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):  February 7, 2018
 
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 February 7, 2018, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the fourth quarter 2017, as well as the year ended December 31, 2017, and published supplemental information for the fourth quarter 2017, as well as the year ended December 31, 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:
February 7, 2018
 
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=12030536&doc=12

Piedmont Office Realty Trust Reports Fourth Quarter and Annual 2017 Results
ATLANTA, February 7, 2018 --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 and year ended December 31, 2017.

Highlights for the Three Months and Year Ended December 31, 2017:

Completed almost 900,000 square feet of leasing during the fourth quarter, resulting in approximately 20% and 25% roll ups in cash and accrual rents, respectively, and bringing total leasing for the year to over two million square feet and year-end leased percentage to approximately 90%;
Due to the timing of completion of transactional activity undertaken in 2017, reported Net Loss Applicable to Common Stockholders of $(0.21) per diluted share for the quarter and Net Income Applicable to Common Stockholders of $0.92 per diluted share for the year ended December 31, 2017;
Achieved Core Funds From Operations ("Core FFO") of $0.42 and $1.75 per diluted share for the quarter and year ended December 31, 2017, respectively;
Reported increases of approximately 4% and 9% in Same Store NOI- Cash Basis for the quarter and year ended December 31, 2017, respectively;
Acquired Norman Pointe I during the fourth quarter, an approximately 214,000 square foot, 7-story, Class-A, value-add office building located in close proximity to Piedmont's existing Minneapolis, MN assets;
Sold one joint venture asset and two wholly-owned properties during the year, including Two Independence Square, one of the Company's largest Washington, D.C. assets, for an aggregate of approximately $396 million in gross proceeds;
Paid down debt using net disposition proceeds from the property sales mentioned above, resulting in decreased leverage levels and substantially improved debt metrics;
Repurchased 3.1 million shares for a total of $61.8 million under the Company's board-approved stock repurchase program during the year ended December 31, 2017, leaving $188 million in authorized capacity remaining under the program as of December 31, 2017; and,
Entered into two binding contracts to sell a total of 14 non-strategic properties for approximately $426 million, which closed on January 4, 2018, and thereby exit four office markets.

Commenting on the Company's 2017 results, Donald A. Miller, CFA, President and Chief Executive Officer, said, "We had a strong fourth quarter from both a leasing and transactional perspective, allowing us to finish the year with over two million square feet of leasing and to finalize the sale of 14 assets during the first couple days of January. We were able to successfully address several near term expirations or





vacancies in the portfolio through our leasing efforts; our balance sheet is in great shape as a result of paying down debt with proceeds from our sale transactions; and our portfolio is now almost exclusively focused on our eight core markets.”

Results for the Quarter ended December 31, 2017

Due to the accounting requirement to recognize losses when known, but defer gains until closing, Piedmont recognized net loss applicable to common stockholders for the three months ended December 31, 2017 of $(31.4) million, or $(0.21) per diluted share, as compared with net income of $30.2 million, or $0.21 per diluted share, for the three months ended December 31, 2016. The fourth quarter included an approximately $46.5 million, or $0.32 per diluted share, impairment loss on certain assets as a result of reclassifying 14 properties to held-for-sale during the quarter. The gains on sale for certain of these assets will not be reported until the first quarter of 2018, when the sales closed. The fourth quarter of the prior year included an approximately $19.7 million, or $0.13 per diluted share, gain on sale of real estate assets.

Funds From Operations ("FFO"), which removes the impact of the gains on sales and impairment losses mentioned above, as well as depreciation and amortization, and Core FFO, which further removes the impact of acquisition expenses and net recoveries from casualty events, were both $0.42 per diluted share for the three months ended December 31, 2017, compared to $0.44 for both for the three months ended December 31, 2016. The decrease in both FFO and Core FFO per share was due to the sale of Two Independence Square in Washington, D.C., one of the Company's largest assets, during the third quarter of 2017.

Revenues and property operating costs were $139.4 million and $55.4 million, respectively, for the three months ended December 31, 2017, compared to $143.9 million and $57.5 million, respectively, for the fourth quarter of 2016. The decrease in both items was primarily a result of the sale of four wholly-owned assets since December 1, 2016, including Two Independence Square, one of the Company's largest assets, during the third quarter of 2017.

General and administrative expense was $7.9 million for the fourth quarter of 2017, compared to $5.7 million for the same period in 2016, primarily as a result of increased accruals for potential stock-based compensation expense as compared to the fourth quarter of 2016.

Gain/ (loss) on sale of real estate assets was a loss of $(77,000) for the fourth quarter of 2017, as compared to a gain of $19.7 million for the three months ended December 31, 2016 reflecting the sale of two wholly-owned assets that occurred during the fourth quarter of 2016.

In addition, net income available to common stockholders per share, FFO per diluted share and Core FFO per diluted share for the three months ended December 31, 2017 were all favorably impacted by an approximately 1.3 million share decrease in our weighted average shares outstanding as a result of the repurchase of approximately 2.9 million shares pursuant to the Company's stock repurchase program during the quarter.

Results for the Year ended December 31, 2017

Piedmont recognized net income available to common stockholders for the year ended December 31, 2017 of $133.6 million, or $0.92 per diluted share, as compared to $99.7 million, or $0.69 per diluted share, for the year ended December 31, 2016. The 2017 results included approximately $119.6 million, or $0.82 per diluted share, in gains on sales of real estate assets, whereas the 2016 results included $93.4 million, or





$0.64 per diluted share, in such gains. Additionally, real estate operating income was approximately $10.5 million higher for the year ended 2017 as compared with the year ended 2016, primarily as a result of the commencement of several significant leases, the expiration of various operating expense abatement periods, the impact of net transactional acquisition activity during 2017 and 2016, which was partially offset by increased impairment losses in 2017 as a result of reclassifying the portfolio as held-for-sale during the fourth quarter of 2017.

FFO and Core FFO were both $1.75 per diluted share for the year ended December 31, 2017, as compared to $1.67 for both for the year ended December 31, 2016, with the increase reflecting the commencement of several significant leases, the expiration of various operating expense abatement periods, the impact of net transactional acquisition activity during 2017 and 2016, which was partially offset by an increase in interest expense as a result of lower capitalized interest in the current year due to the completion of several development projects in early 2017.

Revenues for the year ended December 31, 2017 were $574.2 million as compared with $555.7 million for the year ended December 31, 2016, with the increase primarily attributable to the commencement of several significant leases, the expiration of various operating expense abatement periods, and the impact of net transactional acquisition activity during 2017 and 2016.

