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):  May 1, 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 May 1, 2018, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the first quarter 2018, and published supplemental information for the first quarter 2018 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:
May 1, 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=12221280&doc=12

Piedmont Office Realty Trust Reports First Quarter 2018 Results and Raises 2018 Guidance
ATLANTA, May 1, 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 ended March 31, 2018.

Highlights for the Three Months Ended March 31, 2018:

Reported Net Income Applicable to Common Stockholders of $0.42 per diluted share for the quarter;
Achieved Core Funds From Operations ("Core FFO") of $0.43 per diluted share for the quarter ended March 31, 2018;
Completed 341,000 square feet of leasing during the first quarter at properties that were owned as of the end of the quarter, almost half of which related to new tenant leasing;
As previously announced, completed the disposition of 14 non-strategic properties for a total sales price of approximately $430 million, thereby exiting four non-strategic office markets;
Used proceeds from the above dispositions to:
Acquire 501 West Church Street, a value-add asset located in Orlando, Florida in close proximity to the Company's existing downtown Orlando assets;
Replace two unsecured, near-term-maturity, term loans totaling $470 million with a new, 7-year, $250 million term loan, thereby increasing the Company's weighted average remaining maturity to almost 5 years; and
Repurchase 12.5 million shares of the Company's common stock, at an average price of $18.56 per share under the Company's board-approved stock repurchase program.

Commenting on the Company's first quarter 2018 results, Donald A. Miller, CFA, President and Chief Executive Officer, said, "We are extremely pleased with our first quarter capital transaction activity and with our executed leasing results and the related roll up of cash and GAAP rental rates. In addition to the 341,000 square feet of reported leasing, we were also able to successfully complete 150,000 square feet of leasing at properties that we sold early in the quarter, resulting in $4.5 million in added proceeds and gain for our stockholders. Utilizing the quarter's disposition proceeds, we were able to greatly improve our debt maturity profile and to opportunistically invest accretively in our own stock at a substantial discount to what we believe is our own net asset value."

Results for the Quarter ended March 31, 2018

Piedmont recognized net income applicable to common stockholders for the three months ended March 31, 2018 of $57.8 million, or $0.42 per diluted share, as compared with net income of $15.1 million, or





$0.10 per diluted share, for the three months ended March 31, 2017. The three months ended March 31, 2018 included an approximately $45.2 million, or $0.33 per diluted share, gain on sale whereas there was only de minimus gain/loss activity in the first quarter of the prior year.

Funds From Operations ("FFO"), which removes the impact of the gains and losses on sales of assets mentioned above (as well as depreciation and amortization), and Core FFO, which further removes the impact of a non-cash loss on extinguishment of debt that occurred during the first quarter of 2018, were $0.41 and $0.43 per diluted share, respectively, for the three months ended March 31, 2018. Both of these metrics were $0.45 for the three months ended March 31, 2017. The year-over-year decrease is primarily attributable to the sale of sixteen wholly-owned assets and one unconsolidated joint venture since June of 2017.

Revenues and property operating costs were $129.9 million and $51.9 million, respectively, for the three months ended March 31, 2018, compared to $148.5 million and $55.8 million, respectively, for the first quarter of 2017. The decrease in both items was primarily a result of the sale of the sixteen wholly-owned assets mentioned above.

General and administrative expense was $6.6 million for the first quarter of 2018, compared to $8.2 million for the same period in 2017, primarily as a result of decreased accruals for potential performance-based stock compensation as compared to the first quarter of 2017.

Gain on sale of real estate assets was $45.2 million for the first quarter of 2018, as compared to a loss of $53,000 for the three months ended March 31, 2017, with the current quarter reflecting the sale of fourteen wholly-owned assets that closed in January of 2018.

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 March 31, 2018 were all favorably impacted by an approximately 9.7 million share decrease in our weighted average shares outstanding as a result of the repurchase of approximately 15.6 million shares pursuant to the Company's stock repurchase program during the twelve months ended March 31, 2018, the majority of which occurred during the first quarter of 2018.

Leasing Update

The Company's leasing volume at properties owned as of the end of the first quarter totaled 341,000 square feet, approximately half of which related to new leasing. In addition to the leasing completed throughout its current portfolio, approximately 150,000 of square feet of further leasing was executed at the properties included in the 14 property portfolio sale which resulted in the realization of $4.5 million of incremental sale proceeds and gains on sale, bringing the total proceeds from the portfolio sale to over $430 million. Some of the larger leasing activity completed at properties owned at the end of the quarter included:

In Orlando, FL - Holland & Knight LLP executed a renewal of its approximately 51,000 square feet at SunTrust Center in CBD Orlando through 2024; and Robinhood Markets, Inc. signed an 8-year renewal and expansion for a total of 28,000 square feet at 500 TownPark in the Lake Mary submarket through 2026;
In Metro New York - Amneal Pharmaceuticals, LLC completed a lease expansion of approximately 40,000 square feet at 400 Bridgewater Crossing in the Bridgewater, NJ submarket for through 2024;





In Boston - Smithsonian Institution executed a new, 10-year lease of approximately 33,000 square feet at 5 & 15 Wayside Road through 2028; and,
In Atlanta - Rule, Joy, Trammell + Rubio, LLC renewed approximately 23,000 square feet at Galleria 300 through 2030.

The Company's leased percentage was 91.3% as of March 31, 2018, up from 89.7% at December 31, 2017, primarily as a result of the 14-property disposition and the reclassification of one property to redevelopment status during the three months ended March 31, 2018. Cash and GAAP rental rates for leases executed during the quarter increased 9.6% and 22.6%, respectively. Weighted average lease term was approximately 6.7 years as of March 31, 2018. Same Store NOI increased 4.2% on a cash basis compared to the prior year as several large lease abatements expired, and this same metric decreased 0.2% on an accrual basis for the three months ended March 31, 2018 as compared to the first quarter of 2017. Details outlining Piedmont's 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.

