sale as of June 30, 2015. The second quarter of the prior year included $0.03 per diluted share in non-recurring items consisting of $0.02 per diluted share in gains on sales of assets and $0.01 per diluted share in insurance recoveries. The current quarter's results also reflect increased revenue due to properties acquired since the second quarter of the prior year, offset by increased depreciation and amortization expense.






Revenues for the quarter ended June 30, 2015 were $146.7 million, as compared with $138.6 million for the same period a year ago, primarily attributable to properties acquired since the second quarter of the prior year.

Property operating costs increased to $61.5 million for the quarter ended June 30, 2015, as compared to the prior period of $57.1 million, primarily as a result of properties acquired since the second quarter of 2014 and increases in recoverable property tax expense at certain properties. General and administrative expenses were $8.1 million for the quarter ended June 30, 2015 as compared to $7.1 million for the quarter ended June 30, 2014 primarily due to increased performance-based compensation costs driven by improved operating results and stock performance.

Funds From Operations ("FFO") for the current quarter totaled $59.6 million, or $0.39 per diluted share, compared to $57.7 million, or $0.37 per diluted share, for the quarter ended June 30, 2014, reflecting increased contributions from properties acquired over the last twelve months, the commencement of several significant leases, and the expiration of various operating expense abatement periods since the second quarter of the prior year. Such increases were partially offset by decreased insurance recoveries in the current quarter as compared to the second quarter of the prior year.

Core FFO, which excludes acquisition costs, loss on extinguishment of an interest rate swap during the quarter, and the above-mentioned insurance recoveries, totaled $59.8 million, or $0.39 per diluted share, compared to $56.6 million, or $0.37 per diluted share, for the quarter ended June 30, 2014 with the increase being primarily attributable to increased contributions from properties acquired over the last twelve months, the commencement of several significant leases, and the expiration of various operating expense abatement periods since the second quarter of the prior year.

AFFO for the second quarter of 2015 totaled $45.7 million, or $0.30 per diluted share, compared to $23.1 million, or $0.15 per diluted share, in the second quarter of 2014 primarily due to the same factors mentioned above, as well as decreased non-incremental capital expenditures and effect of straight-line rent adjustments as a result of the completion of certain large tenant build outs and the expiration of rental abatement periods, respectively, since the second quarter of the prior year.

Leasing Update

The Company's total leasing volume for the three months ended June 30, 2015 was approximately 572,000 square feet, including approximately 325,000 square feet, or 57%, related to new leasing. Highlights for the quarter included a 108,000 square foot, 13-year anchor tenant lease for 500 TownPark in Lake Mary, FL, a new 135,000 square foot building to be developed adjacent to the Company's existing 400 TownPark property; an approximately 62,0000 square foot, 13-year new lease with Norris McLaghlin & Marcus, P.A. at 400 Bridgewater Crossing in Bridgewater, NJ; an approximately 19,000, 10-year new lease with the Economic Policy Institute at 1225 Eye Street in Washington, D.C. and an approximately 78,000, 12-year renewal with AT&T at Aon Center in downtown Chicago. Other notable renewals included an approximately 47,000 square foot, 10+ year renewal at Arlington Gateway in Arlington, VA, and a 10-year renewal totaling over 38,000 square feet at 1225 Eye Street in Washington, D.C.

The Company's overall portfolio was approximately 89% leased as of June 30, 2015, up 200 basis points from 87% a year ago, and the weighted average lease term remaining was approximately 7.1 years as of June 30, 2015. Cash basis Property NOI for the quarter was $80.4 million, up from $72.6 million in the second quarter of 2014, primarily reflecting continued improvement in the Company's economic occupancy as certain significant leases commenced and abatement periods continued to expire, as well as





the contribution from acquisitions over the last twelve months. As of June 30, 2015, the Company had approximately 1.1 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. Details outlining Piedmont's significant upcoming lease expirations, the status of current leasing activity, and a schedule of significant near-term abatement periods can be found in the Company's quarterly supplemental information package available at www.piedmontreit.com.

Acquisition and Disposition Activity

As previously announced, during the three months ended June 30, 2015, Piedmont disposed of the following properties:

5601 Headquarters Drive in Plano, TX, an approximately 166,000 square foot office building constructed in 2001 and 100% leased to Intuit, Inc for $33.7 million (or $203 per square foot);
River Corporate Center in Tempe, AZ , an approximately 133,000 square foot office building constructed in 1998 and 100% leased to US Foods, Inc. for $24.6 million ($185 per square foot); and,
Copper Ridge in Lyndhurst, NJ, an approximately 268,000 square foot, Class A, multi-tenant office building constructed in 1989, and 86.6% leased to various tenants, including anchor tenant, Ralph Lauren. Copper Ridge was purchased by a regional real estate operator for approximately $50.6 million ($189 per square foot).

The sales of the above assets resulted in a $26.6 million gain that is included in the Company's operational results for the three months ended June 30, 2015.

Additionally, during the quarter ended June 30, 2015, the Company entered into binding contracts to dispose of:

Eastpoint I &II, sister buildings totaling approximately 171,000 square feet, in Mayfield Heights, OH for $18.5 million ($108 per square foot). The properties were reclassified as held for sale as of June 30, 2015, which resulted in the recognition of a $5.4 million impairment charge during the quarter. The sale of these two assets was consummated on July 28, 2015 and concludes the Company's exit from the Cleveland, OH market; and,
3750 Brookside Pkwy, an approximate 105,000 square foot, building located in Alpharetta, GA, and 92% leased to four tenants for approximately $14.1 million ($134 per square foot). The transaction is expected to close during the third quarter of 2015.

Subsequent to quarter end, Piedmont's transactional activity included:

the acquisition of 80 Central Street, an approximately 150,000 square foot, Class A, office building located in the Interstate 495/Route 2 sub-market of Boxborough, MA. 80 Central Street is adjacent to and shares certain building systems with the Company's existing 90 Central Street asset. The building, which is currently 93% leased to seven tenants, was acquired for $13.5 million ($90 per square foot);
the execution of a binding contract to sell Chandler Forum, a 150,000 square foot building located in Phoenix, AZ and leased to a single tenant. The transaction is anticipated to close during third quarter of 2015; and,
the execution of a binding contract to sell Aon Center, a 2.7 million square foot trophy tower located at 200 East Randolph Street in downtown Chicago and 86% leased to multiple tenants for a





gross sales price of $712 million (approximately $260 per square foot). Estimated net sales proceeds from the transaction, which is expected to close during the fourth quarter of 2015, are anticipated to be $640 million after deducting buyer-assumed lease abatements and approximately $48.0 million in contractual tenant capital improvements and leasing commissions. Piedmont intends to use the proceeds to enhance the Company's balance sheet through the pay-down of debt and to position the Company to potentially fund strategic acquisitions and/or selective share repurchases, depending upon the opportunities that arise.

Financing Activity

During the three months ended June 30, 2015, Piedmont replaced its existing $500 Million Unsecured Line of Credit with a new $500 million unsecured line of credit facility priced at LIBOR plus 100 basis points and entered into a $160 million 3.48% note payable secured by a mortgage against its 1901 Market Street building located in Philadelphia, PA (the "$160 Million Mortgage Note"). The $160 Million Mortgage Note replaced a $105 million mortgage that was secured by a separate property and paid off earlier in the second quarter. In connection with the mortgage, the Company utilized $160 million of 7 year, forward-starting interest rate swaps.

Additionally, during the second quarter, Piedmont repurchased 2.6 million shares of its common stock at an average price of $17.45 per share and the Board of Directors of Piedmont renewed the Company's stock repurchase program, authorizing an additional $200 million in repurchases of the Registrant's common stock over the next two years. Piedmont intends to use the sales proceeds from recent and potential future property dispositions for general corporate purposes including, but not limited to, funding the repurchase of shares under the stock repurchase program, paying down debt, or funding future acquisitions, while maintaining or improving the Company's leverage metrics.

Other Events

Third Quarter Dividend Declaration

On July 29, 2015, the board of directors of Piedmont declared dividends for the third quarter 2015 in the amount of $0.21 per share on its common stock to stockholders of record as of the close of business on August 28, 2015, payable on September 18, 2015.

Guidance for 2015

Including the anticipated disposition of Aon Center, combined with management's expectations of operational results for the remainder of 2015, the Company is narrowing its previous guidance and increasing the midpoint for full-year 2015 as follows:
(in millions, except per share data)
 
Low
 
High
Net Income
 
$152
-
$160
Add: Depreciation, Amortization, and Other
 
208

-
214
Less: Gain on Sale of Real Estate Assets
 
(120
)
-
(126)
Core FFO
 
$240
-
$248
Core FFO per diluted share
 
$1.58
-
$1.62






These estimates reflect management's view of current market conditions and incorporate certain economic and operational assumptions and projections. Actual results could differ materially from these estimates based on a variety of factors, including those discussed under "Forward Looking Statements" below. Note that individual quarters may fluctuate on both a cash basis and an accrual basis due to lease commencements and expirations, abatement periods, the timing of repairs and maintenance, capital expenditures, capital markets activities, seasonal general and administrative expenses, 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 NOI, Property NOI, 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, July 30, 2015 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 August 13, 2015, 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 13612422. 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 second quarter 2015 performance, discuss recent events, and conduct a question-and-answer period.

Supplemental Information

Quarterly supplemental information as of and for the period ended June 30, 2015 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 an owner, manager, developer, and operator of high-quality, Class A office properties located in select sub-markets of major U.S. cities. Its geographically-diversified, over $6 billion portfolio is comprised of more than 21 million square feet. The Company is a fully-integrated, self-managed real estate investment trust (REIT) with local management offices in each of its major markets and is investment-grade rated by Standard & Poor’s (BBB) and Moody’s (Baa2). 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, but are not limited to, whether the Company's balance sheet and leasing and transaction pipeline will remain well positioned for the remainder of 2015; whether the Company's dispositions of assets will close; the Company's anticipated use of the net sales proceeds of Aon Center; and 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, 2015.

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 affecting the office market in general and 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, 2014, 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
 
 
 
Unaudited (in thousands)
 
 
 
 
June 30, 2015
 
December 31, 2014
 
(unaudited)
 
 
Assets:
 
 
 
Real estate assets, at cost:
 
 
 
Land
$
696,713

 
$
698,519

Buildings and improvements
4,262,377

 
4,272,055

Buildings and improvements, accumulated depreciation
(1,108,333
)
 
(1,075,395
)
Intangible lease assets
153,106

 
150,037

Intangible lease assets, accumulated amortization
(88,954
)
 
(79,860
)
Construction in progress
64,804

 
63,382

Real estate assets held for sale, gross
38,939

 
69,363

Real estate assets held for sale, accumulated depreciation and amortization
(12,828
)
 
(23,009
)
Total real estate assets
4,005,824

 
4,075,092

Investments in and amounts due from unconsolidated joint ventures
7,714

 
7,798

Cash and cash equivalents
8,997

 
12,306

Tenant receivables, net of allowance for doubtful accounts
25,474

 
27,711

Straight line rent receivables
171,241

 
167,657

Notes receivable
45,400

 

Restricted cash and escrows
521

 
5,679

Prepaid expenses and other assets
32,791

 
27,820

Goodwill
180,097

 
180,097

Interest rate swaps
8,290

 
430

Deferred financing costs, less accumulated amortization
7,491

 
7,667

Deferred lease costs, less accumulated amortization
283,756

 
278,461

Other assets held for sale, net
3,706

 
4,783

Total assets
$
4,781,302

 
$
4,795,501

Liabilities:
 
 
 
Unsecured debt, net of discount
$
1,817,538

 
$
1,828,544

Secured debt
502,757

 
449,045

Accounts payable, accrued expenses, and accrued capital expenditures
128,898

 
133,988

Deferred income
26,633

 
22,215

Intangible lease liabilities, less accumulated amortization
41,214

 
43,277

Interest rate swaps
8,411

 
6,417

Total liabilities
2,525,451

 
2,483,486

Stockholders' equity :
 
 
 
Common stock
1,518

 
1,543

Additional paid in capital
3,668,378

 
3,666,182

Cumulative distributions in excess of earnings
(1,427,312
)
 
(1,365,620
)
Other comprehensive income
12,242

 
8,301

Piedmont stockholders' equity
2,254,826

 
2,310,406

Non-controlling interest
1,025

 
1,609

Total stockholders' equity
2,255,851

 
2,312,015

Total liabilities and stockholders' equity
$
4,781,302

 
$
4,795,501

 
 
 
 
Number of shares of common stock outstanding at end of period
151,833

 
154,324







Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
Consolidated Statements of Income
 
 
 
 
 
 
 
Unaudited (in thousands, except for per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
6/30/2015
 
6/30/2014
 
6/30/2015
 
6/30/2014
Revenues:
 
 
 
 
 
 
 
Rental income
$
117,454

 
$
113,287

 
$
235,261

 
$
224,191

Tenant reimbursements
28,813

 
24,745

 
60,203

 
49,674

Property management fee revenue
467

 
548

 
1,029

 
1,035

Total revenues
146,734

 
138,580

 
296,493

 
274,900

Expenses:
 
 
 
 
 
 
 
Property operating costs
61,479

 
57,136

 
125,715

 
115,407

Depreciation
36,039

 
34,144

 
72,271

 
67,788

Amortization
14,955

 
13,599

 
29,625

 
28,172

Impairment loss on real estate asset
5,354

 

 
5,354

 

General and administrative
8,083

 
7,145

 
14,490

 
11,700

Total operating expenses
125,910

 
112,024

 
247,455

 
223,067

Real estate operating income
20,824

 
26,556

 
49,038

 
51,833

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(18,172
)
 
(18,012
)
 
(37,188
)
 
(36,938
)
Other income (expense)
596

 
(366
)
 
415

 
(456
)
Net recoveries from casualty events and litigation settlements

 
1,480

 

 
4,522

Equity in income/(loss) of unconsolidated joint ventures
124

 
(333
)
 
283

 
(599
)
Total other expense
(17,452
)
 
(17,231
)
 
(36,490
)
 
(33,471
)
Income from continuing operations
3,372

 
9,325

 
12,548

 
18,362

Discontinued operations:
 
 
 
 
 
 
 
Operating income
(3
)
 
514

 
(3
)
 
980

Loss on sale of real estate assets

 
1,304

 

 
1,198

Income from discontinued operations
(3
)
 
1,818

 
(3
)
 
2,178

Gain on sale of real estate
26,611

 
1,140

 
36,684

 
1,140

Net income
29,980

 
12,283

 
49,229

 
21,680

Less: Net income attributable to noncontrolling interest
(4
)
 
(4
)
 
(8
)
 
(8
)
Net income attributable to Piedmont
$
29,976

 
$
12,279

 
$
49,221

 
$
21,672

Weighted average common shares outstanding - diluted
153,757

 
154,445

 
154,174

 
154,728

Per Share Information -- diluted:
 
 
 
 
 
 
 
Income from continuing operations and gain on sale of real estate assets
$
0.20

 
$
0.07

 
$
0.32

 
$
0.13

Income from discontinued operations
$

 
$
0.01

 
$

 
$
0.01

Net income available to common stockholders
$
0.20

 
$
0.08

 
$
0.32

 
$
0.14






Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations
 
 
Unaudited (in thousands, except for per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
6/30/2015
 
6/30/2014
 
6/30/2015
 
6/30/2014
GAAP net income applicable to common stock
$
29,976

 
$
12,279

 
$
49,221

 
$
21,672

Depreciation (1) (2)
35,935

 
34,119

 
72,032

 
67,846

Amortization (1)
14,971

 
13,608

 
29,657

 
28,412

Impairment loss on real estate asset
5,354

 

