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): November 1, 2017
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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Item 2.02 Results of Operations and Financial Condition
On November 1, 2017, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the third quarter 2017, and published supplemental information for the third quarter 2017 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:
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) | |||||
Dated: | November 1, 2017 | By: | /s/ Robert E. Bowers | ||
Robert E. Bowers | |||||
Chief Financial Officer and Executive Vice President | |||||
EXHIBIT 99.1
Piedmont Office Realty Trust Reports Third Quarter 2017 Results
ATLANTA, November 1, 2017 --Piedmont Office Realty Trust, Inc. ("Piedmont" or the "Company") (NYSE:PDM), an owner of Class A office properties in select sub-markets located primarily within eight major Eastern U.S. office markets, today announced its results for the quarter ended September 30, 2017.
Highlights for the Three Months Ended September 30, 2017:
• | Reported Net Income Applicable to Common Stockholders of $0.87 per diluted share; |
• | Achieved Core Funds From Operations ("Core FFO") of $0.42 per diluted share; |
• | Reported a 5.2% increase in Same Store NOI- Cash Basis; |
• | Completed approximately 450,000 square feet of leasing during the third quarter, approximately 45% of which related to new leases; |
• | Sold Two Independence Square, an approximately 606,000 square foot office building located in Washington, D.C., for an approximately $110 million gain, which is included in the Company's results for the quarter; |
• | Sold 8560 Upland Drive, the Company's last asset located in the Denver, CO market; and |
• | With the pay down of debt using disposition proceeds, decreased leverage levels and substantially improved debt metrics. |
Donald A. Miller, CFA, President and Chief Executive Officer, commented, "We saw a continued modest leasing environment during the third quarter, but feel optimistic regarding expected leasing volume headed into the last quarter of the year. The completion of the sale of Two Independence Square allowed us to capture a significant gain for our stockholders while reducing our total exposure to the Washington, D.C. market and strengthening our balance sheet by using the proceeds to pay down debt.”
Results for the Quarter ended September 30, 2017
Piedmont recognized net income applicable to common stockholders for the three months ended September 30, 2017 of $126.1 million, or $0.87 per diluted share, as compared with a loss of $13.1 million, or $(0.09) per diluted share, for the three months ended September 30, 2016. The current quarter included approximately $113.2 million, or $0.78 per diluted share, of gains related to the sales of real estate assets, whereas the prior quarter included an approximately$23.0 million, or $(0.16) per diluted share, impairment loss.
Funds From Operations ("FFO"), which removes the impact of the gains on sales and impairment loss mentioned above, as well as depreciation and amortization, and Core FFO, which further removes the
impact of acquisition expenses, were both $0.42 per diluted share for the three months ended September 30, 2017, compared to $0.41 and $0.42 per diluted share in FFO and Core FFO, respectively, for the three months ended September 30, 2016.
Revenues and property operating costs were $137.6 million and $54.1 million, respectively, for the three months ended September 30, 2017, both comparable with the third quarter of 2016, as increases in these items associated with new leases commencing and properties acquired over the last twelve months substantially offset decreases associated with the sale of eight properties since July 1, 2016.
General and administrative expense was $6.6 million for the three months ended September 30, 2017, compared to $7.4 million for the same period in 2016, primarily as a result of decreased accruals for potential stock-based compensation expense during the current period.
Equity in income of unconsolidated joint ventures was approximately $3.8 million for the three months ended September 30, 2017, reflecting an approximate $3.7 million gain associated with the sale of the Company's proportionate share of 8560 Upland Drive during the quarter.
Gain on sale of real estate assets was $109.5 million for the three months ended September 30, 2017, reflecting the gain on sale of our Two Independence Square building, located in Washington, D.C. mentioned above.
Leasing Update
The Company's leasing volume for the quarter ended September 30, 2017 totaled approximately 447,000 square feet, with approximately 203,000 square feet of that volume related to new leases. Leasing highlights for the quarter included the following:
Detroit, MI - FCA US, LLC (Fiat Chrysler) renewed its 210,000 square foot lease for five years at 1075 West Entrance in Auburn Hills, MI;
Orlando, FL - WithumSmith+Brown PC signed an approximately 20,000 square foot, 12-year new lease at SunTrust Center, in downtown Orlando, FL; and Robinhood Markets, Inc. signed a new approximately 14,000 square foot, 7+ year lease at 500 TownPark, in Lake Mary, FL.
Also in Florida, the law firm of Phelan Hallinan Diamond & Jones completed an approximately 19,000 square foot, 10+ year new lease at 2001 NW 64th Street in Ft. Lauderdale, FL.
Washington, D.C. - A business analytics software company signed an approximately 15,000 square foot, 10+ year new lease at 4250 North Fairfax Drive in Arlington, VA.
Also in the Washington, D.C. area, Federal Advisory Partners completed an approximately 12,000 square foot, 11+ year new lease at 3100 Clarendon Boulevard Arlington, VA.
The Company's leased percentage was 89.2%, and weighted average lease term was approximately 6.5 years as of September 30, 2017, both down from the second quarter of 2017 primarily due to the expiration of two leases in our Washington, D.C. portfolio as well as the sale of the 100% leased Two Independence Square building during the quarter. Same Store NOI increased 5.2% and 1.1% on a cash and accrual basis, respectively, compared to the third quarter of the prior year, primarily reflecting the expiration of abatement periods and the commencement of leases over the last twelve months. Details
outlining Piedmont's significant upcoming lease expirations, the status of current leasing activity, and a schedule of significant lease abatement periods can be found in the Company's quarterly supplemental information package available at www.piedmontreit.com.
Transactional and Financing Activity
During the third quarter, the Company successfully completed two sales:
• | Two Independence Square, located at 300 E Street, S.W. in Washington D.C for approximately $360 million, or $593 per square foot. The 606,000 square foot, 9-story, office building is 100% leased and has served as the headquarters for the National Aeronautics and Space Administration (NASA) since its construction. |
• | 8560 Upland Drive, an approximately 149,000 square foot office/warehouse building, which was Piedmont's last asset in the Denver, CO market, as well as the last asset held through an unconsolidated joint venture for approximately $17.6 million. |
The net sales proceeds of the above dispositions were used to repay the balance outstanding on the Company's $500 million line of credit and a $140 million maturing mortgage, thereby improving leverage ratios and debt metrics and providing capacity for strategic acquisition opportunities should they arise.
During the third quarter of 2017, the Company repurchased almost 200,000 shares of common stock under its share repurchase program at an average price of $19.92 per share, or approximately $3.9 million. As of quarter end, Board-approved capacity remaining for additional repurchases totaled approximately $246.1 million under the stock repurchase plan.
Fourth Quarter 2017 Dividend Declaration
On October 31, 2017, the board of directors of Piedmont declared dividends for the fourth quarter of 2017 in the amount of $0.21 per share on its common stock to stockholders of record as of the close of business on November 24, 2017, payable on January 4, 2018.
Guidance for 2017
Based on management's expectations for the remainder of the year, the Company is narrowing its previously issued guidance for full-year 2017 as follows:
(in millions, except per share data) | Low | High | ||||
Net Income | $176 | - | $178 | |||
Add: | ||||||
Depreciation | 121 | - | 124 | |||
Amortization | 75 | - | 76 | |||
Less: Gain on Sale of Real Estate Assets | (119 | ) | - | (121) | ||
NAREIT FFO and Core FFO applicable to Common Stock | $ | 253 | $257 | |||
NAREIT FFO and Core FFO per diluted share | $1.74 | - | $1.76 | |||
These estimates reflect the Company disposing of more assets (net of acquisitions) during calendar 2017 than originally anticipated and 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 acquisitions and dispositions, as well as those factors 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
To supplement the presentation of the Company’s financial results prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), this release and the accompanying quarterly supplemental information as of and for the period ended September 30, 2017 contain certain financial measures that are not prepared in accordance with GAAP, including FFO, Core FFO, AFFO, Same Store NOI (cash basis), Property NOI (cash basis), EBITDAre, and Core EBITDA. Definitions and reconciliations of each of these non-GAAP measures to their most comparable GAAP metrics are included below and in the accompanying quarterly supplemental information.
Each of the non-GAAP measures included in this release and the accompanying quarterly supplemental financial information has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of the Company’s results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the Company’s presentation of non-GAAP measures in this release and the accompanying quarterly supplemental information may not be comparable to similarly titled measures disclosed by other companies, including other REITs. The Company may also change the calculation of any of the non-GAAP measures included in this news release and the accompanying supplemental financial information from time to time in light of its then existing operations to include other adjustments that may affect its operations.
Conference Call Information
Piedmont has scheduled a conference call and an audio web cast for Thursday, November 2, 2017 at 11:00 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 11 A.M. EST on November 16, 2017, and may be accessed by dialing (877) 481-4010 for participants in the United States and Canada and (919) 882-2331 for international participants, followed by conference identification code 21787. A web cast replay will also be available after the conference call in the Investor Relations section of the Company's website. During the audio web cast and conference call, the Company's management team will review third quarter 2017 performance, discuss recent events, and conduct a question-and-answer period.
Supplemental Information
Quarterly supplemental information as of and for the period ended September 30, 2017 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 in select submarkets located primarily within eight major U.S. office markets. Its geographically-diversified, over $5 billion portfolio is comprised of approximately 19 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 the Company's optimism regarding it's expected leasing volume and whether it will result in actual leasing volume during the fourth quarter of the year and the Company's estimated range of Net Income, Depreciation, Amortization, Gain on Sale of Real Estate Assets, NAREIT FFO/Core FFO and NAREIT FFO/Core FFO per diluted share for the year ending December 31, 2017.
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: Economic, regulatory, and/or socio-economic changes (including accounting standards) that impact the real estate market generally, or that could affect patterns of use of commercial office space; 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 affecting the office sector in general and the specific markets in which we operate, particularly in Washington, D.C., the New York metropolitan area, and Chicago where we have high concentrations of our Annualized Lease Revenue; lease terminations or lease defaults, particularly by one of our large lead tenants; the effect on us of adverse market and economic conditions, including any resulting impairment charges on both our long-lived assets or goodwill; the success of our real estate strategies and investment objectives, including our ability to identify and consummate suitable acquisitions and divestitures; the illiquidity of real estate investments, including the resulting impediment on our ability to quickly respond to adverse changes in the performance of our properties; the risks and uncertainties associated with our acquisition of properties, many of which risks and uncertainties may not be known at the time of acquisition; development and construction delays and resultant increased costs and risks; our real estate development strategies may not be successful; future acts of terrorism in any of the major metropolitan areas in which we own properties, or future cybersecurity attacks against us or any of our tenants; costs of complying with governmental laws and regulations; additional risks and costs associated with directly managing properties occupied by government tenants; the effect of future offerings of debt or equity securities or changes in market interest rates on the value of our common stock; 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; any change in the financial condition of any of our large lead tenants; the effect of any litigation to which we are, or may become, subject; changes in tax laws impacting REITs and real estate in general, as well as our ability to continue to qualify as a REIT under the Internal Revenue Code of 1986 (the “Code”); the future effectiveness of our internal controls and procedures; and other factors, including the risk factors discussed under Item 1A. of Piedmont’s Amended Annual Report on Form 10-K/A for the year ended December 31, 2016.
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 | |||||||||
September 30, 2017 | December 31, 2016 | ||||||||
(unaudited) | |||||||||
Assets: | |||||||||
Real estate assets, at cost: | |||||||||
Land | $ | 614,934 | $ | 617,138 | |||||
Buildings and improvements | 3,649,268 | 3,610,360 | |||||||
Buildings and improvements, accumulated depreciation | (926,105 | ) | (856,254 | ) | |||||
Intangible lease assets | 171,965 | 208,847 | |||||||
Intangible lease assets, accumulated amortization | (93,265 | ) | (109,152 | ) | |||||
Construction in progress | 8,957 | 34,814 | |||||||
Real estate assets held for sale, gross | — | 314,258 | |||||||
Real estate assets held for sale, accumulated depreciation and amortization | — | (88,319 | ) | ||||||
Total real estate assets | 3,425,754 | 3,731,692 | |||||||
Investments in and amounts due from unconsolidated joint ventures | 49 | 7,360 | |||||||
Cash and cash equivalents | 36,108 | 6,992 | |||||||
Tenant receivables, net of allowance for doubtful accounts | 12,802 | 26,494 | |||||||
Straight line rent receivables | 182,609 | 163,789 | |||||||
Restricted cash and escrows | 1,260 | 1,212 | |||||||
Prepaid expenses and other assets | 28,232 | 23,201 | |||||||
Goodwill | 98,918 | 98,918 | |||||||
Interest rate swaps | 34 | — | |||||||
Deferred lease costs, less accumulated amortization | 274,884 | 298,695 | |||||||
Other assets held for sale, net | — | 9,815 | |||||||
Total assets | $ | 4,060,650 | $ | 4,368,168 | |||||
Liabilities: | |||||||||
Unsecured debt, net of discount and unamortized debt issuance costs | $ | 1,511,663 | $ | 1,687,731 | |||||
Secured debt, net of premiums and unamortized debt issuance costs | 191,923 | 332,744 | |||||||
Accounts payable, accrued expenses, dividends payable, and accrued capital expenditures | 108,120 | 165,410 | |||||||
Deferred income | 29,970 | 28,406 | |||||||
Intangible lease liabilities, less accumulated amortization | 41,064 | 48,005 | |||||||
Interest rate swaps | 3,915 | 8,169 | |||||||
Total liabilities | 1,886,655 | 2,270,465 | |||||||
Stockholders' equity : | |||||||||
Common stock | 1,453 | 1,452 | |||||||
Additional paid in capital | 3,676,706 | 3,673,128 | |||||||
Cumulative distributions in excess of earnings | (1,511,428 | ) | (1,580,863 | ) | |||||
Other comprehensive income | 5,400 | 2,104 | |||||||
Piedmont stockholders' equity | 2,172,131 | 2,095,821 | |||||||
Non-controlling interest | 1,864 | 1,882 | |||||||
Total stockholders' equity | 2,173,995 | 2,097,703 | |||||||
Total liabilities and stockholders' equity | $ | 4,060,650 | $ | 4,368,168 | |||||
Number of shares of common stock outstanding as of end of period | 145,295 | 145,234 | |||||||
Piedmont Office Realty Trust, Inc. | |||||||||||||||
Consolidated Statements of Income | |||||||||||||||
Unaudited (in thousands, except for per share data) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
9/30/2017 | 9/30/2016 | 9/30/2017 | 9/30/2016 | ||||||||||||
Revenues: | |||||||||||||||
Rental income | $ | 113,350 | $ | 113,821 | $ | 361,048 | $ | 340,326 | |||||||
Tenant reimbursements | 23,796 | 24,163 | 72,340 | 70,000 | |||||||||||
Property management fee revenue | 441 | 501 | 1,341 | 1,478 | |||||||||||
Total revenues | 137,587 | 138,485 | 434,729 | 411,804 | |||||||||||
Expenses: | |||||||||||||||
Property operating costs | 54,090 | 54,867 | 165,253 | 161,438 | |||||||||||
Depreciation | 30,000 | 31,610 | 90,827 | 94,948 | |||||||||||
Amortization | 18,123 | 18,640 | 57,852 | 53,848 | |||||||||||
Impairment loss on real estate assets | — | 22,951 | — | 33,901 | |||||||||||
General and administrative | 6,618 | 7,429 | 23,250 | 23,518 | |||||||||||
Total operating expenses | 108,831 | 135,497 | 337,182 | 367,653 | |||||||||||
Real estate operating income | 28,756 | 2,988 | 97,547 | 44,151 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense | (16,183 | ) | (15,496 | ) | (52,661 | ) | (48,294 | ) | |||||||
Other income/(expense) | 290 | (720 | ) | 228 | (467 | ) | |||||||||
Net recoveries from casualty events | — | 34 | — | 34 | |||||||||||
Equity in income of unconsolidated joint ventures | 3,754 | 129 | 3,872 | 354 | |||||||||||
Total other expense | (12,139 | ) | (16,053 | ) | (48,561 | ) | (48,373 | ) | |||||||
Income/(loss) from continuing operations | 16,617 | (13,065 | ) | 48,986 | (4,222 | ) | |||||||||
Discontinued operations: | |||||||||||||||
Operating income | — | 1 | — | — | |||||||||||
Income from discontinued operations | — | 1 | — | — | |||||||||||
Gain/(loss) on sale of real estate assets | 109,512 | (57 | ) | 115,951 | 73,758 | ||||||||||
Net income/(loss) | 126,129 | (13,121 | ) | 164,937 | 69,536 | ||||||||||
Plus: Net income applicable to noncontrolling interest | 4 | 14 | 10 | 7 | |||||||||||
Net income/(loss) applicable to Piedmont | $ | 126,133 | $ | (13,107 | ) | $ | 164,947 | $ | 69,543 | ||||||
Weighted average common shares outstanding - diluted* | 145,719 | 145,669 | 145,680 | 145,601 | |||||||||||
Per Share Information -- diluted: | |||||||||||||||
Net income applicable to common stockholders | $ | 0.87 | $ | (0.09 | ) | $ | 1.13 | $ | 0.48 | ||||||
*Number of shares of common stock outstanding as of end of period | 145,295 | 145,234 | 145,295 | 145,235 | |||||||||||
Piedmont Office Realty Trust, Inc. | |||||||||||||||
Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations | |||||||||||||||
Unaudited (in thousands, except for per share data) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
9/30/2017 | 9/30/2016 | 9/30/2017 | 9/30/2016 | ||||||||||||
GAAP net income applicable to common stock | $ | 126,133 | $ | (13,107 | ) | $ | 164,947 | $ | 69,543 | ||||||
Depreciation of real estate assets(1) (2) | 29,774 | 31,451 | 90,335 | 94,532 | |||||||||||
Amortization of lease-related costs(1) | 18,107 | 18,640 | 57,828 | 53,880 | |||||||||||
Impairment loss on real estate assets | — | 22,951 | — | 33,901 | |||||||||||
(Gain)/loss on sale of real estate assets (1) | (113,195 | ) | 57 | (119,634 | ) | (73,758 | ) | ||||||||
NAREIT Funds From Operations applicable to common stock* | 60,819 | 59,992 | 193,476 | 178,098 | |||||||||||
Acquisition costs | — | 955 | 6 | 972 | |||||||||||
Net recoveries from casualty events | — | (34 | ) | — | (34 | ) | |||||||||
Core Funds From Operations applicable to common stock* | 60,819 | 60,913 | 193,482 | 179,036 | |||||||||||
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on Unsecured Senior Notes | 634 | 653 | 1,892 | 1,943 | |||||||||||
Depreciation of non real estate assets | 218 | 216 | 597 | 595 | |||||||||||
Straight-line effects of lease revenue (1) | (3,602 | ) | (4,140 | ) | (15,939 | ) | (15,115 | ) | |||||||
Stock-based and other non-cash compensation | 1,250 | 1,931 | 4,202 | 5,336 | |||||||||||
Net effect of amortization of below-market in-place lease intangibles (1) | (1,720 | ) | (1,152 | ) | (4,890 | ) | (3,680 | ) | |||||||
Acquisition costs | — | (955 | ) | (6 | ) | (972 | ) | ||||||||
Non-incremental capital expenditures (3) | (5,229 | ) | (6,982 | ) | (21,974 | ) | (23,433 | ) | |||||||
Adjusted funds from operations applicable to common stock* | $ | 52,370 | $ | 50,484 | $ | 157,364 | $ | 143,710 | |||||||
Weighted average common shares outstanding - diluted** | 145,719 | 145,669 | 145,680 | 145,601 | |||||||||||
Funds from operations per share (diluted) | $ | 0.42 | $ | 0.41 | $ | 1.33 | $ | 1.22 | |||||||
Core funds from operations per share (diluted) | $ | 0.42 | $ | 0.42 | $ | 1.33 | $ | 1.23 | |||||||