Transaction and Financing Activity

As previously announced, during the first quarter, Piedmont sold 14 non-strategic assets for a total gross sales price of approximately $430.4 million, resulting in a gain on sale of approximately $45.2 million million during the first quarter of 2018. These sales proceeds were used primarily to repurchase $232 million, or 12.5 million shares, of Company stock during the quarter and to acquire 501 West Church Street. This property is an approximately 182,000 square foot, value add, five-story office property located in downtown Orlando adjacent to the Amway Center and the proposed downtown Sports Entertainment District as well as Piedmont's existing assets, CNL Center I and II and SunTrust Center and was acquired for approximately $28 million. Also during the quarter the Company used a new $250 million, seven-year, term loan and the Company's line of credit to payoff $470 million of existing debt scheduled to mature in 2018 and 2019. The Company has no other debt maturities until 2020.

Second Quarter 2018 Dividend Declaration

On May 1, 2018, the board of directors of Piedmont declared dividends for the second 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 May 23, 2018, payable on June 15, 2018.

Guidance for 2018

Based on the stock repurchase activity to date and management's current operating expectations, the Company's guidance for full-year 2018 has been raised and the range narrowed as follows:





(in millions, except per share data)
 
Low
 
High
Net Income
 
$93
-
$97
Add:
 


 

         Depreciation
 
108

-
111
         Amortization
 
61

-
63
Less: Gain on Sale of Real Estate Assets
 
(45
)
-
(46)
NAREIT FFO applicable to Common Stock
 
$
217

-
$225
NAREIT FFO per diluted share
 
$1.66
-
$1.72
 
 
 
 
 
Less: Loss on Extinguishment of Debt
 
$2
-
$2
Core FFO applicable to Common Stock
 
$
219

-
$227
Core FFO per diluted share
 
$1.68
-
$1.74

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 March 31, 2018 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 Wednesday, May 2, 2018 at 10:00 A.M. Eastern daylight time. The live audio web cast of the call may be accessed on the Company's website at www.piedmontreit.com in the Investor Relations section. Dial-in numbers are (877) 407-0778 for participants in the United States and Canada and (201) 689-8565 for international participants. A replay of the conference call will be available through 10 A.M. EST on May 16, 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 28325. 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 first quarter 2018 performance, discuss recent events, and conduct a question-and-answer period.

Supplemental Information

Quarterly supplemental information as of and for the period ended March 31, 2018 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 sub-markets 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, socio-economic and/or technology 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; 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; significant price and volume fluctuations in the public markets, including on the exchange which we listed our common stock; 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 Annual Report on Form 10-K for the year ended December 31, 2017.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company cannot guarantee the accuracy of any such forward-looking statements contained in this press release, and the Company does not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Research Analysts/ Institutional Investors Contact:
Eddie Guilbert
770-418-8592
research.analysts@piedmontreit.com

Shareholder Services/Transfer Agent Services Contact:
Computershare, Inc.
866-354-3485
investor.services@piedmontreit.com





Piedmont Office Realty Trust, Inc.
 
 
 
 
Consolidated Balance Sheets
 
 
 
 
 (in thousands)
 
 
 
 
 
 
March 31, 2018
 
December 31, 2017
 
 
(unaudited)
 
 
Assets:
 
 
 
 
Real estate assets, at cost:
 
 
 
 
Land
 
$
547,602

 
$
544,794

Buildings and improvements
 
3,236,330

 
3,203,229

Buildings and improvements, accumulated depreciation
 
(811,760
)
 
(785,206
)
Intangible lease assets
 
158,338

 
176,950

Intangible lease assets, accumulated amortization
 
(83,063
)
 
(99,145
)
Construction in progress
 
15,226

 
11,710

Real estate assets held for sale, gross
 

 
501,526

Real estate assets held for sale, accumulated depreciation and amortization
 

 
(169,116
)
Total real estate assets
 
3,062,673

 
3,384,742

Amounts due from unconsolidated joint ventures
 
10

 
10

Cash and cash equivalents
 
6,729

 
7,382

Tenant receivables, net of allowance for doubtful accounts
 
12,040

 
12,139

Straight line rent receivables
 
167,535

 
163,160

Notes receivable
 
3,200

 

Restricted cash and escrows
 
1,464

 
1,373

Prepaid expenses and other assets
 
25,028

 
22,517

Goodwill
 
98,918

 
98,918

Interest rate swaps
 
725

 
688

Deferred lease costs, less accumulated amortization
 
257,368

 
261,907

Other assets held for sale, net
 

 
47,131

Total assets
 
$
3,635,690

 
$
3,999,967

Liabilities:
 
 
 
 
Unsecured debt, net of discount and unamortized debt issuance costs
 
$
1,498,339

 
$
1,535,311

Secured debt, net of premiums and unamortized debt issuance costs
 
191,305

 
191,616

Accounts payable, accrued expenses, dividends payable, and accrued capital expenditures
 
83,786

 
216,653

Deferred income
 
29,751

 
29,582

Intangible lease liabilities, less accumulated amortization
 
42,699

 
38,458

Interest rate swaps
 
222

 
1,478

Other liabilities held for sale, net
 

 
380

Total liabilities
 
1,846,102

 
2,013,478

Stockholders' equity :
 
 
 
 
Common stock
 
1,300

 
1,424

Additional paid in capital
 
3,680,241

 
3,677,360

Cumulative distributions in excess of earnings
 
(1,904,404
)
 
(1,702,281
)
Other comprehensive income
 
10,639

 
8,164

Piedmont stockholders' equity
 
1,787,776

 
1,984,667

Non-controlling interest
 
1,812

 
1,822

Total stockholders' equity
 
1,789,588

 
1,986,489

Total liabilities and stockholders' equity
 
$
3,635,690

 
$
3,999,967

 
 
 
 
 
Number of shares of common stock outstanding as of end of period
 
130,025

 
142,359








Piedmont Office Realty Trust, Inc.
 