 
5,354

 

Gain on sale of real estate assets (1)
(26,611
)
 
(2,275
)
 
(36,684
)
 
(2,169
)
NAREIT funds from operations applicable to common stock*
59,625

 
57,731

 
119,580

 
115,761

Acquisition costs
3

 
363

 
147

 
429

Loss on extinguishment of swaps
132

 

 
132

 

Net recoveries from casualty events

 
(1,480
)
 

 
(4,522
)
Core funds from operations applicable to common stock*
59,760

 
56,614

 
119,859

 
111,668

Deferred financing cost amortization
680

 
615

 
1,404

 
1,478

Amortization of note payable step-up
(121
)
 
(6
)
 
(242
)
 
(6
)
Amortization of discount on Senior Notes
49

 
47

 
97

 
81

Depreciation of non real estate assets
165

 
115

 
361

 
229

Straight-line effects of lease revenue (1)
(3,745
)
 
(7,758
)
 
(8,255
)
 
(17,170
)
Stock-based and other non-cash compensation expense
1,692

 
1,271

 
2,417

 
1,907

Net effect of amortization of above or below-market in-place lease intangibles (1)
(1,102
)
 
(1,279
)
 
(2,224
)
 
(2,643
)
Acquisition costs
(3
)
 
(363
)
 
(147
)
 
(429
)
Non-incremental capital expenditures (3)
(11,641
)
 
(26,151
)
 
(21,928
)
 
(39,972
)
Adjusted funds from operations applicable to common stock*
$
45,734

 
$
23,105

 
$
91,342

 
$
55,143

Weighted average common shares outstanding - diluted
153,757

 
154,445

 
154,174

 
154,728

Funds from operations per share (diluted)
$
0.39

 
$
0.37

 
$
0.78

 
$
0.75

Core funds from operations per share (diluted)
$
0.39

 
$
0.37

 
$
0.78

 
$
0.72

Adjusted funds from operations per share (diluted)
$
0.30

 
$
0.15

 
$
0.59

 
$
0.36


(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 extinguishment of swaps, 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
 
6/30/2015
 
6/30/2014
 
 
 
 
Net income attributable to Piedmont
$
29,976

 
$
12,279

Net income attributable to noncontrolling interest
4

 
4

Interest expense
18,172

 
18,012

Depreciation (1)
36,100

 
34,234

Amortization (1)
14,971

 
13,608

Acquisition costs
3

 
363

Impairment loss on real estate asset
5,354

 

Net recoveries from casualty events and litigation settlements

 
(1,480
)
Gain on sale of real estate assets (1)
(26,611
)
 
(2,275
)
Core EBITDA*
77,969

 
74,745

General & administrative expenses (1)
8,102

 
7,159

Management fee revenue
(232
)
 
(281
)
Other expense/(income) (1)
(599
)
 
3

Straight line effects of lease revenue (1)
(3,745
)
 
(7,758
)
Amortization of lease-related intangibles (1)
(1,102
)
 
(1,279
)
Property Net Operating Income (cash basis)*
80,393

 
72,589

Acquisitions
(2,842
)
 
(55
)
Dispositions
(562
)
 
(3,230
)
Other investments
(251
)
 
89

Same Store NOI (cash basis)*
$
76,738

 
$
69,393

Change period over period in Property NOI
10.8
%
 
N/A

Change period over period in Same Store NOI
10.6
%
 
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 6.30.15 EX 99.2 Q2 2015 SUPPLEMENTAL PKG



EXHIBIT 99.2







Quarterly Supplemental Information
June 30, 2015










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
 
 
 
 
 
 
 
 



Notice to Readers:
Please refer to page 48 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 report 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 an owner, manager, developer and operator of high-quality, Class A office properties located in select sub-markets of major U.S. cities. Its geographically-diversified, approximately $6 billion portfolio is comprised of 21 million square feet. The Company is a fully-integrated, self-managed real estate investment trust ("REIT") with local management offices in each of its major markets and is investment-grade rated by Standard & Poor’s and Moody’s. Piedmont is headquartered in Atlanta, GA.


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
 
June 30, 2015
 
December 31, 2014
Number of consolidated office properties (1)
71
 
74
Rentable square footage (in thousands) (1)
20,966
 
21,471
Percent leased (2)
88.8
%
 
87.7
%
Capitalization (in thousands):
 
 
 
Total debt - principal amount outstanding
$2,325,452
 
$2,279,787
Equity market capitalization (3)
$2,670,746
 
$2,907,466
Total market capitalization (3)
$4,996,198
 
$5,187,253
Total debt / Total market capitalization (3)
46.5
%
 
43.9
%
Total debt / Total gross assets
38.8
%
 
38.2
%
Common stock data
 
 
 
High closing price during quarter
$18.99
 
$20.00
Low closing price during quarter
$16.89
 
$17.61
Closing price of common stock at period end
$17.59
 
$18.84
Weighted average fully diluted shares outstanding during quarter (in thousands)
153,757
 
154,420
Shares of common stock issued and outstanding (in thousands) at period end
151,833
 
154,324
Annual dividend per share (4)
$0.83
 
$0.81
Rating / outlook
 
 
 
Standard & Poor's
BBB / Stable

 
BBB / Stable

Moody's
Baa2 / Stable

 
Baa2 / Stable

Employees
134
 
130




(1)
As of June 30, 2015, our consolidated office portfolio consisted of 71 properties (exclusive of our equity interest in one property owned through an unconsolidated joint venture, one property under development, and one property that was taken out of service for redevelopment on January 1, 2014, 3100 Clarendon Boulevard in Arlington, VA). During the first quarter of 2015, we sold 3900 Dallas Parkway, a 120,000 square foot office building located in Plano, TX, and acquired Park Place on Turtle Creek, a 178,000 square foot office building located in Dallas, TX. During the second quarter of 2015, we sold 5601 Headquarters Drive, a 166,000 square foot office building located in Plano, TX, River Corporate Center, a 133,000 square foot office building located in Tempe, AZ, and Copper Ridge Center, a 268,000 square foot office building located in Lyndhurst, NJ. 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, one development property, and one out of service property. Please refer to page 27 for additional analyses regarding Piedmont's leased percentage.
(3)
Reflects common stock closing price as of the end of the reporting period.
(4)
Total of the per share dividends paid over the prior four quarters.

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 and Executive
Chief Accounting Officer and
Executive Vice President,
and Director
Vice President
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
 
 
 
 
Michael R. Buchanan
Wesley E. Cantrell
William H. Keogler, Jr.
Barbara B. Lang
Director and Chairman of the
Director and Chairman of
Director
Director
Board of Directors
Governance Committee
 
 
 
 
 
 
 
 
 
 
Frank C. McDowell
Donald A. Miller, CFA
Raymond G. Milnes, Jr.
Jeffery L. Swope
Director, Vice Chairman of the
Chief Executive Officer, President
Director and Chairman of
Director and Chairman of
Board of Directors and Chairman
and Director
Audit Committee
Capital Committee
of Compensation 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 June 30, 2015


Financial Results (1) 

Funds from operations (FFO) for the quarter ended June 30, 2015 was $59.6 million, or $0.39 per share (diluted), compared to $57.7 million, or $0.37 per share (diluted), for the same quarter in 2014. FFO for the six months ended June 30, 2015 was $119.6 million, or $0.78 per share (diluted), compared to $115.8 million, or $0.75 per share (diluted), for the same period in 2014. The increase in FFO for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily attributable to operating income contributions from 1) the commencement of several new leases, most notably the 222,000 square foot lease with Epsilon Data Management at 6021 Connection Drive in Irving, TX and the 174,000 square foot lease with Integrys at Aon Center in Chicago, IL, 2) new or renewal leases under which operating expense recovery abatements have expired, and 3) net property acquisitions completed since the beginning of 2014, all of which were partially offset by 4) lower non-recurring casualty and litigation insurance recoveries in 2015 over that received in 2014, as well as 5) increased general and administrative expense in 2015 primarily related to higher performance-based compensation expense.

Core funds from operations (Core FFO) for the quarter ended June 30, 2015 was $59.8 million, or $0.39 per share (diluted), compared to $56.6 million, or $0.37 per share (diluted), for the same quarter in 2014. Core FFO for the six months ended June 30, 2015 was $119.9 million, or $0.78 per share (diluted), compared to $111.7 million, or $0.72 per share (diluted), for the same period in 2014. Core FFO is defined as FFO with incremental adjustments for certain non-recurring items such as net insurance recoveries or losses from casualty events and litigation settlements, acquisition-related costs and other significant non-recurring items. The majority of the change in Core FFO for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was attributable to the items described above for changes in FFO, with the primary exception of non-recurring insurance recoveries, which are not included in Core FFO.

Adjusted funds from operations (AFFO) for the quarter ended June 30, 2015 was $45.7 million, or $0.30 per share (diluted), compared to $23.1 million, or $0.15 per share (diluted), for the same quarter in 2014. AFFO for the six months ended June 30, 2015 was $91.3 million, or $0.59 per share (diluted), compared to $55.1 million, or $0.36 per share (diluted), for the same period in 2014. The increase in AFFO for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily related to the items described above for changes in FFO and Core FFO, as well as lesser amounts of straight line rent adjustments and non-incremental capital expenditures in 2015 when compared to 2014. Piedmont experienced a period of high lease expirations from 2011 to 2013. Given the competitive leasing environment over the last several years, many of the leases that the Company entered into during that period included rental abatements, which typically occur at the beginning of a new lease's term. Most of the new or renewal leases with rental abatements are in the early stages of the new leases' terms, resulting in temporarily higher straight line rent adjustments for Piedmont. As the rental abatement periods continue to expire, the straight line rent adjustments will continue to decrease. The higher non-incremental capital expenditures in 2014 when compared to 2015 were also related to the high volume of lease transactions completed during the period from 2011 to 2013; the decrease in non-incremental capital expenditures in 2015 is reflective of the end of this high lease expiration and re-leasing period.

The changes in per share amounts of FFO, Core FFO and AFFO for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 were also impacted by the reduced weighted average shares outstanding in 2015 as a result of the Company's stock repurchase program. Since the beginning of 2014, Piedmont has repurchased 5.8 million shares at an average price of $16.96 per share.

Operations & Leasing

On a square footage leased basis, our total office portfolio was 88.8% leased as of June 30, 2015, as compared to 88.8% in the prior quarter and 87.0% a year earlier. Please refer to page 27 for additional leased percentage information.

The weighted average remaining lease term of our portfolio was 7.1 years(2) as of June 30, 2015 as compared to 7.1 years at December 31, 2014.

(1)
FFO, Core FFO and AFFO are supplemental non-GAAP financial measures. See page 39 for definitions of non-GAAP financial measures. See pages 15 and 41 for reconciliations of FFO, Core FFO and AFFO to Net Income.
(2)
Remaining lease term (after taking into account leases for vacant spaces which had been executed but not commenced as of June 30, 2015) is weighted based on Annualized Lease Revenue, as defined on page 39.



5



As previously disclosed, Piedmont commenced the redevelopment of its 3100 Clarendon Boulevard property, a 262,000 square foot office and retail property located in Arlington, VA, during the first quarter of 2014. The building's retail tenants have remained in occupancy during the redevelopment. Therefore, from an accounting standpoint, the office component of the building was taken out of service and the retail portion of the building, comprised of approximately 28,000 square feet, remained 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.

During the three months ended June 30, 2015, the Company completed 572,000 square feet of total leasing. Of the total leasing activity during the quarter, we signed renewal leases for approximately 246,000 square feet and new tenant leases for approximately 325,000 square feet. During the six months ended June 30, 2015, we completed 1,389,000 square feet of leasing for our consolidated office properties, consisting of 689,000 square feet of renewal leases and 700,000 square feet of new tenant leases. The average committed tenant improvement cost per square foot per year of lease term for renewal leases signed at our consolidated office properties during the six months ended June 30, 2015 was $2.71 and the same measure for new leases was $4.26 (see page 33).

During the three months ended June 30, 2015, we executed seven leases greater than 20,000 square feet with lengths of term of more than one year at our consolidated office properties. Information on those leases is set forth below.
Tenant
Property
Property Location
Square Feet
Leased
Expiration
Year
Lease Type
Continental Casualty Company
500 TownPark (1)
Lake Mary, FL
108,000
2030
New
AT&T Illinois
Aon Center
Chicago, IL
77,921
2029
Renewal
Norris, McLaughlin & Marcus, P.A.
400 Bridgewater Crossing
Bridgewater, NJ
61,642
2029
New
Nixon & Vanderhye, P.C.
Arlington Gateway
Arlington, VA
46,531
2027
Renewal
Coworkrs
60 Broad Street
New York, NY
40,000
2033
New
International Republican Institute
1225 Eye Street
Washington, DC
38,092
2027
Renewal
Jones Day
150 West Jefferson
Detroit, MI
20,789
2021
New

As of June 30, 2015, there were two tenants whose leases were scheduled to expire during the eighteen month period following the end of the second quarter of 2015 which individually contributed greater than 1% in net Annualized Lease Revenue ("ALR"). Information regarding the leasing status of the spaces associated with these tenants' leases is presented below.
Tenant
Property
Property Location
Net
Square
Footage
Expiring
Net Percentage of
Current Quarter
Annualized Lease
Revenue Expiring
(%)
Expiration
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 actively being marketed for lease.
Harcourt
Braker Pointe III
Austin, TX
195,230
1.1%
Q2 2016
The primary tenant is not expected to renew its lease. Discussions with current subtenants for direct leases are ongoing. The Company is actively marketing the remainder of the space for lease.






(1)
500 TownPark is a property that is under development by Piedmont. Please find additional information on 500 TownPark under the Development heading below.


6



Future Lease Commencements and Abatements

As of June 30, 2015, our overall leased percentage was 88.8% and our economic leased percentage was 82.4%. 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 spaces but have not yet commenced (amounting to approximately 552,000 square feet of leases as of June 30, 2015, 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 1.1 million square feet of leases as of June 30, 2015, or a 3.7% impact to leased percentage on an economic basis).