Property operating costs increased $1.7 million from $218.9 million for the year ended December 31, 2016 to $220.6 million for the year ended December 31, 2017, primarily as a result of the net transactional activity mentioned above.

General and administrative expenses were $31.1 million for the year ended December 31, 2017, as compared to $29.2 million for the year ended December 31, 2016, primarily as a result of increased accruals for potential stock-based compensation expense as compared to the prior year.

Leasing Update

The Company's leasing volume for the quarter ended December 31, 2017 totaled approximately 867,000 square feet, bringing total leasing for the year to approximately 2.1 million square feet. The two largest leasing transactions completed during the fourth quarter were both previously announced and included the renewal of Raytheon Company’s approximately 440,000 square foot lease through 2024 in the Boston office market at 225 & 235 Presidential Way, and a new, full building (approximately 152,000 square foot) lease through 2034 with Gartner, Inc. in the Dallas market at 6011 Connection Drive.

Other highlights for the quarter included:
US Bancorp’s approximately 51,000 square foot expansion of its existing space at US Bancorp Center in Minneapolis, MN for 6+ years through 2024;
Harvard University’s expansion of approximately 15,000 square feet and renewal of 5,000 square feet at One Brattle Square in Cambridge, MA to 2030; and
Consilium Staffing, LLC’s renewal of approximately 15,000 square feet and expansion by an additional 4,000 square feet at 161 Corporate Center in Irving, TX to 2021.

The Company's leased percentage was 89.7%, up 50 basis points from the third quarter of 2017, and weighted average lease term remained approximately 6.5 years, each as of December 31, 2017. Same Store NOI increased 4.2% and 2.9% on a cash and accrual basis, respectively, compared to the fourth quarter of the prior year, and 9.3% and 5.8% on a cash and accrual basis, respectively, compared to the year ended December 31, 2016, primarily reflecting the expiration of abatement periods and the





commencement of leases over the last twelve months. Details outlining Piedmont's occupancy statistics after the close of the 14-property disposition on January 4, 2018, the largest upcoming lease expirations, the status of certain major leasing activity, and a schedule of the largest 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 fourth quarter, Piedmont entered into two binding contracts with two different buyers to sell 14 assets, each of which subsequently closed on January 4, 2018. The total gross sales price for both transactions was approximately $425.9 million. An additional $4.5 million of gross sales proceeds is contingent upon certain leasing activity occurring before July 2, 2018. The Company recorded a non-cash impairment loss of approximately $46.5 million in its results of operations for the fourth quarter of 2017 and anticipates recording a gain on sale of approximately $40 million (before consideration of the $4.5 million of contingent proceeds) during the first quarter of 2018 in conjunction with the closing of the transactions. The 14 assets sold included:

Desert Canyon 300, Phoenix, AZ
Windy Point I and II, Schaumburg, IL
2300 Cabot Drive, Lisle, IL
1075 West Entrance Drive, Auburn Hills, MI
Auburn Hills Corporate Center, Auburn Hills, MI
5301 Maryland Way, Brentwood, TN
Suwanee Gateway One, Suwanee, GA
5601 Hiatus Road, Tamarac, FL
2001 NW 64th Street, Fort Lauderdale, FL
Piedmont Pointe I & II, Bethesda, MD
1200 Crown Colony Drive, Quincy, MA
2120 West End Avenue, Nashville, TN

The Company’s line of credit and, subsequently, the sales proceeds from the above transactions were used to repurchase 2.9 million shares of the Company’s common stock and to acquire Norman Pointe I, a $35 million value-add asset located in close proximity to the Company’s existing Minneapolis assets during the fourth quarter of 2017, as well as to repay, without penalty, on January 4, 2018, $470 million of bank term loans which were scheduled to mature in 2018 and early 2019.






First Quarter 2018 Dividend Declaration

On February 7, 2018, the board of directors of Piedmont declared dividends for the first quarter of 2018 in the amount of $0.21 per share on its common stock to stockholders of record as of the close of business on February 23, 2018, payable on March 16, 2018.

Guidance for 2018

Based on management's expectations, the Company is introducing guidance for full-year 2018 as follows:
(in millions, except per share data)
 
Low
 
High
Net Income
 
$93
-
$98
Add:
 


 

         Depreciation
 
112

-
116
         Amortization
 
60

-
64
Less: Gain on Sale of Real Estate Assets
 
(39
)
-
(42)
NAREIT FFO applicable to Common Stock
 
$
226

-
$
236

NAREIT FFO per diluted share
 
$1.64
-
$1.71
 
 
 
 
 
Less: Loss on Early Extinguishment of Debt / Termination of Interest Rate Swaps
 
$1
-
$1
Core FFO applicable to Common Stock
 
$
227

-
$
237

Core FFO per diluted share
 
$1.64
-
$1.72

These estimates reflect management's view of current market conditions and incorporate certain economic and operational assumptions and projections. Actual results could differ materially from these estimates based on a variety of factors, particularly the timing of any future 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, 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 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 December 31, 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, February 8, 2018 at 10:00 A.M. Eastern 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 10 A.M. EST on February 22, 2018, 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 24284. 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 fourth quarter and annual 2017 performance, discuss recent events, and conduct a question-and-answer period.

Supplemental Information

Quarterly supplemental information as of and for the period ended December 31, 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, almost $5 billion portfolio is currently comprised of approximately 17 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 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, 2018.

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
 
 
 
 
Unaudited (in thousands)
 
 
 
 
 
 
December 31, 2017
 
December 31, 2016
 
 
  
 
 
Assets:
 
 
 
 
Real estate assets, at cost:
 
 
 
 
Land
 
$
544,794

 
$
542,640

Buildings and improvements
 
3,203,229

 
3,142,482

Buildings and improvements, accumulated depreciation
 
(785,206
)
 
(700,304
)
Intangible lease assets
 
176,950

 
208,847

Intangible lease assets, accumulated amortization
 
(99,145
)
 
(109,152
)
Construction in progress
 
11,710

 
34,460

Real estate assets held for sale, gross
 
501,526

 
856,988

Real estate assets held for sale, accumulated depreciation and amortization
 
(169,116
)
 
(244,269
)
Total real estate assets
 
3,384,742

 
3,731,692

Investments in and amounts due from unconsolidated joint ventures
 
10

 
7,360

Cash and cash equivalents
 
7,382

 
6,992

Tenant receivables, net of allowance for doubtful accounts
 
12,139

 
26,494

Straight line rent receivables
 
163,160

 
136,862

Restricted cash and escrows
 
1,373

 
1,212

Prepaid expenses and other assets
 
22,517

 
23,281

Goodwill
 
98,918

 
98,918

Interest rate swaps
 
688

 