 
 
Consolidated Statements of Income
 
 
 
Unaudited (in thousands, except for per share data)
 
 
 
 
 
 
 
 
Three Months Ended
 
3/31/2018
 
3/31/2017
Revenues:
 
 
 
Rental income
$
101,454

 
$
118,039

Tenant reimbursements
22,994

 
24,837

Property management fee revenue
309

 
525

Other property related income
5,143

 
5,062

Total revenues
129,900

 
148,463

Expenses:
 
 
 
Property operating costs
51,859

 
55,830

Depreciation
27,145

 
30,768

Amortization
16,733

 
20,415

General and administrative
6,552

 
8,150

Total operating expenses
102,289

 
115,163

Real estate operating income
27,611

 
33,300

Other income (expense):
 
 
 
Interest expense
(13,758
)
 
(18,057
)
Other income/(expense)
446

 
(100
)
Equity in income of unconsolidated joint ventures

 
11

Loss on extinguishment of debt
(1,680
)
 

Gain/(loss) on sale of real estate assets
45,209

 
(53
)
Total other income/(expense)
30,217

 
(18,199
)
Net income
57,828

 
15,101

Plus: Net loss applicable to noncontrolling interest
2

 
3

Net income applicable to Piedmont
$
57,830

 
$
15,104

Weighted average common shares outstanding - diluted*
136,183

 
145,833

Per Share Information -- diluted:
 
 
 
Net income applicable to common stockholders
$
0.42

 
$
0.10

*Number of shares of common stock outstanding as of end of period
130,025

 
145,320







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
 
3/31/2018
 
3/31/2017
GAAP net income applicable to common stock
$
57,830

 
$
15,104

Depreciation of real estate assets(1) (2)
26,969

 
30,629

Amortization of lease-related costs(1)
16,716

 
20,406

(Gain)/loss on sale of real estate assets (1)
(45,209
)
 
53

NAREIT Funds From Operations applicable to common stock*
56,306

 
66,192

Acquisition costs

 
6

Loss on extinguishment of debt
1,680

 

Core Funds From Operations applicable to common stock*
57,986

 
66,198

Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on Unsecured Senior Notes
466

 
630

Depreciation of non real estate assets
169

 
195

Straight-line effects of lease revenue (1)
(3,473
)
 
(5,703
)
Stock-based and other non-cash compensation
288

 
2,041

Net effect of amortization of below-market in-place lease intangibles (1)
(1,643
)
 
(1,559
)
Acquisition costs

 
(6
)
Non-incremental capital expenditures (3)
(7,953
)
 
(7,672
)
Adjusted funds from operations applicable to common stock*
$
45,840

 
$
54,124

Weighted average common shares outstanding - diluted**
136,183

 
145,833

Funds from operations per share (diluted)
$
0.41

 
$
0.45

Core funds from operations per share (diluted)
$
0.43

 
$
0.45

 
 
 
 
**Number of shares of common stock outstanding as of end of period
130,025

 
145,320


(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 (that are not capitalized) 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 (that are not capitalized) 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
 
3/31/2018
 
3/31/2017
 
3/31/2018
 
3/31/2017
 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
$
57,830

 
$
15,104

 
$
57,830

 
$
15,104

Net loss applicable to noncontrolling interest
(2
)
 
(3
)
 
(2
)
 
(3
)
Interest expense
13,758

 
18,057

 
13,758

 
18,057

Depreciation (1)
27,139

 
30,824

 
27,139

 
30,824

Amortization (1)
16,716

 
20,406

 
16,716

 
20,406

(Gain)/loss on sale of real estate assets (1)
(45,209
)
 
53

 
(45,209
)
 
53

EBITDAre
70,232

 
84,441

 
70,232

 
84,441

Loss on extinguishment of debt
1,680

 

 
1,680

 

Acquisition costs

 
6

 

 
6

Net loss from casualty events

 
58

 

 
58

Core EBITDA*
71,912

 
84,505

 
71,912

 
84,505

General & administrative expenses (1)
6,552

 
8,155

 
6,552

 
8,155

Management fee revenue
(150
)
 
(329
)
 
(150
)
 
(329
)
Other (income)/expense (1)
(230
)
 
36

 
(230
)
 
36

Straight line effects of lease revenue (1)
(3,473
)
 
(5,703
)
 
 
 
 
Amortization of lease-related intangibles (1)
(1,643
)
 
(1,559
)
 
 
 
 
Property NOI*
72,968

 
85,105

 
78,084

 
92,367

   Net operating income from:
 
 
 
 
 
 
 
Acquisitions
(666
)
 

 
(862
)
 

Dispositions
(182
)
 
(15,590
)
 
(173
)
 
(14,387
)
Other investments(2)
(1,517
)
 
(1,767
)
 
(1,438
)
 
(2,223
)
Same Store NOI *
$
70,603

 
$
67,748

 
$
75,611

 
$
75,757

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

 
(0.2
)%
 
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 500 TownPark in Lake Mary, Florida, and Two Pierce Place in Itasca, IL 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=12221280&doc=11



Quarterly Supplemental Information
March 31, 2018










Corporate Headquarters
Institutional Analyst Contact
Investor Relations
5565 Glenridge Connector, Suite 450
Telephone: 770.418.8592
Telephone: 866.354.3485
Atlanta, GA 30342
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 47 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.

In certain presentations herein, the Company has provided disaggregated financial and operational data (for example, some pieces of information are displayed by geography, industry, or lease expiration year) for informational purposes for readers; however, regardless of the various presentation approaches taken herein, we continue to evaluate and utilize our consolidated financial results in making operating decisions, allocating resources, and assessing our performance.




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.

 
 
 
 
 
As of
 
As of
 
March 31, 2018
 
December 31, 2017
Number of consolidated office properties (1)
53
 
67
Rentable square footage (in thousands) (1)
16,172
 
19,061
Percent leased (2)
91.3
%
 
89.7
%
Capitalization (in thousands):
 
 
 
Total debt - principal amount outstanding (excludes premiums, discounts, and deferred financing costs)
$1,697,434
 
$1,733,670
Equity market capitalization (3)
$2,287,138
 
$2,791,659
Total market capitalization (3)
$3,984,572
 
$4,525,329
Total debt / Total market capitalization (3)
42.6
%
 
38.3
%
Average net debt to Core EBITDA
5.4 x

 
5.6 x

Total debt / Total gross assets
37.5
%
 
34.3
%
Common stock data:
 
 
 
High closing price during quarter
$19.86
 
$20.40
Low closing price during quarter
$16.78
 
$19.21
Closing price of common stock at period end
$17.59
 
$19.61
Weighted average fully diluted shares outstanding during quarter (in thousands)
136,183
 
144,503
Shares of common stock issued and outstanding at period end (in thousands)
130,025
 
142,359
Annual regular dividend per share (4)
$0.84
 
$0.84
Annual special dividend per share
NA

 
$0.50
Rating / Outlook
 
 
 
Standard & Poor's
BBB / Stable

 
BBB / Stable

Moody's
Baa2 / Stable

 
Baa2 / Stable

Employees
131
 
136





(1)
As of March 31, 2018, our consolidated office portfolio consisted of 53 properties (exclusive of one property that was taken out of service for redevelopment on January 1, 2018, Two Pierce Place in Itasca, IL), whereas it consisted of 67 properties at December 31, 2017. During the first quarter of 2018, the Company sold a 14-property portfolio consisting of 2.6 million square feet (additional details about which can be found on page 37), and we acquired 501 West Church Street, a 182,000 square foot office building located in Orlando, FL.
(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, as of January 1, 2018, excludes one out of service property. Please refer to page 27 for additional analyses regarding Piedmont's leased percentage.
(3)
Reflects common stock closing price, shares outstanding and outstanding debt as of the end of the reporting period, as appropriate.
(4)
Total of the per share regular dividends declared over the prior four quarters.