Piedmont focuses much of its marketing efforts on large corporate office space users. The average size of lease in the Company's portfolio is approximately 27,000 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
Liberty Mutual Insurance Company
Suwanee Gateway One
Suwanee, GA
59,579
Vacant
Q3 2015
New
Lockton Companies
500 West Monroe Street
Chicago, IL
52,201
Vacant
Q3 2015
New
United States of America
(Corporation for National and Community Service)
One Independence Square
Washington, DC
84,606
Vacant
Q4 2015
New
Norris, McLaughlin & Marcus, P.A.
400 Bridgewater Crossing
Bridgewater, NJ
61,642
Not Vacant
Q4 2016
New
Continental Casualty Company
500 TownPark
Lake Mary, FL
108,000
Under Development
Q1 2017
New

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 the Company's IPO in 2010, Piedmont has signed approximately 15.9 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
GE Capital
500 West Monroe Street
Chicago, IL
53,283
December 2014 through June 2015 (26,317 square feet);
March 2015 through March 2016 (26,966 square feet)
Q4 2027
Advanced Micro Devices
90 Central Street
Boxborough, MA
107,244
March through November 2015
Q4 2020
Catamaran
Windy Point II
Schaumburg, IL
50,686
March 2015 through April 2016
Q1 2025
Integrys
Aon Center
Chicago, IL
160,423
May through September 2015 and 2016
Q2 2029
AT&T Illinois
Aon Center
Chicago, IL
75,113
July through December 2015;
August 2017 through January 2018
Q3 2029
Liberty Mutual Insurance Company
Suwanee Gateway One
Suwanee, GA
59,579
July through October 2015
Q4 2020
Lockton Companies
500 West Monroe Street
Chicago, IL
52,201
August 2015 through July 2016
Q3 2026
Americredit
Chandler Forum
Chandler, AZ
149,863
September 2015 (78,182 square feet); January 2016 (149,863 square feet); September 2016 and 2017 (99,213 square feet)
Q1 2022
Comcast
Windy Point I
Schaumburg, IL
72,513
October 2015 through February 2016
Q1 2023
Nestle
800 North Brand Boulevard
Glendale, CA
400,892
December 2015 through March 2016
Q1 2021
Aon
Aon Center
Chicago, IL
382,076
January through May 2016

Q4 2028
DDB Needham
Aon Center
Chicago, IL
187,000
January 2016 through June 2018
Q2 2018
United States of America
(Corporation for National and Community Service)
One Independence Square
Washington, DC
84,606
January 2016 through June 2017
Q4 2030
Miller Canfield
150 West Jefferson
Detroit, MI
69,974
January 2016
Q2 2026
Thoughtworks
Aon Center
Chicago, IL
52,529
January through March 2016 and 2017
Q4 2023
Mitsubishi Hitachi Power Systems
400 TownPark
Lake Mary, FL
75,321
February and March 2016, 2017 and 2018
Q1 2026
Norris, McLaughlin & Marcus, P.A.
400 Bridgewater Crossing
Bridgewater, NJ
61,642
November 2016 through February 2017;
October through December 2017 and 2018;
November through December 2019
Q4 2029

7




Financing and Capital Activity

As of June 30, 2015, our ratio of debt to total gross assets was 38.8%. This debt ratio is based on total principal amount outstanding for our various loans at June 30, 2015.
On April 28, 2015, the Board of Directors of Piedmont declared a dividend for the second quarter of 2015 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on May 29, 2015. The dividend was paid on June 19, 2015. The Company's dividend payout percentage for the six months ended June 30, 2015 was 54% of Core FFO and 71% of AFFO.

Dispositions (1)  
Among Piedmont's strategic objectives is to harvest capital through the disposition of non-core assets, assets where returns have been maximized, and assets located in non-strategic submarkets and to redeploy the proceeds from those sales into new investment opportunities with higher overall return prospects in selected markets in which we have, or plan to have, a significant presence and that otherwise meet our strategic criteria. During the second quarter of 2015, the Company continued to execute on its strategic plan with the completion of three property sales and the signing of two binding sales contracts. Additional information on this activity is as follows:
 
On April 28, 2015, Piedmont completed the sale of 5601 Headquarters Drive, a 166,000 square foot, single-tenant, 100% leased office building located in Plano, TX, for $33.7 million, or $203 per square foot. Piedmont recorded an $8.0 million gain on the sale of the asset.
On April 29, 2015, Piedmont completed the sale of River Corporate Center, a 133,000 square foot, single-tenant, 100% leased office building located in Tempe, AZ, for $24.6 million, or $185 per square foot. Piedmont recorded a $5.3 million gain on the sale of the asset.
On May 1, 2015, Piedmont completed the sale of Copper Ridge Center, a 268,000 square foot office building located in Lyndhurst, NJ. The sale price was $50.6 million, or $189 per square foot. Piedmont recorded a $13.3 million gain on the sale of the asset. As part of the sale transaction, Piedmont provided seller financing in the amount of $45.4 million at an interest rate of 8.45%. The interest-only loan matures December 31, 2015; however, there are two six-month extension options available to the borrower, the exercise of each of which requires the payment of an extension fee and the giving of proper written notice.
On June 16, 2015, Piedmont entered into a binding contract to sell Eastpoint I and II, sister buildings with a combined approximately 171,000 square feet that are 91% leased, located in Mayfield Heights, OH. The sale price is $18.5 million, or $108 per square foot; the transaction closed on July 28, 2015. The sale of the properties marks Piedmont's exit from the Cleveland, OH, market.
On June 26, 2015, Piedmont entered into a binding contract to sell 3750 Brookside Parkway located in Alpharetta, GA. The property is a two-story, 91% leased, 105,000 square foot office building built in 2001. The sale price is $14.1 million, or $134 per square foot, with an anticipated closing date of August 10, 2015.

For additional information on dispositions, please refer to page 37.

Acquisitions
On June 2, 2015, Piedmont completed the purchase of 4.7 acres of land adjacent to its Two Pierce Place office building located in Itasca, IL for $3.7 million. The land was purchased to provide additional parking spaces for the Two Pierce Place building. Construction on the parking lot began during the second quarter of 2015 and is anticipated to be completed during the third quarter of 2015. Based on initial parking plans, over 400 additional surface parking stalls can be constructed, increasing the parking ratio from approximately 2.9 per 1,000 rentable square feet to 3.8 per 1,000 rentable square feet.

Finance
On June 18, 2015, Piedmont closed on a new $500 million unsecured line of credit. The new revolver replaced the Company's prior credit facility of equal size at a more favorable interest rate and an extended term. The new revolver has a term of four years, with two six-month extension options, for a total potential term of five years; the final extended maturity date of June 18, 2020, is approximately three years beyond that of the prior facility. The unsecured line of credit has the option to bear interest at varying levels based on (i) the London Interbank Offered Rate (“LIBOR”) or (ii) the Base Rate, defined as the greater of the prime rate, the federal funds rate plus 0.5%, or LIBOR for a one-month period plus one percent. The interest rate for LIBOR-based loans is LIBOR + 100.0 basis points and the annual facility fee is 20.0 basis points. The facility is structured to allow for an increase in size up to a total commitment of $1.0 billion at the election of Piedmont; however, no existing bank has an obligation to participate in any such increase. The loan syndicate consists of a total of 11 major banks. The Company's previous revolver was terminated concurrently with the closing of the new facility.
(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



On April 10, 2015, Piedmont repaid a $105 million mortgage secured by its US Bancorp Center building located in Minneapolis, MN. The loan, which had a May 11, 2015, maturity date, was open to prepayment without yield maintenance requirements.

On June 23, 2015, Piedmont entered into a $160 million mortgage with The Prudential Insurance Company of America, secured by 1901 Market Street located in Philadelphia, PA. The interest-only loan bears interest at 3.48% per year and matures on July 5, 2022. Subject to the terms of the loan agreement, the property may be transferred one time subject to the loan. Additionally, the loan may be prepaid with 30 days written notice, subject to a prepayment penalty in certain circumstances. The proceeds of the mortgage were used to pay down outstanding borrowings on the $500 million unsecured line of credit. Considering the repayment of the $105 million mortgage earlier in the quarter, the amount of secured debt as a percentage of total debt remained low at 22% as of June 30, 2015.

In anticipation of paying off two maturing mortgages and considering the historically-low interest rate environment, Piedmont entered into several ten-year forward-starting swaps during the first quarter of 2015 for a total notional amount of $250 million for a planned 2016 financing. Through the swaps, the Company has effectively locked the treasury interest rate component of the targeted future financing. At current swap spread levels, the treasury component for a possible 2016 debt issuance maturing in 2026 was effectively locked at approximately 2.22%.

Development
During the first quarter of 2014, Piedmont commenced the redevelopment of its 3100 Clarendon Boulevard property, a 262,000 square foot office and retail property located adjacent to the Clarendon Metrorail Station in Arlington, VA. Until the end of 2013, the property had been predominantly leased to the United States of America (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 Metrorail transportation). The project remains on schedule; a majority of the redevelopment relates to the office tower and is complete. The retail portion of the redevelopment is underway and should be completed in 2015. From an accounting standpoint, during the redevelopment, the office component of the building has been out of service and the retail portion of the building, comprised of approximately 28,000 square feet, has remained in service. However, for the purposes of statistical reporting on the Company's assets in this supplemental report, the entire building has been removed from Piedmont's operating portfolio. It is anticipated that the total costs to redevelop the building (exclusive of capitalized implied financing costs) will be approximately $33 million, approximately $25.8 million of which had been recorded in work in progress as of June 30, 2015. 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 eleven-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 $50.0 million had been recorded in work in progress as of June 30, 2015.

During the second quarter of 2015, Piedmont signed a 108,000 square foot, 13-year anchor-tenant lease with Continental Casualty Company at 500 TownPark in Lake Mary, FL. With the signing of this anchor lease for the project, Piedmont will proceed with the development of 500 TownPark on a portion of its 25.2 acres of developable land. Situated at the intersection of Interstate 4 and Highway 417, the site is well located within a mixed-use development consisting of office, retail, residential and a hotel. 500 TownPark will be a four-story building consisting of 135,000 square feet and, with the signing of the Continental Casualty lease, is 80% pre-leased. The development costs are anticipated to be $28 million to $30 million, inclusive of leasing costs. After the completion of 500 TownPark, the Company's remaining land holdings in the urban development could accommodate approximately 400,000 to 500,000 square feet of additional office space.

Stock Repurchase Program
Given that the Company exhausted the prior share repurchase authorization during the quarter, the Board of Directors of Piedmont authorized up to $200 million in additional share repurchases over the next two years on June 23, 2015. Repurchases of stock under the program will be made at the Company's discretion and will depend on market conditions, other investment opportunities and other factors that management deems relevant.

During the second quarter of 2015, the Company repurchased approximately 2.6 million shares of common stock under its share repurchase program at an average price of $17.45 per share. Since the stock repurchase program began in December 2011, the Company has repurchased a total of 21.5 million shares at an average price of $16.99 per share, or approximately $365.9 million in aggregate (before consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases totaled approximately $190.8 million under the stock repurchase plan.


9



Subsequent Events

On July 16, 2015, Piedmont entered into a binding contract to sell Aon Center, a 2.7 million square foot office building located in the East Loop of downtown Chicago, IL. Since purchasing the trophy office tower in 2003, Piedmont has implemented best-in-class management operations, helping it to secure Energy Star ratings, LEED accreditation, and the BOMA 360 designation for the property. Located on the north side of Millenium Park, the Chicago landmark affords tenants with unparalleled views of the city and Lake Michigan, as well as immediate access to housing, retail and transportation. The attractiveness of the asset and its amenity base is evidenced in its high-quality tenant roster, including the recently announced addition of Kraft Heinz Foods - with the new 170,000 square foot lease bringing the building's leased percentage to approximately 86%. During its ownership of the building, Piedmont has been able to attract other well-known companies, such as KPMG, Microsoft, United Health Group, Integrys, and Federal Home Loan Bank of Chicago, in addition to securing the renewals of Aon, JLL and Edelman. Since acquiring the property, the Company has successfully positioned it as one of Chicago's most distinguished business addresses, helping it to realize significant value for its shareholders. The sale price is $712 million, or approximately $260 per square foot, with an estimated closing date in the fourth quarter of 2015. Net sales proceeds from the transaction are anticipated to be approximately $640 million after deducting buyer-assumed lease abatements and approximately $48 million in contractual tenant capital improvements and leasing commissions. The sale of the asset, which is the largest individual property in the portfolio, will allow the Company to decrease its exposure to its largest geographic market, enhance its balance sheet through the pay-down of debt, and position it to potentially fund strategic acquisitions and/or selective share repurchases, depending upon the opportunities that arise.

On July 21, 2015, Piedmont entered into a binding contract to purchase 80 Central Street, a three-story, 93% leased, 150,000 square foot office building located in the Boston submarket of Boxborough, MA. The property is located adjacent to the Company's 90 Central Street property, with which it shares certain building systems and amenities; the acquisition of the asset allows for the realization of marketing and operational synergies. The purchase price is $13.5 million, or $90 per square foot, which is significantly below the estimated replacement cost of $275 per square foot. The transaction closed on July 24, 2015.

On July 28, 2015, Piedmont entered into a binding contract to sell Chandler Forum, a 150,000 square foot, single-tenant, 100% leased office building located in Chandler, AZ for $33.9 million, or $226 per square foot. The sale will allow Piedmont to divest another asset in the Phoenix market, leaving the Company with only one asset in the market after the sale of the property is completed.

On July 29, 2015, the Board of Directors of Piedmont declared a dividend for the third quarter of 2015 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on August 28, 2015. The dividend is to be paid on September 18, 2015.


Guidance for 2015

The Company is increasing the midpoint and narrowing its financial guidance for calendar year 2015 to reflect the revised outlook for the year based upon current operational circumstances, including the impending disposition of Aon Center in Chicago, IL. This guidance is based upon management's expectations at this time.

 
Low
 
High
Core Funds from Operations
$240 million
 
$248 million
Core Funds from Operations per diluted share
$1.58
 
$1.62

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, seasonal general and administrative expenses, 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.

10



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 39 and reconciliations are provided beginning on page 41.
 
Three Months Ended
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
6/30/2014
Selected Operating Data
 
 
 
 
 
 
 
 
 
Percent leased (1)
88.8
%
 
88.8
%
 
87.7
%
 
87.5
%
 
87.0
%
Percent leased - economic (1) (2)
82.4
%
 
80.6
%
 
81.3
%
 
78.7
%
 
78.8
%
Rental income
$117,454
 
$117,807
 
$115,915
 
$114,529
 
$113,287
Total revenues
$146,734
 
$149,759
 
$146,711
 
$144,641
 
$138,580
Total operating expenses
$125,910

$121,545

$117,922

$117,442

$112,024
Real estate operating income
$20,824

$28,214

$28,789

$27,199

$26,556
Core EBITDA
$77,969

$79,314

$78,613

$77,613

$74,745
Core FFO applicable to common stock
$59,760

$60,099

$59,618

$58,814

$56,614
Core FFO per share - diluted
$0.39

$0.39

$0.39

$0.38

$0.37
AFFO applicable to common stock
$45,734

$45,608

$41,205

$21,829

$23,105
AFFO per share - diluted
$0.30

$0.30

$0.27

$0.14

$0.15
Gross dividends
$32,268
 
$32,411
 
$32,408
 
$30,865
 
$30,865
Dividends per share
$0.210
 
$0.210
 
$0.210
 
$0.200
 
$0.200
Selected Balance Sheet Data
 
 
 
 
 
 
 
 
 
Total real estate assets
$4,005,824

$4,094,942

$4,075,092

$4,058,414

$3,968,329
Total gross real estate assets
$5,215,938
 
$5,297,481
 
$5,253,356
 
$5,197,338
 
$5,072,559
Total assets
$4,781,302

$4,819,862

$4,795,501

$4,778,302

$4,661,826
Net debt (3)
$2,315,934
 
$2,320,504
 
$2,261,802
 
$2,226,326
 
$2,098,704
Total liabilities
$2,525,451

$2,533,939

$2,483,486

$2,439,456

$2,304,641
Ratios
 
 
 
 
 
 
 
 
 
Core EBITDA margin (4)
53.1
%
 
53.0
%
 
53.6
%
 
53.7
%
 
53.9
%
Fixed charge coverage ratio (5)
4.0 x

 
4.0 x

 
4.0 x

 
4.0 x

 
4.0 x

Average net debt to Core EBITDA (6)
7.4 x

 
7.2 x

 
7.1 x

 
6.9 x

 
6.8 x

(1)
Please refer to page 27 for additional leased percentage information.
(2)
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). Due to variations in rental abatement structures whereby some abatements are provided for the first few months of each lease year as opposed to being provided entirely at the beginning of the lease, there will be variability to the economic leased percentage over time as abatements commence and expire. Please see the Financial Highlights section for details on near-term abatements for large leases.
(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 net property acquisitions completed during that time, as well as capital expenditures and stock repurchases, all of which were 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 $885,576 for the quarter ended June 30, 2015, $823,770 for the quarter ended March 31, 2015, $688,177 for the quarter ended December 31, 2014, $541,349 for the quarter ended September 30, 2014, and $460,251 for the quarter ended June 30, 2014; the Company had principal amortization of $201,768 for the quarter ended June 30, 2015, $132,969 for the quarter ended March 31, 2015, $262,284 for the quarter ended December 31, 2014, $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 presented are higher than our historical performance on this measure primarily as a result of increased net debt attributable to net property acquisitions completed over the last year, 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.