**Number of shares of common stock outstanding as of end of period | 145,295 | 145,234 | 145,295 | 145,234 | |||||||||||
(1) Includes adjustments for consolidated properties 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"): The Company calculates FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines FFO as net income (computed in accordance with GAAP), excluding gains or losses from sales of property and impairment losses, adding back depreciation and amortization on real estate assets, and after the same adjustments for unconsolidated partnerships and joint ventures. These adjustments can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that FFO is helpful to investors as a supplemental performance measure because it excludes the effects of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs, which implicitly assumes that the value of real estate diminishes predictably over time. The Company also believes that FFO can help facilitate comparisons of operating performance between periods and with other REITs. However, other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than the Company; therefore, the Company’s computation of FFO may not be comparable to that of such other REITs. |
Core Funds From Operations ("Core FFO"): The Company calculates Core FFO by starting with FFO, as defined by NAREIT, and adjusting for gains or losses on the extinguishment of swaps and/or debt, acquisition-related expenses and any significant non-recurring items. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to the Company’s core business operations. As a result, the Company believes that Core FFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential. Other REITs may not define Core FFO in the same manner as the Company; therefore, the Company’s computation of Core FFO may not be comparable to that of other REITs. |
Adjusted Funds From Operations ("AFFO"): The Company calculates AFFO by starting with Core FFO and adjusting for non-incremental capital expenditures and acquisition-related costs and then adding back non-cash items including: non-real estate depreciation, straight-lined rents and fair value lease adjustments, non-cash components of interest expense and compensation expense, and by making similar adjustments for unconsolidated partnerships and joint ventures. AFFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that AFFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments. Other REITs may not define AFFO in the same manner as the Company; therefore, the Company’s computation of AFFO may not be comparable to that of other REITs. |
Piedmont Office Realty Trust, Inc. | |||||||||||||||
EBITDAre, Core EBITDA, Property Net Operating Income (Cash and Accrual), Same Store Net Operating Income (Cash and Accrual) | |||||||||||||||
Unaudited (in thousands) | |||||||||||||||
Cash Basis | Accrual Basis | ||||||||||||||
Three Months Ended | Three Months Ended | ||||||||||||||
9/30/2017 | 9/30/2016 | 9/30/2017 | 9/30/2016 | ||||||||||||
GAAP net income applicable to common stock | $ | 126,133 | $ | (13,107 | ) | $ | 126,133 | $ | (13,107 | ) | |||||
Net income applicable to noncontrolling interest | (4 | ) | (14 | ) | (4 | ) | (14 | ) | |||||||
Interest expense | 16,183 | 15,496 | 16,183 | 15,496 | |||||||||||
Depreciation (1) | 29,993 | 31,667 | 29,993 | 31,667 | |||||||||||
Amortization (1) | 18,107 | 18,640 | 18,107 | 18,640 | |||||||||||
Impairment loss on real estate assets | — | 22,951 | — | 22,951 | |||||||||||
(Gain)/loss on sale of real estate assets (1) | (113,195 | ) | 57 | (113,195 | ) | 57 | |||||||||
EBITDAre | 77,217 | 75,690 | 77,217 | 75,690 | |||||||||||
Acquisition costs | — | 955 | — | 955 | |||||||||||
Net (recoveries)/loss from casualty events | 25 | (34 | ) | 25 | (34 | ) | |||||||||
Core EBITDA* | 77,242 | 76,611 | 77,242 | 76,611 | |||||||||||
General & administrative expenses (1) | 6,631 | 7,437 | 6,631 | 7,437 | |||||||||||
Management fee revenue | (241 | ) | (295 | ) | (241 | ) | (295 | ) | |||||||
Other income (1) | (315 | ) | (235 | ) | (315 | ) | (235 | ) | |||||||
Straight line effects of lease revenue (1) | (3,602 | ) | (4,140 | ) | |||||||||||
Amortization of lease-related intangibles (1) | (1,720 | ) | (1,152 | ) | |||||||||||
Property NOI* | 77,995 | 78,226 | 83,317 | 83,518 | |||||||||||
Net operating income from: | |||||||||||||||
Acquisitions | (4,584 | ) | (2,485 | ) | (7,512 | ) | (2,779 | ) | |||||||
Dispositions | (9 | ) | (5,724 | ) | (12 | ) | (5,905 | ) | |||||||
Other investments (2) | (99 | ) | (332 | ) | (764 | ) | (651 | ) | |||||||
Same Store NOI * | $ | 73,303 | $ | 69,685 | $ | 75,029 | $ | 74,183 | |||||||
Change period over period in Same Store NOI | 5.2 | % | N/A | 1.1 | % | N/A | |||||||||
Piedmont Office Realty Trust, Inc. | |||||||||||||||
EBITDAre, Core EBITDA, Property Net Operating Income (Cash and Accrual), Same Store Net Operating Income (Cash and Accrual) | |||||||||||||||
Unaudited (in thousands) | |||||||||||||||
Cash Basis | Accrual Basis | ||||||||||||||
Nine Months Ended | Nine Months Ended | ||||||||||||||
9/30/2017 | 9/30/2016 | 9/30/2017 | 9/30/2016 | ||||||||||||
GAAP net income applicable to common stock | $ | 164,947 | $ | 69,543 | $ | 164,947 | $ | 69,543 | |||||||
Net income applicable to noncontrolling interest | (10 | ) | (7 | ) | (10 | ) | (7 | ) | |||||||
Interest expense | 52,661 | 48,294 | 52,661 | 48,294 | |||||||||||
Depreciation (1) | 90,933 | 95,127 | 90,933 | 95,127 | |||||||||||
Amortization (1) | 57,828 | 53,880 | 57,828 | 53,880 | |||||||||||
Impairment loss on real estate assets | — | 33,901 | — | 33,901 | |||||||||||
Gain on sale of real estate assets (1) | (119,634 | ) | (73,758 | ) | (119,634 | ) | (73,758 | ) | |||||||
EBITDAre | 246,725 | 226,980 | 246,725 | 226,980 | |||||||||||
Acquisition costs | 6 | 972 | 6 | 972 | |||||||||||
Net (recoveries)/loss from casualty events | 57 | (34 | ) | 57 | (34 | ) | |||||||||
Core EBITDA* | 246,788 | 227,918 | 246,788 | 227,918 | |||||||||||
General & administrative expenses (1) | 23,291 | 23,565 | 23,291 | 23,565 | |||||||||||
Management fee revenue | (724 | ) | (810 | ) | (724 | ) | (810 | ) | |||||||
Other (income)/expense (1) | (291 | ) | 1 | (291 | ) | 1 | |||||||||
Straight line effects of lease revenue (1) | (15,939 | ) | (15,115 | ) | |||||||||||
Amortization of lease-related intangibles (1) | (4,890 | ) | (3,680 | ) | |||||||||||
Property NOI* | 248,235 | 231,879 | 269,064 | 250,674 | |||||||||||
Net operating income from: | |||||||||||||||
Acquisitions | (13,201 | ) | (2,485 | ) | (22,160 | ) | (2,779 | ) | |||||||
Dispositions | (11,403 | ) | (27,023 | ) | (11,462 | ) | (28,042 | ) | |||||||
Other investments(2) | 521 | (362 | ) | (1,852 | ) | (874 | ) | ||||||||
Same Store NOI * | $ | 224,152 | $ | 202,009 | $ | 233,590 | $ | 218,979 | |||||||
Change period over period in Same Store NOI | 11.0 | % | N/A | 6.7 | % | N/A | |||||||||
(1) Includes amounts attributable to consolidated properties and our proportionate share of amounts attributable to unconsolidated joint ventures.
(2)Other investments consist of our investments in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current or prior reporting periods. The operating results from 3100 Clarendon Boulevard in Arlington, Virginia, Enclave Place in Houston, Texas, and 500 TownPark in Lake Mary, Florida, are included in this line item.
*Definitions:
EBITDAre: The Company calculates EBITDAre in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines EBITDAre as net income (computed in accordance with GAAP) adjusted for gains or losses from sales of property, impairment losses, depreciation on real estate assets, amortization on real estate assets, interest expense and taxes, along with the same adjustments for unconsolidated partnerships and joint ventures. Some of the adjustments mentioned can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. EBITDAre is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that EBITDAre is helpful to investors as a supplemental performance measure because it provides a metric for understanding the Company’s results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization) and capitalization and capital structure expenses (such as interest expense and taxes). The Company also believes that EBITDAre can help facilitate comparisons of
operating performance between periods and with other REITs. However, other REITs may not define EBITDAre in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than the Company; therefore, the Company’s computation of EBITDAre may not be comparable to that of such other REITs.
Core EBITDA: The Company calculates Core EBITDA as net income (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Core EBITDA is helpful to investors as a supplemental performance measure because it provides a metric for understanding the performance of the Company’s results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization), as well as items that are not part of normal day-to-day operations of the Company’s business. Other REITs may not define Core EBITDA in the same manner as the Company; therefore, the Company’s computation of Core EBITDA may not be comparable to that of other REITs.
Property Net Operating Income ("Property NOI"): The Company calculates Property NOI by starting with Core EBITDA and adjusting for general and administrative expense, income associated with property management performed by Piedmont for other organizations and other income or expense items for the Company, such as interest income from loan investments or costs from the pursuit of non-consummated transactions. The Company 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 also eliminated. Property NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Property NOI is helpful to investors as a supplemental comparative performance measure of income generated by its properties alone without the administrative overhead of the Company. Other REITs may not define Property NOI in the same manner as the Company; therefore, the Company’s computation of Property NOI may not be comparable to that of other REITs.
Same Store Net Operating Income ("Same Store NOI"): The Company calculates Same Store NOI as Property NOI attributable to the properties for which the following criteria were met during the entire span of the current and prior year reporting periods: i) they were owned, ii) they were not under development / redevelopment, and iii) none of the operating expenses for which were capitalized. Same Store NOI also excludes amounts attributable to unconsolidated joint venture and land assets. The Company 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 also eliminated. Same Store NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Same Store NOI is helpful to investors as a supplemental comparative performance measure of the income generated from the same group of properties from one period to the next. Other REITs may not define Same Store NOI in the same manner as the Company; therefore, the Company’s computation of Same Store NOI may not be comparable to that of other REITs.
EXHIBIT 99.2
Quarterly Supplemental Information
September 30, 2017
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 | |||
Financials | Research Coverage | |||
Balance Sheets | Non-GAAP Reconciliations & Other Detail | |||
Income Statements | Property Detail - In-Service Portfolio | |||
Key Performance Indicators | Risks, Uncertainties and Limitations | |||
Funds From Operations / Adjusted Funds From Operations | ||||
Same Store Analysis | ||||
Capitalization Analysis | ||||
Debt Summary | ||||
Debt Detail | ||||
Debt Covenant & Ratio 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 may differ from actual results. |
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. The Company has restated certain GAAP basis data included herein for prior periods to reflect an accounting treatment change which allocates a portion of recorded goodwill to each asset disposition that occurred between December 1, 2010 and September 30, 2016 in accordance with Accounting Standard Codification 350 (ASC 350; relating to business combinations). During that particular period of time, building dispositions were considered dispositions of businesses according to ASC 350, and, therefore, a portion of the Company's total goodwill has been allocated to the sale of each business. This change has no impact on net income reported for 2017. Furthermore, these non-cash adjustments do not impact current nor previously reported non-GAAP measures, including FFO, Core FFO, AFFO, and Same Store NOI, nor do they affect the Company's financial guidance for 2017. |
To supplement the presentation of the Company’s financial results prepared in accordance with U.S. generally accepted accounting principles (GAAP), this report contains certain financial measures that are not prepared in accordance with GAAP, including FFO, Core FFO, AFFO, Same Store NOI, Property NOI, EBITDAre and Core EBITDA. Definitions and reconciliations of these non-GAAP measures to their most comparable GAAP metrics are included beginning on page 39. Each of the non-GAAP measures included in this report has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of the Company’s results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the Company’s presentation of non-GAAP measures in this report may not be comparable to similarly titled measures disclosed by other companies, including other REITs. The Company may also change the calculation of any of the non-GAAP measures included in this report from time to time in light of its then existing operations to include other adjustments that may affect its 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 in select sub-markets located primarily within eight major Eastern U.S. office markets. Its geographically-diversified, approximately $5 billion portfolio is comprised of approximately 19 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 | ||||
September 30, 2017 | December 31, 2016 | ||||
Number of consolidated office properties (1) | 66 | 65 | |||
Rentable square footage (in thousands) (1) | 18,847 | 18,885 | |||
Percent leased (2) | 89.2 | % | 91.9 | % | |
Capitalization (in thousands): | |||||
Total debt - principal amount outstanding (excludes premiums, discounts, and deferred financing costs) | $1,710,903 | $2,029,582 | |||
Equity market capitalization (3) | $2,929,144 | $3,036,870 | |||
Total market capitalization (3) | $4,640,047 | $5,066,452 | |||
Total debt / Total market capitalization (3) | 36.9 | % | 40.1 | % | |
Average net debt to Core EBITDA | 5.6 x | 6.4 x | |||
Total debt / Total gross assets | 33.7 | % | 37.4 | % | |
Common stock data: | |||||
High closing price during quarter | $21.42 | $21.53 | |||
Low closing price during quarter | $19.86 | $18.62 | |||
Closing price of common stock at period end | $20.16 | $20.91 | |||
Weighted average fully diluted shares outstanding during quarter (in thousands) | 145,719 | 145,764 | |||
Shares of common stock issued and outstanding at period end (in thousands) | 145,295 | 145,235 | |||
Annual dividend per share (4) | $0.84 | $0.84 | |||
Rating / Outlook | |||||
Standard & Poor's | BBB / Stable | BBB / Stable | |||
Moody's | Baa2 / Stable | Baa2 / Stable | |||
Employees | 137 | 137 | |||
(1) | As of September 30, 2017, our consolidated office portfolio consisted of 66 properties. As of December 31, 2016, our consolidated office portfolio excluded two properties under development, one property that was out of service for redevelopment, and one unconsolidated joint venture property. The three development and redevelopment properties were placed in service on January 1, 2017. There were no acquisitions or dispositions of office properties completed during the first quarter of 2017. During the second quarter of 2017, we sold Sarasota Commerce Center II, a 149,000 square foot office building located in Sarasota, FL. During the third quarter of 2017, we sold Two Independence Square, a 606,000 square foot office building located in Washington, DC, and 8560 Upland Drive, the Company's last remaining unconsolidated joint venture property, comprised of 149,000 square feet and located in Englewood, CO. |
(2) | Calculated as square footage associated with commenced leases plus square footage associated with executed but uncommenced leases for 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. This measure presented as of December 31, 2016, has been restated to include two development properties and one re-development property that were placed into service effective January 1, 2017. The development properties that were placed in service are Enclave Place, a 300,900 square foot office property located in Houston, TX, and 500 TownPark, a 134,400 square foot office property located in Lake Mary, FL; the re-development property that was placed in service is 3100 Clarendon Boulevard, a 260,900 square foot office property located in Arlington, VA. 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 declared 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 | C. Brent Smith | Edward H. Guilbert, III |
Chief Executive Officer, President | Chief Financial Officer and Executive | Chief Investment Officer and Executive | Senior Vice President, Finance and |
and Director | Vice President | Vice President, Northeast Region | Treasurer - Investor Relations Contact |
Christopher A. Kollme | Laura P. Moon | Joseph H. Pangburn | Thomas R. Prescott |
Executive Vice President, | Chief Accounting Officer and | Executive Vice President, | Executive Vice President, |
Finance & Strategy | Senior Vice President | Southwest Region | Midwest Region |
Carroll A. Reddic, IV | George Wells | Robert K. Wiberg | |
Executive Vice President, | Executive Vice President, | Executive Vice President, | |
Real Estate Operations and Assistant | Southeast Region | Mid-Atlantic Region and | |
Secretary | Head of Development | ||
Board of Directors | |||
Frank C. McDowell | Dale H. Taysom | Kelly H. Barrett | Wesley E. Cantrell |
Director, Chairman of the | Director and Vice Chairman of the | Director | Director and Chairman of |
Board of Directors and Chairman | Board of Directors | Governance Committee | |
of Compensation Committee | |||
Barbara B. Lang | Donald A. Miller, CFA | Raymond G. Milnes, Jr. | Jeffery L. Swope |
Director | Chief Executive Officer, President | Director and Chairman of | Director and Chairman of |
and Director | Audit Committee | Capital Committee | |
Transfer Agent | Corporate Counsel |
Computershare | King & Spalding |
P.O. Box 30170 | 1180 Peachtree Street, NE |
College Station, TX 77842-3170 | Atlanta, GA 30309 |
Phone: 866.354.3485 | Phone: 404.572.4600 |
4
Piedmont Office Realty Trust, Inc.
Financial Highlights
As of September 30, 2017
Financial Results (1)
Net income attributable to Piedmont for the quarter ended September 30, 2017 was $126.1 million, or $0.87 per share (diluted), compared to $(13.1) million, or $(0.09) per share (diluted), for the same quarter in 2016. Net income attributable to Piedmont for the nine months ended September 30, 2017 was $164.9 million, or $1.13 per share (diluted), compared to $69.5 million, or $0.48 per share (diluted) for the same period in 2016. The increase in net income attributable to Piedmont during the three months and the nine months ended September 30, 2017 when compared to the same periods in 2016 was principally due to the net effect of gains and losses related to disposition transactions recorded during the respective periods. The larger amount of gains on the sale of real estate in 2017 was primarily attributable to the sale of Two Independence Square located in Washington, DC, for which the Company recorded a gain of approximately $109.5 million during the third quarter of 2017.
Funds from operations (FFO) for the quarter ended September 30, 2017 was $60.8 million, or $0.42 per share (diluted), compared to $60.0 million, or $0.41 per share (diluted), for the same quarter in 2016. FFO for the nine months ended September 30, 2017 was $193.5 million, or $1.33 per share (diluted), compared to $178.1 million, or $1.22 per share (diluted), for the same period in 2016. The increase in FFO for the nine months ended September 30, 2017 when compared to the same period in 2016 was primarily due to an increase in average economic occupancy largely attributable to the commencement of a portion of the 3.2 million square feet of leases executed since the beginning of 2016, along with a larger amount of FFO contributed from properties acquired since the beginning of 2016 when compared to that given up from assets sold during the same time period.
Core funds from operations (Core FFO) for the quarter ended September 30, 2017 was $60.8 million, or $0.42 per share (diluted), compared to $60.9 million, or $0.42 per share (diluted), for the same quarter in 2016. Core FFO for the nine months ended September 30, 2017 was $193.5 million, or $1.33 per share (diluted), compared to $179.0 million, or $1.23 per share (diluted), for the same period in 2016. Core FFO is defined as FFO with incremental adjustments for certain non-recurring items such as net insurance recoveries or losses, acquisition-related expenses(2) and other significant non-recurring items. The increase in Core FFO for the nine months ended September 30, 2017 as compared to the same period in 2016 was primarily attributable to the items described above for changes in FFO.
Adjusted funds from operations (AFFO) for the quarter ended September 30, 2017 was $52.4 million, compared to $50.5 million for the same quarter in 2016. AFFO for the nine months ended September 30, 2017 was $157.4 million, compared to $143.7 million for the same period in 2016. The increase in AFFO for the three months and the nine months ended September 30, 2017 as compared to the same periods in 2016 was primarily due to the items described above for changes in FFO and Core FFO, in addition to a decrease in non-incremental capital expenditures in 2017 when compared to 2016.
Operations and Leasing
On a square footage leased basis, our total in-service office portfolio was 89.2% leased as of September 30, 2017, as compared to 91.0% in the prior quarter and 91.9%(3) at December 31, 2016. The main contributors to the reduction in leased percentage as of the end of the third quarter of 2017 were the previously disclosed expirations of the National Park Service and Towers Watson leases, as well as the disposition of the 100% leased, 606,000 square foot Two Independence Square, during the quarter. Please refer to page 27 for additional leased percentage information.
The weighted average remaining lease term of our portfolio was 6.5 years(4) as of September 30, 2017 as compared to 6.9 years at December 31, 2016.