3



Piedmont Office Realty Trust, Inc.
Investor Information

Corporate
5565 Glenridge Connector, Suite 450
Atlanta, Georgia 30342
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 March 31, 2018


Financial Results (1) 

Net income attributable to Piedmont for the quarter ended March 31, 2018 was $57.8 million, or $0.42 per share (diluted), compared to $15.1 million, or $0.10 per share (diluted), for the same quarter in 2017. The increase in net income attributable to Piedmont during the three months ended March 31, 2018 when compared to the same period in 2017 was primarily related to gains on sale recognized at the closing of a 14-property portfolio sale on January 4, 2018.

Funds from operations (FFO) for the quarter ended March 31, 2018 was $56.3 million, or $0.41 per share (diluted), compared to $66.2 million, or $0.45 per share (diluted), for the same quarter in 2017. The decrease in FFO for the three months ended March 31, 2018 when compared to the same period in 2017 was primarily attributable to net disposition activity completed over the past twelve months amounting to approximately $760 million, including the sales of Two Independence Square in Washington, D.C., in July 2017 and a 14-property portfolio in January 2018.

Core funds from operations (Core FFO) for the quarter ended March 31, 2018 was $58.0 million, or $0.43 per share (diluted), compared to $66.2 million, or $0.45 per share (diluted), for the same quarter in 2017. The decrease in Core FFO for the three months ended March 31, 2018 when compared to the same period in 2017 was primarily attributable to the net disposition activity described above for changes in FFO.

Adjusted funds from operations (AFFO) for the quarter ended March 31, 2018 was $45.8 million, compared to $54.1 million for the same quarter in 2017. The decrease in AFFO for the three months ended March 31, 2018 when compared to the same period in 2017 was primarily due to the net disposition activity described above for changes in FFO and Core FFO.

Operations and Leasing

Within its portfolio, Piedmont has 53 office properties located primarily in eight major office markets in the eastern portion of the United States and one re-development property. The Company's redevelopment property is Two Pierce Place, a 486,000 square foot office property located in the Chicago market. Due to its redevelopment status, this property is excluded from Piedmont's in-service operating portfolio for the purposes of statistical reporting throughout this supplemental report. For additional information regarding this redevelopment project, please refer to page 38 of this report.

On a square footage leased basis, our total in-service office portfolio was 91.3% leased as of March 31, 2018, as compared to 89.7% in the prior quarter and 91.5% a year earlier. Please refer to page 27 for additional leased percentage information. The increase in overall leased percentage is primarily attributable to the change in office property population due to the sale of a 14-property portfolio on January 4, 2018.

The weighted average remaining lease term of our in-service portfolio was 6.7 years(2) as of March 31, 2018 as compared to 6.5 years at December 31, 2017.









(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)
Remaining lease term (after taking into account leases for vacant spaces which had been executed but not commenced as of March 31, 2018) is weighted based on Annualized Lease Revenue, as defined on page 39.

5




During the three months ended March 31, 2018, the Company completed 341,191 square feet of total leasing. Of the total leasing activity completed during the quarter, we signed new tenant leases for 148,995 square feet and renewal leases for 192,196 square feet. The average committed capital cost per square foot per year of lease term for all leasing activity completed during the period (net of commitment expirations during the period) was $2.84 (see page 33).

During the three months ended March 31, 2018, we executed nine 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
Holland & Knight, LLP
SunTrust Center
Orlando, FL
50,655
2024
Renewal
Amneal Pharmaceuticals, LLC
400 Bridgewater Crossing
Bridgewater, NJ
40,110
2024
Expansion
Smithsonian Institution
5 & 15 Wayside Road
Burlington, MA
33,165
2028
New
Robinhood Markets, Inc.
500 TownPark
Lake Mary, FL
27,999
2026
Renewal / Expansion
Rule Joy Trammell + Rubio, LLC
Galleria 300
Atlanta, GA
22,806
2030
Renewal
Cumberland Group, LLC
Galleria 300
Atlanta, GA
18,502
2026
Renewal / Expansion
Wiss, Janney, Elstner Associates, Inc.
Las Colinas Corporate Center II
Irving, TX
13,250
2024
Renewal / Expansion
Marcum, LLP
500 West Monroe Street
Chicago, IL
11,967
2023
New
CK Galleria Associates, LLC
Galleria 300
Atlanta, GA
11,962
2023
Renewal

At the end of the first quarter of 2018, there were two tenants whose leases individually contributed greater than 1% in Annualized Lease Revenue expiring during the eighteen month period following March 31, 2018. 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
Technip
1430 Enclave Parkway
Houston, TX
149,983
1.1%
Q4 2018
The space is actively being marketed for lease. Approximately 40% of Technip's space is currently occupied (under a sublease) by the same tenant leasing the remaining approximately 163,000 square feet in the building. The Company is in discussions with that tenant to take the sublease space on a long-term basis.
State of New York
60 Broad Street
New York, NY
480,708
5.1%
Q1 2019
The Company is in discussions with the tenant regarding a potential renewal of the lease.

Future Lease Commencements and Abatements

As of March 31, 2018, our overall leased percentage was 91.3% and our economic leased percentage was 85.9%. 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 322,808 square feet of leases as of March 31, 2018, or 2.0% of the office portfolio); and
2)
leases which have commenced but are within rental abatement periods (amounting to 733,767 square feet of leases as of March 31, 2018, or a 3.4% impact to leased percentage on an economic basis).