Deferred lease costs, less accumulated amortization
 
261,907

 
276,725

Other assets held for sale, net
 
47,131

 
58,632

Total assets
 
$
3,999,967

 
$
4,368,168

Liabilities:
 
 
 
 
Unsecured debt, net of discount and unamortized debt issuance costs
 
$
1,535,311

 
$
1,687,731

Secured debt, net of premiums and unamortized debt issuance costs
 
191,616

 
332,744

Accounts payable, accrued expenses, dividends payable, and accrued capital expenditures
 
216,653

 
165,410

Deferred income
 
29,582

 
28,406

Intangible lease liabilities, less accumulated amortization
 
38,458

 
47,537

Interest rate swaps
 
1,478

 
8,169

Other liabilities held for sale, net
 
380

 
468

Total liabilities
 
2,013,478

 
2,270,465

Stockholders' equity :
 
 
 
 
Common stock
 
1,424

 
1,452

Additional paid in capital
 
3,677,360

 
3,673,128

Cumulative distributions in excess of earnings
 
(1,702,281
)
 
(1,580,863
)
Other comprehensive income
 
8,164

 
2,104

Piedmont stockholders' equity
 
1,984,667

 
2,095,821

Non-controlling interest
 
1,822

 
1,882

Total stockholders' equity
 
1,986,489

 
2,097,703

Total liabilities and stockholders' equity
 
$
3,999,967

 
$
4,368,168

 
 
 
 
 
Number of shares of common stock outstanding as of end of period
 
142,359

 
145,235








Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
Consolidated Statements of Income
 
 
 
 
 
 
 
Unaudited (in thousands, except for per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Year Ended
 
12/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
Revenues:
 
 
 
 
 
 
 
Rental income
$
114,729

 
$
119,564

 
$
475,777

 
$
459,890

Tenant reimbursements
24,371

 
23,961

 
96,711

 
93,961

Property management fee revenue
344

 
386

 
1,685

 
1,864

Total revenues
139,444

 
143,911

 
574,173

 
555,715

Expenses:
 
 
 
 
 
 
 
Property operating costs
55,377

 
57,496

 
220,630

 
218,934

Depreciation
28,461

 
32,785

 
119,288

 
127,733

Amortization
17,515

 
21,271

 
75,367

 
75,119

Impairment loss on real estate assets
46,461

 

 
46,461

 
33,901

General and administrative
7,880

 
5,726

 
31,130

 
29,244

Total operating expenses
155,694

 
117,278

 
492,876

 
484,931

Real estate operating income/(loss)
(16,250
)
 
26,633

 
81,297

 
70,784

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(15,463
)
 
(16,566
)
 
(68,124
)
 
(64,860
)
Other income/(expense)
429

 
454

 
657

 
(13
)
Net recoveries from casualty events

 

 

 
34

Equity in income of unconsolidated joint ventures
(27
)
 
8

 
3,845

 
362

Total other expense
(15,061
)
 
(16,104
)
 
(63,622
)
 
(64,477
)
Income/(loss) from continuing operations
(31,311
)
 
10,529

 
17,675

 
6,307

Gain/(loss) on sale of real estate assets
(77
)
 
19,652

 
115,874

 
93,410

Net income/(loss)
(31,388
)
 
30,181

 
133,549

 
99,717

Plus: Net income applicable to noncontrolling interest
5

 
8

 
15

 
15

Net income/(loss) applicable to Piedmont
$
(31,383
)
 
$
30,189

 
$
133,564

 
$
99,732

Weighted average common shares outstanding - diluted*
144,503

 
145,764

 
145,380

 
145,635

Per Share Information -- diluted:
 
 
 
 
 
 
 
Net income/(loss) applicable to common stockholders
$
(0.21
)
 
$
0.21

 
$
0.92

 
$
0.69

*Number of shares of common stock outstanding as of end of period
142,359

 
145,235

 
142,359

 
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
 
Year Ended
 
12/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
GAAP net income/(loss) applicable to common stock
$
(31,383
)
 
$
30,189

 
$
133,564

 
$
99,732

Depreciation of real estate assets(1) (2)
28,242

 
32,597

 
118,577

 
127,129

Amortization of lease-related costs(1)
17,499

 
21,259

 
75,327

 
75,139

Impairment loss on real estate assets
46,461

 

 
46,461

 
33,901

(Gain)/loss on sale of real estate assets (1)
77

 
(19,652
)
 
(119,557
)
 
(93,410
)
NAREIT Funds From Operations applicable to common stock*
60,896

 
64,393

 
254,372

 
242,491

Acquisition costs

 
4

 
6

 
976

Net recoveries from casualty events

 

 

 
(34
)
Core Funds From Operations applicable to common stock*
60,896

 
64,397

 
254,378

 
243,433

Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on Unsecured Senior Notes
604

 
667

 
2,496

 
2,610

Depreciation of non real estate assets
212

 
246

 
809

 
841

Straight-line effects of lease revenue (1)
(5,553
)
 
(6,429
)
 
(21,492
)
 
(21,544
)
Stock-based and other non-cash compensation
1,937

 
284

 
6,139

 
5,620

Net effect of amortization of below-market in-place lease intangibles (1)
(1,685
)
 
(1,385
)
 
(6,575
)
 
(5,065
)
Acquisition costs

 
(4
)
 
(6
)
 
(976
)
Non-incremental capital expenditures (3)
(13,463
)
 
(12,135
)
 
(35,437
)
 
(35,568
)
Adjusted funds from operations applicable to common stock*
$
42,948

 
$
45,641

 
$
200,312

 
$
189,351

Weighted average common shares outstanding - diluted**
144,503

 
145,764

 
145,380

 
145,635

Funds from operations per share (diluted)
$
0.42

 
$
0.44

 
$
1.75

 
$
1.67

Core funds from operations per share (diluted)
$
0.42

 
$
0.44

 
$
1.75

 
$
1.67

 
 
 
 
 
 
 
 
**Number of shares of common stock outstanding as of end of period
142,359

 
145,235

 
142,359

 
145,235


(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
 
12/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
 
 
 
 
 
 
 
 
GAAP net income/ (loss) applicable to common stock
$
(31,383
)
 
$
30,189

 
$
(31,383
)
 
$
30,189

Net income applicable to noncontrolling interest
(5
)
 
(8
)
 
(5
)
 
