Document


 

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:

Exhibit No.
 
Description
99.1
 
 
 
 
99.2
 









SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
Piedmont Office Realty Trust, Inc.
 
 
 
 
 
(Registrant)
 
 
 
 
 
 
Dated:
November 1, 2017
 
By:
 
/s/    Robert E. Bowers
 
 
 
 
 
Robert E. Bowers
 
 
 
 
 
Chief Financial Officer and Executive Vice President

 


Exhibit


EXHIBIT 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11865978&doc=12

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



EXHIBIT 99.2




http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11865978&doc=4



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)
FFO, Core FFO and AFFO are supplemental non-GAAP financial measures. See page 39 for definitions of these non-GAAP financial measures, and pages 15 and 41 for reconciliations of FFO, Core FFO and AFFO to Net Income.
(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