As anticipated and previously communicated, this gap continued to narrow after the end of the fourth quarter of 2017, primarily attributable to the burn off of several large abatements after December 31, 2017 and the removal of components related to the 14-property disposition. The gap between reported leased percentage and economic leased percentage has narrowed from a high of almost 13% in 2014 to its current level and is expected to generally remain around 5% in the future. This gap, however, will 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 7 for more detail on existing large leases with abatements), and/or (3) properties are bought and sold.

6



Piedmont has leases with many large corporate office space users. The average size of lease in the Company's portfolio is approximately 20,000 square feet. Due to the large size and length of term of new leases, Piedmont typically signs leases several months in advance of their anticipated lease commencement dates. Presented below is a schedule of uncommenced leases greater than 50,000 square feet and their anticipated commencement dates. Lease renewals are excluded from this schedule.
Tenant
Property
Property Location
Square Feet
Leased
Space Status
Estimated
Commencement
Date
New /
Expansion
United States of America
(Social Security Administration Commissioner)
One Independence Square
Washington, DC
52,720
Vacant
Q3 2018 (1)
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 (98,134 SF)(3) 
Q3 2019 (27,198 SF)
Q3 2020 (26,754 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

New leases frequently provide rental abatement concessions to tenants and these abatements typically occur at the beginning of the leases. The Company's currently reported cash net operating income and AFFO are negatively impacted by 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 first quarter of 2018, 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
Lease Commencement Date
Abatement Schedule
Lease Expiration
Applied Predictive Technologies, Inc.
4250 North Fairfax Drive
Arlington, VA
87,786
Q2 2017
June 2017 through February 2018

Q2 2028
Mitsubishi Hitachi Power Systems
400 TownPark
Lake Mary, FL
75,321
Q1 2015
February and March 2018
Q1 2026

Current / Future Abatements
Tenant
Property
Property Location
Abated Square Feet
Lease Commencement Date
Remaining Abatement Schedule
Lease Expiration
RaceTrac Petroleum, Inc.
Galleria 200
Atlanta, GA
133,707
Q4 2016
July 2017 through May 2018
Q3 2032
Applied Predictive Technologies, Inc.
4250 North Fairfax Drive
Arlington, VA
102,324
Q2 2017
March through May 2018
Q2 2028
US Bancorp
US Bancorp Center
Minneapolis, MN
51,280
Q2 2018
April through June 2018
Q2 2024
International Food Policy Research Institute
1201 Eye Street
Washington, DC
101,937
Q2 2017
May 2018 through April 2019
Q2 2029
United States of America
(Social Security Administration Commissioner)
One Independence Square
Washington, DC
52,720
Q3 2018 (1)
July 2018 through June 2019
Q2 2028
Gartner, Inc.
6011 Connection Drive
Irving, TX
98,134
Q3 2018
September 2018 through June 2019
Q2 2034
Norris, McLaughlin & Marcus
400 Bridgewater Crossing
Bridgewater, NJ
61,642
Q4 2016
October through December 2018; November and December 2019
Q4 2029
Holland & Knight, LLP
SunTrust Center
Orlando, FL
50,655
Q4 2018 (4)
December 2018 through February 2019
Q1 2024
(1)
The estimated lease commencement date is July 1, 2018.
(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 98,134 square feet will receive ten months of rental abatements (during the first quarter of 2018, Gartner increased the amount of space to be taken during the first lease phase from 71,439 square feet to 98,134 square feet, thereby accelerating the phased commencement of and the revenue stream from the lease). The other two phases will not receive rental abatements.
(4)
Represents the commencement date of the renewal term.

7



Financing and Capital Activity

Among Piedmont's stated strategic objectives is to harvest 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 and/or strategic merits in one of our identified operating markets where we 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 it is believed to be trading at a significant discount to NAV.
Information on the Company's recent accomplishments in furtherance of its strategic objectives is presented below.

Dispositions
On January 4, 2018, Piedmont completed the sale of a 2.6 million square foot, 76% leased, 14-asset portfolio comprised of non-strategic assets, as well as assets in which the Company believed value potential had been realized, to two buyers for a total amount of $430.4 million (inclusive of a $4.5 million earnout payment received in April 2018), or $166 per square foot. 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. The majority of the sale proceeds were used to:
Acquire Norman Pointe I in Bloomington, MN, a high-quality, value-add asset within one of our core markets and in close proximity to other Piedmont properties at a significant discount to replacement cost;
Acquire 501 West Church Street in Orlando, FL, a value-add asset with significant upside potential in the CBD submarket;
Repurchase approximately $230 million of Piedmont stock at what the Company estimates to be a substantial discount to net asset value; and
Pay a $0.50 per share special dividend.

The assets included in the disposition transaction 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

Acquisitions
On February 23, 2018, Piedmont completed the purchase of 501 West Church Street, a 182,000 square foot, 100% leased, five-story, Class A office building with a connected parking structure located in Orlando, FL, for $28.0 million, or $153 per square foot. The property is situated between two major event venues, Amway Center (home to the Orlando Magic) and Orlando City Stadium (home to the Orlando City Soccer Club), one block west of Interstate 4, in Orlando's Central Business District, in close proximity to the Creative Village, a nearly 70-acre transit-oriented, mixed-use development anchored by the University of Central Florida's downtown innovation campus, and the remainder of the Piedmont downtown Orlando office property portfolio. The asset is of 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. While the building is currently leased through early 2024, there is significant upside potential through the resetting of the in-place, below market rental rates and the capturing of event parking revenue. The acquisition was completed at a significant discount to replacement cost of approximately 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.


8



Development / Redevelopment
The Company had no developments underway as of March 31, 2018. During the first quarter of 2018, the Company continued a nearly $14 million redevelopment at Two Pierce Place in Itasca, IL. The project includes a renovation of the property's lobby and exterior plaza, an elevator modernization, the enhancement and addition of building amenities, and the acquisition and improving of additional land to increase the building's parking ratio. Additional detail on the Company's developable land parcels, all of which are located adjacent to existing Piedmont properties, as well as information on the current redevelopment project, can be found on page 38.