(8
)
Interest expense
15,463

 
16,566

 
15,463

 
16,566

Depreciation (1)
28,454

 
32,844

 
28,454

 
32,844

Amortization (1)
17,499

 
21,259

 
17,499

 
21,259

Impairment loss on real estate assets
46,461

 

 
46,461

 

(Gain)/loss on sale of real estate assets (1)
77

 
(19,652
)
 
77

 
(19,652
)
EBITDAre
76,566

 
81,198

 
76,566

 
81,198

Acquisition costs

 
4

 

 
4

Net (recoveries)/loss from casualty events
(57
)
 

 
(57
)
 

Core EBITDA*
76,509

 
81,202

 
76,509

 
81,202

General & administrative expenses (1)
7,895

 
5,741

 
7,895

 
5,741

Management fee revenue
(149
)
 
(224
)
 
(149
)
 
(224
)
Other income (1)
(156
)
 
(459
)
 
(156
)
 
(459
)
Straight line effects of lease revenue (1)
(5,553
)
 
(6,429
)
 

 
 
Amortization of lease-related intangibles (1)
(1,685
)
 
(1,385
)
 
 
 
 
Property NOI*
76,861

 
78,446

 
84,099

 
86,260

   Net operating income from:
 
 


 
 
 
 
Acquisitions
(5,183
)
 
(4,848
)
 
(7,056
)
 
(6,396
)
Dispositions
(29
)
 
(5,527
)
 
(29
)
 
(5,719
)
Other investments (2)
(891
)
 
(136
)
 
(1,135
)
 
(438
)
Same Store NOI *
$
70,758

 
$
67,935

 
$
75,879

 
$
73,707

Change period over period in Same Store NOI
4.2
%
 
N/A

 
2.9
%
 
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
 
Year Ended
 
Year Ended
 
12/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
$
133,564

 
$
99,732

 
$
133,564

 
$
99,732

Net income applicable to noncontrolling interest
(15
)
 
(15
)
 
(15
)
 
(15
)
Interest expense
68,124

 
64,860

 
68,124

 
64,860

Depreciation (1)
119,386

 
127,970

 
119,386

 
127,970

Amortization (1)
75,327

 
75,139

 
75,327

 
75,139

Impairment loss on real estate assets
46,461

 
33,901

 
46,461

 
33,901

Gain on sale of real estate assets (1)
(119,557
)
 
(93,410
)
 
(119,557
)
 
(93,410
)
EBITDAre
323,290

 
308,177

 
323,290

 
308,177

Acquisition costs
6

 
976

 
6

 
976

Net recoveries from casualty events

 
(34
)
 

 
(34
)
Core EBITDA*
323,296

 
309,119

 
323,296

 
309,119

General & administrative expenses (1)
31,186

 
29,306

 
31,186

 
29,306

Management fee revenue
(872
)
 
(1,034
)
 
(872
)
 
(1,034
)
Other income (1)
(303
)
 
(458
)
 
(303
)
 
(458
)
Straight line effects of lease revenue (1)
(21,492
)
 
(21,544
)
 
 
 
 
Amortization of lease-related intangibles (1)
(6,575
)
 
(5,065
)
 
 
 
 
Property NOI*
325,240

 
310,324

 
353,307

 
336,933

   Net operating income from:
 
 
 
 
 
 
 
Acquisitions
(18,385
)
 
(7,333
)
 
(29,216
)
 
(9,175
)
Dispositions
(11,431
)
 
(32,550
)
 
(11,491
)
 
(33,761
)
Other investments(2)
(371
)
 
(497
)
 
(2,987
)
 
(1,311
)
Same Store NOI *
$
295,053

 
$
269,944

 
$
309,613

 
$
292,686

Change period over period in Same Store NOI
9.3
%
 
N/A

 
5.8
%
 
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=12030536&doc=4



Quarterly Supplemental Information
December 31, 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
 
Company Metrics after Fourteen Property Disposition
Funds From Operations / Adjusted Funds From Operations
 
Risks, Uncertainties and Limitations
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 49 for a discussion of important risks related to the business of Piedmont Office Realty Trust, Inc., as well as an investment in its securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information. Considering these risks, uncertainties, assumptions, and limitations, the forward-looking statements about leasing, financial operations, leasing prospects, etc. contained in this quarterly supplemental information 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.
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, almost $5 billion portfolio is comprised of approximately
17 million square feet (as of the date of release of this report). 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.

Subsequent to year end on January 4, 2018, Piedmont sold 14 properties and repaid $470 million of term debt. Refer to pages 47 and 48 for additional information and a presentation of certain pro forma statistical metrics (such as rentable square footage, percent leased, debt to gross assets, and average net debt to Core EBITDA) for the Company at December 31, 2017 after taking into account the elements of the transactions.
 
With Pro Forma Adjustments for
As of
As of
 
the Sale of 14 Properties
December 31, 2017
December 31, 2016
Number of consolidated office properties (1)
53 (2)
67
65
Rentable square footage (in thousands) (1)
16,476 (2)
19,061
18,885
Percent leased (3)
91.8% (2)
89.7
%
91.9
%
Capitalization (in thousands):
 
 
 
Total debt - principal amount outstanding (excludes premiums, discounts, and deferred financing costs)
$1,318,670 (2)
$1,733,670
$2,029,582
Equity market capitalization (4)
 
$2,791,659
$3,036,870
Total market capitalization (4)
 
$4,525,329
$5,066,452
Total debt / Total market capitalization (4)
approximately 32% (2)
38.3
%
40.1
%
Average net debt to Core EBITDA
under 5x's (estimated) (2)
5.6 x

6.4 x

Total debt / Total gross assets
approximately 30% (2)
34.3
%
37.4
%
Common stock data:
 
 
 
High closing price during quarter
 
$20.40
$21.53
Low closing price during quarter
 
$19.21
$18.62
Closing price of common stock at period end
 
$19.61
$20.91
Weighted average fully diluted shares outstanding during quarter (in thousands)
 
144,503
145,764
Shares of common stock issued and outstanding at period end (in thousands)
 
142,359
145,235
Annual regular dividend per share (5)
 
$0.84
$0.84
Rating / Outlook
 
 
 
Standard & Poor's
 
BBB / Stable

BBB / Stable

Moody's
 
Baa2 / Stable

Baa2 / Stable

Employees
129 (2)
136
137
(1)
As of December 31, 2017, our consolidated office portfolio consisted of 67 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. During the fourth quarter of 2017, we acquired Norman Pointe I, a 214,000 square foot office building located in Bloomington, MN.
(2)
On January 4, 2018, Piedmont completed the disposition of 14 properties and used the net sales proceeds to repay debt. Figure represents the impact on this measure on a pro forma basis of the sales of the properties. Please refer to page 47 for additional details regarding the sales of the properties and the impact on various metrics for the Company.
(3)
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 301,000 square foot office property located in Houston, TX, and 500 TownPark, a 134,000 square foot office property located in Lake Mary, FL; the re-development property that was placed in service is 3100 Clarendon Boulevard, a 261,000 square foot office property located in Arlington, VA. Please refer to page 27 for additional analyses regarding Piedmont's leased percentage.
(4)
Reflects common stock closing price as of the end of the reporting period.
(5)
Total of the per share regular dividends declared over the prior four quarters. The Company declared a special dividend of $0.50 per share in December 2017 which is not included in this calculation.