11



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

 
June 30, 2015

March 31, 2015

December 31, 2014

September 30, 2014

June 30, 2014
Assets:

 
 
 
 
 
 
 
 
Real estate, at cost:

 
 
 
 
 
 
 
 
Land assets
$
696,713

 
$
703,059

 
$
698,519

 
$
690,631

 
$
684,761

Buildings and improvements
4,262,377

 
4,313,008

 
4,272,055

 
4,244,180

 
4,138,920

Buildings and improvements, accumulated depreciation
(1,108,333
)
 
(1,105,808
)
 
(1,075,395
)
 
(1,040,977
)
 
(1,008,111
)
Intangible lease asset
153,106

 
153,465

 
150,037

 
150,336

 
145,179

Intangible lease asset, accumulated amortization
(88,954
)
 
(84,212
)
 
(79,860
)
 
(75,409
)
 
(74,132
)
Construction in progress
64,804

 
83,802

 
63,382

 
43,003

 
34,674

Real estate assets held for sale, gross
38,939

 
44,147

 
69,363

 
69,188

 
69,025

Real estate assets held for sale, accumulated depreciation & amortization
(12,828
)
 
(12,519
)
 
(23,009
)
 
(22,538
)
 
(21,987
)
Total real estate assets
4,005,824

 
4,094,942

 
4,075,092

 
4,058,414

 
3,968,329

Investments in and amounts due from unconsolidated joint ventures
7,714

 
7,820

 
7,798

 
7,638

 
7,549

Cash and cash equivalents
8,997

 
7,479

 
12,306

 
8,815

 
8,563

Tenant receivables, net of allowance for doubtful accounts
25,474

 
30,132

 
27,711

 
28,403

 
25,024

Straight line rent receivable
171,241

 
173,443

 
167,657

 
161,452

 
153,651

Notes receivable
45,400

 

 

 

 

Escrow deposits and restricted cash
521

 
671

 
5,679

 
908

 
911

Prepaid expenses and other assets
32,791

 
26,879

 
27,820

 
36,733

 
32,132

Goodwill
180,097

 
180,097

 
180,097

 
180,097

 
180,097

Interest rate swap
8,290

 
520

 
430

 
434

 

Deferred financing costs, less accumulated amortization
7,491

 
7,391

 
7,667

 
7,969

 
8,386

Deferred lease costs, less accumulated amortization
283,756

 
286,773

 
278,461

 
282,802

 
272,636

Other assets held for sale
3,706

 
3,715

 
4,783

 
4,637

 
4,548

Total assets
$
4,781,302

 
$
4,819,862

 
$
4,795,501

 
$
4,778,302

 
$
4,661,826

Liabilities:
 
 
 
 
 
 
 
 
 
Unsecured debt, net of discount
$
1,817,538

 
$
1,877,318

 
$
1,828,544

 
$
1,784,412

 
$
1,657,408

Secured debt
502,757

 
448,791

 
449,045

 
449,427

 
449,677

Accounts payable, accrued expenses, and accrued capital expenditures
128,898

 
119,466

 
133,988

 
135,320

 
126,273

Deferred income
26,633

 
25,970

 
22,215

 
21,958

 
21,923

Intangible lease liabilities, less accumulated amortization
41,214

 
42,978

 
43,277

 
44,981

 
43,389

Interest rate swaps
8,411

 
19,416

 
6,417

 
3,358

 
5,971

Total liabilities
2,525,451

 
2,533,939

 
2,483,486

 
2,439,456

 
2,304,641

Stockholders' equity:
 
 
 
 
 
 
 
 
 
Common stock
1,518

 
1,543

 
1,543

 
1,543

 
1,543

Additional paid in capital
3,668,378

 
3,667,574

 
3,666,182

 
3,669,541

 
3,668,836

Cumulative distributions in excess of earnings
(1,427,312
)
 
(1,378,786
)
 
(1,365,620
)
 
(1,345,609
)
 
(1,323,907
)
Other comprehensive loss
12,242

 
(5,437
)
 
8,301

 
11,758

 
9,104

Piedmont stockholders' equity
2,254,826

 
2,284,894

 
2,310,406

 
2,337,233

 
2,355,576

Non-controlling interest
1,025

 
1,029

 
1,609

 
1,613

 
1,609

Total stockholders' equity
2,255,851

 
2,285,923

 
2,312,015

 
2,338,846

 
2,357,185

Total liabilities, redeemable common stock and stockholders' equity
$
4,781,302

 
$
4,819,862

 
$
4,795,501

 
$
4,778,302

 
$
4,661,826

Common stock outstanding at end of period
151,833

 
154,340

 
154,324

 
154,325

 
154,324


12



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

 
 
Three Months Ended
 
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
6/30/2014
Revenues:
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
117,454

 
$
117,807

 
$
115,915

 
$
114,529

 
$
113,287

Tenant reimbursements
 
28,813

 
31,390

 
30,295

 
29,579

 
24,745

Property management fee revenue
 
467

 
562

 
501

 
533

 
548

 
 
146,734

 
149,759

 
146,711

 
144,641

 
138,580

Expenses:
 
 
 
 
 
 
 
 
 
 
Property operating costs
 
61,479

 
64,236

 
62,002

 
62,027

 
57,136

Depreciation
 
36,039

 
36,232

 
35,442

 
35,366

 
34,144

Amortization
 
14,955

 
14,670

 
14,172

 
14,235

 
13,599

Impairment losses on real estate assets
 
5,354

 

 

 

 

General and administrative
 
8,083

 
6,407

 
6,306

 
5,814

 
7,145

 
 
125,910

 
121,545

 
117,922

 
117,442

 
112,024

Real estate operating income
 
20,824

 
28,214

 
28,789

 
27,199

 
26,556

Other income / (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(18,172
)
 
(19,016
)
 
(18,854
)
 
(18,654
)
 
(18,012
)
Other income / (expense)
 
596

 
(181
)
 
(6
)
 
524

 
(366
)
Net recoveries / (loss) from casualty events and litigation settlements (1)
 

 

 
2,478

 
(8
)
 
1,480

Equity in income / (loss) of unconsolidated joint ventures
 
124

 
159

 
160

 
89

 
(333
)
 
 
(17,452
)
 
(19,038
)
 
(16,222
)
 
(18,049
)
 
(17,231
)
Income from continuing operations
 
3,372

 
9,176

 
12,567

 
9,150

 
9,325

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss
 
(3
)
 

 
(42
)
 
16

 
514

Gain / (loss) on sale of properties
 

 

 

 

 
1,304

Income / (loss) from discontinued operations (2)
 
(3
)
 

 
(42
)
 
16

 
1,818

Gain on sale of real estate
 
26,611

 
10,073

 
(8
)
 

 
1,140

Net income
 
29,980

 
19,249

 
12,517

 
9,166

 
12,283

Less: Net income attributable to noncontrolling interest
 
(4
)
 
(4
)
 
(3
)
 
(4
)
 
(4
)
Net income attributable to Piedmont
 
$
29,976

 
$
19,245

 
$
12,514

 
$
9,162

 
$
12,279

Weighted average common shares outstanding - diluted
 
153,757

 
154,580

 
154,520

 
154,561

 
154,445

Net income per share available to common stockholders - diluted
 
$
0.20

 
$
0.12

 
$
0.08

 
$
0.06

 
$
0.08


(1)
Presented on this line are net expenses and insurance reimbursements related to 1) lawsuits settled in 2013 and 2) damage caused by Hurricane Sandy in October 2012.
(2)
Reflects operating results for 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 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.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)

 
Three Months Ended
 
Six Months Ended
 
6/30/2015
6/30/2014
 
Change ($)
Change (%)
 
6/30/2015
6/30/2014
 
Change ($)
Change (%)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
117,454

$
113,287

 
$
4,167

3.7
 %
 
$
235,261

$
224,191

 
$
11,070

4.9
 %
Tenant reimbursements
28,813

24,745

 
4,068

16.4
 %
 
60,203

49,674

 
10,529

21.2
 %
Property management fee revenue
467

548

 
(81
)
(14.8
)%
 
1,029

1,035

 
(6
)
(0.6
)%
 
146,734

138,580

 
8,154

5.9
 %
 
296,493

274,900

 
21,593

7.9
 %
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
61,479

57,136

 
(4,343
)
(7.6
)%
 
125,715

115,407

 
(10,308
)
(8.9
)%
Depreciation
36,039

34,144

 
(1,895
)
(5.6
)%
 
72,271

67,788

 
(4,483
)
(6.6
)%
Amortization
14,955

13,599

 
(1,356
)
(10.0
)%
 
29,625

28,172

 
(1,453
)
(5.2
)%
Impairment losses on real estate assets
5,354


 
(5,354
)
 %
 
5,354


 
(5,354
)
 %
General and administrative
8,083

7,145

 
(938
)
(13.1
)%
 
14,490

11,700

 
(2,790
)
(23.8
)%
 
125,910

112,024

 
(13,886
)
(12.4
)%
 
247,455

223,067

 
(24,388
)
(10.9
)%
Real estate operating income
20,824

26,556

 
(5,732
)
(21.6
)%
 
49,038

51,833

 
(2,795
)
(5.4
)%
Other income / (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(18,172
)
(18,012
)
 
(160
)
(0.9
)%
 
(37,188
)
(36,938
)
 
(250
)
(0.7
)%
Other income / (expense)
596

(366
)
 
962

262.8
 %
 
415

(456
)
 
871

191.0
 %
Net recoveries / (loss) from casualty events and litigation settlements (1)

1,480

 
(1,480
)
(100.0
)%
 

4,522

 
(4,522
)
(100.0
)%
Equity in income / (loss) of unconsolidated joint ventures
124

(333
)
 
457

137.2
 %
 
283

(599
)
 
882

147.2
 %
 
(17,452
)
(17,231
)
 
(221
)
(1.3
)%
 
(36,490
)
(33,471
)
 
(3,019
)
(9.0
)%
Income from continuing operations
3,372

9,325

 
(5,953
)
(63.8
)%
 
12,548

18,362

 
(5,814
)
(31.7
)%
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss
(3
)
514

 
(517
)
(100.6
)%
 
(3
)
980

 
(983
)
(100.3
)%
Gain / (loss) on sale of properties

1,304

 
(1,304
)
(100.0
)%
 

1,198

 
(1,198
)
(100.0
)%
Income / (loss) from discontinued operations (2)
(3
)
1,818

 
(1,821
)
(100.2
)%
 
(3
)
2,178

 
(2,181
)
(100.1
)%
Gain on sale of real estate
26,611

1,140

 
25,471

2,234.3
 %
 
36,684

1,140

 
35,544

3,117.9
 %
Net income
29,980

12,283

 
17,697

144.1
 %
 
49,229

21,680

 
27,549

127.1
 %
Less: Net income attributable to noncontrolling interest
(4
)
(4
)
 

 %
 
(8
)
(8
)
 

 %
Net income attributable to Piedmont
$
29,976

$
12,279

 
$
17,697

144.1
 %
 
$
49,221

$
21,672

 
$
27,549

127.1
 %
Weighted average common shares outstanding - diluted
153,757

154,445

 
 
 
 
154,174

154,728

 
 
 
Net income per share available to common stockholders - diluted
$
0.20

$
0.08

 
 
 
 
$
0.32

$
0.14

 
 
 

(1)
Presented on this line are net expenses and insurance reimbursements related to 1) lawsuits settled in 2013 and 2) damage caused by Hurricane Sandy in October 2012.
(2)
Reflects operating results for 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 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.

14



Piedmont Office Realty Trust, Inc.
Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations
Unaudited (in thousands except for per share data)


 
 
Three Months Ended
 
Six Months Ended
 
 
6/30/2015

6/30/2014
 
6/30/2015
 
6/30/2014
 
 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
 
$
29,976

 
$
12,279

 
$
49,221

 
$
21,672

Depreciation (1) (2)
 
35,935

 
34,119

 
72,032

 
67,846

Amortization (1)
 
14,971

 
13,608

 
29,657

 
28,412

Impairment loss (1)
 
5,354

 

 
5,354

 

Loss / (gain) on sale of properties (1)
 
(26,611
)
 
(2,275
)
 
(36,684
)
 
(2,169
)
NAREIT funds from operations applicable to common stock
 
59,625

 
57,731

 
119,580

 
115,761

Adjustments:
 
 
 
 
 
 
 
 
Acquisition costs
 
3

 
363

 
147

 
429

Loss / (gain) on extinguishment of swaps
 
132

 

 
132

 

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

 
(1,480
)
 

 
(4,522
)
Core funds from operations applicable to common stock
 
59,760

 
56,614

 
119,859

 
111,668

Adjustments:
 
 
 
 
 
 
 
 
Deferred financing cost amortization
 
680

 
615

 
1,404

 
1,478

Amortization of note payable step-up
 
(121
)
 
(6
)
 
(242
)
 
(6
)
Amortization of discount on senior notes
 
49

 
47

 
97

 
81

Depreciation of non real estate assets
 
165

 
115

 
361

 
229

Straight-line effects of lease revenue (1)
 
(3,745
)
 
(7,758
)
 
(8,255
)
 
(17,170
)
Stock-based and other non-cash compensation expense
 
1,692

 
1,271

 
2,417

 
1,907

Amortization of lease-related intangibles (1)
 
(1,102
)
 
(1,279
)
 
(2,224
)
 
(2,643
)
Acquisition costs
 
(3
)
 
(363
)
 
(147
)
 
(429
)
Non-incremental capital expenditures (3)
 
(11,641
)
 
(26,151
)
 
(21,928
)
 
(39,972
)
Adjusted funds from operations applicable to common stock
 
$
45,734

 
$
23,105

 
$
91,342

 
$
55,143

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
 
153,757

 
154,445

 
154,174

 
154,728

 
 
 
 
 
 
 
 
 
Funds from operations per share (diluted)
 
$
0.39

 
$
0.37

 
$
0.78

 
$
0.75

Core funds from operations per share (diluted)
 
$
0.39

 
$
0.37

 
$
0.78

 
$
0.72

Adjusted funds from operations per share (diluted)
 
$
0.30

 
$
0.15

 
$
0.59

 
$
0.36




(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 39.