(1) | |
(2) | Piedmont early adopted the revised FASB standard on the accounting treatment of Business Combinations, which results in certain real asset transactions falling outside the scope of the standard. The result is that, in many cases, acquisition costs will be capitalized, and, therefore, will not be included in net income. In such cases, there will be no add-back of acquisition expenses to Core FFO. This revised standard is applied to transactions occurring after October 1, 2016. |
(3) | Restated to include two development properties and one redevelopment property that were placed in service on January 1, 2017. |
(4) | Remaining lease term (after taking into account leases for vacant spaces which had been executed but not commenced as of September 30, 2017) is weighted based on Annualized Lease Revenue, as defined on page 39. |
5
During the three months ended September 30, 2017, the Company completed 447,392 square feet of total leasing. Of the total leasing activity during the quarter, we signed new tenant leases for 203,044 square feet and renewal leases for 244,348 square feet. During the nine months ended September 30, 2017, we completed 1,202,980 square feet of leasing for our consolidated office properties, consisting of 547,621 square feet of new tenant leases and 655,359 square feet of renewal leases. The average committed tenant improvement cost per square foot per year of lease term for new tenant leases signed at our consolidated office properties during the nine months ended September 30, 2017 was $4.76 and the same measure for renewal leases was $2.12, resulting in a weighted average of $3.65 for all leasing activity completed during the period (see page 33).
During the three months ended September 30, 2017, we executed six leases greater than 10,000 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 |
FCA US, LLC | 1075 West Entrance Drive | Auburn Hills, MI | 210,000 | 2024 | Renewal |
WithumSmith + Brown, PC | SunTrust Center | Orlando, FL | 19,530 | 2030 | New |
Phelan Hallinan Diamond & Jones, PLLC | 2001 NW 64th Street | Ft. Lauderdale, FL | 18,571 | 2028 | New |
Applied Predictive Technologies, Inc. | 4250 North Fairfax Drive | Arlington, VA | 14,538 | 2028 | Expansion |
Robinhood Markets, Inc. | 500 TownPark | Lake Mary, FL | 14,472 | 2025 | New |
Federal Advisory Partners | 3100 Clarendon Boulevard | Arlington, VA | 11,541 | 2029 | New |
At the end of the third quarter of 2017, there were three tenants whose leases individually contributed greater than 1% in net Annualized Lease Revenue expiring during the eighteen month period following September 30, 2017. 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 |
Gallagher | Two Pierce Place | Itasca, IL | 286,892 | 1.7% | Q1 2018 | Of the 306,890 square feet currently leased to Gallagher, approximately 20,000 square feet have been leased to CivilTech Engineering under its lease executed in 2016. The remaining available space is actively being marketed for lease. |
Goldman Sachs | 6011 & 6031 Connection Drive | Irving, TX | 207,210 | 1.1% | Q1 2018 | The tenant will vacate upon lease expiration. The space is actively being marketed for lease. We have seen strong prospective tenant interest in the space. |
State of New York | 60 Broad Street | New York, NY | 480,708 | 4.7% | Q1 2019 | The Company is in preliminary discussions with the tenant regarding a potential renewal of the lease. |
6
Future Lease Commencements and Abatements
As of September 30, 2017, our overall leased percentage was 89.2% and our economic leased percentage was 83.4%. 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 421,097 square feet of leases as of September 30, 2017, or 2.2% 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 1,087,685 square feet of leases as of September 30, 2017, or a 3.6% impact to leased percentage on an economic basis). |
The gap between reported leased percentage and economic leased percentage is anticipated to fluctuate over time as i) new leases are signed for vacant spaces and/or ii) abatements associated with existing or newly executed leases commence and expire (see page 8 for more detail on existing large leases with abatements).
Piedmont has leases with many large corporate office space users. The average size of lease in the Company's portfolio is approximately 21,000 square feet. Due to the large size and length of term of new leases, Piedmont typically signs leases many months in advance of their anticipated lease commencement dates. Presented below is a schedule (1) 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 |
United States of America (Social Security Administration Commissioner) | One Independence Square | Washington, DC | 52,720 | Vacant | Q2 2018 | New |
International Food Policy Research Institute (2) | 1201 Eye Street | Washington, DC | 56,461 | Vacant | Q2 2018 | New |
salesforce.com (formerly Demandware, Inc.) | 5 Wall Street | Burlington, MA | 127,408 | Not Vacant | Q4 2019 (75,495 SF) Q3 2021 (51,913 SF) | New |
Children's Hospital Los Angeles | 800 North Brand Boulevard | Glendale, CA | 50,285 | Not Vacant | Q2 2021 | New |
(1) | The schedule is not specifically intended to provide details about the current population of executed but not commenced leases; it does, however, provide details for all uncommenced leases that are greater than 50,000 square feet in size and not renewals, whether or not the spaces for which the leases were signed are vacant. |
(2) | The first phase of the lease, which consists of 45,476 square feet of previously vacant space, commenced in the second quarter of 2017. The second phase, consisting of 56,461 square feet, will commence in the second quarter of 2018. |
7
Many recently negotiated leases provide for rental abatement concessions to tenants. Rental abatements typically occur at the beginning of a new lease's term. The Company's current cash net operating income and AFFO are being negatively impacted, therefore, by the large number of recently commenced new leases. Presented below are two schedules related to abatements. The first is a schedule of leases with abatements of 50,000 square feet or greater that expired during the third quarter of 2017, and the second is a schedule of leases with abatements of 50,000 square feet or greater that are either currently under abatement or will be so within the next twelve months.
Abatements Expired During Quarter
Tenant | Property | Property Location | Abated Square Feet | Abatement Schedule | Lease Expiration |
Nuance Communications, Inc. | One Wayside Road | Burlington, MA | 200,605 | April through August 2017 | Q1 2030 |
Convergys Customer Management Group | 5601 Hiatus Road | Tamarac, FL | 50,000 | June through August 2017 | Q3 2024 |
Current / Future Abatements
Tenant | Property | Property Location | Abated Square Feet | Remaining Abatement Schedule | Lease Expiration |
Applied Predictive Technologies, Inc. | 4250 North Fairfax Drive | Arlington, VA | 87,786 | June 2017 through January 2018 (87,786 square feet); February through May 2018 (102,324 square feet) | Q2 2028 |
RaceTrac Petroleum, Inc. | Galleria 200 | Atlanta, GA | 133,707 | July 2017 through May 2018 | Q3 2032 |
FCA US, LLC | 1075 West Entrance Drive | Auburn Hills, MI | 210,000 | September through December 2017 | Q3 2024 |
SunTrust Bank | SunTrust Center | Orlando, FL | 120,000 | October through December 2017 | Q3 2019 |
Norris, McLaughlin & Marcus | 400 Bridgewater Crossing | Bridgewater, NJ | 78,088 | October through December 2017 (78,088 square feet); October through December 2018 (61,642 square feet); November and December 2019 (61,642 square feet) | Q4 2029 |
Mitsubishi Hitachi Power Systems | 400 TownPark | Lake Mary, FL | 75,321 | February and March 2018 | Q1 2026 |
United States of America (Social Security Administration Commissioner) | One Independence Square | Washington, DC | 52,720 | June 2018 through May 2019 | Q2 2028 |
International Food Policy Research Institute | 1201 Eye Street | Washington, DC | 101,937 | May 2018 through April 2019 | Q2 2029 |
Financing and Capital Activity
Among Piedmont's stated objectives for 2017 is to be a net seller of assets by harvesting capital through the disposition of non-core assets and assets in which the Company believes values have been maximized, and to use the sale proceeds to:
• | invest in real estate assets with higher overall return prospects in selected markets in which we have, or plan to have, a significant operating presence and that otherwise meet our strategic criteria; |
• | reduce leverage levels by repaying outstanding debt; and/or |
• | repurchase Company stock when market conditions allow. |
Information on the Company's recent accomplishments in furtherance of its strategic objectives is presented below.
Dispositions
On July 5, 2017, Piedmont completed the sale of Two Independence Square, a nine-story, 100% leased, 606,000 square foot office building located in Washington, DC, for $359.6 million, or approximately $593 per square foot. Net proceeds from the transaction were approximately $352.1 million, after deducting closing costs and buyer credits. The sale of the asset allowed the Company to:
• | Enhance its balance sheet through the pay down of approximately $350 million of outstanding debt; |
• | Decrease the concentration of its revenues, NOI and square footage in the Washington, DC market; and |
• | Decrease its exposure to the non-strategic Southwest submarket in Washington, DC. |
8
On July 27, 2017, Piedmont sold 8560 Upland Drive, a 149,000 square foot, 100% leased, office and industrial flex property located in Englewood, CO, for approximately $17.6 million, or $118 per square foot. Piedmont owned a 72% joint venture interest in the property. Through the sale, Piedmont was able to:
• | exit the Denver, CO market; |
• | monetize a non-strategic asset; and |
• | dispose of its last remaining unconsolidated joint venture investment. |
Acquisitions
There were no acquisitions completed during the quarter ended September 30, 2017.
For additional information on acquisitions and dispositions completed over the previous eighteen months, please refer to page 37.
Development
On January 1, 2017, the following development and re-development properties were placed in service and are in lease-up phase:
• | 500 TownPark, a 134,400 square foot, four-story office building that is well located within a master planned, mixed-use development in Lake Mary, FL, and leased predominantly to Continental Casualty Company; |
• | 3100 Clarendon Boulevard, a 260,900 square foot office property located in an amenity-rich area adjacent to the Clarendon Metrorail Station in Arlington, VA, which was upgraded to Class A after being occupied by a U.S. Government agency for over 15 years; and |
• | Enclave Place, a 300,900 square foot office building located within a deed-restricted and architecturally-controlled office park in the Energy Corridor in Houston, TX. |
The Company currently has no developments or re-developments underway. Additional detail on the Company's developable land parcels, all of which are adjacent to existing Piedmont properties, can be found on page 38.
Finance
As of September 30, 2017, our ratio of debt to total gross assets was 33.7%. This debt ratio is based on total principal amount outstanding for our various loans at September 30, 2017.
As of September 30, 2017, our average net debt to Core EBITDA ratio was 5.6 x, a decrease from 6.4 x at December 31, 2016.
On July 5, 2017, Piedmont repaid the entire $210 million outstanding balance under the Company's revolving line of credit using a portion of the proceeds from the sale of Two Independence Square in Washington, DC.
On August 1, 2017, Piedmont paid off a $140 million mortgage loan with a 5.76% interest rate collateralized by 1201 Eye Street and 1225 Eye Street, both located in Washington, DC. The loan had a November 1, 2017 maturity date, but was open to prepayment without yield maintenance fees approximately 3 months in advance of the stated maturity date. The Company paid off the loan at the earliest possible date within the open prepayment window with a portion of the proceeds from the sale of Two Independence Square in Washington, DC.
Stock Repurchase Program
During the third quarter of 2017, the Company repurchased approximately 200,000 shares of common stock under its share repurchase program at an average price of $19.92 per share, or approximately $3.9 million (before the consideration of transaction costs). Since the stock repurchase program began in December 2011, the Company has repurchased a total of 28.5 million shares at an average price of $17.18 per share, or approximately $490.2 million in aggregate (before the consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases totaled approximately $246.1 million under the stock repurchase plan. 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 the Company deems relevant.
Dividend
On August 1, 2017, the Board of Directors of Piedmont declared a dividend for the third quarter of 2017 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on August 25, 2017. The dividend was paid on September 15, 2017. The Company's dividend payout percentage (for dividends declared) for the nine months ended September 30, 2017 was 47% of Core FFO and 58% of AFFO.
9
Subsequent Events
On October 31, 2017, the Board of Directors of Piedmont declared a dividend for the fourth quarter of 2017 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on November 24, 2017. The dividend is expected to be paid on January 4, 2018.
Guidance for 2017
The following financial guidance for calendar year 2017 has been updated based upon completed capital transactions to date and management's current expectations.
Low | High | ||
Net Income | $176 million | to | $178 million |
Add: | |||
Depreciation | 121 million | to | 124 million |
Amortization | 75 million | to | 76 million |
Less: | |||
Gain on Sale of Real Estate Assets | (119) million | to | (121) million |
NAREIT Funds from Operations applicable to Common Stock and Core Funds From Operations | $253 million | to | $257 million |
NAREIT Funds from Operations and Core Funds from Operations per diluted share | $1.74 | to | $1.76 |
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, accrued potential performance-based compensation 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.
Consolidated Balance Sheets
Unaudited (in thousands)
September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | |||||||||||||||
Assets: | |||||||||||||||||||
Real estate, at cost: | |||||||||||||||||||
Land assets | $ | 614,934 | $ | 614,934 | $ | 617,138 | $ | 617,138 | $ | 610,987 | |||||||||
Buildings and improvements | 3,649,268 | 3,639,291 | 3,647,718 | 3,610,360 | 3,567,801 | ||||||||||||||
Buildings and improvements, accumulated depreciation | (926,105 | ) | (896,964 | ) | (881,861 | ) | (856,254 | ) | (845,590 | ) | |||||||||
Intangible lease asset | 171,965 | 179,540 | 205,061 | 208,847 | 194,493 | ||||||||||||||
Intangible lease asset, accumulated amortization | (93,265 | ) | (94,551 | ) | (113,129 | ) | (109,152 | ) | (102,137 | ) | |||||||||
Construction in progress | 8,957 | 15,651 | 19,165 | 34,814 | 35,075 | ||||||||||||||
Real estate assets held for sale, gross | — | 314,258 | 314,258 | 314,258 | 314,258 | ||||||||||||||
Real estate assets held for sale, accumulated depreciation & amortization | — | (89,187 | ) | (89,187 | ) | (88,319 | ) | (86,109 | ) | ||||||||||
Total real estate assets | 3,425,754 | 3,682,972 | 3,719,163 | 3,731,692 | 3,688,778 | ||||||||||||||
Investments in and amounts due from unconsolidated joint ventures | 49 | 7,762 | 7,654 | 7,360 | 7,351 | ||||||||||||||
Cash and cash equivalents | 36,108 | 9,596 | 6,808 | 6,992 | 6,032 | ||||||||||||||
Tenant receivables, net of allowance for doubtful accounts | 12,802 | 24,269 | 25,194 | 26,494 | 24,785 | ||||||||||||||
Straight line rent receivable | 182,609 | 177,463 | 170,694 | 163,789 | 156,835 | ||||||||||||||
Escrow deposits and restricted cash | 1,260 | 1,290 | 1,253 | 1,212 | 5,182 | ||||||||||||||
Prepaid expenses and other assets | 28,232 | 29,454 | 20,993 | 23,201 | 28,356 | ||||||||||||||
Goodwill | 98,918 | 98,918 | 98,918 | 98,918 | 98,918 | ||||||||||||||
Interest rate swap | 34 | — | — | — | — | ||||||||||||||
Deferred lease costs, less accumulated amortization | 274,884 | 278,366 | 290,100 | 298,695 | 281,057 | ||||||||||||||
Other assets held for sale | — | 10,222 | 9,963 | 9,815 | 9,824 | ||||||||||||||
Total assets | $ | 4,060,650 | $ | 4,320,312 | $ | 4,350,740 | $ | 4,368,168 | $ | 4,307,118 | |||||||||
Liabilities: | |||||||||||||||||||
Unsecured debt, net of discount | $ | 1,511,663 | $ | 1,720,986 | $ | 1,733,343 | $ | 1,687,731 | $ | 1,661,066 | |||||||||
Secured debt | 191,923 | 332,196 | 332,471 | 332,744 | 333,012 | ||||||||||||||
Accounts payable, accrued expenses, and accrued capital expenditures | 108,120 | 111,011 | 116,077 | 165,410 | 133,112 | ||||||||||||||
Deferred income | 29,970 | 27,416 | 30,683 | 28,406 | 29,006 | ||||||||||||||
Intangible lease liabilities, less accumulated amortization | 41,064 | 43,328 | 45,594 | 48,005 | 45,283 | ||||||||||||||
Interest rate swaps | 3,915 | 5,061 | 5,475 | 8,169 | 17,835 | ||||||||||||||
Total liabilities | $ | 1,886,655 | $ | 2,239,998 | $ | 2,263,643 | $ | 2,270,465 | $ | 2,219,314 | |||||||||
Stockholders' equity: | |||||||||||||||||||
Common stock | 1,453 | 1,455 | 1,453 | 1,452 | 1,452 | ||||||||||||||
Additional paid in capital | 3,676,706 | 3,675,562 | 3,675,575 | 3,673,128 | 3,672,218 | ||||||||||||||
Cumulative distributions in excess of earnings | (1,511,428 | ) | (1,603,119 | ) | (1,596,276 | ) | (1,580,863 | ) | (1,580,553 | ) | |||||||||
Other comprehensive loss | 5,400 | 4,547 | 4,466 | 2,104 | (7,211 | ) | |||||||||||||
Piedmont stockholders' equity | 2,172,131 | 2,078,445 | 2,085,218 | 2,095,821 | 2,085,906 | ||||||||||||||
Non-controlling interest | 1,864 | 1,869 | 1,879 | 1,882 | 1,898 | ||||||||||||||
Total stockholders' equity | 2,173,995 | 2,080,314 | 2,087,097 | 2,097,703 | 2,087,804 | ||||||||||||||
Total liabilities, redeemable common stock and stockholders' equity | $ | 4,060,650 | $ | 4,320,312 | $ | 4,350,740 | $ | 4,368,168 | $ | 4,307,118 | |||||||||
Common stock outstanding at end of period | 145,295 | 145,490 | 145,320 | 145,235 | 145,234 | ||||||||||||||
11
Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)
Three Months Ended | ||||||||||||||||||||
9/30/2017 | 6/30/2017 | 3/31/2017 | 12/31/2016 | 9/30/2016 | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Rental income | $ | 113,350 | $ | 124,248 | $ | 123,450 | $ | 119,564 | $ | 113,821 | ||||||||||
Tenant reimbursements | 23,796 | 24,044 | 24,500 | 23,961 | 24,163 | |||||||||||||||