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, Member of Audit and
Director and Chairman of
Board of Directors and Chairman
Board of Directors
Governance Committees
Governance Committee
of Compensation Committee
 
 
 
 
 
 
 
Barbara B. Lang
Donald A. Miller, CFA
Raymond G. Milnes, Jr.
Jeffery L. Swope
Director, Member of Compensation and
Chief Executive Officer, President
Director and Chairman of
Director and Chairman of
Governance Committees
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 December 31, 2017


Financial Results (1) 

Net income attributable to Piedmont for the quarter ended December 31, 2017 was $(31.4) million, or $(0.21) per share (diluted), compared to $30.2 million, or $0.21 per share (diluted), for the same quarter in 2016. Net income attributable to Piedmont for the twelve months ended December 31, 2017 was $133.6 million, or $0.92 per share (diluted), compared to $99.7 million, or $0.69 per share (diluted) for the same period in 2016. The decrease in net income attributable to Piedmont during the three months ended December 31, 2017 when compared to the same period in 2016 was principally related to an impairment loss recorded during the quarter associated with certain properties in a multiple property disposition that did not close until the beginning of the first quarter of 2018.(2) Gains related to the multiple asset disposition will not be recognized until the first quarter of 2018 when the transactions closed. The increase in net income attributable to Piedmont during the twelve months ended December 31, 2017 when compared to the same period in 2016 was principally due to the net effect of gains and losses related to disposition transactions closed during the one-year periods, as well as increased average economic occupancy in 2017 when compared to 2016.

Funds from operations (FFO) for the quarter ended December 31, 2017 was $60.9 million, or $0.42 per share (diluted), compared to $64.4 million, or $0.44 per share (diluted), for the same quarter in 2016. FFO for the twelve months ended December 31, 2017 was $254.4 million, or $1.75 per share (diluted), compared to $242.5 million, or $1.67 per share (diluted), for the same period in 2016. The decrease in FFO for the three months ended December 31, 2017 when compared to the same period in 2016 was primarily attributable to net disposition activity completed earlier in the current year (principally the sale of Two Independence Square in July 2017). The increase in FFO for the twelve months ended December 31, 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 4.1 million square feet of leases executed since the beginning of 2016.

Core funds from operations (Core FFO) for the quarter ended December 31, 2017 was $60.9 million, or $0.42 per share (diluted), compared to $64.4 million, or $0.44 per share (diluted), for the same quarter in 2016. Core FFO for the twelve months ended December 31, 2017 was $254.4 million, or $1.75 per share (diluted), compared to $243.4 million, or $1.67 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 from casualty events, acquisition-related expenses(3) and other significant non-recurring items. The decrease in Core FFO for the three months ended December 31, 2017 and the increase in Core FFO for the twelve months ended December 31, 2017 when compared to the same periods in 2016 was primarily attributable to the items described above for changes in FFO.

Adjusted funds from operations (AFFO) for the quarter ended December 31, 2017 was $42.9 million, compared to $45.6 million for the same quarter in 2016. AFFO for the twelve months ended December 31, 2017 was $200.3 million, compared to $189.4 million for the same period in 2016. The decrease in AFFO for the three months ended December 31, 2017 and the increase in AFFO for the twelve months ended December 31, 2017 when compared to the same periods in 2016 was primarily due to the items described above for changes in FFO and Core FFO.

Operations and Leasing

On a square footage leased basis, our total in-service office portfolio was 89.7% leased as of December 31, 2017, as compared to 89.2% in the prior quarter and 91.9%(4) at December 31, 2016. The main contributors to the reduction in leased percentage at year end 2017 when compared to year end 2016 were previously disclosed lease expirations, as well as the disposition of the 100% leased, 606,000 square foot Two Independence Square during the year. Please refer to page 27 for additional leased percentage information. Subsequent to quarter end, the Company completed a fourteen property disposition; the December 31, 2017 pro forma leased percentage after removing the properties included in the disposition transactions was 91.8%. For additional information on the fourteen property disposition and a presentation of key metrics at December 31, 2017 for Piedmont before and after the transactions, please see page 47.

The weighted average remaining lease term of our portfolio was 6.5 years(5) as of December 31, 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)
Accounting standards require that any anticipated loss from an asset sale be recorded as an impairment charge when the likelihood of a sale becomes probable. Conversely, any gain on the sale of an asset is recorded when the sale transaction closes. Therefore, Piedmont recorded impairment losses associated with the multiple asset disposition during the fourth quarter of 2017; however, it also anticipates recording gains related to the same multiple asset disposition during the first quarter of 2018.
(3)
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.
(4)
Restated to include two development properties and one redevelopment property that were placed in service on January 1, 2017.
(5)
Remaining lease term (after taking into account leases for vacant spaces which had been executed but not commenced as of December 31, 2017) is weighted based on Annualized Lease Revenue, as defined on page 39.

5




During the three months ended December 31, 2017, the Company completed 866,790 square feet of total leasing. Of the total leasing activity during the quarter, we signed new tenant leases for 323,348 square feet and renewal leases for 543,442 square feet. During the twelve months ended December 31, 2017, we completed 2,069,770 square feet of leasing for our consolidated office properties, consisting of 870,969 square feet of new tenant leases and 1,198,801 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 twelve months ended December 31, 2017 was $4.73 and the same measure for renewal leases was $1.84, resulting in a weighted average of $3.55 for all leasing activity completed during the period (see page 33).