Finance
As of March 31, 2018, our ratio of debt to total gross assets was 37.5%. This debt ratio is based on total principal amount outstanding for our various loans at March 31, 2018.
As of March 31, 2018, our average net debt to Core EBITDA ratio was 5.4 x, and the same measure at December 31, 2017 was 5.6 x.
On March 29, 2018, Piedmont entered into a $250 million, seven-year unsecured term loan that will mature on March 31, 2025. The main objectives of the financing were to reduce exposure to near-term debt maturities and ladder out the Company's debt maturity schedule. Using proceeds from dispositions and the new term loan financing, along with a draw on the Company's revolving line of credit, two debt facilities totaling $470 million with near-term maturities were paid off, allowing the Company to extend its debt maturity profile. The debt facilities that were repaid were:
a $170 million, floating-rate unsecured term loan maturing in May 2018; and
a $300 million, fixed-rate (through interest rate swaps) unsecured term loan maturing in January 2019.
With the repayment of these two loans, Piedmont has no maturing debt until 2020. There were no prepayment costs associated with the repayment of the loans and the Company received approximately $800,000 in net cash proceeds from the termination of several related interest rate swap agreements.

The new term loan has a stated variable interest rate; however, in an effort to reduce the Company's exposure to floating interest rates, the Company entered into:
a total of $100 million of interest rate swap agreements with terms of seven years at an all-in fixed rate of 4.21% (inclusive of the credit spread); and
a $50 million interest rate swap agreement for a term of two years at an all-in fixed rate of 3.93% (inclusive of the credit spread).
The loan is not subject to prepayment penalties after the first two years of term. The length of term of the two-year interest rate swap agreement was selected to align with the burn off of the prepayment penalties, providing the Company with additional debt prepayment flexibility at that point in time. For principal amounts not subject to the interest rate swap agreements, Piedmont may select from multiple interest rate options under the facility, including the prime rate and various length LIBOR locks. The selected interest rate is subject to an additional spread based on Piedmont's then current credit rating. As of March 31, 2018, the interest rate for LIBOR based loans was LIBOR + 160 basis points.

Stock Repurchase Program
The Board of Directors of Piedmont renewed the Company's stock repurchase program on February 21, 2018 by authorizing up to $200 million of additional share repurchases over the next two years. 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.

During the first quarter of 2018, the Company repurchased approximately 12.5 million shares of common stock under its share repurchase program at an average price of $18.56 per share, or approximately $231.7 million (before the consideration of transaction costs). Since the stock repurchase program began in December 2011, the Company has repurchased approximately 43.9 million shares at an average price of $17.74 per share, or approximately $779.8 million in aggregate (before the consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases totaled approximately $156.4 million under the stock repurchase plan.

Dividend
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 was paid on March 16, 2018. The Company's dividend payout percentage (for dividends declared) for the three months ended March 31, 2018 was 49% of Core FFO and 62% of AFFO.


9



Subsequent Events

On May 1, 2018, the Board of Directors of Piedmont declared a dividend for the second quarter of 2018 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on May 23, 2018. The dividend is expected to be paid on June 15, 2018.

Guidance for 2018

The following financial guidance for calendar year 2018 has been raised and narrowed primarily due to stock repurchase activity and is based upon management's expectations at this time.
 
Low
 
High
 
 
 
 
Net Income
$93 million
to
$97 million
Add:
 
 
 
         Depreciation
108 million
to
111 million
         Amortization
61 million
to
63 million
Less:
 
 
 
         Gain on Sale of Real Estate Assets
(45) million
to
(46) million
NAREIT Funds from Operations applicable to Common Stock
$217 million
 
$225 million
NAREIT Funds from Operations per diluted share
$1.66
to
$1.72
 
 
 
 
Less:
 
 
 
         Loss on Extinguishment of Debt
$2 million
to
$2 million
Core Funds From Operations
$219 million
to
$227 million
Core Funds from Operations per diluted share
$1.68
to
$1.74

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)

 
March 31, 2018

December 31, 2017

September 30, 2017

June 30, 2017

March 31, 2017
Assets:

 
 
 
 
 
 
 
 
Real estate, at cost:

 
 
 
 
 
 
 
 
Land assets
$
547,602

 
$
544,794

 
$
540,436

 
$
540,436

 
$
542,640

Buildings and improvements
3,236,330

 
3,203,229

 
3,178,184

 
3,168,725

 
3,178,655

Buildings and improvements, accumulated depreciation
(811,760
)
 
(785,206
)
 
(758,800
)
 
(733,568
)
 
(722,397
)
Intangible lease asset
158,338

 
176,950

 
171,965

 
179,540

 
205,061

Intangible lease asset, accumulated amortization
(83,063
)
 
(99,145
)
 
(93,265
)
 
(94,551
)
 
(113,129
)
Construction in progress
15,226

 
11,710

 
7,560

 
14,671

 
18,664

Real estate assets held for sale, gross

 
501,526

 
546,979

 
860,302

 
858,320

Real estate assets held for sale, accumulated depreciation & amortization

 
(169,116
)
 
(167,305
)
 
(252,583
)
 
(248,651
)
Total real estate assets
3,062,673

 
3,384,742

 
3,425,754

 
3,682,972

 
3,719,163

Investments in and amounts due from unconsolidated joint ventures
10

 
10

 
49

 
7,762

 
7,654

Cash and cash equivalents
6,729

 
7,382

 
36,108

 
9,596

 
6,808

Tenant receivables, net of allowance for doubtful accounts
12,040

 
12,139

 
12,802

 
24,269

 
25,194

Straight line rent receivable
167,535

 
163,160

 
157,289

 
152,084

 
144,513

Notes receivable
3,200

 

 

 

 

Escrow deposits and restricted cash
1,464

 
1,373

 
1,260

 
1,290

 
1,253

Prepaid expenses and other assets
25,028

 
22,517

 
27,893

 
29,866

 
21,214

Goodwill
98,918

 
98,918

 
98,918

 
98,918

 
98,918

Interest rate swap
725

 
688

 
34

 

 

Deferred lease costs, less accumulated amortization
257,368

 
261,907

 
253,608

 
257,677

 
268,328

Other assets held for sale

 
47,131

 
46,935

 
55,878

 
57,695

Total assets
$
3,635,690

 
$
3,999,967

 
$
4,060,650

 
$
4,320,312

 
$
4,350,740

Liabilities:
 
 
 
 
 
 
 
 
 