15



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

 
Three Months Ended
 
Six Months Ended
 
6/30/2015
 
6/30/2014
 
6/30/2015
 
6/30/2014
Net income attributable to Piedmont
$
29,976

 
$
12,279

 
$
49,221

 
$
21,672

Net income attributable to noncontrolling interest
4

 
4

 
8

 
8

Interest expense (1)
18,172

 
18,012

 
37,188

 
36,938

Depreciation (1)
36,100

 
34,234

 
72,393

 
68,075

Amortization (1)
14,971

 
13,608

 
29,657

 
28,412

Acquisition costs
3

 
363

 
147

 
429

Impairment loss (1)
5,354

 

 
5,354

 

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

 
(1,480
)
 

 
(4,522
)
Loss / (gain) on sale of properties (1)
(26,611
)
 
(2,275
)
 
(36,684
)
 
(2,169
)
Core EBITDA
77,969

 
74,745

 
157,284

 
148,843

General & administrative expenses (1)
8,102

 
7,159

 
14,518

 
11,742

Management fee revenue (2)
(232
)
 
(281
)
 
(562
)
 
(540
)
Other (income) / expense (1) (3)
(599
)
 
3

 
(562
)
 
32

Straight-line effects of lease revenue (1)
(3,745
)
 
(7,758
)
 
(8,255
)
 
(17,170
)
Amortization of lease-related intangibles (1)
(1,102
)
 
(1,279
)
 
(2,224
)
 
(2,643
)
Property net operating income (cash basis)
80,393

 
72,589

 
160,199

 
140,264

Change period over period
10.8
%
 
N/A

 
14.2
%
 
N/A

 
 
 
 
 
 
 
 
Deduct net operating (income) / loss from:
 
 
 
 
 
 
 
Acquisitions (4)
(2,842
)
 
(55
)
 
(5,507
)
 
(55
)
Dispositions (5)
(562
)
 
(3,230
)
 
(2,700
)
 
(6,718
)
Other investments (6)
(251
)
 
89

 
(546
)
 
472

Same store net operating income (cash basis)
$
76,738

 
$
69,393

 
$
151,446

 
$
133,963

Change period over period
10.6
%
 
N/A

 
13.1
%
 
N/A










(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 5 Wall Street in Burlington, MA, purchased on June 27, 2014; 1155 Perimeter Center West in Atlanta, GA, purchased on August 28, 2014; TownPark Land in Lake Mary, FL, purchased on November 21, 2014; and Park Place on Turtle Creek in Dallas, TX, purchased on January 16, 2015.
(5)
Dispositions consist of 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; 2020 West 89th Street in Leawood, KS, sold on May 19, 2014; 3900 Dallas Parkway in Plano, TX, sold on January 30, 2015; 5601 Headquarters Drive in Plano, TX, sold on April 28, 2015; River Corporate Center in Tempe, AZ, sold on April 29, 2015; and Copper Ridge Center in Lyndhurst, NJ, sold on May 1, 2015.
(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 38. The operating results from both the office and retail portions of 3100 Clarendon Boulevard in Arlington, VA, are included in this line item.

16





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



Same Store Net Operating Income (Cash Basis)
 
 
 
 
 
 
 
 
 
 
 
Contributions from Seven of the Largest Markets
Three Months Ended
 
Six Months Ended
 
6/30/2015
 
6/30/2014
 
6/30/2015
 
6/30/2014
 
$
%
 
$
%
 
$
%
 
$
%
Washington, D.C. (1)
$
12,855

16.8

 
$
15,208

21.9

 
$
25,321

16.7

 
$
28,601

21.4

New York (2)
11,428

14.9

 
10,287

14.8

 
22,185

14.7

 
21,165

15.8

Chicago (3) (4)
10,931

14.2

 
7,328

10.6

 
21,695

14.3

 
10,962

8.2

Dallas (5)
5,750

7.5

 
3,725

5.4

 
11,375

7.5

 
7,562

5.6

Boston
5,426

7.1

 
5,962

8.6

 
11,350

7.5

 
11,748

8.8

Minneapolis (6)
4,790

6.2

 
5,189

7.5

 
9,425

6.2

 
10,697

8.0

Los Angeles (7)
4,192

5.5

 
3,293

4.7

 
8,341

5.5

 
6,876

5.1

Other (8)
21,366

27.8

 
18,401

26.5

 
41,754

27.6

 
36,352

27.1

Total
$
76,738

100.0

 
$
69,393

100.0

 
$
151,446

100.0

 
$
133,963

100.0

 
 
 
 
 
 
 
 
 
 
 
 









(1)
The decrease in Washington, D.C. Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily attributable to lease expirations at 9200 and 9211 Corporate Boulevard in Rockville, MD, a lease contraction at 4250 North Fairfax Drive in Arlington, VA, as well as a one-time, $1.1 million rental income true-up in 2014 associated with the increased rental rate under the renewed National Park Service lease at 1201 Eye Street in Washington, D.C.
(2)
The increase in New York Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily attributable to the expiration of the rental abatement period associated with the Gemini Technology lease renewal which became effective at the beginning of 2014 at 2 Gatehall Drive in Parsippany, NJ.
(3)
The increase in Chicago Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily related to the expiration of rental and operating expense recovery abatement periods associated with several leases at 500 West Monroe Street in Chicago, IL, Aon Center in Chicago, IL, and Windy Point II in Schaumburg, IL.
(4)
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 rents for which are included in our ALR calculation). As the gross rent abatements burn off and as the 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.
(5)
The increase in Dallas Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily related to: 1) the commencement of a new lease with Epsilon Data Management at 6021 Connection Drive in Irving, TX, 2) the expirations of the rental abatement periods associated with several new-tenant leases at Las Colinas Corporate Center II in Irving, TX, and 3) increased economic occupancy associated with recent leasing activity at One Lincoln Park in Dallas, TX.
(6)
The decrease in Minneapolis Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily due 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.
(7)
The increase in Los Angeles Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily related to the expiration of rental abatement periods associated with several new leases at 800 North Brand Boulevard in Glendale, CA.
(8)
The increase in Other Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily attributable to increased rental income as a result of: 1) increased economic occupancy associated with new-tenant leasing activity at 400 TownPark in Lake Mary, FL, The Medici in Atlanta, GA, and Glenridge Highlands II in Atlanta, GA, 2) the restructured lease with Independence Blue Cross at 1901 Market Street in Philadelphia, PA, and 3) a tenant expansion at Chandler Forum in Chandler, AZ.


17



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

 
Three Months Ended
 
Six Months Ended
 
6/30/2015
 
6/30/2014
 
6/30/2015
 
6/30/2014
Net income attributable to Piedmont
$
29,976

 
$
12,279

 
$
49,221

 
$
21,672

Net income attributable to noncontrolling interest
4

 
4

 
8

 
8

Interest expense (1)
18,172

 
18,012

 
37,188

 
36,938

Depreciation (1)
36,100

 
34,234

 
72,393

 
68,075

Amortization (1)
14,971

 
13,608

 
29,657

 
28,412

Acquisition costs
3

 
363

 
147

 
429

Impairment loss (1)
5,354

 

 
5,354

 

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

 
(1,480
)
 

 
(4,522
)
Loss / (gain) on sale of properties (1)
(26,611
)
 
(2,275
)
 
(36,684
)
 
(2,169
)
Core EBITDA
77,969

 
74,745

 
157,284

 
148,843

General & administrative expenses (1)
8,102

 
7,159

 
14,518

 
11,742

Management fee revenue (2)
(232
)
 
(281
)
 
(562
)
 
(540
)
Other (income) / expense (1) (3)
(599
)
 
3

 
(562
)
 
32

Property net operating income (accrual basis)
85,240

 
81,626

 
170,678

 
160,077

Change period over period
4.4
%
 
N/A

 
6.6
%
 
N/A

 
 
 
 
 
 
 
 
Deduct net operating (income) / loss from:
 
 
 
 
 
 
 
Acquisitions (4)
(3,034
)
 
(61
)
 
(5,942
)
 
(60
)
Dispositions (5)
(535
)
 
(3,014
)
 
(2,544
)
 
(6,418
)
Other investments (6)
(299
)
 
80

 
(599
)
 
452

Same store net operating income (accrual basis)
$
81,372

 
$
78,631

 
$
161,593

 
$
154,051

Change period over period
3.5
%
 
N/A

 
4.9
%
 
N/A










(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 5 Wall Street in Burlington, MA, purchased on June 27, 2014; 1155 Perimeter Center West in Atlanta, GA, purchased on August 28, 2014; TownPark Land in Lake Mary, FL, purchased on November 21, 2014; and Park Place on Turtle Creek in Dallas, TX, purchased on January 16, 2015.
(5)
Dispositions consist of 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; 2020 West 89th Street in Leawood, KS, sold on May 19, 2014; 3900 Dallas Parkway in Plano, TX, sold on January 30, 2015; 5601 Headquarters Drive in Plano, TX, sold on April 28, 2015; River Corporate Center in Tempe, AZ, sold on April 29, 2015; and Copper Ridge Center in Lyndhurst, NJ, sold on May 1, 2015.
(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 38. The operating results from both the office and retail portions of 3100 Clarendon Boulevard in Arlington, VA, are included in this line item.



18



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


Same Store Net Operating Income (Accrual Basis)
 
 
 
 
 
 
 
 
 
 
 
Contributions from Seven of the Largest Markets
Three Months Ended
 
Six Months Ended
 
6/30/2015
 
6/30/2014
 
6/30/2015
 
6/30/2014
 
$
%
 
$
%
 
$
%
 
$
%
Washington, D.C. (1)
$
13,547

16.6

 
$
16,317

20.8

 
$
26,698

16.5

 
$
29,911

19.4

Chicago (2) (3)
13,317

16.4

 
11,764

15.0

 
26,434

16.4

 
20,520

13.3

New York (4)
10,825

13.3

 
11,155

14.2

 
21,090

13.1

 
23,413

15.2

Boston
5,865

7.2

 
6,168

7.8

 
11,988

7.3

 
12,287

8.0

Dallas (5)
5,900

7.3

 
4,033

5.1

 
11,766

7.3

 
8,402

5.5

Minneapolis (6)
5,047

6.2

 
5,543

7.0

 
10,134

6.3

 
11,497

7.5

Los Angeles
4,257

5.2

 
3,936

5.0

 
8,505

5.3

 
8,079

5.2

Other (7)
22,614

27.8

 
19,715

25.1

 
44,978

27.8

 
39,942

25.9

Total
$
81,372

100.0

 
$
78,631

100.0

 
$
161,593

100.0

 
$
154,051

100.0

 
 
 
 
 
 
 
 
 
 
 
 











(1)
The decrease in Washington, D.C. Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily attributable to lease expirations at 9200 and 9211 Corporate Boulevard in Rockville, MD, a lease contraction at 4250 North Fairfax Drive in Arlington, VA, as well as a one-time, $1.1 million rental income true-up in 2014 associated with the increased rental rate under the renewed National Park Service lease at 1201 Eye Street in Washington, D.C.
(2)
The increase in Chicago Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily related to increased rental income due to the commencement of several leases and/or the expiration of operating expense recovery abatement periods associated with several leases at 500 West Monroe Street in Chicago, IL, Aon Center in Chicago, IL, and Windy Point II in Schaumburg, IL.
(3)
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 the operating expense recovery abatements burn off and as the 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.
(4)
The decrease in New York Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily attributable to the downtime between the expiration of several leases and the commencement of replacement leases, as well as increased property taxes, at 60 Broad Street in New York, NY, along with lease termination income received in 2014 at 400 Bridgewater Crossing in Bridgewater, NJ.
(5)
The increase in Dallas Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily related to the commencement of a new lease with Epsilon Data Management at 6021 Connection Drive in Irving, TX, in addition to increased rental income associated with new leasing activity at One Lincoln Park in Dallas, TX.
(6)
The decrease in Minneapolis Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily due to a renewal-related contraction by US Bancorp and downtime associated with several replacement leases for spaces formerly occupied by US Bancorp at US Bancorp Center in Minneapolis, MN.
(7)
The increase in Other Same Store Net Operating Income for the three months and the six months ended June 30, 2015 as compared to the same periods in 2014 was primarily attributable to greater rental income as a result of: 1) recent new-tenant leasing activity at The Medici in Atlanta, GA, 400 TownPark in Lake Mary, FL, and 150 West Jefferson in Detroit, MI, 2) the restructured lease with Independence Blue Cross at 1901 Market Street in Philadelphia, PA, and 3) a tenant expansion at Chandler Forum in Chandler, AZ.

19



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


 
 
As of
 
As of
 
 
June 30, 2015
 
December 31, 2014
 
 
 
 
 
Common stock price (1)
 
$
17.59

 
$
18.84

Total shares outstanding
 
151,833

 
154,324

Equity market capitalization (1)
 
$
2,670,746

 
$
2,907,466

Total debt - principal amount outstanding
 
$
2,325,452

 
$
2,279,787

Total market capitalization (1)
 
$
4,996,198

 
$
5,187,253

Total debt / Total market capitalization (1)
 
46.5
%
 
43.9
%
Total gross real estate assets
 
$
5,215,938

 
$
5,253,356

Total debt / Total gross real estate assets (2)
 
44.6
%
 
43.4
%
Total debt / Total gross assets (3)
 
38.8
%
 
38.2
%










(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.

20



Piedmont Office Realty Trust, Inc.
Debt Summary
As of June 30, 2015
Unaudited ($ in thousands)

Floating Rate & Fixed Rate Debt
Debt (1)
Principal Amount
Outstanding
Weighted Average Stated
Interest Rate
Weighted Average
Maturity
 
 
 
 
 
Floating Rate
$475,000
(2) 
1.23%
50.7 months
 
 
 
 
 
Fixed Rate
1,850,452

 
3.78%
68.1 months
 
 
 
 
 
Total
$2,325,452
 
3.26%
64.6 months
    

 
Unsecured & Secured Debt
Debt (1)
Principal Amount
Outstanding
Weighted Average Stated
Interest Rate
Weighted Average
Maturity
 
 
 
 
 
 
Unsecured
$1,825,000
 
2.80%
(3) 
70.4 months
 
 
 
 
 
 
Secured
500,452

 
4.95%
 
43.2 months
 
 
 
 
 
 
Total
$2,325,452
 
3.26%
 
64.6 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
 
 
 
 
 
 
2015
$—
$—
 
—%
—%
2016
167,525
 
5.55%
7.2%
2017
140,000
 
5.76%
6.0%
2018
170,000
 
1.32%
7.3%
2019
300,000
 
2.78%
12.9%
2020 +
192,927
1,355,000
(4) 
3.09%
66.6%
 
 
 
 
 
 
Total
$500,452
$1,825,000
 
3.26%
100.0%
(1)
All of Piedmont's outstanding debt as of June 30, 2015, was interest-only debt with the exception of the $32.9 million of debt associated with 5 Wall Street located in Burlington, MA.
(2)
Amount represents the outstanding balance as of June 30, 2015, on the $500 million unsecured revolving credit facility and the $170 million unsecured term loan. Two other loans, 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 22 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. Please note that Piedmont currently has $250 million of forward-starting swaps for a 2016 fixed-rate financing. After taking into account these forward-starting swaps and the use of the proceeds from the related planned financings, the Company's effective exposure to floating interest rates is much less than the current amount of floating-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 June 18, 2019; however, there are two, six-month extension options available under the facility providing for a final extended maturity date of June 18, 2020. For the purposes of this schedule, we reflect the maturity date of the facility as the final extended maturity date of June 2020.