Property management fee revenue | 441 | 387 | 513 | 386 | 501 | |||||||||||||||
137,587 | 148,679 | 148,463 | 143,911 | 138,485 | ||||||||||||||||
Expenses: | ||||||||||||||||||||
Property operating costs | 54,090 | 55,779 | 55,384 | 57,496 | 54,867 | |||||||||||||||
Depreciation | 30,000 | 30,059 | 30,768 | 32,785 | 31,610 | |||||||||||||||
Amortization | 18,123 | 19,314 | 20,415 | 21,271 | 18,640 | |||||||||||||||
Impairment losses on real estate assets | — | — | — | — | 22,951 | |||||||||||||||
General and administrative | 6,618 | 8,036 | 8,596 | 5,726 | 7,429 | |||||||||||||||
108,831 | 113,188 | 115,163 | 117,278 | 135,497 | ||||||||||||||||
Real estate operating income | 28,756 | 35,491 | 33,300 | 26,633 | 2,988 | |||||||||||||||
Other income / (expense): | ||||||||||||||||||||
Interest expense | (16,183 | ) | (18,421 | ) | (18,057 | ) | (16,566 | ) | (15,496 | ) | ||||||||||
Other income / (expense) | 290 | 38 | (100 | ) | 454 | (720 | ) | |||||||||||||
Net recoveries / (loss) from casualty events and litigation settlements | — | — | — | — | 34 | |||||||||||||||
Equity in income / (loss) of unconsolidated joint ventures | 3,754 | 107 | 11 | 8 | 129 | |||||||||||||||
(12,139 | ) | (18,276 | ) | (18,146 | ) | (16,104 | ) | (16,053 | ) | |||||||||||
Income from continuing operations | 16,617 | 17,215 | 15,154 | 10,529 | (13,065 | ) | ||||||||||||||
Discontinued operations: | ||||||||||||||||||||
Operating income, excluding impairment loss | — | — | — | — | 1 | |||||||||||||||
Income / (loss) from discontinued operations | — | — | — | — | 1 | |||||||||||||||
Gain / (loss) on sale of real estate (1) | 109,512 | 6,492 | (53 | ) | 19,652 | (57 | ) | |||||||||||||
Net income | 126,129 | 23,707 | 15,101 | 30,181 | (13,121 | ) | ||||||||||||||
Less: Net income attributable to noncontrolling interest | 4 | 3 | 3 | 8 | 14 | |||||||||||||||
Net income attributable to Piedmont | $ | 126,133 | $ | 23,710 | $ | 15,104 | $ | 30,189 | $ | (13,107 | ) | |||||||||
Weighted average common shares outstanding - diluted | 145,719 | 145,813 | 145,833 | 145,764 | 145,669 | |||||||||||||||
Net income per share available to common stockholders - diluted | $ | 0.87 | $ | 0.16 | $ | 0.10 | $ | 0.21 | $ | (0.09 | ) | |||||||||
Common stock outstanding at end of period | 145,295 | 145,490 | 145,320 | 145,235 | 145,234 | |||||||||||||||
(1) | The gain on sale of real estate reflected in the third quarter of 2017 was related to the sale of Two Independence Square in Washington, DC, on which we recorded a $109.5 million gain. The gain on sale of real estate reflected in the second quarter of 2017 was related to the sale of Sarasota Commerce Center II in Sarasota, FL, on which we recorded a $6.5 million gain. The gain in the fourth quarter of 2016 was primarily related to the sale of Braker Pointe III in Austin, TX, on which we recorded an $18.6 million gain. |
12
Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
9/30/2017 | 9/30/2016 | Change ($) | Change (%) | 9/30/2017 | 9/30/2016 | Change ($) | Change (%) | ||||||||||||||||||
Revenues: | |||||||||||||||||||||||||
Rental income | $ | 113,350 | $ | 113,821 | $ | (471 | ) | (0.4 | )% | $ | 361,048 | $ | 340,326 | $ | 20,722 | 6.1 | % | ||||||||
Tenant reimbursements | 23,796 | 24,163 | (367 | ) | (1.5 | )% | 72,340 | 70,000 | 2,340 | 3.3 | % | ||||||||||||||
Property management fee revenue | 441 | 501 | (60 | ) | (12.0 | )% | 1,341 | 1,478 | (137 | ) | (9.3 | )% | |||||||||||||
137,587 | 138,485 | (898 | ) | (0.6 | )% | 434,729 | 411,804 | 22,925 | 5.6 | % | |||||||||||||||
Expenses: | |||||||||||||||||||||||||
Property operating costs | 54,090 | 54,867 | 777 | 1.4 | % | 165,253 | 161,438 | (3,815 | ) | (2.4 | )% | ||||||||||||||
Depreciation | 30,000 | 31,610 | 1,610 | 5.1 | % | 90,827 | 94,948 | 4,121 | 4.3 | % | |||||||||||||||
Amortization | 18,123 | 18,640 | 517 | 2.8 | % | 57,852 | 53,848 | (4,004 | ) | (7.4 | )% | ||||||||||||||
Impairment losses on real estate assets | — | 22,951 | 22,951 | 100.0 | % | — | 33,901 | 33,901 | 100.0 | % | |||||||||||||||
General and administrative | 6,618 | 7,429 | 811 | 10.9 | % | 23,250 | 23,518 | 268 | 1.1 | % | |||||||||||||||
108,831 | 135,497 | 26,666 | 19.7 | % | 337,182 | 367,653 | 30,471 | 8.3 | % | ||||||||||||||||
Real estate operating income | 28,756 | 2,988 | 25,768 | 862.4 | % | 97,547 | 44,151 | 53,396 | 120.9 | % | |||||||||||||||
Other income / (expense): | |||||||||||||||||||||||||
Interest expense | (16,183 | ) | (15,496 | ) | (687 | ) | (4.4 | )% | (52,661 | ) | (48,294 | ) | (4,367 | ) | (9.0 | )% | |||||||||
Other income / (expense) | 290 | (720 | ) | 1,010 | 140.3 | % | 228 | (467 | ) | 695 | 148.8 | % | |||||||||||||
Net recoveries / (loss) from casualty events and litigation settlements | — | 34 | (34 | ) | (100.0 | )% | — | 34 | (34 | ) | (100.0 | )% | |||||||||||||
Equity in income / (loss) of unconsolidated joint ventures | 3,754 | 129 | 3,625 | 2,810.1 | % | 3,872 | 354 | 3,518 | 993.8 | % | |||||||||||||||
(12,139 | ) | (16,053 | ) | 3,914 | 24.4 | % | (48,561 | ) | (48,373 | ) | (188 | ) | (0.4 | )% | |||||||||||
Income from continuing operations | 16,617 | (13,065 | ) | 29,682 | 227.2 | % | 48,986 | (4,222 | ) | 53,208 | 1,260.3 | % | |||||||||||||
Discontinued operations: | |||||||||||||||||||||||||
Operating income, excluding impairment loss | — | 1 | (1 | ) | (100.0 | )% | — | — | — | ||||||||||||||||
Income / (loss) from discontinued operations | — | 1 | (1 | ) | (100.0 | )% | — | — | — | ||||||||||||||||
Gain / (loss) on sale of real estate (1) | 109,512 | (57 | ) | 109,569 | 192,226.3 | % | 115,951 | 73,758 | 42,193 | 57.2 | % | ||||||||||||||
Net income | 126,129 | (13,121 | ) | 139,250 | 1,061.3 | % | 164,937 | 69,536 | 95,401 | 137.2 | % | ||||||||||||||
Less: Net income attributable to noncontrolling interest | 4 | 14 | (10 | ) | (71.4 | )% | 10 | 7 | 3 | 42.9 | % | ||||||||||||||
Net income attributable to Piedmont | $ | 126,133 | $ | (13,107 | ) | $ | 139,240 | 1,062.3 | % | $ | 164,947 | $ | 69,543 | $ | 95,404 | 137.2 | % | ||||||||
Weighted average common shares outstanding - diluted | 145,719 | 145,669 | 145,680 | 145,601 | |||||||||||||||||||||
Net income per share available to common stockholders - diluted | $ | 0.87 | $ | (0.09 | ) | $ | 1.13 | $ | 0.48 | ||||||||||||||||
Common stock outstanding at end of period | 145,295 | 145,234 | 145,295 | 145,234 | |||||||||||||||||||||
(1) | The gain on sale of real estate for the three months and the nine months ended September 30, 2017 was primarily related to the sale of Two Independence Square in Washington, DC, on which we recorded a $109.5 million gain. The gain on sale of real estate for the nine months ended September 30, 2016 was primarily related to the sales in the second quarter of 2016 of 1055 East Colorado Boulevard in Pasadena, CA, on which we recorded a $29.5 million gain; Fairway Center II in Brea, CA, on which we recorded a $14.4 million gain; and 1901 Main Street in Irvine, CA, on which we recorded a $30.0 million gain. |
13
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, Earnings Before Interest, Taxes, Depreciation, and Amortization for real estate (EBITDAre), 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 | |||||||||||||||
9/30/2017 | 6/30/2017 | 3/31/2017 | 12/31/2016 | 9/30/2016 | |||||||||||
Selected Operating Data | |||||||||||||||
Percent leased (1) | 89.2 | % | 91.0 | % | 91.5 | % | 91.9 | % | (2) | 93.4 | % | ||||
Percent leased - economic (1) (3) | 83.4 | % | 84.4 | % | 84.1 | % | 84.0 | % | (2) | 86.7 | % | ||||
Rental income | $113,350 | $124,248 | $123,450 | $119,564 | $113,821 | ||||||||||
Total revenues | $137,587 | $148,679 | $148,463 | $143,911 | $138,485 | ||||||||||
Total operating expenses | $108,831 | $113,188 | $115,163 | $117,278 | $135,497 | (4) | |||||||||
Core EBITDA | $77,242 | $85,041 | $84,505 | $81,202 | $76,611 | ||||||||||
Core FFO applicable to common stock | $60,819 | $66,465 | $66,198 | $64,397 | $60,913 | ||||||||||
Core FFO per share - diluted | $0.42 | $0.46 | $0.45 | $0.44 | $0.42 | ||||||||||
AFFO applicable to common stock | $52,370 | $50,870 | $54,124 | $45,641 | $50,484 | ||||||||||
Gross dividends | $30,549 | $30,553 | $30,517 | $30,499 | $30,498 | ||||||||||
Dividends per share | $0.210 | $0.210 | $0.210 | $0.210 | $0.210 | ||||||||||
Selected Balance Sheet Data | |||||||||||||||
Total real estate assets | $3,425,754 | $3,682,972 | $3,719,163 | $3,731,692 | $3,688,778 | ||||||||||
Total assets | $4,060,650 | $4,320,312 | $4,350,740 | $4,368,168 | $4,307,118 | ||||||||||
Total liabilities | $1,886,655 | $2,239,998 | $2,263,643 | $2,270,465 | $2,219,314 | ||||||||||
Ratios & Information for Debt Holders | |||||||||||||||
Core EBITDA margin (5) | 56.1 | % | 57.2 | % | 56.9 | % | 56.4 | % | 55.3 | % | |||||
Fixed charge coverage ratio (6) | 4.7 x | 4.6 x | 4.6 x | 4.5 x | 4.4 x | ||||||||||
Average net debt to Core EBITDA (7) | 5.6 x | 6.0 x | 6.1 x | 6.4 x | 6.4 x | ||||||||||
Total gross real estate assets | $4,445,124 | $4,763,674 | $4,803,340 | $4,785,417 | $4,722,614 | ||||||||||
Net debt (8) | $1,673,535 | $2,050,246 | $2,066,298 | $2,021,378 | $1,992,588 | ||||||||||
(1) | Please refer to page 27 for additional leased percentage information. |
(2) | Percent leased and percent leased - economic as of December 31, 2016 have been restated to include two development properties and one re-development property that were placed into service effective January 1, 2017. The development properties that were placed in service are Enclave Place, a 300,900 square foot office property located in Houston, TX, and 500 TownPark, a 134,400 square foot office property located in Lake Mary, FL; the re-development property that was placed in service is 3100 Clarendon Boulevard, a 260,900 square foot office property located in Arlington, VA. |
(3) | 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 Future Lease Commencements and Abatements section of Financial Highlights for details on near-term abatements for large leases. |
(4) | Amount in the third quarter of 2016 includes $22.6 million in impairment losses associated with 9200 and 9211 Corporate Boulevard located in Rockville, MD. |
(5) | Core EBITDA margin is calculated as Core EBITDA divided by total revenues (including revenues associated with discontinued operations). |
(6) | 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 $37,259 for the quarter ended September 30, 2017, $35,376 for the quarter ended June 30, 2017, $78,939 for the quarter ended March 31, 2017, $1,181,074 for the quarter ended December 31, 2016, and $1,476,949 for the quarter ended September 30, 2016; the Company had principal amortization of $229,596 for the quarter ended September 30, 2017, $226,439 for the quarter ended June 30, 2017, $223,326 for the quarter ended March 31, 2017, $220,256 for the quarter ended December 31, 2016, and $288,972 for the quarter ended September 30, 2016. |
(7) | For the purposes of this calculation, we annualize the period's Core EBITDA and 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. |
(8) | Net debt is calculated as the total principal amount of debt outstanding minus cash and cash equivalents and escrow deposits and restricted cash as of the end of the period. The decrease in net debt during the third quarter of 2017 was primarily attributable to the use of the proceeds from the sale of Two Independence Square in Washington, DC, to repay debt. |
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 | Nine Months Ended | |||||||||||||||
9/30/2017 | 9/30/2016 | 9/30/2017 | 9/30/2016 | |||||||||||||
GAAP net income applicable to common stock | $ | 126,133 | $ | (13,107 | ) | $ | 164,947 | $ | 69,543 | |||||||
Depreciation (1) (2) | 29,774 | 31,451 | 90,335 | 94,532 | ||||||||||||
Amortization (1) | 18,107 | 18,640 | 57,828 | 53,880 | ||||||||||||
Impairment loss (1) | — | 22,951 | — | 33,901 | ||||||||||||
Loss / (gain) on sale of properties (1) | (113,195 | ) | 57 | (119,634 | ) | (73,758 | ) | |||||||||
NAREIT funds from operations applicable to common stock | 60,819 | 59,992 | 193,476 | 178,098 | ||||||||||||
Adjustments: | ||||||||||||||||
Acquisition costs | — | 955 | 6 | 972 | ||||||||||||
Net (recoveries) / loss from casualty events and litigation settlements (1) | — | (34 | ) | — | (34 | ) | ||||||||||
Core funds from operations applicable to common stock | 60,819 | 60,913 | 193,482 | 179,036 | ||||||||||||
Adjustments: | ||||||||||||||||
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on senior notes | 634 | 653 | 1,892 | 1,943 | ||||||||||||
Depreciation of non real estate assets | 218 | 216 | 597 | 595 | ||||||||||||
Straight-line effects of lease revenue (1) | (3,602 | ) | (4,140 | ) | (15,939 | ) | (15,115 | ) | ||||||||
Stock-based and other non-cash compensation expense | 1,250 | 1,931 | 4,202 | 5,336 | ||||||||||||
Amortization of lease-related intangibles (1) | (1,720 | ) | (1,152 | ) | (4,890 | ) | (3,680 | ) | ||||||||
Acquisition costs | — | (955 | ) | (6 | ) | (972 | ) | |||||||||
Non-incremental capital expenditures (3) | (5,229 | ) | (6,982 | ) | (21,974 | ) | (23,433 | ) | ||||||||
Adjusted funds from operations applicable to common stock | $ | 52,370 | $ | 50,484 | $ | 157,364 | $ | 143,710 | ||||||||
Weighted average common shares outstanding - diluted | 145,719 | 145,669 | 145,680 | 145,601 | ||||||||||||
Funds from operations per share (diluted) | $ | 0.42 | $ | 0.41 | $ | 1.33 | $ | 1.22 | ||||||||
Core funds from operations per share (diluted) | $ | 0.42 | $ | 0.42 | $ | 1.33 | $ | 1.23 | ||||||||
Common stock outstanding at end of period | 145,295 | 145,234 | 145,295 | 145,234 | ||||||||||||
(1) | Includes amounts attributable to consolidated properties and 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 | Nine Months Ended | ||||||||||||||
9/30/2017 | 9/30/2016 | 9/30/2017 | 9/30/2016 | ||||||||||||
Net income attributable to Piedmont | $ | 126,133 | $ | (13,107 | ) | $ | 164,947 | $ | 69,543 | ||||||
Net income attributable to noncontrolling interest | (4 | ) | (14 | ) | (10 | ) | (7 | ) | |||||||
Interest expense (1) | 16,183 | 15,496 | 52,661 | 48,294 | |||||||||||
Depreciation (1) | 29,993 | 31,667 | 90,933 | 95,127 | |||||||||||
Amortization (1) | 18,107 | 18,640 | 57,828 | 53,880 | |||||||||||
Impairment loss (1) | — | 22,951 | — | 33,901 | |||||||||||
Loss / (gain) on sale of properties (1) | (113,195 | ) | 57 | (119,634 | ) | (73,758 | ) | ||||||||
EBITDAre | 77,217 | 75,690 | 246,725 | 226,980 | |||||||||||
Acquisition costs | — | 955 | 6 | 972 | |||||||||||
Net (recoveries) / loss from casualty events and litigation settlements (1) | 25 | (34 | ) | 57 | (34 | ) | |||||||||
Core EBITDA | 77,242 | 76,611 | 246,788 | 227,918 | |||||||||||
General & administrative expenses (1) | 6,631 | 7,437 | 23,291 | 23,565 | |||||||||||
Management fee revenue (2) | (241 | ) | (295 | ) | (724 | ) | (810 | ) | |||||||
Other (income) / expense (1) (3) | (315 | ) | (235 | ) | (291 | ) | 1 | ||||||||
Straight-line effects of lease revenue (1) | (3,602 | ) | (4,140 | ) | (15,939 | ) | (15,115 | ) | |||||||
Amortization of lease-related intangibles (1) | (1,720 | ) | (1,152 | ) | (4,890 | ) | (3,680 | ) | |||||||
Property net operating income (cash basis) | 77,995 | 78,226 | 248,235 | 231,879 | |||||||||||
Deduct net operating (income) / loss from: | |||||||||||||||
Acquisitions (4) | (4,584 | ) | (2,485 | ) | (13,201 | ) | (2,485 | ) | |||||||
Dispositions (5) | (9 | ) | (5,724 | ) | (11,403 | ) | (27,023 | ) | |||||||
Other investments (6) | (99 | ) | (332 | ) | 521 | (362 | ) | ||||||||
Same store net operating income (cash basis) | $ | 73,303 | $ | 69,685 | $ | 224,152 | $ | 202,009 | |||||||
Change period over period | 5.2 | % | N/A | 11.0 | % | N/A | |||||||||
(1) | Includes amounts attributable to consolidated properties 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 CNL Center I and CNL Center II in Orlando, FL, purchased on August 1, 2016; One Wayside Road in Burlington, MA, purchased on August 10, 2016; Galleria 200 in Atlanta, GA, purchased on October 7, 2016; and 750 West John Carpenter Freeway in Irving, TX, purchased on November 30, 2016. |
(5) | Dispositions consist of 1055 East Colorado Boulevard in Pasadena, CA, sold on April 21, 2016; Fairway Center II in Brea, CA, sold on April 28, 2016; 1901 Main Street in Irvine, CA, sold on May 2, 2016; 9221 Corporate Boulevard in Rockville, MD, sold on July 27, 2016; 150 West Jefferson in Detroit, MI, sold on July 29, 2016; 9200 and 9211 Corporate Boulevard in Rockville, MD, sold on September 28, 2016; 11695 Johns Creek Parkway in Johns Creek, GA, sold on December 22, 2016; Braker Pointe III in Austin, TX, sold on December 29, 2016; Sarasota Commerce Center II in Sarasota, FL, sold on June 16, 2017; and Two Independence Square in Washington, DC, sold on July 5, 2017. |
(6) | Other investments consist of our interests in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. Additional information on our land holdings can be found on page #SectionPage#. The operating results from 3100 Clarendon Boulevard in Arlington, VA, Enclave Place in Houston, TX, and 500 TownPark in Lake Mary, FL, 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 Strategic Operating Markets | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
9/30/2017 | 9/30/2016 | 9/30/2017 | 9/30/2016 | ||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||
New York (1) | $ | 10,569 | 14.4 | $ | 9,783 | 14.0 | $ | 30,645 | 13.7 | $ | 29,745 | 14.7 | |||||||||||
Chicago (2) | 9,332 | 12.7 | 8,650 | 12.4 | 26,204 | 11.7 | 21,612 | 10.7 | |||||||||||||||
Washington, D.C. (3) | 6,959 | 9.5 | 6,427 | 9.2 | 25,599 | 11.4 | 20,137 | 10.0 | |||||||||||||||
Boston (4) | 8,044 | 11.0 | 8,374 | 12.0 | 25,032 | 11.2 | 23,633 | 11.7 | |||||||||||||||
Atlanta (5) | 7,811 | 10.6 | 6,706 | 9.6 | 22,817 | 10.2 | 19,995 | 9.9 | |||||||||||||||
Dallas (6) | 7,300 | 10.0 | 6,422 | 9.2 | 20,656 | 9.2 | 19,677 | 9.7 | |||||||||||||||
Minneapolis (7) | 6,654 | 9.1 | 6,174 | 8.9 | 19,673 | 8.8 | 18,308 | 9.1 | |||||||||||||||
Orlando | 3,644 | 5.0 | 3,311 | 4.8 | 10,860 | 4.8 | 10,052 | 5.0 | |||||||||||||||
Other (8) | 12,990 | 17.7 | 13,838 | 19.9 | 42,666 | 19.0 | 38,850 | 19.2 | |||||||||||||||
Total | $ | 73,303 | 100.0 | $ | 69,685 | 100.0 | $ | 224,152 | 100.0 | $ | 202,009 | 100.0 | |||||||||||
(1) | The increase in metropolitan New York Same Store Net Operating Income for the three months and the nine months ended September 30, 2017 as compared to the same periods in 2016 was primarily related to increased economic occupancy attributable to recent leasing activity as well as lease restructuring income. |