During the three months ended December 31, 2017, we executed eleven 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
Raytheon Company
225 & 235 Presidential Way
Woburn, MA
440,130
2024
Renewal
Gartner, Inc.
6011 Connection Drive
Irving, TX
152,086
2034
New
US Bancorp
US Bancorp Center
Minneapolis, MN
51,280
2024
Expansion
President and Fellows of Harvard College
One Brattle Square
Cambridge, MA
20,509
2030
Renewal / Expansion
Consilium Staffing, LLC
161 Corporate Center
Irving, TX
19,293
2021
Renewal / Expansion
AmeriCredit Financial Services, Inc.
400 TownPark
Lake Mary, FL
15,367
2025
New
Axios Media, Inc.
3100 Clarendon Boulevard
Arlington, VA
15,301
2029
New
Amazon Corporate, LLC
4250 North Fairfax Drive
Arlington, VA
12,988
2024
Expansion
Kinetica DB, Inc.
Arlington Gateway
Arlington, VA
12,766
2025
New
KPMG, LLP
CNL Center II
Orlando, FL
12,590
2030
New
Applied Predictive Technologies, Inc.
4250 North Fairfax Drive
Arlington, VA
10,454
2028
Expansion

At the end of the fourth quarter of 2017, there were two tenants whose leases individually contributed greater than 1% in Annualized Lease Revenue expiring during the eighteen month period following December 31, 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
1.6%
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; a $10 million redevelopment of the property commenced in early 2018.
State of New York
60 Broad Street
New York, NY
480,708
4.6%
Q1 2019
The Company is in preliminary discussions with the tenant regarding a potential renewal of the lease.

During the fourth quarter of 2017, Piedmont successfully resolved the majority of two impending lease expirations for leases that, as of the end of the third quarter of 2017, individually contributed greater than 1% in Annualized Lease Revenue and were set to expire during the eighteen month period following December 31, 2017. Updated information for the affected spaces is presented below.
Current Tenant
Property
Property Location
Net Square
Footage
Expiring Over
Next 18 Months
Net Percentage of
Current Quarter
Annualized Lease
Revenue Expiring
Next 18 Mos. (%)
Expiration
Current Leasing Status
Goldman Sachs
6011 & 6031 Connection Drive
Irving, TX
55,124
0.2%
Q1 2018
During the fourth quarter, Gartner, Inc. signed a 152,000 square foot, full-building lease at 6011 Connection Drive, which is currently occupied by Goldman Sachs. The new lease is anticipated to commence in stages beginning in the third quarter of 2018 and expire in 2034. The remaining 55,000 square feet of available space is actively being marketed for lease.
Raytheon Company
225 & 235 Presidential Way
Woburn, MA
—%
Q2 2024
During the fourth quarter, Raytheon executed a five-year lease extension for the entirety of the 440,000 square feet that it occupies. The new lease extended the expiration date from Q2 2019 to Q2 2024.

6




Future Lease Commencements and Abatements

As of December 31, 2017, our overall leased percentage was 89.7% and our economic leased percentage was 82.1%. 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 393,279 square feet of leases as of December 31, 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 1,184,020 square feet of leases as of December 31, 2017, or a 5.4% impact to leased percentage on an economic basis).

We expect this gap to narrow further subsequent to quarter end, incorporating the elements of the fourteen property disposition and the burn off of several large abatements after December 31, 2017. While the gap between reported leased percentage and economic leased percentage did not narrow as quickly as originally anticipated due to higher volumes of leasing activity, the gap has narrowed from a high of almost 13% to the 5% to 7% range and is expected to generally remain around this lower range in the future. This gap, however, is anticipated to fluctuate over time as (1) new leases are signed for vacant spaces, (2) abatements associated with existing or newly executed leases commence and expire (see page 8 for more detail on existing large leases with abatements), and/or (3) properties are bought and sold.

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 several 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
US Bancorp
US Bancorp Center
Minneapolis, MN
51,280
Vacant
Q2 2018
Expansion
International Food Policy Research Institute (2)
1201 Eye Street
Washington, DC
56,461
Vacant
Q2 2018
New
Gartner, Inc.
6011 Connection Drive
Irving, TX
152,086
Not Vacant
Q3 2018 (71,439 SF)(3) 
Q3 2019 (26,695 SF)
Q3 2020 (53,952 SF)
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.
(3)
While the commencement of the Gartner lease will be phased, only the first phase of 71,439 square feet will receive ten months of rental abatements. The other two phases will not receive rental abatements.

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 with abatements. 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 fourth 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
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
Q4 2029
Neovia Logistics, LP
Las Colinas Corporate Center II
Irving, TX
54,682
December 2017
Q2 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 February 2018 (on 87,786 square feet);
March through May 2018 (on 102,324 square feet)
Q2 2028
RaceTrac Petroleum, Inc.
Galleria 200
Atlanta, GA
133,707
July 2017 through May 2018
Q3 2032
Mitsubishi Hitachi Power Systems
400 TownPark
Lake Mary, FL
75,321
February and March 2018
Q1 2026
US Bancorp
US Bancorp Center
Minneapolis, MN
51,280
April through June 2018
Q2 2024
International Food Policy Research Institute
1201 Eye Street
Washington, DC
101,937
May 2018 through April 2019
Q2 2029
United States of America
(Social Security Administration Commissioner)
One Independence Square
Washington, DC
52,720
June 2018 through May 2019
Q2 2028
Gartner, Inc.
6011 Connection Drive
Irving, TX
71,439
September 2018 through June 2019
Q2 2034
Norris, McLaughlin & Marcus
400 Bridgewater Crossing
Bridgewater, NJ
61,642
October through December 2018; November and December 2019
Q4 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 with a competitive advantage 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 November 10, 2017, Piedmont entered into two binding contracts to sell a 2.6 million square foot, 76% leased, fourteen-asset portfolio comprised of non-strategic assets, as well as assets in which the Company believed value had been fully realized, for a sales price of $425.9 million (subject to an additional $4.5 million in contingent proceeds), or $166 per square foot. The transactions were closed subsequent to quarter end, on January 4, 2018. The sale of this portfolio of assets allowed the Company to complete its exit from the Phoenix, Detroit, Nashville and South Florida office markets, as well as reduce its suburban holdings in the Chicago, Washington, DC, Boston and Atlanta markets. In addition, the proceeds significantly contributed to the Company's ability to:
Enhance its balance sheet through the repayment of $470 million of outstanding bank term debt that was scheduled to mature in 2018 and 2019 (the Company has no additional debt maturities until 2020);
Acquire a high-quality, value-add asset within one of our core markets at a significant discount to replacement cost; and

8



Repurchase stock at what the Company estimates to be a substantial discount to net asset value.
The assets included in the two disposition transactions were:
Property
City
State
Rentable Square
Footage
Desert Canyon 300
Phoenix
AZ
148
5601 Hiatus Road
Tamarac
FL
100
2001 NW 64th Street
Ft. Lauderdale
FL
48
Auburn Hills Corporate Center
Auburn Hills
MI
120
1075 West Entrance Drive
Auburn Hills
MI
210
2120 West End Avenue
Nashville
TN
312
5301 Maryland Way
Brentwood
TN
201
Piedmont Pointe I
Bethesda
MD
189
Piedmont Pointe II
Bethesda
MD
238
Windy Point I
 Schaumburg
 IL
187
Windy Point II
 Schaumburg
 IL
301
2300 Cabot Drive
 Lisle
 IL
153
1200 Crown Colony Drive
 Quincy
 MA
235
Suwanee Gateway One
 Suwanee
 GA
143
Total
 
 
2,585

Please refer to page 47 for a presentation of key metrics at December 31, 2017 for Piedmont, with and without the sales of the fourteen assets and the related use of proceeds.