Unsecured debt, net of discount
$
1,498,339

 
$
1,535,311

 
$
1,511,663

 
$
1,720,986

 
$
1,733,343

Secured debt
191,305

 
191,616

 
191,923

 
332,196

 
332,471

Accounts payable, accrued expenses, and accrued capital expenditures
83,786

 
216,653

 
108,120

 
111,011

 
116,077

Deferred income
29,751

 
29,582

 
29,970

 
27,416

 
30,683

Intangible lease liabilities, less accumulated amortization
42,699

 
38,458

 
40,662

 
42,905

 
45,148

Interest rate swaps
222

 
1,478

 
3,915

 
5,061

 
5,475

Other liabilities held for sale

 
380

 
402

 
423

 
446

Total liabilities
$
1,846,102

 
$
2,013,478

 
$
1,886,655

 
$
2,239,998

 
$
2,263,643

Stockholders' equity:
 
 
 
 
 
 
 
 
 
Common stock
1,300

 
1,424

 
1,453

 
1,455

 
1,453

Additional paid in capital
3,680,241

 
3,677,360

 
3,676,706

 
3,675,562

 
3,675,575

Cumulative distributions in excess of earnings
(1,904,404
)
 
(1,702,281
)
 
(1,511,428
)
 
(1,603,119
)
 
(1,596,276
)
Other comprehensive loss
10,639

 
8,164

 
5,400

 
4,547

 
4,466

Piedmont stockholders' equity
1,787,776

 
1,984,667

 
2,172,131

 
2,078,445

 
2,085,218

Non-controlling interest
1,812

 
1,822

 
1,864

 
1,869

 
1,879

Total stockholders' equity
1,789,588

 
1,986,489

 
2,173,995

 
2,080,314

 
2,087,097

Total liabilities, redeemable common stock and stockholders' equity
$
3,635,690

 
$
3,999,967

 
$
4,060,650

 
$
4,320,312

 
$
4,350,740

Common stock outstanding at end of period
130,025

 
142,359

 
145,295

 
145,490

 
145,320



11



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

 
 
Three Months Ended
 
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
Revenues:
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
101,454

 
$
109,726

 
$
108,868

 
$
118,492

 
$
118,039

Tenant reimbursements
 
22,994

 
24,764

 
24,253

 
24,285

 
24,837

Property management fee revenue
 
309

 
356

 
454

 
400

 
525

Other property related income
 
5,143

 
4,598

 
4,012

 
5,502

 
5,062

 
 
129,900

 
139,444

 
137,587

 
148,679

 
148,463

Expenses:
 
 
 
 
 
 
 
 
 
 
Property operating costs
 
51,859

 
55,806

 
54,518

 
56,287

 
55,830

Depreciation
 
27,145

 
28,461

 
30,000

 
30,059

 
30,768

Amortization
 
16,733

 
17,515

 
18,123

 
19,314

 
20,415

Impairment loss on real estate assets (1)
 

 
46,461

 

 

 

General and administrative
 
6,552

 
7,451

 
6,190

 
7,528

 
8,150

 
 
102,289

 
155,694

 
108,831

 
113,188

 
115,163

Real estate operating income
 
27,611

 
(16,250
)
 
28,756

 
35,491

 
33,300

Other income / (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(13,758
)
 
(15,463
)
 
(16,183
)
 
(18,421
)
 
(18,057
)
Other income / (expense)
 
446

 
429

 
290

 
38

 
(100
)
Equity in income / (loss) of unconsolidated joint ventures
 

 
(27
)
 
3,754

 
107

 
11

Gain / (loss) on extinguishment of debt
 
(1,680
)
 

 

 

 

 
 
(14,992
)
 
(15,061
)
 
(12,139
)
 
(18,276
)
 
(18,146
)
Income from continuing operations
 
12,619

 
(31,311
)
 
16,617

 
17,215

 
15,154

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)
 
45,209

 
(77
)
 
109,512

 
6,492

 
(53
)
Net income
 
57,828

 
(31,388
)
 
126,129

 
23,707

 
15,101

Less: Net (income) / loss attributable to noncontrolling interest
 
2

 
5

 
4

 
3

 
3

Net income attributable to Piedmont
 
$
57,830

 
$
(31,383
)
 
$
126,133

 
$
23,710

 
$
15,104

Weighted average common shares outstanding - diluted
 
136,183

 
144,503

 
145,719

 
145,813

 
145,833

Net income per share available to common stockholders - diluted
 
$
0.42

 
$
(0.21
)
 
$
0.87

 
$
0.16

 
$
0.10

Common stock outstanding at end of period
 
130,025

 
142,359

 
145,295

 
145,490

 
145,320

(1)
The impairment loss on real estate assets recorded in the fourth quarter of 2017 was related to certain properties within the 14-property portfolio disposition that closed at the beginning of 2018. 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 not recorded until the sale transaction closes. Therefore, during the fourth quarter of 2017, Piedmont recorded impairment losses associated with the 14-property portfolio disposition totaling $46.5 million; however, it recorded a nearly equal amount of gains relating to other properties within the same transaction totaling $45.2 million during the first quarter of 2018.
(2)
The gain on sale of real estate reflected in the first quarter of 2018 was related to certain assets within the 14-property portfolio sale on which the company recorded a total of $45.2 million in gains. 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 the Company 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 the Company recorded a $6.5 million gain.

12



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

 
Three Months Ended
 
3/31/2018
3/31/2017
 
Change ($)
Change (%)
Revenues:
 
 
 
 
 
Rental income
$
101,454

$
118,039

 
$
(16,585
)
(14.1
)%
Tenant reimbursements
22,994

24,837

 
(1,843
)
(7.4
)%
Property management fee revenue
309

525

 
(216
)
(41.1
)%
Other property related income
5,143

5,062

 
81

1.6
 %
 
129,900

148,463

 
(18,563
)
(12.5
)%
Expenses:
 
 
 
 
 
Property operating costs
51,859

55,830

 
3,971

7.1
 %
Depreciation
27,145

30,768

 
3,623

11.8
 %
Amortization
16,733

20,415

 
3,682

18.0
 %
Impairment loss on real estate assets


 



General and administrative
6,552

8,150

 
1,598

19.6
 %
 
102,289

115,163

 
12,874

11.2
 %
Real estate operating income
27,611

33,300

 
(5,689
)
(17.1
)%
Other income / (expense):
 
 
 
 
 
Interest expense
(13,758
)
(18,057
)
 
4,299

23.8
 %
Other income / (expense)
446

(100
)
 