(2) | The increase in Chicago Same Store Net Operating Income for the three months and the nine months ended September 30, 2017 as compared to the same periods in 2016 was primarily a result of increased economic occupancy at 500 West Monroe Street in Chicago, IL. |
(3) | The increase in Washington, D.C. Same Store Net Operating Income for the three months and the nine months ended September 30, 2017 as compared to the same periods in 2016 was primarily a result of increased economic occupancy at One Independence Square and 1225 Eye Street, both in Washington, D.C. Offsetting somewhat the increase in Washington, D.C. Same Store Net Operating Income for the three months ended September 30, 2017 as compared to the same period in 2016 was the loss of rental income associated with the expiration of a lease at 1201 Eye Street in Washington, D.C. during the third quarter of 2017. |
(4) | The increase in Boston Same Store Net Operating Income for the nine months ended September 30, 2017 as compared to the same period in 2016 was related to lease restructuring income, the majority of which was recorded during the first quarter of 2017, and recent leasing activity. |
(5) | The increase in Atlanta Same Store Net Operating Income for the three months and the nine months ended September 30, 2017 as compared to the same periods in 2016 was primarily related to increased economic occupancy at Galleria 300, Glenridge Highlands One, Glenridge Highlands Two, and The Medici, all located in Atlanta, GA. |
(6) | The increase in Dallas Same Store Net Operating Income for the three months and the nine months ended September 30, 2017 as compared to the same periods in 2016 was primarily related to increased cash flow from recent leasing activity. |
(7) | The increase in Minneapolis Same Store Net Operating Income for the nine months ended September 30, 2017 as compared to the same period in 2016 was primarily a result of increased economic occupancy at US Bancorp Center in Minneapolis, MN. |
(8) | The decrease in Other Same Store Net Operating Income for the three months ended September 30, 2017 as compared to the same period in 2016 was primarily attributable to the expiration of a large lease at Desert Canyon 300 in Phoenix, AZ. The increase in Other Same Store Net Operating Income for the nine months ended September 30, 2017 as compared to the same period in 2016 was primarily attributable to the expiration of the rental abatement period associated with a lease at 800 North Brand Boulevard in Glendale, CA. |
17
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Accrual Basis)
Unaudited (in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||
9/30/2017 | 9/30/2016 | 9/30/2017 | 9/30/2016 | ||||||||||||
Net income attributable to Piedmont | $ | 126,133 | $ | (13,107 | ) | $ | 164,947 | $ | 69,543 | ||||||
Net income attributable to noncontrolling interest | (4 | ) | (14 | ) | (10 | ) | (7 | ) | |||||||
Interest expense (1) | 16,183 | 15,496 | 52,661 | 48,294 | |||||||||||
Depreciation (1) | 29,993 | 31,667 | 90,933 | 95,127 | |||||||||||
Amortization (1) | 18,107 | 18,640 | 57,828 | 53,880 | |||||||||||
Impairment loss (1) | — | 22,951 | — | 33,901 | |||||||||||
Loss / (gain) on sale of properties (1) | (113,195 | ) | 57 | (119,634 | ) | (73,758 | ) | ||||||||
EBITDAre | 77,217 | 75,690 | 246,725 | 226,980 | |||||||||||
Acquisition costs | — | 955 | 6 | 972 | |||||||||||
Net (recoveries) / loss from casualty events and litigation settlements (1) | 25 | (34 | ) | 57 | (34 | ) | |||||||||
Core EBITDA | 77,242 | 76,611 | 246,788 | 227,918 | |||||||||||
General & administrative expenses (1) | 6,631 | 7,437 | 23,291 | 23,565 | |||||||||||
Management fee revenue (2) | (241 | ) | (295 | ) | (724 | ) | (810 | ) | |||||||
Other (income) / expense (1) (3) | (315 | ) | (235 | ) | (291 | ) | 1 | ||||||||
Property net operating income (accrual basis) | 83,317 | 83,518 | 269,064 | 250,674 | |||||||||||
Deduct net operating (income) / loss from: | |||||||||||||||
Acquisitions (4) | (7,512 | ) | (2,779 | ) | (22,160 | ) | (2,779 | ) | |||||||
Dispositions (5) | (12 | ) | (5,905 | ) | (11,462 | ) | (28,042 | ) | |||||||
Other investments (6) | (764 | ) | (651 | ) | (1,852 | ) | (874 | ) | |||||||
Same store net operating income (accrual basis) | $ | 75,029 | $ | 74,183 | $ | 233,590 | $ | 218,979 | |||||||
Change period over period | 1.1 | % | N/A | 6.7 | % | N/A | |||||||||
(1) | Includes amounts attributable to consolidated properties 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 CNL Center I and CNL Center II in Orlando, FL, purchased on August 1, 2016; One Wayside Road in Burlington, MA, purchased on August 10, 2016; Galleria 200 in Atlanta, GA, purchased on October 7, 2016; and 750 West John Carpenter Freeway in Irving, TX, purchased on November 30, 2016. |
(5) | Dispositions consist of 1055 East Colorado Boulevard in Pasadena, CA, sold on April 21, 2016; Fairway Center II in Brea, CA, sold on April 28, 2016; 1901 Main Street in Irvine, CA, sold on May 2, 2016; 9221 Corporate Boulevard in Rockville, MD, sold on July 27, 2016; 150 West Jefferson in Detroit, MI, sold on July 29, 2016; 9200 and 9211 Corporate Boulevard in Rockville, MD, sold on September 28, 2016; 11695 Johns Creek Parkway in Johns Creek, GA, sold on December 22, 2016; Braker Pointe III in Austin, TX, sold on December 29, 2016; Sarasota Commerce Center II in Sarasota, FL, sold on June 16, 2017; and Two Independence Square in Washington, DC, sold on July 5, 2017. |
(6) | Other investments consist of our interests in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. Additional information on our land holdings can be found on page 38. The operating results from 3100 Clarendon Boulevard in Arlington, VA, Enclave Place in Houston, TX, and 500 TownPark in Lake Mary, FL, 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 Strategic Operating Markets | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
9/30/2017 | 9/30/2016 | 9/30/2017 | 9/30/2016 | ||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||
Washington, D.C. (1) | $ | 8,341 | 11.1 | $ | 9,259 | 12.5 | $ | 30,939 | 13.2 | $ | 27,018 | 12.3 | |||||||||||
New York (2) | 9,894 | 13.2 | 9,067 | 12.2 | 29,643 | 12.7 | 28,612 | 13.1 | |||||||||||||||
Chicago (3) | 9,247 | 12.3 | 9,825 | 13.2 | 27,835 | 11.9 | 24,173 | 11.0 | |||||||||||||||
Boston (4) | 8,572 | 11.4 | 8,393 | 11.3 | 26,085 | 11.2 | 23,766 | 10.9 | |||||||||||||||
Atlanta (5) | 8,112 | 10.8 | 7,565 | 10.2 | 24,313 | 10.4 | 23,123 | 10.6 | |||||||||||||||
Dallas | 7,188 | 9.6 | 6,547 | 8.8 | 21,003 | 9.0 | 19,997 | 9.1 | |||||||||||||||
Minneapolis (6) | 6,280 | 8.4 | 5,913 | 8.0 | 18,614 | 8.0 | 17,582 | 8.0 | |||||||||||||||
Orlando | 3,507 | 4.7 | 3,381 | 4.6 | 11,058 | 4.7 | 10,766 | 4.9 | |||||||||||||||
Other | 13,888 | 18.5 | 14,233 | 19.2 | 44,100 | 18.9 | 43,942 | 20.1 | |||||||||||||||
Total | $ | 75,029 | 100.0 | $ | 74,183 | 100.0 | $ | 233,590 | 100.0 | $ | 218,979 | 100.0 | |||||||||||
(1) | The decrease in Washington, D.C. Same Store Net Operating Income for the three months ended September 30, 2017 as compared to the same period in 2016 was primarily attributable to large lease expirations at Arlington Gateway in Arlington, VA, and 1201 Eye Street in Washington, D.C. The increase in Washington, D.C. Same Store Net Operating Income for the nine months ended September 30, 2017 as compared to the same period in 2016 was primarily attributable to increased rental income due the commencement of several new leases at One Independence Square and 1225 Eye Street, both in Washington, D.C., and 4250 North Fairfax Drive in Arlington, VA. |
(2) | The increase in metropolitan New York Same Store Net Operating Income for the three months and the nine months ended September 30, 2017 as compared to the same periods in 2016 was primarily attributable to increased rental income resulting from recent leasing activity at 400 Bridgewater Crossing in Bridgewater, NJ. |
(3) | The increase in Chicago Same Store Net Operating Income for the nine months ended September 30, 2017 as compared to the same period in 2016 was primarily attributable to increased rental income resulting from the commencement of several new leases at 500 West Monroe Street in Chicago, IL. |
(4) | The increase in Boston Same Store Net Operating Income for the nine months ended September 30, 2017 as compared to the same period in 2016 was attributable to lease restructuring income, the majority of which was recorded in the first quarter of 2017, and recent leasing activity. |
(5) | The increase in Atlanta Same Store Net Operating Income for the nine months ended September 30, 2017 as compared to the same period in 2016 was primarily attributable to increased rental income due to the commencement of new leases at Galleria 300 and Glenridge Highlands One, both located in Atlanta, GA. |
(6) | The increase in Minneapolis Same Store Net Operating Income for the nine months ended September 30, 2017 as compared to the same period in 2016 was primarily attributable to increased rental income resulting from the commencement of several new leases at US Bancorp Center in Minneapolis, MN. |
19
Piedmont Office Realty Trust, Inc.
Capitalization Analysis
Unaudited (in thousands except for per share data)
As of | As of | |||||||
September 30, 2017 | December 31, 2016 | |||||||
Market Capitalization | ||||||||
Common stock price (1) | $ | 20.16 | $ | 20.91 | ||||
Total shares outstanding | 145,295 | 145,235 | ||||||
Equity market capitalization (1) | $ | 2,929,144 | $ | 3,036,870 | ||||
Total debt - principal amount outstanding (excludes premiums, discounts, and deferred financing costs) | $ | 1,710,903 | $ | 2,029,582 | ||||
Total market capitalization (1) | $ | 4,640,047 | $ | 5,066,452 | ||||
Total debt / Total market capitalization (1) | 36.9 | % | 40.1 | % | ||||
Ratios & Information for Debt Holders | ||||||||
Total gross real estate assets (2) | $ | 4,445,124 | $ | 4,785,417 | ||||
Total debt / Total gross real estate assets (2) | 38.5 | % | 42.4 | % | ||||
Total debt / Total gross assets (3) | 33.7 | % | 37.4 | % | ||||
Average net debt to Core EBITDA (4) | 5.6 x | 6.4 x | ||||||
(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. |
(4) | For the purposes of this calculation, we annualize the Core EBITDA for the quarter and use the average daily balance of debt outstanding during the quarter, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the quarter. |
20
Piedmont Office Realty Trust, Inc.
Debt Summary
As of September 30, 2017
Unaudited ($ in thousands)
Floating Rate & Fixed Rate Debt | |||||
Debt (1) | Principal Amount Outstanding | Weighted Average Stated Interest Rate (2) | Weighted Average Maturity | ||
Floating Rate | $170,000 | (3) | 2.37% | 7.5 months | |
Fixed Rate | 1,540,903 | 3.59% | 50.9 months | ||
Total | $1,710,903 | 3.47% | 46.6 months | ||
Unsecured & Secured Debt | ||||||
Debt (1) | Principal Amount Outstanding | Weighted Average Stated Interest Rate (2) | Weighted Average Maturity | |||
Unsecured | $1,520,000 | 3.43% | 45.5 months | |||
Secured | 190,903 | 3.82% | 55.5 months | |||
Total | $1,710,903 | 3.47% | 46.6 months | |||
Debt Maturities | |||||||
Maturity Year | Secured Debt - Principal Amount Outstanding (1) | Unsecured Debt - Principal Amount Outstanding (1) | Weighted Average Stated Interest Rate (2) | Percentage of Total | |||
2017 | $— | $— | —% | —% | |||
2018 | — | 170,000 | 2.37% | 10.0% | |||
2019 | — | 300,000 | 2.78% | 17.5% | |||
2020 | — | 300,000 | (4) | 3.35% | 17.5% | ||
2021 | 30,903 | — | 5.55% | (5) | 1.8% | ||
2022 + | 160,000 | 750,000 | 3.88% | 53.2% | |||
Total | $190,903 | $1,520,000 | 3.47% | 100.0% | |||
(1) | All of Piedmont's outstanding debt as of September 30, 2017, was interest-only debt with the exception of the $30.9 million of debt associated with 5 Wall Street located in Burlington, MA. |
(2) | Weighted average stated interest rate is calculated based upon the principal amounts outstanding. |
(3) | Amount represents the $170 million unsecured term loan; the $500 million unsecured revolving credit facility had no outstanding balance as of September 30, 2017. 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 3.35% through its maturity date of January 15, 2020, 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. |
(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 (however, there was no balance outstanding on the facility as of September 30, 2017). |
(5) | The $35.0 Million Fixed-Rate loan has a stated interest rate of 5.55%; however, upon acquiring 5 Wall Street and assuming the loan, the Company marked the debt to its estimated fair value as of that time, resulting in an effective interest rate of 3.75%. |
21
Piedmont Office Realty Trust, Inc.
Debt Detail
Unaudited ($ in thousands)
Facility (1) | Property | Stated Rate | Maturity | Principal Amount Outstanding as of September 30, 2017 | ||||
Secured | ||||||||
$35.0 Million Fixed-Rate Loan (2) | 5 Wall Street | 5.55 | % | (3) | 9/1/2021 | $ | 30,903 | |
$160.0 Million Fixed-Rate Loan | 1901 Market Street | 3.48 | % | (4) | 7/5/2022 | 160,000 | ||
Subtotal / Weighted Average (5) | 3.82 | % | $ | 190,903 | ||||
Unsecured | ||||||||
$170.0 Million Unsecured 2015 Term Loan | N/A | 2.37 | % | (6) | 5/15/2018 | $ | 170,000 | |
$300.0 Million Unsecured 2013 Term Loan | N/A | 2.78 | % | (7) | 1/31/2019 | 300,000 | ||
$300.0 Million Unsecured 2011 Term Loan | N/A | 3.35 | % | (8) | 1/15/2020 | 300,000 | ||
$500.0 Million Unsecured Line of Credit (9) | N/A | — | % | (10) | 6/18/2020 | — | ||
$350.0 Million Unsecured Senior Notes | N/A | 3.40 | % | (11) | 6/1/2023 | 350,000 | ||
$400.0 Million Unsecured Senior Notes | N/A | 4.45 | % | (12) | 3/15/2024 | 400,000 | ||
Subtotal / Weighted Average (5) | 3.43 | % | $ | 1,520,000 | ||||
Total Debt - Principal Amount Outstanding / Weighted Average Stated Rate (5) | 3.47 | % | $ | 1,710,903 | ||||
GAAP Accounting Adjustments (13) | (7,317 | ) | ||||||
Total Debt - GAAP Amount Outstanding | $ | 1,703,586 | ||||||
(1) | All of Piedmont’s outstanding debt as of September 30, 2017, was interest-only debt with the exception of the $30.9 million of debt associated with 5 Wall Street located in Burlington, MA. |
(2) | The loan is amortizing based on a 25-year amortization schedule. |
(3) | The loan has a stated interest rate of 5.55%; however, upon acquiring 5 Wall Street and assuming the loan, the Company marked the debt to its estimated fair value as of that time, resulting in an effective interest rate of 3.75%. |
(4) | 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%. |
(5) | Weighted average is based on the principal amount outstanding and interest rate at September 30, 2017. |
(6) | 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 September 30, 2017) over the selected rate based on Piedmont’s current credit rating. |
(7) | 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. |
(8) | 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 3.35% through its maturity date of January 15, 2020, assuming no credit rating change for the Company. |
(9) | All of Piedmont’s outstanding debt as of September 30, 2017, was term debt with the exception of our unsecured revolving credit facility (which had no balance outstanding as of September 30, 2017). The $500 million unsecured revolving credit 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. |
(10) | There was no balance outstanding as of the end of the third quarter of 2017; therefore, no interest rate is presented. Had any draws been made under the $500 million unsecured revolving credit facility as of the end of the third quarter of 2017, the applicable interest rate for such draws would have been 2.23%. 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 September 30, 2017) over the selected rate based on Piedmont’s current credit rating. |
(11) | 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%. |
(12) | 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%. |
(13) | The GAAP accounting adjustments relate to original issue discounts, third-party fees, and lender fees resulting from the procurement processes for our various debt facilities, 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, are amortized to interest expense over the contractual term of the related debt. |
22
Piedmont Office Realty Trust, Inc.
Debt Covenant & Ratio Analysis (for Debt Holders)
As of September 30, 2017
Unaudited
Three Months Ended | ||||||
Bank Debt Covenant Compliance (1) | Required | 9/30/2017 | 06/30/2017 | 3/31/2017 | 12/31/2016 | 09/30/2016 |
Maximum leverage ratio | 0.60 | 0.34 | 0.38 | 0.38 | 0.39 | 0.38 |
Minimum fixed charge coverage ratio (2) | 1.50 | 4.24 | 4.19 | 4.19 | 4.10 | 3.99 |
Maximum secured indebtedness ratio | 0.40 | 0.04 | 0.06 | 0.06 | 0.06 | 0.06 |
Minimum unencumbered leverage ratio | 1.60 | 3.09 | 2.79 | 2.77 | 2.66 | 2.77 |
Minimum unencumbered interest coverage ratio (3) | 1.75 | 5.15 | 5.01 | 5.12 | 5.07 | 5.21 |
Three Months Ended | ||||||
Bond Covenant Compliance (4) | Required | 9/30/2017 | 06/30/2017 | 3/31/2017 | 12/31/2016 | 09/30/2016 |
Total debt to total assets | 60% or less | 38.1% | 43.1% | 43.0% | 42.2% | 42.2% |
Secured debt to total assets | 40% or less | 4.3% | 6.9% | 6.9% | 6.9% | 7.0% |
Ratio of consolidated EBITDA to interest expense | 1.50 or greater | 4.93 | 4.97 | 4.98 | 4.99 | 4.84 |
Unencumbered assets to unsecured debt | 150% or greater | 276% | 248% | 249% | 255% | 255% |
Three Months Ended | Nine Months Ended | Twelve Months Ended | |
Other Debt Coverage Ratios for Debt Holders | September 30, 2017 | September 30, 2017 | December 31, 2016 |
Average net debt to core EBITDA (5) | 5.6 x | 5.9 x | 6.4 x |
Fixed charge coverage ratio (6) | 4.7 x | 4.6 x | 4.4 x |
Interest coverage ratio (7) | 4.8 x | 4.7 x | 4.5 x |
(1) | Bank 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) | Bond covenant compliance calculations relate to specific calculations prescribed in the relevant debt agreements. Please refer to the Indenture dated May 9, 2013, and the Indenture and the Supplemental Indenture dated March 6, 2014, for detailed information about the 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 September 30, 2017 and December 31, 2016. The Company had capitalized interest of $37,259 for the three months ended September 30, 2017, $151,575 for the nine months ended September 30, 2017, and $4,555,407 for the twelve months ended December 31, 2016. The Company had principal amortization of $229,596 for the three months ended September 30, 2017, $679,361 for the nine months ended September 30, 2017, and $863,022 for the twelve months ended December 31, 2016. |
(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 $37,259 for the three months ended September 30, 2017, $151,575 for the nine months ended September 30, 2017, and $4,555,407 for the twelve months ended December 31, 2016. |
23
Piedmont Office Realty Trust, Inc.