Acquisitions
On December 28, 2017, Piedmont completed the purchase of Norman Pointe I, a 214,000 square foot, 70% leased, seven-story, Class A, value-add office building with an attached parking structure, located in Bloomington, MN, for $35.2 million, or $164 per square foot. The building is currently leased to an investment grade tenant with substantial lease term remaining. The property is situated within a master-planned development at the southwest corner of the Interstate 494 and Highway 100 interchange, one of the most heavily traveled junctions in the Twin Cities market, offering superior visibility and accessibility to the Minneapolis metropolitan area. This asset is a strong strategic fit for the Company in terms of physical quality, location within one of its strategic submarkets, and proximity to other Piedmont-owned assets, which will allow the Company to realize additional marketing and operating synergies. The acquisition was completed at an estimated discount to replacement cost of over 50%. Refer to the investment rationale presentation available in the Investor Relations section of the Company's website for more detailed information.

For additional information on acquisitions and dispositions completed over the previous eighteen months, please refer to page 37.

Development
The Company had no developments or re-developments underway as of December 31, 2017. Subsequent to year end, the Company commenced a $10 million redevelopment at Two Pierce Place in Itasca, IL. Additional detail on the Company's developable land parcels, all of which are located adjacent to existing Piedmont properties, can be found on page 38.

Finance
Subsequent to quarter end, the Company completed a fourteen property disposition; the December 31, 2017 pro forma ratio of debt to total gross assets after applying proceeds from the transactions to debt reduction was approximately 30% and that for average net debt to Core EBITDA was under 5.0 x. As of December 31, 2017, our ratio of debt to total gross assets was 34.3% and our average net debt to Core EBITDA ratio was 5.6 x. For additional information on the fourteen property disposition and a presentation of key metrics at December 31, 2017 for Piedmont before and after the transactions, please see page 47.
Stock Repurchase Program
During the fourth quarter of 2017, the Company repurchased approximately 2.9 million shares of common stock under its share repurchase program at an average price of $19.68 per share, or approximately $57.8 million (before the consideration of transaction costs and the impact on the special dividend)(1). During the calendar year of 2017, Piedmont repurchased approximately 3.1 million shares at an average price of $19.70 per share, or $61.7 million in aggregate (before the consideration of transaction costs and the impact on the special dividend)(1). Since the stock repurchase program began in December 2011, the Company has repurchased approximately 31.5 million shares at an average price of $17.42 per share,
(1)
In July 2017, the Company sold Two Independence Square in Washington, DC with a large tax-basis gain which was the primary driver for a $0.50 per share special dividend. The Company was able to forgo the payment of the special dividend on the shares it repurchased subsequent to the large asset sale in July 2017 and up to the time at which its stock began trading ex-dividend for the special dividend. If the special dividend that would have otherwise been payable on the shares repurchased were to be deducted from the amount paid for the repurchases during the applicable period, the weighted average stock repurchase price per share during the fourth quarter and calendar year of 2017 would have been $19.22 and $19.26, respectively.

9




or approximately $548.1 million in aggregate (before the consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases totaled approximately $188.2 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 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 was paid on January 4, 2018. The Company's dividend payout percentage (for regular dividends declared) for the twelve months ended December 31, 2017 was 48% of Core FFO and 61% of AFFO (excludes the special dividend declared on December 13, 2017; see directly below).

On December 13, 2017, the Board of Directors of Piedmont declared a special dividend in the amount of $0.50 per common share outstanding to stockholders of record as of the close of business on December 26, 2017. The dividend was paid on January 9, 2018. The reason for the special dividend was the required distribution of net taxable gains realized on sales occurring during 2017 in order to maintain tax status as a REIT.

Subsequent Events

On January 4, 2018, Piedmont repaid its $300 million term loan with a maturity date of January 31, 2019, and its $170 million term loan with a maturity date of May 15, 2018. The loans were repaid using proceeds from the sales of fourteen properties completed on January 4, 2018, along with funds from the Company's $500 million revolving line of credit. There were no prepayment costs associated with the repayments and the Company received approximately $800,000 in net cash proceeds from the termination of several related interest rate swap agreements. As a result of the repayment of the term loans, the Company has no debt maturities until 2020. The December 31, 2017 pro forma ratio of debt to total gross assets after applying proceeds from the disposition transactions to debt reduction was approximately 30% and that for average net debt to Core EBITDA was under 5.0 x. For additional information on the fourteen property disposition and a presentation of key metrics at December 31, 2017 for Piedmont before and after the transactions, please see page 47.

On February 7, 2018, the Board of Directors of Piedmont declared a dividend for the first quarter of 2018 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on February 23, 2018. The dividend is expected to be paid on March 16, 2018.

Guidance for 2018

The following financial guidance for calendar year 2018 is based upon management's expectations at this time.
 