21



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

Facility (1)
Property
Stated Rate
Maturity
Principal Amount Outstanding as of June 30, 2015
 
 
 
 
 
 
Secured
 
 
 
 
 
$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
32,927

$160.0 Million Fixed-Rate Loan (4)
1901 Market Street
3.48
%
(5) 
7/5/2022
160,000

Subtotal / Weighted Average (6)
 
4.95
%
 
 
$
500,452

 
 
 
 
 
 
Unsecured
 
 
 
 
 
$500.0 Million Unsecured Line of Credit (7)
N/A
1.19
%
(8) 
6/18/2020
$
305,000

$170.0 Million Unsecured 2015 Term Loan
N/A
1.32
%
(9) 
5/15/2018
170,000

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

$300.0 Million Unsecured 2011 Term Loan
N/A
2.39
%
(11) 
1/15/2020
300,000

$350.0 Million Unsecured Senior Notes
N/A
3.40
%
(12) 
6/1/2023
350,000

$400.0 Million Unsecured Senior Notes
N/A
4.45
%
(13) 
3/15/2024
400,000

Subtotal / Weighted Average (6)
 
2.80
%
 
 
$
1,825,000

 
 
 
 
 
 
Total Debt - Principal Amount Outstanding / Weighted Average Stated Rate (6)
3.26
%
 
 
$
2,325,452

GAAP Accounting Adjustments (14)
 
 
 
 
(5,157
)
Total Debt - GAAP Amount Outstanding
 
 
 
$
2,320,295

(1)
All of Piedmont’s outstanding debt as of June 30, 2015, was interest-only debt with the exception of the $32.9 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 on a 25-year amortization schedule.
(4)
On June 23, 2015, Piedmont closed on a new $160 million, 7-year, fixed-rate mortgage secured by 1901 Market Street located in Philadelphia, PA. The interest-only loan matures on July 5, 2022.
(5)
The stated interest rate on the $160 million fixed-rate loan is 3.48%. After the application of interest rate hedges, the effective cost of the financing is approximately 3.58%.
(6)
Weighted average is based on the principal amount outstanding and interest rate at June 30, 2015.
(7)
All of Piedmont’s outstanding debt as of June 30, 2015, was term debt with the exception of $305 million outstanding on our unsecured revolving credit facility. On June 18, 2015, Piedmont closed on a new $500 million unsecured revolving credit facility that replaced the previous facility that was scheduled to mature on August 19, 2016. The new facility has an initial maturity date of June 18, 2019; however, there are two, six-month extension options available under the facility providing for a total extension of up to one year to June 18, 2020. The final extended maturity date is presented on this schedule.
(8)
The interest rate presented for the $500 million unsecured revolving credit facility is the weighted average interest rate for all outstanding draws as of June 30, 2015. Piedmont may select from multiple interest rate options with each draw under the facility, including the prime rate and various length LIBOR locks. All LIBOR selections are subject to an additional spread (1.00% as of June 30, 2015) over the selected rate based on Piedmont’s current credit rating.
(9)
The $170 million unsecured term loan has a variable interest rate. Piedmont may select from multiple interest rate options under the facility, including the prime rate and various length LIBOR locks. All LIBOR selections are subject to an additional spread (1.125% as of June 30, 2015) over the selected rate based on Piedmont’s current credit rating.
(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 $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. Additionally, for the period from November 22, 2016 to January 15, 2020, Piedmont has entered into interest rate swap agreements which effectively fix the interest rate on this loan at 3.35%, assuming no credit rating change for the Company.
(12)
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%.
(13)
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%.
(14)
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, the $300 million unsecured 2011 term loan, the $170 million unsecured term loan, the $500 million unsecured line of credit and the $160 million mortgage, 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.

22



Piedmont Office Realty Trust, Inc.
Debt Analysis
As of June 30, 2015
Unaudited


Bank Debt Covenant Compliance (1)
Required
Actual



Maximum Leverage Ratio
0.60
0.46
Minimum Fixed Charge Coverage Ratio (2)
1.50
3.72
Maximum Secured Indebtedness Ratio
0.40
0.10
Minimum Unencumbered Leverage Ratio
1.60
2.26
Minimum Unencumbered Interest Coverage Ratio (3)
1.75
4.44

Bond Covenant Compliance (4)
Required
Actual
 
 
 
Total Debt to Total Assets
60% or less
43.8%
Secured Debt to Total Assets
40% or less
9.4%
Ratio of Consolidated EBITDA to Interest Expense
1.50 or greater
4.32
Unencumbered Assets to Unsecured Debt
150% or greater
251%


Three Months Ended
Six Months Ended
Year Ended
Other Debt Coverage Ratios
June 30, 2015
June 30, 2015
December 31, 2014

 
 
 
Average net debt to core EBITDA (5)
7.4 x
7.3 x
6.9 x
Fixed charge coverage ratio (6)
4.0 x
4.0 x
4.0 x
Interest coverage ratio (7)
4.1 x
4.0 x
4.0 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 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 the periods ended June 30, 2015 and December 31, 2014. The Company had capitalized interest of $885,576 for the three months ended June 30, 2015, $1,709,346 for the six months ended June 30, 2015, and $2,074,620 for the twelve months ended December 31, 2014. The Company had principal amortization of $201,768 for the three months ended June 30, 2015, $334,737 for the six months ended June 30, 2015, and $520,067 for the twelve months ended December 31, 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 $885,576 for the three months ended June 30, 2015, $1,709,346 for the six months ended June 30, 2015, and $2,074,620 for the twelve months ended December 31, 2014.

23



Piedmont Office Realty Trust, Inc.
Tenant Diversification (1) 
As of June 30, 2015
(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
7

(4)
$46,705
7.9
937
5.0
State of New York
AA+ / Aa1
1
2019

24,455
4.1
481
2.6
US Bancorp
A+ / A1
3
2023 / 2024

21,775
3.7
733
3.9
Independence Blue Cross
No rating available
1
2033

17,671
3.0
801
4.3
GE
AA+ / A1
2
2027

16,354
2.8
480
2.6
Aon
A- / Baa2
2
2028

15,071
2.5
457
2.5
Nestle
AA / Aa2
1
2021

12,117
2.0
401
2.2
City of New York
AA / Aa2
1
2020

10,462
1.8
313
1.7
KPMG
No rating available
2
2020 / 2027

9,238
1.6
279
1.5
Gallagher
No rating available
1
2018

8,923
1.5
307
1.6
Catamaran
BB+ / Ba2
1
2025

8,252
1.4
301
1.6
Caterpillar Financial
A / A2
1
2022

7,968
1.3
312
1.7
DDB Needham
BBB+ / Baa1
1
2018

7,805
1.3
212
1.1
Harvard University
AAA / Aaa
2
2017 / 2018

7,267
1.2
110
0.6
Jones Lang LaSalle
BBB / Baa2
1
2032

7,212
1.2
199
1.1
Gemini
BBB+ / A3
1
2021

6,767
1.1
205
1.1
Edelman
No rating available
1
2024

6,660
1.1
184
1.0
Technip
BBB+
1
2018

6,595
1.1
150
0.8
Harcourt
BBB+
1
2016

6,498
1.1
195
1.0
Raytheon
A / A3
2
2019

6,447
1.1
440
2.4
Key Bank
A- / A3
1
2016

6,302
1.1
200
1.1
First Data Corporation
B / B3
1
2020

6,132
1.0
195
1.0
Epsilon Data Management
No rating available
2
2026

6,107
1.0
250
1.3
Archon Group
A- / A3
2
2018

5,996
1.0
235
1.3
Integrys
A- / A3
1
2029

5,780
1.0
174
0.9
Henry M Jackson
No rating available
2
2022
 
5,688
1.0
145
0.8
Other


Various
 
303,351
51.1
9,916
53.3
Total



 
$593,598
100.0
18,612
100.0


24



Tenant Diversification
Percentage of Annualized Leased Revenue (%)
June 30, 2015 as compared to December 31, 2014


    
        









(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. Tenants without a credit rating are no indication of credit worthiness; in most cases, the lack of a credit rating reflects that a tenant has not sought such a rating.
(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 2030.







25



Piedmont Office Realty Trust, Inc.
Tenant Credit Rating & Lease Distribution Information
As of June 30, 2015


Tenant Credit Rating (1) 
Rating Level
Annualized
Lease Revenue
(in thousands)
Percentage of
Annualized Lease
Revenue (%)
 
 
 
AAA / Aaa
$58,052
9.8
AA / Aa
91,845
15.5
A / A
116,736
19.7
BBB / Baa
50,435
8.5
BB / Ba
34,550
5.8
B / B
21,664
3.6
Below

Not rated (2)
220,316
37.1
Total
$593,598
100.0
 
 
 



Lease Distribution
Lease Size
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
220
31.8
$21,662
3.7
210

1.1
2,501 - 10,000
209
30.2
37,305
6.3
1,118

6.0
10,001 - 20,000
87
12.6
36,570
6.2
1,218

6.5
20,001 - 40,000
70
10.1
63,795
10.7
2,030

10.9
40,001 - 100,000
56
8.1
104,072
17.5
3,323

17.9
Greater than 100,000
50
7.2
330,194
55.6
10,713

57.6
Total
692
100.0
$593,598
100.0
18,612

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.

26



Piedmont Office Realty Trust, Inc.
Leased Percentage Information
(in thousands)


 
 
Three Months Ended
 
Three Months Ended
 
 
 
June 30, 2015
 
June 30, 2014
 
 
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 
As of March 31, 20xx
19,112

21,531

88.8
%
 
18,309

21,107

86.7
%
 
 
New leases
357



 
1,260



 
 
Expired leases
(324
)


 
(1,165
)


 
 
Other
(1
)
2


 
(1
)
50


 
 
Subtotal
19,144

21,533

88.9
%
 
18,403

21,157

87.0
%
 
 
Acquisitions during period



 
182

182


 
 
Dispositions during period
(532
)
(567
)

 
(233
)
(253
)

 
 
As of June 30, 20xx (2)
18,612

20,966

88.8
%
 
18,352

21,086

87.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
Six Months Ended
 
 
 
June 30, 2015
 
June 30, 2014
 
 
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 
As of December 31, 20xx
18,828

21,471

87.7
%
 
18,737

21,490

87.2
%
 
 
New leases
1,055



 
2,267



 
 
Expired leases
(777
)


 
(2,253
)


 
 
Other (3)
2

4


 
(247
)
(191
)

 
 
Subtotal
19,108

21,475

89.0
%
 
18,504

21,299

86.9
%
 
 
Acquisitions during period
156

178


 
182

182


 
 
Dispositions during period
(652
)
(687
)

 
(334
)
(395
)

 
 
As of June 30, 20xx (2)
18,612

20,966

88.8
%
 
18,352

21,086

87.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Analysis
 
 
 
 
 
 
 
 
 
Less acquisitions / dispositions after June 30, 2014
and redevelopments (4) (5)
(533
)
(555
)
96.0
%
 
(651
)
(687
)
94.8
%
 
 
Same Store Leased Percentage (2)
18,079

20,411

88.6
%
 
17,701

20,399

86.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
(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 and redevelopments, please refer to pages 37 and 38, 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. Redevelopments commenced during the previous twelve months are deducted from the previous period data.

27



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


 
Three Months Ended
 
 
June 30, 2015
 
 
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
370
64.6%
1.8%
1.4%
12.4%
 
Leases executed for spaces excluded from analysis (5)
202
35.4%
 
 
 
 

 
 
 
 
 
 
 
 
Six Months Ended
 
 
June 30, 2015
 
 
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
690
49.6%
3.3%
1.0%
11.2%
 
Leases executed for spaces excluded from analysis (5)
699
50.4%
 
 
 
 
 
 
 
 
 
 
 











(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 last twelve months of cash rents for the previous leases were compared to the first twelve months of cash rents for 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 usage patterns of tenant improvement allowances by 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 June 30, 2015
(in thousands)

 
 
 
Expiration Year
 
Annualized Lease
Revenue (1)
Percentage of
Annualized Lease
Revenue (%)
 Rentable
Square Footage
 Percentage of
Rentable
Square Footage (%)
Vacant
 
$—
2,354
11.2
2015 (2)
 
6,714
1.1
217
1.0
2016 (3)
 
38,891
6.6
1,314
6.3
2017
 
49,957
8.4
1,115
5.3
2018
 
53,702
9.0
1,675
8.0
2019
 
65,128
11.0
2,152
10.3
2020
 
56,484
9.5
2,003
9.5
2021
 
37,669
6.4
1,206
5.7
2022
 
39,722
6.7
1,323
6.3
2023
 
34,571
5.8
1,174
5.6
2024
 
47,640
8.0
1,536
7.3
2025
 
22,958
3.9
772
3.7
2026
 
18,482
3.1
656
3.1
2027
 
32,772
5.5
916
4.4
Thereafter
 
88,908
15.0
2,553
12.3
Total / Weighted Average
 
$593,598
100.0
20,966
100.0
Average Lease Term Remaining
6/30/2015
7.1 years
12/31/2014
7.1 years
(1)
Annualized rental income associated with each newly executed lease for currently occupied space is incorporated herein only at the expiration date for the current lease. Annualized rental income associated with each such new lease 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 June 30, 2015 aggregating 69,000 square feet and Annualized Lease Revenue of $2.0 million.
(3)
Leases and other revenue-producing agreements on a month-to-month basis, aggregating 7,000 square feet and Annualized Lease Revenue of $369 thousand, 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 June 30, 2015
(in thousands)

 
 
Q3 2015 (1)
 
Q4 2015
 
Q1 2016
 
Q2 2016
Location
 
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
 
$—
 
$—
 
$—
 
$—
Austin
 
 
 
 
194
6,499
Boston
 
 
 
1
23
 
Central & South Florida
 
7
162
 
 
 
17
462
Chicago
 
39
1,158
 
34
853
 
6
243
 
54
1,708
Dallas
 
23
667
 
25
642
 
20
518
 
42
1,068
Detroit
 
20
579
 
22
450
 
2
41
 
Houston
 
 
 
 
Los Angeles
 
 
6
 
30
860
 
22
1,376
Minneapolis
 
 
4
131
 
39
 
7
214
Nashville
 
 
 
 
201
2,579
New York
 
3
344
 
6
189
 
201
6,433
 
14
451
Philadelphia
 
 
 
 
Phoenix
 
 
 
 
46
1,056
Washington, D.C.
 
9
298
 
19
626
 
59
2,682
 
119
2,915
Other
 
 
6
32
 
 


Total / Weighted Average (3)
 
101
$3,208
 
116
$2,929
 
319
$10,839
 
716
$18,328












(1)
Includes leases with an expiration date of June 30, 2015 aggregating 69,000 square feet and expiring lease revenue of $2.0 million. 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 June 30, 2015
(in thousands)

 
12/31/2015 (1)
 
12/31/2016
 
12/31/2017
 
12/31/2018
 
12/31/2019
Location
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
$—
 
48
$965
 
41
$1,002
 
110
$2,350
 
428
$10,510
Austin
 
195
6,503
 
 
 
Boston
 
3
243
 
116
6,714
 
147
6,456
 
516
9,457
Central & South Florida
7
162
 
71
1,902
 
158
3,999
 
48
1,202
 
Chicago
73
2,010
 
77
2,578
 
33
8,406
(3) 
642
21,325
 
24
625
Dallas
48
1,309
 
94
2,507
 
175
4,808
 
385
9,881
 
193
5,221
Detroit
42
1,029
 
28
673
 
63
1,315
 
 
229
4,756
Houston
 
 
2
 
150
6,613
 
Los Angeles
6
 
91
3,679
 
54
1,968
 
25
679
 
61
1,643
Minneapolis
4
131
 
23
836
 
36
1,251
 
35
1,199
 
145
4,203
Nashville
 
201
2,579
 
 
 
New York
9
533
 
233
7,826
 
50
1,642
 
79
2,046
 
490
25,112
Philadelphia
 
 
 
 
Phoenix
 
46
1,056
 
 
 
Washington, D.C.
28
924
 
204
6,829
 
389
20,048
 
38
1,608
 
66
3,657
Other
6
32
 
 
 
16
364
 
Total / Weighted Average (4)
217
$6,136
 
1,314
$38,176
 
1,115
$51,155
 
1,675
$53,723
 
2,152
$65,184












(1)
Includes leases with an expiration date of June 30, 2015 aggregating 69,000 square feet and expiring lease revenue of $2.0 million. 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)
Chicago expirations in 2017 include two parking garage agreements with annualized lease revenue of $7.1 million. The parking garage revenue will continue beyond 2017 despite the expiration of the current parking garage agreements at that time.
(4)
Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule on page 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 June 30, 2015
Unaudited (in thousands)

 
For the Three Months Ended
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
6/30/2014
Non-incremental
 
 
 
 
 
 
 
 
 
Building / construction / development
$
441

 
$
1,704

 
$
1,657

 
$
6,135

 
$
3,734

Tenant improvements
4,226

 
6,717

 
10,420

 
18,209

 
18,276

Leasing costs
6,974

 
1,866

 
1,691

 
6,546

 
4,141

Total non-incremental
11,641

 
10,287

 
13,768

 
30,890

 
26,151

Incremental
 
 
 
 
 
 
 
 
 
Building / construction / development
14,019

 
19,949

 
23,172

 
23,390

 
12,465

Tenant improvements
3,960

 
11,106

 
11,455

 
7,802

 
8,394

Leasing costs
3,296

 
2,593

 
4,596

 
2,400

 
2,824

Total incremental
21,275

 
33,648

 
39,223

 
33,592

 
23,683

Total capital expenditures
$
32,916

 
$
43,935

 
$
52,991

 
$
64,482

 
$
49,834


 
 
 
 
 
 
Non-incremental tenant improvement commitments (1)
 
 
 
 
Non-incremental tenant improvement commitments outstanding as of March 31, 2015
 
$
46,219

 
 
New non-incremental tenant improvement commitments related to leases executed during period
 
12,348

 
 
Non-incremental tenant improvement expenditures
(4,226
)
 
 
 
Less: Tenant improvement expenditures fulfilled through accrued liabilities already presented on Piedmont's balance sheet, expired commitments or other adjustments
(5,233
)
 
 
 
Non-incremental tenant improvement commitments fulfilled, expired or other adjustments
 
(9,459
)
 
 
Total as of June 30, 2015
 
$
49,108

 
 
 
 
 
 









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, are due over the next five years, and have not otherwise been presented on Piedmont's financial statements. The four largest commitments total approximately $28.8 million, or 59% of the total outstanding commitments.