Tenant Diversification (1)
As of September 30, 2017
(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 (%) | ||
State of New York | AA+ / Aa1 | 1 | 2019 | $25,755 | 4.7 | 481 | 2.8 | ||
US Bancorp | A+ / A1 | 3 | 2023 / 2024 | 22,443 | 4.1 | 733 | 4.3 | ||
Independence Blue Cross | No Rating Available | 1 | 2033 | 18,731 | 3.4 | 801 | 4.8 | ||
GE | AA- / A1 | 1 | 2027 | 16,583 | 3.0 | 452 | 2.7 | ||
Nestle | AA- / Aa2 | 1 | 2021 | 11,915 | 2.2 | 401 | 2.4 | ||
City of New York | AA / Aa2 | 1 | 2020 | 10,896 | 2.0 | 313 | 1.8 | ||
U.S. Government | AA+ / Aaa | 4 | 2017 - 2031 | (4) | 10,652 | 1.9 | (5) | 229 | 1.4 |
Gallagher | No Rating Available | 2 | 2018 | 9,737 | 1.8 | 315 | 1.9 | ||
Catamaran | A+ / A3 | 1 | 2025 | 8,847 | 1.6 | 301 | 1.8 | ||
Nuance Communications | BB- / Ba3 | 2 | 2018 / 2030 | (6) | 8,327 | 1.5 | 247 | 1.5 | |
Caterpillar Financial | A / A3 | 1 | 2022 | 8,309 | 1.5 | 312 | 1.8 | ||
Motorola Solutions | BBB- / Baa3 | 1 | 2028 | 8,165 | 1.5 | 206 | 1.2 | ||
District of Columbia | AA / Aa1 | 2 | 2028 | 7,137 | 1.3 | 146 | 0.9 | ||
Harvard University | AAA / Aaa | 2 | 2032 / 2033 | 6,846 | 1.2 | 114 | 0.7 | ||
Raytheon | A / A3 | 2 | 2019 | 6,442 | 1.2 | 440 | 2.6 | ||
Henry M Jackson | No Rating Available | 2 | 2022 | 6,033 | 1.1 | 145 | 0.9 | ||
Schlumberger Technology | AA- / A1 | 1 | 2020 | 5,952 | 1.1 | 163 | 1.0 | ||
Goldman Sachs | BBB+ / A3 | 2 | 2018 | 5,920 | 1.1 | 207 | 1.2 | ||
First Data Corporation | B+ / B1 | 1 | 2027 | 5,868 | 1.1 | 201 | 1.2 | ||
Epsilon Data Management | No Rating Available | 1 | 2026 | 5,832 | 1.1 | 222 | 1.3 | ||
SunTrust Bank | BBB+ / Baa1 | 3 | 2019 / 2025 | (7) | 5,634 | 1.0 | 145 | 0.9 | |
International Food Policy Research Institute | No Rating Available | 1 | 2029 | 5,581 | 1.0 | 102 | 0.6 | ||
CVS Caremark | BBB+ / Baa1 | 1 | 2022 | 5,533 | 1.0 | 208 | 1.2 | ||
Other | Various | 321,062 | 58.6 | 9,933 | 59.1 | ||||
Total | $548,200 | 100.0 | 16,817 | 100.0 | |||||
24
Tenant Diversification
Percentage of Annualized Leased Revenue (%)
September 30, 2017 as compared to December 31, 2016
(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. The absence of a credit rating for a tenant is no indication of the creditworthiness of the tenant; in most cases, the lack of a credit rating reflects that the 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 2017 to 2031. Of the total population of U.S. Government leases, leases contributing 1.5% to Annualized Lease Revenue expire in 2025 and after. |
(5) | The Company sold Two Independence Square in Washington, D.C., during the third quarter of 2017. The building is fully leased to the United States of America and functions as the headquarters of NASA. As a result of the sale of the building, the percentage of Annualized Lease Revenue derived from our various leasing relationships with the U.S. Government decreased from 8.2% as of December 31, 2016 to 1.9% as of September 30, 2017. |
(6) | Of the total amount of space leased to the tenant, the lease for approximately 46,000 square feet expires in 2018 and the lease for approximately 201,000 square feet expires in 2030. |
(7) | Of the total amount of space leased to the tenant, the leases for approximately 129,000 square feet expire in 2019 and the lease for approximately 16,000 square feet expires in 2025. |
25
Piedmont Office Realty Trust, Inc.
Tenant Credit Rating & Lease Distribution Information
As of September 30, 2017
Tenant Credit Rating (1)
Rating Level | Annualized Lease Revenue (in thousands) | Percentage of Annualized Lease Revenue (%) | |
AAA / Aaa | $22,921 | 4.2 | |
AA / Aa | 96,879 | 17.7 | |
A / A | 85,229 | 15.5 | |
BBB / Baa | 55,288 | 10.1 | |
BB / Ba | 34,191 | 6.2 | |
B / B | 25,301 | 4.6 | |
Below | 2,143 | 0.4 | |
Not rated (2) | 226,248 | 41.3 | |
Total | $548,200 | 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 | 248 | 30.9 | $20,847 | 3.8 | 216 | 1.3 | |
2,501 - 10,000 | 288 | 35.8 | 50,173 | 9.1 | 1,512 | 9.0 | |
10,001 - 20,000 | 98 | 12.2 | 42,658 | 7.8 | 1,363 | 8.1 | |
20,001 - 40,000 | 75 | 9.3 | 72,812 | 13.3 | 2,149 | 12.8 | |
40,001 - 100,000 | 51 | 6.3 | 98,565 | 18.0 | 2,941 | 17.5 | |
Greater than 100,000 | 44 | 5.5 | 263,145 | 48.0 | 8,636 | 51.3 | |
Total | 804 | 100.0 | $548,200 | 100.0 | 16,817 | 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" is no indication of the creditworthiness of the tenant; in most cases, the lack of a credit rating reflects that the tenant has not sought such a rating. Included in this category are such tenants as Independence Blue Cross, Piper Jaffray, Brother International, and RaceTrac Petroleum. |
26
Piedmont Office Realty Trust, Inc.
Leased Percentage Information
(in thousands)
Three Months Ended | Three Months Ended | ||||||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||||||
Leased Square Footage | Rentable Square Footage | Percent Leased (1) | Leased Square Footage | Rentable Square Footage | Percent Leased (1) | ||||||||||
As of June 30, 20xx | 17,704 | 19,450 | 91.0 | % | 16,866 | 18,452 | 91.4 | % | |||||||
Leases signed during the period | 447 | 701 | |||||||||||||
Less: lease renewals signed during period | (244 | ) | (341 | ) | |||||||||||
New leases signed during period | 203 | 360 | |||||||||||||
Less: new leases signed during period for currently occupied space | (53 | ) | (36 | ) | |||||||||||
New leases commencing during period | 150 | 324 | |||||||||||||
Leases expired during period and other | (431 | ) | 3 | (288 | ) | 1 | |||||||||
Subtotal | 17,423 | 19,453 | 89.6 | % | 16,902 | 18,453 | 91.6 | % | |||||||
Acquisitions and properties placed in service during period | — | — | 793 | 819 | |||||||||||
Dispositions during period | (606 | ) | (606 | ) | (474 | ) | (830 | ) | |||||||
As of September 30, 20xx (2) | 16,817 | 18,847 | 89.2 | % | 17,221 | 18,442 | 93.4 | % | |||||||
Nine Months Ended | Nine Months Ended | ||||||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||||||
Leased Square Footage | Rentable Square Footage | Percent Leased (1) | Leased Square Footage | Rentable Square Footage | Percent Leased (1) | ||||||||||
As of December 31, 20xx (3) | 17,996 | 19,581 | 91.9 | % | 17,323 | 18,934 | 91.5 | % | |||||||
Leases signed during period | 1,203 | 1,627 | |||||||||||||
Less: lease renewals signed during period | (655 | ) | (718 | ) | |||||||||||
New leases signed during period | 548 | 909 | |||||||||||||
Less: new leases signed during period for currently occupied space | (170 | ) | (168 | ) | |||||||||||
New leases commencing during period | 378 | 741 | |||||||||||||
Leases expired during period and other | (814 | ) | 21 | (685 | ) | 2 | |||||||||
Subtotal | 17,560 | 19,602 | 89.6 | % | 17,379 | 18,936 | 91.8 | % | |||||||
Acquisitions and properties placed in service during period | — | — | 793 | 819 | |||||||||||
Dispositions during period | (743 | ) | (755 | ) | (951 | ) | (1,313 | ) | |||||||
As of September 30, 20xx (2) | 16,817 | 18,847 | 89.2 | % | 17,221 | 18,442 | 93.4 | % | |||||||
Same Store Analysis | |||||||||||||||
Less acquisitions / dispositions after September 30, 2016 and developments / redevelopments (4) (5) | (890 | ) | (1,444 | ) | 61.6 | % | (884 | ) | (1,052 | ) | 84.0 | % | |||
Same Store Leased Percentage (2) | 15,927 | 17,403 | 91.5 | % | 16,337 | 17,390 | 93.9 | % | |||||||
(1) | Calculated as square footage associated with commenced leases 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) | Leased Square Footage and Rentable Square Footage as of December 31, 2016 have been restated to include two development properties and one re-development property that were placed into service effective January 1, 2017. The development properties that were placed in service are Enclave Place, a 300,900 square foot office property located in Houston, TX, and 500 TownPark, a 134,400 square foot office property located in Lake Mary, FL; the re-development property that was placed in service is 3100 Clarendon Boulevard, a 260,900 square foot office property located in Arlington, VA. |
(4) | |
(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 and developments and redevelopments placed in service during the previous twelve months are deducted from the current period data. Recently placed in service development and redevelopment properties that are deducted from current period data are Enclave Place, a 300,900 square foot office property located in Houston, TX, 500 TownPark, a 134,400 square foot office property located in Lake Mary, FL, and 3100 Clarendon Boulevard, a 260,900 square foot office property located in Arlington, VA. |
27
Piedmont Office Realty Trust, Inc.
Rental Rate Roll Up / Roll Down Analysis (1)
(in thousands)
Three Months Ended | ||||||
September 30, 2017 | ||||||
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 | 266 | 59.5% | 1.4% | (0.8)% | 10.8% | |
Leases executed for spaces excluded from analysis (5) | 181 | 40.5% | ||||
Nine Months Ended | ||||||
September 30, 2017 | ||||||
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 | 724 | 60.2% | 3.8% | 1.5% | 9.4% | |
Leases executed for spaces excluded from analysis (5) | 479 | 39.8% | ||||
(1) | The population analyzed consists of consolidated office leases executed during the period with lease terms of greater than one year. Leases associated with storage spaces, management offices, newly acquired assets for which there is less than one year of operating history, and unconsolidated joint venture assets are excluded from this analysis. |
(2) | For the purposes of this analysis, the last twelve months of cash paying rents of the previous leases are compared to the first twelve months of cash paying rents of the new leases in order to calculate the percentage change. |
(3) | For the purposes of this analysis, the accrual basis rents of the previous leases are 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 varying 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 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 September 30, 2017
(in thousands)
Expiration Year | Annualized Lease Revenue (1) | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | |
Vacant | $— | — | 2,030 | 10.8 | |
2017 (2) | 3,101 | 0.6 | 126 | 0.7 | |
2018 (3) | 43,444 | 7.9 | 1,407 | 7.5 | |
2019 | 68,464 | 12.5 | 2,063 | 10.9 | |
2020 | 46,666 | 8.5 | 1,538 | 8.1 | |
2021 | 29,635 | 5.4 | 949 | 5.0 | |
2022 | 54,979 | 10.0 | 1,727 | 9.2 | |
2023 | 35,590 | 6.5 | 1,218 | 6.5 | |
2024 | 53,474 | 9.8 | 1,833 | 9.7 | |
2025 | 31,562 | 5.8 | 964 | 5.1 | |
2026 | 28,034 | 5.1 | 873 | 4.6 | |
2027 | 43,819 | 8.0 | 1,258 | 6.7 | |
2028 | 34,520 | 6.3 | 869 | 4.6 | |
2029 | 19,940 | 3.6 | 523 | 2.8 | |
Thereafter | 54,972 | 10.0 | 1,469 | 7.8 | |
Total / Weighted Average | $548,200 | 100.0 | 18,847 | 100.0 | |
Average Lease Term Remaining | |
9/30/2017 | 6.5 years |
12/31/2016 | 6.9 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 September 30, 2017, comprised of 6,000 square feet and Annualized Lease Revenue of $0.1 million. |
(3) | Leases and other revenue-producing agreements on a month-to-month basis, comprised of approximately 14,000 square feet and Annualized Lease Revenue of $0.4 million, are assigned a lease expiration date of a year and a day beyond the period end date. |
29
Piedmont Office Realty Trust, Inc.
Lease Expirations by Quarter
As of September 30, 2017
(in thousands)
Q4 2017 (1) | Q1 2018 | Q2 2018 | Q3 2018 | |||||||||
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 | — | $— | 20 | $582 | 23 | $623 | 26 | $762 | ||||
Boston | 23 | 740 | 48 | 1,664 | — | — | 2 | 45 | ||||
Chicago | 5 | 75 | 288 | 8,769 | 42 | 1,371 | 5 | 119 | ||||
Dallas | 47 | 1,225 | 263 | 7,422 | 16 | 387 | 27 | 535 | ||||
Minneapolis | — | — | 3 | 108 | 6 | 232 | 9 | 358 | ||||
New York | 7 | 271 | 2 | 118 | 28 | 916 | — | — | ||||
Orlando | 41 | 1,123 | 3 | 105 | 2 | 71 | 10 | 290 | ||||
Washington, D.C. | 3 | 131 | 13 | 694 | 15 | 712 | 4 | 113 | ||||
Other | — | — | 52 | 1,537 | 12 | 288 | 52 | 1,193 | ||||
Total / Weighted Average (3) | 126 | $3,565 | 692 | $20,999 | 144 | $4,600 | 135 | $3,415 | ||||
(1) | Includes leases with an expiration date of September 30, 2017, comprised of 6,000 square feet and expiring lease revenue of $0.1 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 September 30, 2017
(in thousands)
12/31/2017 (1) | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | ||||||||||
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 | — | $— | 105 | $2,868 | 436 | $12,015 | 240 | $6,113 | 147 | $4,175 | ||||
Boston | 23 | 740 | 132 | 4,035 | 446 | 6,637 | 156 | 3,359 | 78 | 1,548 | ||||
Chicago | 5 | 75 | 369 | 11,106 | 14 | 400 | 106 | 2,737 | 14 | 434 | ||||
Dallas | 47 | 1,225 | 340 | 9,308 | 195 | 5,912 | 130 | 3,646 | 88 | 2,555 | ||||
Minneapolis | — | — | 23 | 858 | 143 | 4,358 | 107 | 3,983 | 91 | 3,113 | ||||
New York | 7 | 271 | 71 | 2,325 | 490 | 26,475 | 503 | 15,855 | 92 | 4,216 | ||||
Orlando | 41 | 1,123 | 65 | 1,926 | 270 | 9,170 | 50 | 1,214 | 29 | 851 | ||||
Washington, D.C. | 3 | 131 | 36 | 1,643 | 69 | 3,110 | 79 | 3,792 | 94 | 4,431 | ||||
Other | — | — | 266 | 8,506 | — | — | 167 | 6,045 | 316 | 9,276 | ||||
Total / Weighted Average (3) | 126 | $3,565 | 1,407 | $42,575 | 2,063 | $68,077 | 1,538 | $46,744 | 949 | $30,599 | ||||
(1) | Includes leases with an expiration date of September 30, 2017, comprised of 6,000 square feet and expiring lease revenue of $0.1 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 page 29 as the Lease Expiration Schedule accounts for the revenue effects of newly signed leases. Reflected herein are expiring revenues based on in-place rental rates. |
31
Piedmont Office Realty Trust, Inc.
Capital Expenditures & Commitments
For the quarter ended September 30, 2017
Unaudited (in thousands)
For the Three Months Ended | |||||||||||||||||||
9/30/2017 | 6/30/2017 | 3/31/2017 | 12/31/2016 | 9/30/2016 | |||||||||||||||
Non-incremental | |||||||||||||||||||
Building / construction / development | $ | 984 | $ | 2,883 | $ | 1,070 | $ | 1,479 | $ | 1,033 | |||||||||
Tenant improvements | 2,450 | 4,619 | 4,797 | 4,547 | 2,918 | ||||||||||||||
Leasing costs | 1,795 | 1,571 | 1,805 | 6,109 | 3,031 | ||||||||||||||
Total non-incremental | 5,229 | 9,073 | 7,672 | 12,135 | 6,982 | ||||||||||||||
Incremental | |||||||||||||||||||
Building / construction / development | 2,365 | 1,689 | 6,348 | 10,098 | 10,375 | ||||||||||||||
Tenant improvements | 9,501 | 12,345 | 15,784 | 5,893 | 18,932 | ||||||||||||||
Leasing costs | 2,359 | 3,251 | 1,473 | 4,180 | 5,758 | ||||||||||||||
Total incremental | 14,225 | 17,285 | 23,605 | 20,171 | 35,065 | ||||||||||||||
Total capital expenditures | $ | 19,454 | $ | 26,358 | $ | 31,277 | $ | 32,306 | $ | 42,047 | |||||||||
Non-incremental tenant improvement commitments (1) | |||||||
Non-incremental tenant improvement commitments outstanding as of June 30, 2017 | $ | 31,440 | |||||
New non-incremental tenant improvement commitments related to leases executed during period | 3,939 | ||||||
Non-incremental tenant improvement expenditures | (2,450 | ) | |||||
Tenant improvement expenditures fulfilled through accrued liabilities already presented on Piedmont's balance sheet, expired commitments or other adjustments | (867 | ) | |||||
Non-incremental tenant improvement commitments fulfilled, expired or other adjustments | (3,317 | ) | |||||
Total as of September 30, 2017 | $ | 32,062 | |||||
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 $16.7 million, or 52% of the total outstanding commitments. |
32
Piedmont Office Realty Trust, Inc.
Contractual Tenant Improvements and Leasing Commissions
For the Three Months Ended September 30, 2017 | For the Nine Months Ended September 30, 2017 | For the Year Ended | |||||||||
2016 | 2015 | 2014 | |||||||||
Renewal Leases | |||||||||||
Number of leases | 10 | 50 | 79 | 74 | 56 | ||||||
Square feet | 244,150 | 655,161 | 880,289 | 1,334,398 | 959,424 | ||||||
Tenant improvements per square foot (1) | $11.45 | $8.97 | $7.36 | $16.91 | $19.02 | ||||||
Leasing commissions per square foot | $3.65 | $4.54 | $5.76 | $8.29 | $8.33 | ||||||
Total per square foot | $15.10 | $13.51 | $13.12 | $25.20 | $27.35 | ||||||
Tenant improvements per square foot per year of lease term | $2.24 | $2.12 | $1.35 | $2.90 | $2.97 | ||||||
Leasing commissions per square foot per year of lease term | $0.72 | $1.07 | $1.05 | $1.42 | $1.30 | ||||||
Total per square foot per year of lease term | $2.96 | $3.19 | $2.40 | $4.32 | (2) | $4.27 | (3) | ||||
New Leases | |||||||||||
Number of leases | 22 | 57 | 93 | 90 | 98 | ||||||
Square feet | 188,044 | 532,621 | 1,065,630 | 1,563,866 | 1,142,743 | ||||||
Tenant improvements per square foot (1) | $39.96 | $34.16 | $40.78 | $60.41 | $34.46 | ||||||
Leasing commissions per square foot | $13.99 | $12.61 | $15.13 | $20.23 | $15.19 | ||||||
Total per square foot | $53.95 | $46.77 | $55.91 | $80.64 | $49.65 | ||||||
Tenant improvements per square foot per year of lease term | $5.18 | $4.76 | $5.01 | $5.68 | $3.78 | ||||||
Leasing commissions per square foot per year of lease term | $1.81 | $1.76 | $1.86 | $1.90 | $1.66 | ||||||
Total per square foot per year of lease term | $6.99 | (4) | $6.52 | $6.87 | $7.58 | (5) | $5.44 | ||||
Total | |||||||||||
Number of leases | 32 | 107 | 172 | 164 | 154 | ||||||
Square feet | 432,194 | 1,187,782 | 1,945,919 | 2,898,264 | 2,102,167 | ||||||
Tenant improvements per square foot (1) | $23.85 | $20.27 | $25.66 | $40.38 | $27.41 | ||||||
Leasing commissions per square foot | $8.15 | $8.16 | $10.89 | $14.73 | $12.06 | ||||||
Total per square foot | $32.00 | $28.43 | $36.55 | $55.11 | $39.47 | ||||||
Tenant improvements per square foot per year of lease term | $3.82 | $3.65 | $3.70 | $4.79 | $3.48 | ||||||
Leasing commissions per square foot per year of lease term | $1.31 | $1.47 | $1.57 | $1.75 | $1.53 | ||||||
Total per square foot per year of lease term | $5.13 | $5.12 | $5.27 | $6.54 | (5) | $5.01 | (3) | ||||
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 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 2015 was higher than our historical performance on this measure primarily as a result of four large lease renewals, two of which were completed in the Washington, D.C. market, that involved higher capital commitments. If the costs associated with those renewals were to be removed from the average committed capital cost calculation, the average committed capital cost per square foot per year of lease term for renewal leases completed during 2015 would be $3.33. |
(3) | During 2014, we completed one large, 15-year lease renewal and expansion with a significant capital commitment with 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 2014 would be $2.12 and $4.47, respectively. |
(4) | The average committed capital cost per square foot per year of lease term for new leases completed during the third quarter of 2017 was higher than our historical performance on this measure primarily as a result of three new leases completed in the Washington, D.C. market that involved higher capital commitments. If the costs associated with those leases 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 completed during the third quarter of 2017 would be $6.08. |
(5) | During 2015, we completed seven new leases in Washington, D.C., and Chicago, IL, comprising 680,035 square feet with above-average capital commitments. If the costs associated with those new leases 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 2015 would be $5.42 and $4.88, respectively. |
33
Piedmont Office Realty Trust, Inc.