546

546.0
 %
Equity in income / (loss) of unconsolidated joint ventures

11

 
(11
)
(100.0
)%
Gain / (loss) on extinguishment of debt
(1,680
)

 
(1,680
)
(100.0
)%
 
(14,992
)
(18,146
)
 
3,154

17.4
 %
Income from continuing operations
12,619

15,154

 
(2,535
)
(16.7
)%
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 (1)
45,209

(53
)
 
45,262

85,400.0
 %
Net income
57,828

15,101

 
42,727

282.9
 %
Less: Net (income) / loss attributable to noncontrolling interest
2

3

 
(1
)
(33.3
)%
Net income attributable to Piedmont
$
57,830

$
15,104

 
$
42,726

282.9
 %
Weighted average common shares outstanding - diluted
136,183

145,833

 
 
 
Net income per share available to common stockholders - diluted
$
0.42

$
0.10

 
 
 
Common stock outstanding at end of period
130,025

145,320

 
 
 
(1)
The gain on sale of real estate for the three months ended March 31, 2018 was primarily related to certain assets within the 14-property portfolio sale on which the company recorded a total of $45.2 million in gains.

13



Piedmont Office Realty Trust, Inc.
Key Performance Indicators
Unaudited (in thousands except for per share data)

This section of our supplemental report includes non-GAAP financial measures, including, but not limited to, Earnings Before Interest, Taxes, Depreciation, and Amortization for real estate (EBITDAre), Core Earnings Before Interest, Taxes, Depreciation, and Amortization (Core EBITDA), Funds from Operations (FFO), Core Funds from Operations (Core FFO), and Adjusted Funds from Operations (AFFO). Definitions of these non-GAAP measures are provided on page 39 and reconciliations are provided beginning on page 41.
 
Three Months Ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selected Operating Data
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
 
 
 
 
 
 
 
 
 
 
Percent leased (1)
91.3
%
 
89.7
%
 
89.2
%
 
91.0
%
 
91.5
%
 
Percent leased - economic (1) (2)
85.9
%
 
82.1
%
 
83.4
%
 
84.4
%
 
84.1
%
 
Rental income
$101,454
 
$109,726
 
$108,868
 
$118,492
 
$118,039
 
Total revenues
$129,900
 
$139,444
 
$137,587
 
$148,679
 
$148,463
 
Total operating expenses
$102,289
 
$155,694
 
$108,831
 
$113,188
 
$115,163
 
Core EBITDA
$71,912

$76,509

$77,242

$85,041

$84,505
 
Core FFO applicable to common stock
$57,986

$60,896

$60,819

$66,465

$66,198
 
Core FFO per share - diluted
$0.43

$0.42

$0.42

$0.46

$0.45
 
AFFO applicable to common stock
$45,840

$42,948

$52,370

$50,870

$54,124
 
Gross regular dividends (3)
$28,284
 
$30,276
 
$30,549
 
$30,553
 
$30,517
 
Regular dividends per share
$0.21
 
$0.21
 
$0.21
 
$0.21
 
$0.21
 
Gross special dividends (3) (4)
$0
 
$71,367
 
$0
 
$0
 
$0
 
Special dividends per share
NA

 
$0.50
 
NA

 
NA

 
NA

 
Selected Balance Sheet Data
 
 
 
 
 
 
 
 
 
 
Total real estate assets
$3,062,673

$3,384,742

$3,425,754

$3,682,972

$3,719,163
 
Total assets
$3,635,690

$3,999,967

$4,060,650

$4,320,312

$4,350,740
 
Total liabilities
$1,846,102

$2,013,478

$1,886,655

$2,239,998

$2,263,643
 
Ratios & Information for Debt Holders
 
 
 
 
 
 
 
 
 
 
Core EBITDA margin (5)
55.4
%
 
54.9
%
 
56.1
%
 
57.2
%
 
56.9
%
 
Fixed charge coverage ratio (6)
5.1 x

 
4.9 x

 
4.7 x

 
4.6 x

 
4.6 x

 
Average net debt to Core EBITDA (7)
5.4 x

 
5.6 x

 
5.6 x

 
6.0 x

 
6.1 x

 
Total gross real estate assets
$3,957,496
 
$4,438,209
 
$4,445,124
 
$4,763,674
 
$4,803,340
 
Net debt (8)
$1,689,241
 
$1,724,915
 
$1,673,535
 
$2,050,246
 
$2,066,298
 
(1)
Please refer to page 27 for additional leased percentage information.
(2)
Economic leased percentage excludes the square footage associated with executed but not commenced leases for currently vacant spaces and the square footage associated with tenants receiving rental abatements (after proportional adjustments for tenants receiving only partial rental abatements). Due to variations in rental abatement structures whereby some abatements are provided for the first few months of each lease year as opposed to being provided entirely at the beginning of the lease, there will be variability to the economic leased percentage over time as abatements commence and expire. Please see the Future Lease Commencements and Abatements section of Financial Highlights for details on near-term abatements for large leases.
(3)
Dividends are reflected in the quarter in which they were declared.
(4)
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 as a result of taxable gains realized on property sales occurring during 2017.
(5)
Core EBITDA margin is calculated as Core EBITDA divided by total revenues (including revenues associated with discontinued operations).
(6)
The fixed charge coverage ratio is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. The Company had no preferred dividends during any of the periods presented; the Company had capitalized interest of $106,873 for the quarter ended March 31, 2018, $37,908 for the quarter ended December 31, 2017, $37,259 for the quarter ended September 30, 2017, $35,376 for the quarter ended June 30, 2017, and $78,939 for the quarter ended March 31, 2017; the Company had principal amortization of $236,041 for the quarter ended March 31, 2018, $232,796 for the quarter ended December 31, 2017, $229,596 for the quarter ended September 30, 2017, $226,439 for the quarter ended June 30, 2017, and $223,326 for the quarter ended March 31, 2017.
(7)
For the purposes of this calculation, we annualize the period's Core EBITDA and use the average daily balance of debt outstanding during the period, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the period.
(8)
Net debt is calculated as the total principal amount of debt outstanding minus cash and cash equivalents and escrow deposits and restricted cash as of the end of the period. The decrease in net debt during the third quarter of 2017 was primarily attributable to the use of the proceeds from the sale of Two Independence Square in Washington, DC, to repay debt.