32



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

 
 
For the Three Months
Ended June 30, 2015
For the Six Months
Ended June 30, 2015
For the Year Ended
 
 
2014
2013
2012
Renewal Leases
 
 
 
 
 
 
 
 
 
 
 
Number of leases
16
 
40
 
56
 
56
 
45
 
 
Square feet 
245,668
 
688,176
 
959,424
 
2,376,177
 
1,150,934
 
 
Tenant improvements per square foot (1)
$27.08
 
$12.95
 
$19.02
 
$14.24
 
$19.12
 
 
Leasing commissions per square foot
$16.98
 
$8.69
 
$8.33
 
$4.66
 
$6.64
 
 
Total per square foot
$44.06
 
$21.64
 
$27.35
 
$18.90
 
$25.76
 
 
Tenant improvements per square foot per year of lease term
$3.33
 
$2.71
 
$2.97
 
$1.88
 
$2.90
 
 
Leasing commissions per square foot per year of lease term
$2.09
 
$1.82
 
$1.30
 
$0.62
 
$1.01
 
 
Total per square foot per year of lease term
$5.42
(2) 
$4.53
 
$4.27
(3) 
$2.50
 
$3.91
(4) 
New Leases (5)
 
 
 
 
 
 
 
 
 
 
 
Number of leases
21
 
47
 
98
 
87
 
92
 
 
Square feet
325,238
 
698,518
 
1,142,743
 
1,050,428
 
1,765,510
 
 
Tenant improvements per square foot (1)
$39.94
 
$44.73
 
$34.46
 
$35.74
 
$47.64
 
 
Leasing commissions per square foot
$22.74
 
$18.04
 
$15.19
 
$12.94
 
$18.49
 
 
Total per square foot
$62.68
 
$62.77
 
$49.65
 
$48.68
 
$66.13
 
 
Tenant improvements per square foot per year of lease term
$3.37
 
$4.26
 
$3.78
 
$4.17
 
$4.30
 
 
Leasing commissions per square foot per year of lease term
$1.92
 
$1.72
 
$1.66
 
$1.51
 
$1.67
 
 
Total per square foot per year of lease term
$5.29
 
$5.98
(6) 
$5.44
 
$5.68
 
$5.97
 
Total
 
 
 
 
 
 
 
 
 
 
 
Number of leases
37
 
87
 
154
 
143
 
137
 
 
Square feet
570,906
 
1,386,694
 
2,102,167
 
3,426,605
 
2,916,444
 
 
Tenant improvements per square foot (1)
$34.41
 
$28.96
 
$27.41
 
$20.83
 
$36.39
 
 
Leasing commissions per square foot
$20.26
 
$13.40
 
$12.06
 
$7.20
 
$13.81
 
 
Total per square foot
$54.67
 
$42.36
 
$39.47
 
$28.03
 
$50.20
 
 
Tenant improvements per square foot per year of lease term
$3.35
 
$3.78
 
$3.48
 
$2.64
 
$3.91
 
 
Leasing commissions per square foot per year of lease term
$1.97
 
$1.75
 
$1.53
 
$0.91
 
$1.48
 
 
Total per square foot per year of lease term
$5.32
 
$5.53
(6) 
$5.01
(3) 
$3.55
 
$5.39
 
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 usage patterns of tenant improvement allowances by the Company's tenants.
(2)
The average committed capital cost per square foot per year of lease term for renewal leases completed during the second quarter of 2015 was higher than our historical performance on this measure primarily as a result of two long-term lease renewals completed in Washington, D.C.
(3)
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 twelve months ended December 31, 2014 would be $2.12 and $4.47, respectively.
(4)
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.
(5)
In prior years, Piedmont opportunistically 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 most of the value-add properties acquired by the Company had large vacancies, many of which had not previously been leased (first generation spaces), the leasing of those vacancies has negatively affected Piedmont’s contractual tenant improvements on a per square foot and a per square foot per year basis for new leases.
(6)
During 2015, we completed one large, 15-year lease with a significant capital commitment: United States of America (Corporation for National and Community Service) at One Independence Square in Washington, D.C. If the costs associated with this new 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 new leases and total leases completed during the six months ended June 30, 2015 would be $5.45 and $5.12, respectively.

33



Piedmont Office Realty Trust, Inc.
Geographic Diversification
As of June 30, 2015
($ 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
$135,481
22.8
4,832
23.1
3,929
81.3
Washington, D.C.
12
98,181
16.5
3,038
14.5
2,114
69.6
New York
5
78,324
13.2
2,167
10.3
2,124
98.0
Minneapolis
4
45,515
7.7
1,617
7.7
1,442
89.2
Dallas
9
45,060
7.6
1,798
8.6
1,748
97.2
Boston
8
42,430
7.1
1,476
7.0
1,476
100.0
Atlanta
7
33,592
5.7
1,447
6.9
1,331
92.0
Los Angeles
4
30,487
5.1
1,010
4.8
992
98.2
Detroit
3
17,954
3.0
817
3.9
743
90.9
Philadelphia
1
17,671
3.0
801
3.8
801
100.0
Houston
1
11,224
1.9
313
1.5
313
100.0
Central & South Florida
4
10,741
1.8
473
2.3
437
92.4
Nashville
2
10,547
1.8
513
2.5
513
100.0
Phoenix
2
6,870
1.2
299
1.4
299
100.0
Austin
1
6,503
1.1
195
0.9
195
100.0
Other
2
3,018
0.5
170
0.8
155
91.2
Total / Weighted Average
71
$593,598
100.0
20,966
100.0
18,612
88.8

34



Piedmont Office Realty Trust, Inc.
Geographic Diversification by Location Type
As of June 30, 2015
(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
18.0
3,705
17.7
 
4
4.8
1,127
5.4
 
6
22.8
4,832
23.1
Washington, D.C.
DC, VA, MD
 
9
15.9
2,699
12.9
 
3
0.6
339
1.6
 
12
16.5
3,038
14.5
New York
NY, NJ
 
1
7.8
1,029
4.9
 
4
5.4
1,138
5.4
 
5
13.2
2,167
10.3
Minneapolis
MN
 
1
4.5
932
4.4
 
3
3.2
685
3.3
 
4
7.7
1,617
7.7
Dallas
TX
 
2
2.0
440
2.1
 
7
5.6
1,358
6.5
 
9
7.6
1,798
8.6
Boston
MA
 
2
2.1
173
0.8
 
6
5.0
1,303
6.2
 
8
7.1
1,476
7.0
Atlanta
GA
 
3
4.3
960
4.6
 
4
1.4
487
2.3
 
7
5.7
1,447
6.9
Los Angeles
CA
 
3
4.5
876
4.2
 
1
0.6
134
0.6
 
4
5.1
1,010
4.8
Detroit
MI
 
1
1.9
487
2.3
 
2
1.1
330
1.6
 
3
3.0
817
3.9
Philadelphia
PA
 
1
3.0
801
3.8
 
 
1
3.0
801
3.8
Houston
TX
 
 
1
1.9
313
1.5
 
1
1.9
313
1.5
Central & South Florida
FL
 
 
4
1.8
473
2.3
 
4
1.8
473
2.3
Nashville
TN
 
1
1.3
312
1.5
 
1
0.5
201
1.0
 
2
1.8
513
2.5
Phoenix
AZ
 
 
2
1.2
299
1.4
 
2
1.2
299
1.4
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
 
26
65.3
12,414
59.2
 
45
34.7
8,552
40.8
 
71
100.0
20,966
100.0


35



Piedmont Office Realty Trust, Inc.
Industry Diversification
As of June 30, 2015
($ 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
0.9
$81,971
13.8
1,674
9.0
Business Services
89
16.0
62,430
10.5
2,241
12.0
Depository Institutions
20
3.6
47,838
8.1
1,651
8.9
Engineering, Accounting, Research, Management & Related Services
48
8.7
45,270
7.6
1,228
6.6
Nondepository Credit Institutions
18
3.2
40,943
6.9
1,385
7.4
Insurance Agents, Brokers & Services
18
3.2
40,287
6.8
1,337
7.2
Insurance Carriers
21
3.8
32,790
5.5
1,315
7.1
Security & Commodity Brokers, Dealers, Exchanges & Services
33
6.0
23,473
4.0
798
4.3
Communications
36
6.5
21,958
3.7
667
3.6
Real Estate
20
3.6
18,006
3.0
529
2.8
Educational Services
8
1.4
14,961
2.5
395
2.1
Automotive Repair, Services & Parking
6
1.1
13,857
2.3
54
0.3
Electronic & Other Electrical Equipment & Components, Except Computer
11
2.0
12,509
2.1
432
2.3
Food & Kindred Products
3
0.5
12,347
2.1
408
2.2
Legal Services
27
4.9
11,954
2.0
371
2.0
Other
192
34.6
113,004
19.1
4,127
22.2
Total
555
100.0
$593,598
100.0
18,612
100.0

36



Piedmont Office Realty Trust, Inc.
Property Investment Activity
As of June 30, 2015
($ 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 (%)
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
TownPark Land
 
Lake Mary, FL
11/21/2014
100
N/A
7,700
N/A
N/A
Park Place on Turtle Creek
 
Dallas, TX
1/16/2015
100
1986
46,600
178
88
Two Pierce Place Land
 
Itasca, IL
6/2/2015
100
N/A
3,709
N/A
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$201,257
737
97

Dispositions Over Previous Eighteen Months
Property
 
Location
Disposition Date
Percent
Ownership (%)
Year Built
Sale Price
 Rentable Square
Footage
 Percent Leased at
Disposition (%)
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
(1) 
Hoffman Estates, IL
5/29/2014
72
1999
8,825
194
3900 Dallas Parkway
 
Plano, TX
1/30/2015
100
1999
26,167
120
100
5601 Headquarters Drive
 
Plano, TX
4/28/2015
100
2001
33,700
166
100
River Corporate Center
 
Tempe, AZ
4/29/2015
100
1998
24,600
133
100
Copper Ridge Center
 
Lyndhurst, NJ
5/1/2015
100
1989
50,620
268
87
 
 
 
 
 
 
$191,662
1,276
81

Acquisitions Subsequent to Quarter End
Property
 
Location
Acquisition Date
Percent
Ownership (%)
Year Built
Purchase Price
 Rentable Square
Footage
 Percent Leased at
Acquisition (%)
80 Central Street
 
Boxborough, MA
7/24/2015
100
1988
$13,500
150
93
 
 
 
 
 
 
 
 
 

Dispositions Subsequent to Quarter End
Property
 
Location
Disposition Date
Percent
Ownership (%)
Year Built
Sale Price
 Rentable Square
Footage
 Percent Leased at
Disposition (%)
Eastpoint I & Eastpoint II
Mayfield Heights, OH
7/28/2015
100
2000
$18,500
170
91




(1)
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.
Other Investments
As of June 30, 2015
($ 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
$7,043
$9,796
148.6
100
 
 
 
 
$7,043
$9,796
148.6
100


Land Parcels
Property
Location
Adjacent Piedmont Property
Acres
Real Estate Book Value
Gavitello
 Atlanta, GA
The Medici
2.0
$2,500
Glenridge Highlands Three
 Atlanta, GA
Glenridge Highlands Two
3.0
1,725
State Highway 161
 Irving, TX
Las Colinas Corporate Center II
4.5
3,320
Royal Lane
Irving, TX
6011, 6021 and 6031 Connection Drive
10.6
2,628
TownPark
Lake Mary, FL
400 TownPark
18.9
5,741
 
 
 
39.0
$15,914


Development and Redevelopment
Property
Location
Adjacent Piedmont Property
Construction Type
Targeted Completion Date
Anticipated Stabilization Date
Percent Leased (%)
Square Feet
Current Asset Basis
(Accrual)
Project Capital Expended
(Cash)
Estimated Additional Capital Required (1)
(Cash)
Enclave Place
 Houston, TX
1430 Enclave Parkway
Development
Q3 2015
Q2 2017
N/A
300.9
$51,906
$46,322
$39 to $44 million
3100 Clarendon Boulevard (2)
Arlington, VA
Not Applicable
Redevelopment
Q3 2015 (3)
Q4 2016
10
261.8
78,225
25,094
$29 to $31 million
500 TownPark
Lake Mary, FL
400 TownPark
Development
Q1 2017
Q4 2017
80
135.0
2,180
45
$28 to $30 million
 
 
 
 
 
 
 
697.7
$132,311
$71,461
$96 to $105 million






(1)
Amount includes anticipated development costs as well as estimated lease-up costs.
(2)
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.
(3)
The redevelopment of the office tower is complete; the retail portion of the redevelopment is anticipated to be completed during the third quarter of 2015.
 
 


38



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 41.
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 extinguishment of swaps, 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.