Geographic Diversification
As of September 30, 2017
($ 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 (%) | |
Washington, D.C. | 9 | $78,370 | 14.3 | (1) | 2,374 | 12.6 | 1,614 | 68.0 |
New York | 4 | 68,964 | 12.6 | 1,771 | 9.4 | 1,751 | 98.9 | |
Chicago | 5 | 67,292 | 12.3 | 2,094 | 11.1 | 1,922 | 91.8 | |
Atlanta | 8 | 61,313 | 11.2 | 2,392 | 12.7 | 2,239 | 93.6 | |
Dallas | 10 | 55,096 | 10.0 | 2,114 | 11.2 | 1,997 | 94.5 | |
Boston | 10 | 51,950 | 9.5 | 1,828 | 9.7 | 1,791 | 98.0 | |
Minneapolis | 4 | 49,854 | 9.1 | 1,619 | 8.6 | 1,520 | 93.9 | |
Orlando | 5 | 46,446 | 8.5 | 1,574 | 8.4 | 1,473 | 93.6 | |
Other | 11 | 68,915 | 12.5 | 3,081 | 16.3 | 2,510 | 81.5 | |
Total / Weighted Average | 66 | $548,200 | 100.0 | 18,847 | 100.0 | 16,817 | 89.2 | |
(1) | The Company sold Two Independence Square in Washington, D.C., during the third quarter of 2017. As a result of the sale of the building, the percentage of Annualized Lease Revenue derived from the Washington, D.C. market decreased from 19.5% as of December 31, 2016 to 14.3% as of September 30, 2017. |
34
Piedmont Office Realty Trust, Inc.
Geographic Diversification by Location Type
As of September 30, 2017
(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 (%) | |||
Washington, D.C. | DC, VA, MD | 9 | 14.3 | 2,374 | 12.6 | — | — | — | — | 9 | 14.3 | 2,374 | 12.6 | |||
New York | NY, NJ | 1 | 8.9 | 1,033 | 5.5 | 3 | 3.7 | 738 | 3.9 | 4 | 12.6 | 1,771 | 9.4 | |||
Chicago | IL | 1 | 7.1 | 967 | 5.1 | 4 | 5.2 | 1,127 | 6.0 | 5 | 12.3 | 2,094 | 11.1 | |||
Atlanta | GA | 6 | 10.2 | 2,111 | 11.2 | 2 | 1.0 | 281 | 1.5 | 8 | 11.2 | 2,392 | 12.7 | |||
Dallas | TX | 2 | 2.4 | 440 | 2.3 | 8 | 7.6 | 1,674 | 8.9 | 10 | 10.0 | 2,114 | 11.2 | |||
Boston | MA | 2 | 2.1 | 173 | 0.9 | 8 | 7.4 | 1,655 | 8.8 | 10 | 9.5 | 1,828 | 9.7 | |||
Minneapolis | MN | 1 | 5.5 | 934 | 5.0 | 3 | 3.6 | 685 | 3.6 | 4 | 9.1 | 1,619 | 8.6 | |||
Orlando | FL | 3 | 7.1 | 1,264 | 6.7 | 2 | 1.4 | 310 | 1.7 | 5 | 8.5 | 1,574 | 8.4 | |||
Other | 3 | 8.0 | 1,640 | 8.7 | 8 | 4.5 | 1,441 | 7.6 | 11 | 12.5 | 3,081 | 16.3 | ||||
Total / Weighted Average | 28 | 65.6 | 10,936 | 58.0 | 38 | 34.4 | 7,911 | 42.0 | 66 | 100.0 | 18,847 | 100.0 | ||||
35
Piedmont Office Realty Trust, Inc.
Industry Diversification
As of September 30, 2017
($ 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 (%) | |
Business Services | 81 | 12.4 | $61,931 | 11.3 | 2,014 | 12.0 | |
Governmental Entity | 4 | 0.6 | 47,348 | 8.6 | (1) | 956 | 5.7 |
Depository Institutions | 18 | 2.7 | 42,235 | 7.7 | 1,388 | 8.3 | |
Engineering, Accounting, Research, Management & Related Services | 79 | 12.1 | 37,585 | 6.9 | 1,071 | 6.4 | |
Insurance Carriers | 21 | 3.2 | 32,093 | 5.9 | 1,250 | 7.4 | |
Insurance Agents, Brokers & Services | 20 | 3.1 | 29,920 | 5.5 | 975 | 5.8 | |
Nondepository Credit Institutions | 16 | 2.4 | 29,239 | 5.3 | 912 | 5.4 | |
Security & Commodity Brokers, Dealers, Exchanges & Services | 41 | 6.3 | 22,996 | 4.2 | 715 | 4.3 | |
Legal Services | 51 | 7.8 | 22,715 | 4.1 | 726 | 4.3 | |
Communications | 42 | 6.4 | 21,376 | 3.9 | 647 | 3.8 | |
Electronic & Other Electrical Equipment & Components, Except Computer | 12 | 1.8 | 19,568 | 3.6 | 565 | 3.4 | |
Real Estate | 33 | 5.0 | 16,506 | 3.0 | 500 | 3.0 | |
Eating & Drinking Places | 43 | 6.6 | 14,877 | 2.7 | 459 | 2.7 | |
Holding and Other Investment Offices | 29 | 4.4 | 12,512 | 2.3 | 394 | 2.3 | |
Food & Kindred Products | 2 | 0.3 | 11,989 | 2.2 | 403 | 2.4 | |
Other | 163 | 24.9 | 125,310 | 22.8 | 3,842 | 22.8 | |
Total | 655 | 100.0 | $548,200 | 100.0 | 16,817 | 100.0 | |
(1) | The Company sold Two Independence Square in Washington, D.C., during the third quarter of 2017. The building is fully leased to the United States of America and functions as the headquarters of NASA. As a result of the sale of the building, the percentage of Annualized Lease Revenue derived from Governmental Entities decreased from 14.4% as of December 31, 2016 to 8.6% as of September 30, 2017. |
36
Piedmont Office Realty Trust, Inc.
Property Investment Activity
As of September 30, 2017
($ 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 (%) | |
CNL Center I and CNL Center II | Orlando, FL | 8/1/2016 | 99 | 1999 & 2006 | $166,745 | 622 | 95 | |
One Wayside Road | Burlington, MA | 8/10/2016 | 100 | 1997 | 62,900 | 201 | 100 | |
Galleria 200 | Atlanta, GA | 10/7/2016 | 100 | 1984 | 69,604 | 432 | 89 | |
750 West John Carpenter Freeway | Irving, TX | 11/30/2016 | 100 | 1999 | 49,585 | 315 | 78 | |
John Carpenter Freeway Land | Irving, TX | 11/30/2016 | 100 | N/A | 1,000 | N/A | N/A | |
Total / Weighted Average | $349,834 | 1,570 | 91 | |||||
Dispositions Over Previous Eighteen Months
Property | Location | Disposition Date | Percent Ownership (%) | Year Built | Sale Price | Rentable Square Footage | Percent Leased at Disposition (%) | |
1055 East Colorado Boulevard | Pasadena, CA | 4/21/2016 | 100 | 2001 | $61,250 | 176 | 99 | |
Fairway Center II | Brea, CA | 4/28/2016 | 100 | 2002 | 33,800 | 134 | 97 | |
1901 Main Street | Irvine, CA | 5/2/2016 | 100 | 2001 | 66,000 | 173 | 100 | |
9221 Corporate Boulevard | Rockville, MD | 7/27/2016 | 100 | 1989 | 12,650 | 115 | 0 | |
150 West Jefferson | Detroit, MI | 7/29/2016 | 100 | 1989 | 81,500 | 490 | 88 | |
9200 & 9211 Corporate Boulevard | Rockville, MD | 9/28/2016 | 100 | 1982 & 1989 | 13,250 | 225 | 19 | |
11695 Johns Creek Parkway | Johns Creek, GA | 12/22/2016 | 100 | 2001 | 14,000 | 101 | 91 | |
Braker Pointe III | Austin, TX | 12/29/2016 | 100 | 2001 | 49,250 | 196 | 18 | |
Sarasota Commerce Center II | Sarasota, FL | 6/16/2017 | 100 | 1999 | 23,500 | 149 | 92 | |
Two Independence Square | Washington, DC | 7/5/2017 | 100 | 1991 | 359,600 | 606 | 100 | |
8560 Upland Drive (1) | Englewood, CO | 7/27/2017 | 72 | 2001 | 17,600 | 149 | 100 | |
Total / Weighted Average | $732,400 | 2,514 | 78 | |||||
(1) | The sale price and rentable square footage presented for 8560 Upland Drive are gross figures and have not been adjusted for Piedmont's ownership percentage; however, the weighted average percent leased at disposition for dispositions completed over the previous eighteen months includes this property at the Company's pro rata share of ownership. |
37
Piedmont Office Realty Trust, Inc.
Other Investments
As of September 30, 2017
($ and square footage in thousands)
Land Parcels
Property | Location | Adjacent Piedmont Property | Acres | Real Estate Book Value |
Gavitello | Atlanta, GA | The Medici | 2.0 | $2,695 |
Glenridge Highlands Three | Atlanta, GA | Glenridge Highlands One and Two | 3.0 | 1,862 |
Suwanee Gateway | Suwanee, GA | Suwanee Gateway One | 5.0 | 1,401 |
State Highway 161 | Irving, TX | Las Colinas Corporate Center I and II, 161 Corporate Center | 4.5 | 3,320 |
Royal Lane | Irving, TX | 6011, 6021 and 6031 Connection Drive | 10.6 | 2,834 |
John Carpenter Freeway | Irving, TX | 750 West John Carpenter Freeway | 3.5 | 1,000 |
TownPark | Lake Mary, FL | 400 and 500 TownPark | 18.9 | 6,127 |
Total | 47.5 | $19,239 | ||
38
Piedmont Office Realty Trust, Inc.
Supplemental Definitions
Included below are definitions of various terms used throughout this supplemental report, including definitions of certain non-GAAP financial measures and the reasons why the Company’s management believes these measures provide useful information to investors about the Company’s financial condition and results of operations. Reconciliations of any non-GAAP financial measures defined below are included beginning on page 41. |
Adjusted Funds From Operations ("AFFO"): The Company calculates AFFO by starting with Core FFO and adjusting for non-incremental capital expenditures and acquisition-related costs and then adding back non-cash items including: non-real estate depreciation, straight-lined rents and fair value lease adjustments, non-cash components of interest expense and compensation expense, and by making similar adjustments for unconsolidated partnerships and joint ventures. AFFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that AFFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments. Other REITs may not define AFFO in the same manner as the Company; therefore, the Company’s computation of AFFO may not be comparable to that of other REITs. |
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 revenues associated with our unconsolidated joint venture properties and development / re-development properties, if any. |
Core EBITDA: The Company calculates Core EBITDA as net income (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Core EBITDA is helpful to investors as a supplemental performance measure because it provides a metric for understanding the performance of the Company’s results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization), as well as items that are not part of normal day-to-day operations of the Company’s business. Other REITs may not define Core EBITDA in the same manner as the Company; therefore, the Company’s computation of Core EBITDA may not be comparable to that of other REITs. |
Core Funds From Operations ("Core FFO"): The Company calculates Core FFO by starting with FFO, as defined by NAREIT, and adjusting for gains or losses on the extinguishment of swaps and/or debt, acquisition-related expenses and any significant non-recurring items. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to the Company’s core business operations. As a result, the Company believes that Core FFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential. Other REITs may not define Core FFO in the same manner as the Company; therefore, the Company’s computation of Core FFO may not be comparable to that of other REITs. |
EBITDA: EBITDA is defined as net income before interest, taxes, depreciation and amortization. |
EBITDAre: The Company calculates EBITDAre in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines EBITDAre as net income (computed in accordance with GAAP) adjusted for gains or losses from sales of property, impairment losses, depreciation on real estate assets, amortization on real estate assets, interest expense and taxes, along with the same adjustments for unconsolidated partnerships and joint ventures. Some of the adjustments mentioned can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. EBITDAre is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that EBITDAre is helpful to investors as a supplemental performance measure because it provides a metric for understanding the Company’s results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization) and capitalization and capital structure expenses (such as interest expense and taxes). The Company also believes that EBITDAre can help facilitate comparisons of operating performance between periods and with other REITs. However, other REITs may not define EBITDAre in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than the Company; therefore, the Company’s computation of EBITDAre may not be comparable to that of such other REITs. |
Funds From Operations ("FFO"): The Company calculates FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines FFO as net income (computed in accordance with GAAP), excluding gains or losses from sales of property and impairment losses, adding back depreciation and amortization on real estate assets, and after the same adjustments for unconsolidated partnerships and joint ventures. These adjustments can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that FFO is helpful to investors as a supplemental performance measure because it excludes the effects of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs, which implicitly assumes that the value of real estate diminishes predictably over time. The Company also believes that FFO can help facilitate comparisons of operating performance between periods and with other REITs. However, other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than the Company; therefore, the Company’s 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"): The Company calculates Property NOI by starting with Core EBITDA and adjusting for general and administrative expense, income associated with property management performed by Piedmont for other organizations and other income or expense items for the Company, such as interest income from loan investments or costs from the pursuit of non-consummated transactions. The Company 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 also eliminated. Property NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Property NOI is helpful to investors as a supplemental comparative performance measure of income generated by its properties alone without the administrative overhead of the Company. Other REITs may not define Property NOI in the same manner as the Company; therefore, the Company’s computation of Property NOI may not be comparable to that of other REITs. |
Same Store Net Operating Income ("Same Store NOI"): The Company calculates Same Store NOI as Property NOI attributable to the properties for which the following criteria were met during the entire span of the current and prior year reporting periods: i) they were owned, ii) they were not under development / redevelopment, and iii) none of the operating expenses for which were capitalized. Same Store NOI also excludes amounts attributable to unconsolidated joint venture and land assets. The Company 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 also eliminated. Same Store NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Same Store NOI is helpful to investors as a supplemental comparative performance measure of the income generated from the same group of properties from one period to the next. Other REITs may not define Same Store NOI in the same manner as the Company; therefore, the Company’s computation of Same Store NOI may not be comparable to that of other REITs. |
Same Store Properties: Same Store Properties is defined as those properties for which the following criteria were met during the entire span of the current and prior year reporting periods: i) they were owned, ii) they were not under development / redevelopment, and iii) none of the operating expenses for which were capitalized. Same Store Properties excludes unconsolidated joint venture and land assets. |
39
Piedmont Office Realty Trust, Inc.
Research Coverage
Equity Research Coverage
Barry Oxford | Jed Reagan | Anthony Paolone, CFA | |
D.A. Davidson & Company | Green Street Advisors | JP Morgan | |
260 Madison Avenue, 8th Floor | 660 Newport Center Drive, Suite 800 | 383 Madison Avenue | |
New York, NY 10016 | Newport Beach, CA 92660 | 34th Floor | |
Phone: (212) 240-9871 | Phone: (949) 640-8780 | New York, NY 10179 | |
Phone: (212) 622-6682 | |||
David Rodgers, CFA | John W. Guinee, III | Michael Lewis, CFA | |
Robert W. Baird & Co. | Erin Aslakson | SunTrust Robinson Humphrey | |
200 Public Square | Stifel, Nicolaus & Company | 711 Fifth Avenue, 14th Floor | |
Suite 1650 | One South Street | New York, NY 10022 | |
Cleveland, OH 44139 | 16th Floor | Phone: (212) 319-5659 | |
Phone: (216) 737-7341 | Baltimore, MD 21202 | ||
Phone: (443) 224-1307 | |||
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 | Nine Months Ended | ||||||||||||||||||||||||||
9/30/2017 | 6/30/2017 | 3/31/2017 | 12/31/2016 | 9/30/2016 | 9/30/2017 | 9/30/2016 | |||||||||||||||||||||
GAAP net income applicable to common stock | $ | 126,133 | $ | 23,710 | $ | 15,104 | $ | 30,189 | $ | (13,107 | ) | $ | 164,947 | $ | 69,543 | ||||||||||||
Depreciation (1)(2) | 29,774 | 29,932 | 30,629 | 32,597 | 31,451 | 90,335 | 94,532 | ||||||||||||||||||||
Amortization (1) | 18,107 | 19,315 | 20,406 | 21,259 | 18,640 | 57,828 | 53,880 | ||||||||||||||||||||
Impairment loss (1) | — | — | — | — | 22,951 | — | 33,901 | ||||||||||||||||||||
Loss / (gain) on sale of properties (1) | (113,195 | ) | (6,492 | ) | 53 | (19,652 | ) | 57 | (119,634 | ) | (73,758 | ) | |||||||||||||||
Loss / (gain) on consolidation | — | — | — | — | — | — | — | ||||||||||||||||||||
NAREIT funds from operations applicable to common stock | 60,819 | 66,465 | 66,192 | 64,393 | 59,992 | 193,476 | 178,098 | ||||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||
Acquisition costs | — | — | 6 | 4 | 955 | 6 | 972 | ||||||||||||||||||||
Net (recoveries) / loss from casualty events and litigation settlements (1) | — | — | — | — | (34 | ) | — | (34 | ) | ||||||||||||||||||
Core funds from operations applicable to common stock | 60,819 | 66,465 | 66,198 | 64,397 | 60,913 | 193,482 | 179,036 | ||||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on senior notes | 634 | 628 | 630 | 667 | 653 | 1,892 | 1,943 | ||||||||||||||||||||
Depreciation of non real estate assets | 218 | 184 | 195 | 246 | 216 | 597 | 595 | ||||||||||||||||||||
Straight-line effects of lease revenue (1) | (3,602 | ) | (6,634 | ) | (5,703 | ) | (6,429 | ) | (4,140 | ) | (15,939 | ) | (15,115 | ) | |||||||||||||
Stock-based and other non-cash compensation expense | 1,250 | 911 | 2,041 | 284 | 1,931 | 4,202 | 5,336 | ||||||||||||||||||||
Amortization of lease-related intangibles (1) | (1,720 | ) | (1,611 | ) | (1,559 | ) | (1,385 | ) | (1,152 | ) | (4,890 | ) | (3,680 | ) | |||||||||||||
Acquisition costs | — | — | (6 | ) | (4 | ) | (955 | ) | (6 | ) | (972 | ) | |||||||||||||||
Non-incremental capital expenditures | (5,229 | ) | (9,073 | ) | (7,672 | ) | (12,135 | ) | (6,982 | ) | (21,974 | ) | (23,433 | ) | |||||||||||||
Adjusted funds from operations applicable to common stock | $ | 52,370 | $ | 50,870 | $ | 54,124 | $ | 45,641 | $ | 50,484 | $ | 157,364 | $ | 143,710 | |||||||||||||
(1) | Includes amounts attributable to consolidated properties and our proportionate share of amounts attributable to unconsolidated joint ventures. |
(2) | Excludes depreciation of non real estate assets. |
41
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||
9/30/2017 | 6/30/2017 | 3/31/2017 | 12/31/2016 | 9/30/2016 | 9/30/2017 | 9/30/2016 | |||||||||||||||||||||
Net income attributable to Piedmont | $ | 126,133 | $ | 23,710 | $ | 15,104 | $ | 30,189 | $ | (13,107 | ) | $ | 164,947 | $ | 69,543 | ||||||||||||
Net income attributable to noncontrolling interest | (4 | ) | (3 | ) | (3 | ) | (8 | ) | (14 | ) | (10 | ) | (7 | ) | |||||||||||||
Interest expense | 16,183 | 18,421 | 18,057 | 16,566 | 15,496 | 52,661 | 48,294 | ||||||||||||||||||||
Depreciation | 29,993 | 30,116 | 30,824 | 32,844 | 31,667 | 90,933 | 95,127 | ||||||||||||||||||||
Amortization | 18,107 | 19,315 | 20,406 | 21,259 | 18,640 | 57,828 | 53,880 | ||||||||||||||||||||
Impairment loss | — | — | — | — | 22,951 | — | 33,901 | ||||||||||||||||||||
Loss / (gain) on sale of properties | (113,195 | ) | (6,492 | ) | 53 | (19,652 | ) | 57 | (119,634 | ) | (73,758 | ) | |||||||||||||||
EBITDAre | 77,217 | 85,067 | 84,441 | 81,198 | 75,690 | 246,725 | 226,980 | ||||||||||||||||||||
Acquisition costs | — | — | 6 | 4 | 955 | 6 | 972 | ||||||||||||||||||||
Net (recoveries) / loss from casualty events and litigation settlements | 25 | (26 | ) | 58 | — | (34 | ) | 57 | (34 | ) | |||||||||||||||||
Core EBITDA | 77,242 | 85,041 | 84,505 | 81,202 | 76,611 | 246,788 | 227,918 | ||||||||||||||||||||
General & administrative expenses | 6,631 | 8,059 | 8,602 | 5,741 | 7,437 | 23,291 | 23,565 | ||||||||||||||||||||
Management fee revenue | (241 | ) | (168 | ) | (317 | ) | (224 | ) | (295 | ) | (724 | ) | (810 | ) | |||||||||||||
Other (income) / expense | (315 | ) | (12 | ) | 36 | (459 | ) | (235 | ) | (291 | ) | 1 | |||||||||||||||
Straight-line effects of lease revenue | (3,602 | ) | (6,634 | ) | (5,703 | ) | (6,429 | ) | (4,140 | ) | (15,939 | ) | (15,115 | ) | |||||||||||||
Amortization of lease-related intangibles | (1,720 | ) | (1,611 | ) | (1,559 | ) | (1,385 | ) | (1,152 | ) | (4,890 | ) | (3,680 | ) | |||||||||||||
Property net operating income (cash basis) | 77,995 | 84,675 | 85,564 | 78,446 | 78,226 | 248,235 | 231,879 | ||||||||||||||||||||
Deduct net operating (income) / loss from: | |||||||||||||||||||||||||||
Acquisitions | (4,584 | ) | (3,548 | ) | (5,068 | ) | (4,848 | ) | (2,485 | ) | (13,201 | ) | (2,485 | ) | |||||||||||||
Dispositions | (9 | ) | (5,354 | ) | (6,040 | ) | (5,527 | ) | (5,724 | ) | (11,403 | ) | (27,023 | ) | |||||||||||||
Other investments | (99 | ) | 361 | 259 | (136 | ) | (332 | ) | 521 | (362 | ) | ||||||||||||||||
Same store net operating income (cash basis) | $ | 73,303 | $ | 76,134 | $ | 74,715 | $ | 67,935 | $ | 69,685 | $ | 224,152 | $ | 202,009 | |||||||||||||
42
Piedmont Office Realty Trust, Inc.