Low
 
High
 
 
 
 
Net Income
$93 million
to
$98 million
Add:
 
 
 
         Depreciation
112 million
to
116 million
         Amortization
60 million
to
64 million
Less:
 
 
 
         Gain on Sale of Real Estate Assets
(39) million
to
(42) million
NAREIT Funds from Operations applicable to Common Stock
$226 million
 
$236 million
NAREIT Funds from Operations per diluted share
$1.64
to
$1.71
 
 
 
 
Less:
 
 
 
         Loss on Early Extinguishment of Debt / Termination of Interest Rate Swaps
$1 million
to
$1 million
Core Funds From Operations
$227 million
to
$237 million
Core Funds from Operations per diluted share
$1.64
to
$1.72

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, abatement periods, 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)

 
December 31, 2017

September 30, 2017

June 30, 2017

March 31, 2017

December 31, 2016
Assets:

 
 
 
 
 
 
 
 
Real estate, at cost:

 
 
 
 
 
 
 
 
Land assets
$
544,794

 
$
540,436

 
$
540,436

 
$
542,640

 
$
542,640

Buildings and improvements
3,203,229

 
3,178,184

 
3,168,725

 
3,178,655

 
3,142,482

Buildings and improvements, accumulated depreciation
(785,206
)
 
(758,800
)
 
(733,568
)
 
(722,397
)
 
(700,304
)
Intangible lease asset
176,950

 
171,965

 
179,540

 
205,061

 
208,847

Intangible lease asset, accumulated amortization
(99,145
)
 
(93,265
)
 
(94,551
)
 
(113,129
)
 
(109,152
)
Construction in progress
11,710

 
7,560

 
14,671

 
18,664

 
34,460

Real estate assets held for sale, gross
501,526

 
546,979

 
860,302

 
858,320

 
856,988

Real estate assets held for sale, accumulated depreciation & amortization
(169,116
)
 
(167,305
)
 
(252,583
)
 
(248,651
)
 
(244,269
)
Total real estate assets
3,384,742

 
3,425,754

 
3,682,972

 
3,719,163

 
3,731,692

Investments in and amounts due from unconsolidated joint ventures
10

 
49

 
7,762

 
7,654

 
7,360

Cash and cash equivalents
7,382

 
36,108

 
9,596

 
6,808

 
6,992

Tenant receivables, net of allowance for doubtful accounts
12,139

 
12,802

 
24,269

 
25,194

 
26,494

Straight line rent receivable
163,160

 
157,289

 
152,084

 
144,513

 
136,862

Escrow deposits and restricted cash
1,373

 
1,260

 
1,290

 
1,253

 
1,212

Prepaid expenses and other assets
22,517

 
27,893

 
29,866

 
21,214

 
23,281

Goodwill
98,918

 
98,918

 
98,918

 
98,918

 
98,918

Interest rate swap
688

 
34

 

 

 

Deferred lease costs, less accumulated amortization
261,907

 
253,608

 
257,677

 
268,328

 
276,725

Other assets held for sale
47,131

 
46,935

 
55,878

 
57,695

 
58,632

Total assets
$
3,999,967

 
$
4,060,650

 
$
4,320,312

 
$
4,350,740

 
$
4,368,168

Liabilities:
 
 
 
 
 
 
 
 
 
Unsecured debt, net of discount
$
1,535,311

 
$
1,511,663

 
$
1,720,986

 
$
1,733,343

 
$
1,687,731

Secured debt
191,616

 
191,923

 
332,196

 
332,471

 
332,744

Accounts payable, accrued expenses, and accrued capital expenditures
216,653

 
108,120

 
111,011

 
116,077

 
165,410

Deferred income
29,582

 
29,970

 
27,416

 
30,683

 
28,406

Intangible lease liabilities, less accumulated amortization
38,458

 
40,662

 
42,905

 
45,148

 
47,537

Interest rate swaps
1,478

 
3,915

 
5,061

 
5,475

 
8,169

Other liabilities held for sale
380

 
402

 
423

 
446

 
468

Total liabilities
$
2,013,478

 
$
1,886,655

 
$
2,239,998

 
$
2,263,643

 
$
2,270,465

Stockholders' equity:
 
 
 
 
 
 
 
 
 
Common stock
1,424

 
1,453

 
1,455

 
1,453

 
1,452

Additional paid in capital
3,677,360

 
3,676,706

 
3,675,562

 
3,675,575

 
3,673,128

Cumulative distributions in excess of earnings
(1,702,281
)
 
(1,511,428
)
 
(1,603,119
)
 
(1,596,276
)
 
(1,580,863
)
Other comprehensive loss
8,164

 
5,400

 
4,547

 
4,466

 
2,104

Piedmont stockholders' equity
1,984,667

 
2,172,131

 
2,078,445

 
2,085,218

 
2,095,821

Non-controlling interest
1,822

 
1,864

 
1,869

 
1,879

 
1,882

Total stockholders' equity
1,986,489

 
2,173,995

 
2,080,314

 
2,087,097

 
2,097,703

Total liabilities, redeemable common stock and stockholders' equity
$
3,999,967

 
$
4,060,650

 
$
4,320,312

 
$
4,350,740

 
$
4,368,168

Common stock outstanding at end of period
142,359

 
145,295

 
145,490

 
145,320

 
145,235



11



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

 
 
Three Months Ended
 
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
Revenues:
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
114,729

 
$
113,350

 
$
124,248

 
$
123,450

 
$
119,564

Tenant reimbursements
 
24,371

 
23,796

 
24,044

 
24,500

 
23,961

Property management fee revenue
 
344

 
441

 
387

 
513

 
386

 
 
139,444

 
137,587

 
148,679

 
148,463

 
143,911

Expenses:
 
 
 
 
 
 
 
 
 
 
Property operating costs
 
55,377

 
54,090

 
55,779

 
55,384

 
57,496

Depreciation
 
28,461

 
30,000

 
30,059

 
30,768

 
32,785

Amortization
 
17,515

 
18,123

 
19,314

 
20,415

 
21,271

Impairment loss on real estate assets (1)
 
46,461

 

 

 

 

General and administrative
 
7,880

 
6,618

 
8,036

 
8,596

 
5,726

 
 
155,694

 
108,831

 
113,188

 
115,163

 
117,278

Real estate operating income
 
(16,250
)
 
28,756

 
35,491

 
33,300

 
26,633

Other income / (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(15,463
)
 
(16,183
)
 
(18,421
)
 
(18,057
)
 
(16,566
)
Other income / (expense)
 
429

 
290

 
38

 
(100
)
 
454

Equity in income / (loss) of unconsolidated joint ventures
 
(27
)
 
3,754

 
107

 
11

 
8

 
 
(15,061
)
 
(12,139
)
 
(18,276
)
 
(18,146
)
 
(16,104
)
Income from continuing operations
 
(31,311
)
 
16,617

 
17,215

 
15,154

 
10,529

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss
 

 

 

 

 

Gain / (loss) on sale of properties
 

 

 

 

 

Income / (loss) from discontinued operations
 

 

 

 

 

Gain / (loss) on sale of real estate (2)
 
(77
)
 
109,512

 
6,492

 
(53
)
 
19,652

Net income
 
(31,388
)
 
126,129

 
23,707

 
15,101

 
30,181

Less: Net income attributable to noncontrolling interest
 
5

 
4

 
3

 
3

 
8

Net income attributable to Piedmont
 
$
(31,383
)
 
$
126,133

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