39



Piedmont Office Realty Trust, Inc.
Research Coverage

Equity Research Coverage
Paul E. Adornato, CFA
Barry Oxford
Jed Reagan
Anthony Paolone, CFA
BMO Capital Markets
D.A. Davidson & Company
Green Street Advisors
JP Morgan
3 Times Square, 26th Floor
260 Madison Avenue, 8th Floor
660 Newport Center Drive, Suite 800
383 Madison Avenue
New York, NY 10036
New York, NY 10016
Newport Beach, CA 92660
34th Floor
Phone: (212) 885-4170
Phone: (212) 240-9871
Phone: (949) 640-8780
New York, NY 10179
 
 
 
Phone: (212) 622-6682
 
 
 
 
 
 
 
 
Vance H. Edelson
Steve Manaker, CFA
David Rodgers, CFA
John W. Guinee, III
Morgan Stanley
Oppenheimer & Co.
Robert W. Baird & Co.
Erin Aslakson
1585 Broadway, 38th Floor
85 Broad Street
200 Public Square
Stifel, Nicolaus & Company
New York, NY 10036
New York, NY 10004
Suite 1650
One South Street
Phone: (212) 761-0078
Phone: (212) 667-5950
Cleveland, OH 44139
16th Floor
 
 
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
 
 
 
 
 
 
 
 
 
 
 


40



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

 
Three Months Ended
 
Six Months Ended
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
6/30/2014
 
6/30/2015
 
6/30/2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
$
29,976

 
$
19,245

 
$
12,514

 
$
9,162

 
$
12,279

 
$
49,221

 
$
21,672

Depreciation
35,935

 
36,097

 
35,365

 
35,286

 
34,119

 
72,032

 
67,846

Amortization
14,971

 
14,686

 
14,188

 
14,248

 
13,608

 
29,657

 
28,412

Impairment loss
5,354

 

 

 

 

 
5,354

 

Loss / (gain) on sale of properties
(26,611
)
 
(10,073
)
 
8

 

 
(2,275
)
 
(36,684
)
 
(2,169
)
NAREIT funds from operations applicable to common stock
59,625

 
59,955

 
62,075

 
58,696

 
57,731

 
119,580

 
115,761

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition costs
3

 
144

 
21

 
110

 
363

 
147

 
429

Loss / (gain) on extinguishment of swaps
132

 

 

 

 

 
132

 

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

 

 
(2,478
)
 
8

 
(1,480
)
 

 
(4,522
)
Core funds from operations applicable to common stock
59,760

 
60,099

 
59,618

 
58,814

 
56,614

 
119,859

 
111,668

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred financing cost amortization
680

 
724

 
627

 
598

 
615

 
1,404

 
1,478

Amortization of note payable step-up
(121
)
 
(121
)
 
(120
)
 
(120
)
 
(6
)
 
(242
)
 
(6
)
Amortization of discount on senior notes
49

 
48

 
47

 
47

 
47

 
97

 
81

Depreciation of non real estate assets
165

 
196

 
138

 
141

 
115

 
361

 
229

Straight-line effects of lease revenue
(3,745
)
 
(4,510
)
 
(5,171
)
 
(6,780
)
 
(7,758
)
 
(8,255
)
 
(17,170
)
Stock-based and other non-cash compensation expense
1,692

 
725

 
929

 
1,139

 
1,271

 
2,417

 
1,907

Amortization of lease-related intangibles
(1,102
)
 
(1,122
)
 
(1,074
)
 
(1,010
)
 
(1,279
)
 
(2,224
)
 
(2,643
)
Acquisition costs
(3
)
 
(144
)
 
(21
)
 
(110
)
 
(363
)
 
(147
)
 
(429
)
Non-incremental capital expenditures
(11,641
)
 
(10,287
)
 
(13,768
)
 
(30,890
)
 
(26,151
)
 
(21,928
)
 
(39,972
)
Adjusted funds from operations applicable to common stock
$
45,734

 
$
45,608

 
$
41,205

 
$
21,829

 
$
23,105

 
$
91,342

 
$
55,143


41



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


 
Three Months Ended
 
Six Months Ended
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
6/30/2014
 
6/30/2015
 
6/30/2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Piedmont
$
29,976

 
$
19,245

 
$
12,514

 
$
9,162

 
$
12,279

 
$
49,221

 
$
21,672

Net income attributable to noncontrolling interest
4

 
4

 
3

 
4

 
4

 
8

 
8

Interest expense
18,172

 
19,016

 
18,854

 
18,654

 
18,012

 
37,188

 
36,938

Depreciation
36,100

 
36,292

 
35,503

 
35,427

 
34,234

 
72,393

 
68,075

Amortization
14,971

 
14,686

 
14,188

 
14,248

 
13,608

 
29,657

 
28,412

Acquisition costs
3

 
144

 
21

 
110

 
363

 
147

 
429

Impairment loss
5,354

 

 

 

 

 
5,354

 

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

 

 
(2,478
)
 
8

 
(1,480
)
 

 
(4,522
)
Loss / (gain) on sale of properties
(26,611
)
 
(10,073
)
 
8

 

 
(2,275
)
 
(36,684
)
 
(2,169
)
Core EBITDA
77,969

 
79,314

 
78,613

 
77,613

 
74,745

 
157,284

 
148,843

General & administrative expenses
8,102

 
6,416

 
6,313

 
5,808

 
7,159

 
14,518

 
11,742

Management fee revenue
(232
)
 
(330
)
 
(272
)
 
(299
)
 
(281
)
 
(562
)
 
(540
)
Other (income) / expense
(599
)
 
38

 
(15
)
 
21

 
3

 
(562
)
 
32

Straight-line effects of lease revenue
(3,745
)
 
(4,510
)
 
(5,171
)
 
(6,780
)
 
(7,758
)
 
(8,255
)
 
(17,170
)
Amortization of lease-related intangibles
(1,102
)
 
(1,122
)
 
(1,074
)
 
(1,010
)
 
(1,279
)
 
(2,224
)
 
(2,643
)
Property net operating income (cash basis)
80,393

 
79,806

 
78,394

 
75,353

 
72,589

 
160,199

 
140,264

Deduct net operating (income) / loss from:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions
(2,842
)
 
(2,665
)
 
(2,314
)
 
(1,387
)
 
(55
)
 
(5,507
)
 
(55
)
Dispositions
(562
)
 
(2,137
)
 
(2,459
)
 
(2,563
)
 
(3,230
)
 
(2,700
)
 
(6,718
)
Other investments
(251
)
 
(296
)
 
(277
)
 
(214
)
 
89

 
(546
)
 
472

Same store net operating income (cash basis)
$
76,738

 
$
74,708

 
$
73,344

 
$
71,189

 
$
69,393

 
$
151,446

 
$
133,963


42



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


 
Three Months Ended
 
Six Months Ended
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
6/30/2014
 
6/30/2015
 
6/30/2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of unconsolidated joint ventures
$
124

 
$
159

 
$
160

 
$
89

 
$
(333
)
 
$
283

 
$
(599
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation
62

 
62

 
61

 
61

 
90

 
123

 
203

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization
16

 
16

 
16

 
13

 
8

 
32

 
17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment loss

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss / (gain) on sale of properties

 

 

 

 
169

 

 
169

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core EBITDA
202

 
237

 
237

 
163

 
(66
)
 
438

 
(210
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
18

 
8

 
6

 
2

 
12

 
27

 
36

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other (income) / expense

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property net operating income (accrual basis)
220

 
245

 
243

 
165

 
(54
)
 
465

 
(174
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Straight-line effects of lease revenue
(5
)
 
(5
)
 
(8
)
 
(7
)
 
(6
)
 
(10
)
 
(13
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of lease-related intangibles

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property net operating income (cash basis)
$
215

 
$
240

 
$
235

 
$
158

 
$
(60
)
 
$
455

 
$
(187
)

43



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


 
Three Months Ended
 
Six Months Ended
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
6/30/2014
 
6/30/2015
 
6/30/2014
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
$

 
$

 
$

 
$

 
$
191

 
$

 
$
1,365

Tenant reimbursements
(3
)
 

 
(1
)
 
12

 
2

 
(3
)
 
114

Property management fee revenue

 

 

 

 
1

 

 
1

Other rental income

 

 

 

 

 

 

 
(3
)
 

 
(1
)
 
12

 
194

 
(3
)
 
1,480

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
(1
)
 

 
40

 
3

 
(323
)
 
(1
)
 
182

Depreciation

 

 

 

 

 

 
83

Amortization

 

 

 

 

 

 
223

General and administrative
1

 

 
1

 
(7
)
 
3

 
1

 
6

 

 

 
41

 
(4
)
 
(320
)
 

 
494

Other income / (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense

 

 

 

 

 

 

Other income / (expense)

 

 

 

 

 

 
(6
)
Net recoveries / (loss) from casualty events and litigation settlements

 

 

 

 

 

 

Net income attributable to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 
(6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss and gain / (loss) on sale
(3
)
 

 
(42
)
 
16

 
514

 
(3
)
 
980

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment loss

 

 

 

 

 

 

Gain / (loss) on sale of properties

 

 

 

 
1,304

 

 
1,198

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations
$
(3
)
 
$

 
$
(42
)
 
$
16

 
$
1,818

 
$
(3
)
 
$
2,178




44



Piedmont Office Realty Trust, Inc.
Property Detail
As of June 30, 2015
(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
92.1
%
87.1
%
87.1
%
3750 Brookside Parkway
 Alpharetta
 GA
100.0%
2001
105
91.4
%
91.4
%
91.4
%
Glenridge Highlands Two
 Atlanta
 GA
100.0%
2000
427
100.0
%
90.6
%
87.4
%
Suwanee Gateway One
 Suwanee
 GA
100.0%
2008
143
42.0
%
%
%
The Dupree
 Atlanta
 GA
100.0%
1997
138
100.0
%
100.0
%
91.3
%
The Medici
 Atlanta
 GA
100.0%
2008
156
89.7
%
86.5
%
59.0
%
1155 Perimeter Center West
 Atlanta
 GA
100.0%
2000
377
100.0
%
100.0
%
100.0
%
Metropolitan Area Subtotal / Weighted Average




1,447
92.0
%
84.4
%
79.6
%
Austin








Braker Pointe III
 Austin
 TX
100.0%
2001
195
100.0
%
100.0
%
100.0
%
Metropolitan Area Subtotal / Weighted Average




195
100.0
%
100.0
%
100.0
%
Boston








1200 Crown Colony Drive
 Quincy
 MA
100.0%
1990
235
100.0
%
100.0
%
100.0
%
90 Central Street
 Boxborough
 MA
100.0%
2001
175
100.0
%
89.7
%
28.6
%
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
%
98.8
%
91.5
%
Chicago








Windy Point I
 Schaumburg
 IL
100.0%
1999
187
81.3
%
81.3
%
81.3
%
Windy Point II
 Schaumburg
 IL
100.0%
2001
301
100.0
%
100.0
%
83.1
%
Aon Center
 Chicago
 IL
100.0%
1972
2,738
79.9
%
78.7
%
71.7
%
Two Pierce Place
 Itasca
 IL
100.0%
1991
486
96.7
%
88.5
%
81.1
%
2300 Cabot Drive
 Lisle
 IL
100.0%
1998
153
77.1
%
77.1
%
69.3
%
500 West Monroe Street
 Chicago
 IL
100.0%
1991
967
72.5
%
67.1
%
58.7
%
Metropolitan Area Subtotal / Weighted Average




4,832
81.3
%
78.7
%
71.1
%
Cleveland








Eastpoint I
 Mayfield Heights
 OH
100.0%
2000
85
87.1
%
70.6
%
70.6
%
Eastpoint II
 Mayfield Heights
 OH
100.0%
2000
85
95.3
%
95.3
%
95.3
%
Metropolitan Area Subtotal / Weighted Average




170
91.2
%
82.9
%
82.9
%

45



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








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
%
100.0
%
6011 Connection Drive
 Irving
 TX
100.0%
1999
152
100.0
%
100.0
%
100.0
%
Las Colinas Corporate Center I
 Irving
 TX
100.0%
1998
159
100.0
%
99.4
%
99.4
%
Las Colinas Corporate Center II
 Irving
 TX
100.0%
1998
228
99.1
%
99.1
%
98.7
%
6565 North MacArthur Boulevard
 Irving
 TX
100.0%
1998
260
98.5
%
97.7
%
94.2
%
One Lincoln Park
 Dallas
 TX
100.0%
1999
262
91.6
%
91.6
%
84.0
%
161 Corporate Center
 Irving
 TX
100.0%
1998
105
100.0
%
100.0
%
100.0
%
Park Place on Turtle Creek
 Dallas
 TX
100.0%
1986
178
87.6
%
87.6
%
87.6
%
Metropolitan Area Subtotal / Weighted Average




1,798
97.2
%
97.1
%
95.4
%
Detroit








150 West Jefferson
 Detroit
 MI
100.0%
1989
487
84.8
%
84.2
%
75.2
%
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
90.9
%
90.6
%
85.2
%
Central & South Florida








Sarasota Commerce Center II
Sarasota
FL
100.0%
1999
149
89.9
%
89.9
%
89.9
%
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
88.1
%
88.1
%
83.5
%
Metropolitan Area Subtotal / Weighted Average




473
92.4
%
92.4
%
90.7
%
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
%
99.2
%
98.7
%
1055 East Colorado Boulevard
Pasadena
CA
100.0%
2001
176
98.9
%
97.2
%
91.5
%
Fairway Center II
Brea
CA
100.0%
2002
134
100.0
%
100.0
%
100.0
%
1901 Main Street
Irvine
CA
100.0%
2001
173
93.1
%
93.1
%
93.1
%
Metropolitan Area Subtotal / Weighted Average




1,010
98.2
%
97.9
%
96.6
%
Minneapolis








Crescent Ridge II
Minnetonka
MN
100.0%
2000
301
83.4
%
81.7
%
76.4
%
US Bancorp Center
Minneapolis
MN
100.0%
2000
932
87.0
%
86.2
%
84.9
%
One Meridian Crossings
Richfield
MN
100.0%
1997
195
100.0
%
100.0
%
100.0
%
Two Meridian Crossings
Richfield
MN
100.0%
1998
189
97.9
%
94.7
%
94.7
%
Metropolitan Area Subtotal / Weighted Average




1,617
89.2
%
88.0
%
86.3
%

46



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
%
91.9
%
60 Broad Street
New York
NY
100.0%
1962
1,029
99.9
%
94.3
%
94.3
%
600 Corporate Drive
Lebanon
NJ
100.0%
2005
125
100.0
%
100.0
%
100.0
%
400 Bridgewater Crossing
Bridgewater
NJ
100.0%
2002
299
92.3
%
92.3
%
80.9
%
Metropolitan Area Subtotal / Weighted Average




2,167
98.0
%
95.3
%
93.5
%
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








Desert Canyon 300
Phoenix
AZ
100.0%
2001
149
100.0
%
100.0
%
100.0
%
Chandler Forum
Chandler
AZ
100.0%
2003
150
100.0
%
86.0
%
86.0
%
Metropolitan Area Subtotal / Weighted Average




299
100.0
%
93.0
%
93.0
%
Washington, D.C.








1201 Eye Street
Washington
DC
49.5% (2)
2001
269
65.4
%
65.4
%
65.4
%
1225 Eye Street
Washington
DC
49.5% (2)
1986
225
88.9
%
77.8
%
65.8
%
400 Virginia Avenue
Washington
DC
100.0%
1985
224
80.8
%
80.8
%
80.8
%
4250 North Fairfax Drive
Arlington
VA
100.0%
1998
306
46.7
%
38.6
%
30.7
%
9211 Corporate Boulevard
Rockville
MD
100.0%
1989
115
27.8
%
%
%
9221 Corporate Boulevard
Rockville
MD
100.0%
1989
115
100.0
%
100.0
%
100.0
%
One Independence Square
Washington
DC
100.0%
1991
334
25.4
%
%
%
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
60.5
%
59.2
%
54.3
%
Arlington Gateway (3)
Arlington
VA
100.0%
2005
326
96.0
%
94.2
%
92.0
%
Metropolitan Area Subtotal / Weighted Average




3,038
69.6
%
63.8
%
61.5
%









Grand Total




20,966
88.8
%
86.1
%
82.4
%









(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 326,000 square feet. As the existing leases expire, the affected spaces will be re-leased to the correct square footages.

47



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. Examples of such statements in this supplemental package include our estimated Core FFO and Core FFO per diluted share for calendar year 2015, whether our disposition of assets will close and our anticipated use of net sales proceeds of Aon Center.

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; 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, 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 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; 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; 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.



48