Unconsolidated Joint Venture Net Operating Income Reconciliations
Pro rata and unaudited (in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||
9/30/2017 | 6/30/2017 | 3/31/2017 | 12/31/2016 | 9/30/2016 | 9/30/2017 | 9/30/2016 | |||||||||||||||||||||
Equity in income of unconsolidated joint ventures | $ | 3,754 | $ | 107 | $ | 11 | $ | 8 | $ | 129 | $ | 3,872 | $ | 354 | |||||||||||||
Interest expense | — | — | — | — | — | — | — | ||||||||||||||||||||
Depreciation | — | 65 | 64 | 65 | 62 | 129 | 185 | ||||||||||||||||||||
Amortization | — | 16 | 8 | 8 | 16 | 25 | 48 | ||||||||||||||||||||
Impairment loss | — | — | — | — | — | — | — | ||||||||||||||||||||
Loss / (gain) on sale of properties | (3,683 | ) | — | — | — | — | (3,683 | ) | — | ||||||||||||||||||
EBITDAre and Core EBITDA | 71 | 188 | 83 | 81 | 207 | 343 | 587 | ||||||||||||||||||||
General and administrative expenses | 13 | 22 | 5 | 15 | 8 | 39 | 47 | ||||||||||||||||||||
Other (income) / expense | — | — | — | — | — | — | — | ||||||||||||||||||||
Property net operating income (accrual basis) | 84 | 210 | 88 | 96 | 215 | 382 | 634 | ||||||||||||||||||||
Straight-line effects of lease revenue | (41 | ) | (95 | ) | 2 | (1 | ) | 1 | (134 | ) | 1 | ||||||||||||||||
Amortization of lease-related intangibles | — | — | — | — | — | — | — | ||||||||||||||||||||
Property net operating income (cash basis) | $ | 43 | $ | 115 | $ | 90 | $ | 95 | $ | 216 | $ | 248 | $ | 635 | |||||||||||||
43
Piedmont Office Realty Trust, Inc.
Discontinued Operations
Unaudited (in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||
9/30/2017 | 6/30/2017 | 3/31/2017 | 12/31/2016 | 9/30/2016 | 9/30/2017 | 9/30/2016 | |||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||
Rental income | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Tenant reimbursements | — | — | — | — | — | — | — | ||||||||||||||||||||
Property management fee revenue | — | — | — | — | — | — | — | ||||||||||||||||||||
Other rental income | — | — | — | — | — | — | — | ||||||||||||||||||||
— | — | — | — | — | — | — | |||||||||||||||||||||
Expenses: | |||||||||||||||||||||||||||
Property operating costs | — | — | — | — | — | — | — | ||||||||||||||||||||
Depreciation | — | — | — | — | — | — | — | ||||||||||||||||||||
Amortization | — | — | — | — | — | — | — | ||||||||||||||||||||
General and administrative | — | — | — | — | (1 | ) | — | — | |||||||||||||||||||
— | — | — | — | (1 | ) | — | — | ||||||||||||||||||||
Other income / (expense): | |||||||||||||||||||||||||||
Interest expense | — | — | — | — | — | — | — | ||||||||||||||||||||
Other income / (expense) | — | — | — | — | — | — | — | ||||||||||||||||||||
Net recoveries / (loss) from casualty events and litigation settlements | — | — | — | — | — | — | — | ||||||||||||||||||||
Net income attributable to noncontrolling interest | — | — | — | — | — | — | — | ||||||||||||||||||||
— | — | — | — | — | — | — | |||||||||||||||||||||
Operating income, excluding impairment loss and gain / (loss) on sale | — | — | — | — | 1 | — | — | ||||||||||||||||||||
Impairment loss | — | — | — | — | — | — | — | ||||||||||||||||||||
Gain / (loss) on sale of properties | — | — | — | — | — | — | — | ||||||||||||||||||||
Income from discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | 1 | $ | — | $ | — | |||||||||||||
44
Piedmont Office Realty Trust, Inc.
Property Detail - In-Service Portfolio (1)
As of September 30, 2017
(in thousands)
Property | City | State | Percent Ownership | Year Built / Major Refurbishment | Rentable Square Footage Owned | Leased Percentage | Commenced Leased Percentage | Economic Leased Percentage (2) | |||
Atlanta | |||||||||||
Glenridge Highlands Two | Atlanta | GA | 100.0% | 2000 | 426 | 100.0 | % | 97.4 | % | 97.4 | % |
Suwanee Gateway One | Suwanee | GA | 100.0% | 2008 | 143 | 50.3 | % | 50.3 | % | 48.3 | % |
The Dupree | Atlanta | GA | 100.0% | 1997 | 138 | 100.0 | % | 100.0 | % | 100.0 | % |
The Medici | Atlanta | GA | 100.0% | 2008 | 156 | 100.0 | % | 94.9 | % | 91.0 | % |
1155 Perimeter Center West | Atlanta | GA | 100.0% | 2000 | 377 | 100.0 | % | 100.0 | % | 100.0 | % |
Galleria 300 | Atlanta | GA | 100.0% | 1987 | 432 | 97.0 | % | 97.0 | % | 97.0 | % |
Glenridge Highlands One | Atlanta | GA | 100.0% | 1998 | 288 | 95.1 | % | 95.1 | % | 94.1 | % |
Galleria 200 | Atlanta | GA | 100.0% | 1984 | 432 | 87.3 | % | 87.3 | % | 52.8 | % |
Metropolitan Area Subtotal / Weighted Average | 2,392 | 93.6 | % | 92.8 | % | 86.1 | % | ||||
Boston | |||||||||||
1200 Crown Colony Drive | Quincy | MA | 100.0% | 1990 | 235 | 100.0 | % | 100.0 | % | 100.0 | % |
80 Central Street | Boxborough | MA | 100.0% | 1988 | 150 | 85.3 | % | 85.3 | % | 85.3 | % |
90 Central Street | Boxborough | MA | 100.0% | 2001 | 175 | 100.0 | % | 100.0 | % | 89.7 | % |
1414 Massachusetts Avenue | Cambridge | MA | 100.0% | 1873 / 1956 | 78 | 100.0 | % | 100.0 | % | 100.0 | % |
One Brattle Square | Cambridge | MA | 100.0% | 1991 | 95 | 84.2 | % | 84.2 | % | 84.2 | % |
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 | 272 | 100.0 | % | 87.9 | % | 87.9 | % |
5 Wall Street | Burlington | MA | 100.0% | 2008 | 182 | 100.0 | % | 100.0 | % | 100.0 | % |
One Wayside Road | Burlington | MA | 100.0% | 1997 | 201 | 100.0 | % | 100.0 | % | 96.0 | % |
Metropolitan Area Subtotal / Weighted Average | 1,828 | 98.0 | % | 96.2 | % | 94.7 | % | ||||
Chicago | |||||||||||
Windy Point I | Schaumburg | IL | 100.0% | 1999 | 187 | 49.7 | % | 49.7 | % | 49.7 | % |
Windy Point II | Schaumburg | IL | 100.0% | 2001 | 301 | 100.0 | % | 100.0 | % | 100.0 | % |
Two Pierce Place | Itasca | IL | 100.0% | 1991 | 486 | 97.7 | % | 96.7 | % | 96.7 | % |
2300 Cabot Drive | Lisle | IL | 100.0% | 1998 | 153 | 85.6 | % | 78.4 | % | 78.4 | % |
500 West Monroe Street | Chicago | IL | 100.0% | 1991 | 967 | 95.3 | % | 94.8 | % | 93.0 | % |
Metropolitan Area Subtotal / Weighted Average | 2,094 | 91.8 | % | 90.8 | % | 89.9 | % | ||||
45
Property | City | State | Percent Ownership | Year Built / Major Refurbishment | Rentable Square Footage Owned | Leased Percentage | Commenced Leased Percentage | Economic Leased Percentage (2) | |||
Dallas | |||||||||||
6031 Connection Drive | Irving | TX | 100.0% | 1999 | 232 | 94.4 | % | 88.8 | % | 88.8 | % |
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 | 96.2 | % | 96.2 | % | 96.2 | % |
Las Colinas Corporate Center II | Irving | TX | 100.0% | 1998 | 228 | 95.2 | % | 85.1 | % | 85.1 | % |
6565 North MacArthur Boulevard | Irving | TX | 100.0% | 1998 | 260 | 93.5 | % | 91.9 | % | 91.9 | % |
One Lincoln Park | Dallas | TX | 100.0% | 1999 | 262 | 99.6 | % | 96.9 | % | 96.9 | % |
161 Corporate Center | Irving | TX | 100.0% | 1998 | 105 | 95.2 | % | 95.2 | % | 95.2 | % |
Park Place on Turtle Creek | Dallas | TX | 100.0% | 1986 | 178 | 88.2 | % | 88.2 | % | 88.2 | % |
750 West John Carpenter Freeway | Irving | TX | 100.0% | 1999 | 316 | 86.4 | % | 77.8 | % | 77.8 | % |
Metropolitan Area Subtotal / Weighted Average | 2,114 | 94.5 | % | 91.0 | % | 91.0 | % | ||||
Minneapolis | |||||||||||
Crescent Ridge II | Minnetonka | MN | 100.0% | 2000 | 301 | 90.4 | % | 87.4 | % | 87.0 | % |
US Bancorp Center | Minneapolis | MN | 100.0% | 2000 | 934 | 92.9 | % | 91.9 | % | 91.8 | % |
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 | % | 97.9 | % | 97.9 | % |
Metropolitan Area Subtotal / Weighted Average | 1,619 | 93.9 | % | 92.7 | % | 92.6 | % | ||||
New York | |||||||||||
200 Bridgewater Crossing | Bridgewater | NJ | 100.0% | 2002 | 309 | 97.7 | % | 95.8 | % | 94.8 | % |
60 Broad Street | New York | NY | 100.0% | 1962 | 1,033 | 98.7 | % | 98.7 | % | 98.7 | % |
600 Corporate Drive | Lebanon | NJ | 100.0% | 2005 | 125 | 100.0 | % | 100.0 | % | 100.0 | % |
400 Bridgewater Crossing | Bridgewater | NJ | 100.0% | 2002 | 304 | 100.0 | % | 94.7 | % | 91.1 | % |
Metropolitan Area Subtotal / Weighted Average | 1,771 | 98.9 | % | 97.6 | % | 96.8 | % | ||||
Orlando | |||||||||||
400 TownPark | Lake Mary | FL | 100.0% | 2008 | 176 | 88.6 | % | 88.6 | % | 88.6 | % |
500 TownPark | Lake Mary | FL | 100.0% | 2016 | 134 | 90.3 | % | 79.9 | % | 79.9 | % |
SunTrust Center | Orlando | FL | 100.0% | 1988 | 646 | 93.5 | % | 88.7 | % | 87.9 | % |
CNL Center I | Orlando | FL | 99.0% | 1999 | 348 | 98.0 | % | 96.0 | % | 96.0 | % |
CNL Center II | Orlando | FL | 99.0% | 2006 | 270 | 93.0 | % | 93.0 | % | 84.1 | % |
Metropolitan Area Subtotal / Weighted Average | 1,574 | 93.6 | % | 90.3 | % | 88.4 | % | ||||
Washington, D.C. | |||||||||||
1201 Eye Street | Washington | DC | 98.6% (3) | 2001 | 269 | 47.6 | % | 26.8 | % | 14.5 | % |
1225 Eye Street | Washington | DC | 98.1% (3) | 1986 | 225 | 92.9 | % | 90.7 | % | 89.8 | % |
3100 Clarendon Boulevard | Arlington | VA | 100.0% | 1987 / 2015 | 261 | 45.6 | % | 38.3 | % | 28.7 | % |
400 Virginia Avenue | Washington | DC | 100.0% | 1985 | 224 | 71.4 | % | 68.8 | % | 60.7 | % |
4250 North Fairfax Drive | Arlington | VA | 100.0% | 1998 | 308 | 85.4 | % | 80.5 | % | 51.9 | % |
One Independence Square | Washington | DC | 100.0% | 1991 | 334 | 93.7 | % | 77.8 | % | 61.7 | % |
Piedmont Pointe I | Bethesda | MD | 100.0% | 2007 | 189 | 67.7 | % | 67.7 | % | 67.7 | % |
Piedmont Pointe II | Bethesda | MD | 100.0% | 2008 | 238 | 57.1 | % | 57.1 | % | 57.1 | % |
Arlington Gateway | Arlington | VA | 100.0% | 2005 | 326 | 48.5 | % | 46.0 | % | 42.9 | % |
Metropolitan Area Subtotal / Weighted Average | 2,374 | 68.0 | % | 61.2 | % | 51.5 | % | ||||
46
Property | City | State | Percent Ownership | Year Built / Major Refurbishment | Rentable Square Footage Owned | Leased Percentage | Commenced Leased Percentage | Economic Leased Percentage (2) | |||
Other | |||||||||||
Desert Canyon 300 | Phoenix | AZ | 100.0% | 2001 | 148 | 35.1 | % | 35.1 | % | 35.1 | % |
800 North Brand Boulevard | Glendale | CA | 100.0% | 1990 | 527 | 100.0 | % | 100.0 | % | 100.0 | % |
5601 Hiatus Road | Tamarac | FL | 100.0% | 2001 | 100 | 50.0 | % | 50.0 | % | 50.0 | % |
2001 NW 64th Street | Ft. Lauderdale | FL | 100.0% | 2001 | 48 | 81.3 | % | 41.7 | % | 41.7 | % |
Auburn Hills Corporate Center | Auburn Hills | MI | 100.0% | 2001 | 120 | 59.2 | % | 59.2 | % | 59.2 | % |
1075 West Entrance Drive | Auburn Hills | MI | 100.0% | 2001 | 210 | 100.0 | % | 100.0 | % | 2.4 | % |
1901 Market Street | Philadelphia | PA | 100.0% | 1987 / 2014 | 801 | 100.0 | % | 100.0 | % | 100.0 | % |
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 | 67.2 | % | 67.2 | % | 67.2 | % |
Enclave Place | Houston | TX | 100.0% | 2015 | 301 | — | % | — | % | — | % |
1430 Enclave Parkway | Houston | TX | 100.0% | 1994 | 313 | 100.0 | % | 100.0 | % | 100.0 | % |
Subtotal / Weighted Average | 3,081 | 81.5 | % | 80.9 | % | 74.2 | % | ||||
Grand Total | 18,847 | 89.2 | % | 87.0 | % | 83.4 | % | ||||
(1) | This schedule includes information for Piedmont's in-service portfolio of properties only. Information on investments excluded from this schedule can be found on page 38. |
(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). |
(3) | Although Piedmont owns 98.6% of 1201 Eye Street and 98.1% of 1225 Eye Street, it is entitled to 100% of the cash flows for each asset pursuant to the terms of each property ownership entity's joint venture agreement. |
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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,” "estimate," “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 2017 and certain expected future financing requirements and expenditures.
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: economic, regulatory and / or socio-economic changes (including accounting standards) that impact the real estate market generally or that could affect the patterns of use of commercial office space; the success of our real estate strategies and investment objectives, including our ability to identify and consummate suitable acquisitions and divestitures; 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 affecting the office sector in general and the specific markets in which we operate, particularly in Washington, D.C., the New York metropolitan area, and Chicago where we have high concentrations of office properties; the illiquidity of real estate investments, including the resulting impediment on our ability to quickly respond to adverse changes in the performance of our properties; the risks and uncertainties associated with the acquisition of properties, many of which risks and uncertainties may not be known at the time of acquisition; development and construction delays and resultant increased costs and risks; our real estate development strategies may not be successful; future acts of terrorism in any of the major metropolitan areas in which we own properties or future cybersecurity attacks against us or any of our tenants; additional risks and costs associated with directly managing properties occupied by government tenants; the effect on us of adverse market and economic conditions, including any resulting impairment charges on both our long-lived assets or goodwill; availability of financing and our lending banks' ability to honor existing line of credit commitments; costs of complying with governmental laws and regulations; the effect of future offerings of debt or equity securities or changes in market interest rates on the value of our common stock; 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; any change in the financial condition of any of our large lead tenants; the effect of any litigation to which we are, or may become, subject; changes in tax laws impacting REITs and real estate in general, as well as our ability to continue to qualify as a REIT under the Internal Revenue Code of 1986; the future effectiveness of our internal controls and procedures; 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.
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