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):  August 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.)

5565 Glenridge Connector
Suite 450
Atlanta, Georgia 30342
(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 August 1, 2018, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the second quarter 2018, and published supplemental information for the second 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:
August 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=12383772&doc=12

Piedmont Office Realty Trust Reports Second Quarter 2018 Results
ATLANTA, August 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 June 30, 2018.

Highlights for the Three Months Ended June 30, 2018:

Reported Net Income Applicable to Common Stockholders of $0.09 per diluted share for the quarter;
Achieved Core Funds From Operations ("Core FFO") of $0.41 per diluted share for the quarter;
Completed almost 425,000 square feet of leasing during the quarter; and
Repurchased 1.9 million shares of the Company's common stock at an average price of $17.67 per share under the Company's board-approved stock repurchase program.

Commenting on the Company's second quarter 2018 results, Donald A. Miller, CFA, President and Chief Executive Officer, said, "Second quarter financial results were in line with our expectations, and increased clarity for the remainder of the year allows us to marginally increase both FFO and cash-basis Same Store NOI guidance for 2018. We are encouraged by the increase in prospective leasing activity that we have seen across all of our strategic markets in recent months, activity which hopefully bodes well for the lease up of currently available vacant space during the last half of 2018." Continuing further, Miller said "Additionally, we were able to continue to take advantage of the displacement in the equity markets early in the second quarter by acquiring almost two million shares of Company stock at what we believe is a significant discount to net asset value. While we did not close on any capital transactions during the quarter, we are working on several previously disclosed disposition opportunities that we hope to consummate in the coming quarters."

Results for the Quarter ended June 30, 2018

Piedmont recognized net income applicable to common stockholders for the three months ended June 30, 2018 of $10.9 million, or $0.09 per diluted share, as compared with net income of $23.7 million, or $0.16 per diluted share, for the three months ended June 30, 2017. The three months ended June 30, 2017 included an approximately $6.5 million, or $0.04 per diluted share, gain on sale of real estate assets compared to de minimis gain/loss activity in the second quarter of the current year. The remaining decrease between quarters is primarily attributable to the sale of sixteen wholly-owned assets and one unconsolidated joint venture since June of 2017.

Funds From Operations ("FFO") and Core FFO, which remove the impact of the gain/loss on sales of real estate assets mentioned above (as well as depreciation and amortization), were both $0.41 per diluted





share for the three months ended June 30, 2018, as compared with $0.46 for the three months ended June 30, 2017, with the decrease being attributable to the property sales mentioned above.

Revenues and property operating costs were $129.2 million and $52.6 million, respectively, for the three months ended June 30, 2018, compared to $148.7 million and $56.3 million, respectively, for the second quarter of 2017, with the decrease in both items primarily attributable to the property sales mentioned above.

General and administrative expense was $8.3 million for the second quarter of 2018, compared to $7.5 million for the same period in 2017, primarily as a result of increased accruals for potential performance-based stock compensation as a result of improved relative stock performance during the three months ended June 30, 2018.

Loss on sale of real estate assets was $(23,000) for the second quarter of 2018, as compared to a gain of $6.5 million for the three months ended June 30, 2017, with the second quarter of the previous year reflecting the sale of Sarasota Commerce Center II.

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 June 30, 2018 were all favorably impacted by an approximately 17.1 million share decrease in our weighted average shares outstanding. The decrease is a result of the repurchase of shares pursuant to the Company's stock repurchase program during the twelve months ended June 30, 2018, including 1.9 million shares repurchased at an average price of $17.67 per share during the quarter ended June 30, 2018.

Leasing Update

The Company's leasing volume for the second quarter totaled approximately 425,000 square feet, approximately one-third of which related to new leasing. Significant leases completed during the quarter included:

In Houston, TX - Schlumberger Technology Corporation executed a renewal and expansion totaling approximately 226,000 square feet at 1430 Enclave Parkway for 10 years through 2028;
In Atlanta - Access Clinical Partners, LLC signed a renewal and expansion totaling approximately 28,000 square feet at Glenridge Highlands One through 2026;
In Boston - Symantec Corporation renewed for approximately 27,000 square feet at 80 Central Street through 2026;
In Washington, D.C. - The Association for the Advancement of Medical Instrumentation completed a 26,000 square foot lease at Arlington Gateway for 12 years; and
In Chicago - Dahlquist and Lutzow Architects executed a renewal and expansion totaling almost 17,000 square feet through 2027, and Chicago Office Technology Group, Inc. renewed their approximately 13,000 square feet through 2024.

With no significant lease expirations for the remainder of 2018, the Company's reported leased percentage and weighted average lease term were approximately 90.6% and 6.7 years, respectively, as of June 30, 2018, as compared to 89.7% and 6.5 years, respectively, as of December 31, 2017. Same Store NOI increased 2.3% on a cash basis for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 as several large lease abatements expired; accrual-basis Same Store NOI decreased 1.6% for the three months ended June 30, 2018 as compared to the second quarter of 2017, with 150,000 square feet of space in downtime at the 6011 Connection Drive building in Dallas, Texas before the lease





with Gartner commences later in the third quarter. 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.

Third Quarter 2018 Dividend Declaration

On August 1, 2018, the board of directors of Piedmont declared dividends for the third 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 August 31, 2018, payable on September 21, 2018.

Guidance for 2018

The Company increases its previously announced guidance for full-year 2018 as follows:
(in millions, except per share data)
 
Low
 
High
Net Income
 
$94
-
$98
Add:
 


 

         Depreciation
 
109

-
111
         Amortization
 
61

-
63
Less: Gain on Sale of Real Estate Assets
 
(45
)
-
(46)
NAREIT FFO applicable to Common Stock
 
$
219

-
$226
NAREIT FFO per diluted share
 
$1.68
-
$1.73
 
 
 
 
 
Less: Loss on Extinguishment of Debt
 
$2
-
$2
Core FFO applicable to Common Stock
 
$
221

-
$228
Core FFO per diluted share
 
$1.69
-
$1.75

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 June 30, 2018 contain certain financial measures that are not prepared in accordance with GAAP, including FFO, Core FFO, AFFO, Same Store NOI (cash and accrual basis), Property NOI (cash and accrual 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, August 2, 2018 at 11:00 A.M. Eastern daylight time. The live audio web cast of the call may be accessed on the Company's website at www.piedmontreit.com in the Investor Relations section. Dial-in numbers are (877) 407-0778 for participants in the United States and Canada and (201) 689-8565 for international participants. A replay of the conference call will be available through 11 A.M. EDT on August 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 34364. A web cast replay will also be available after the conference call in the Investor Relations section of the Company's website. During the audio web cast and conference call, the Company's management team will review second quarter 2018 performance, discuss recent events, and conduct a question-and-answer period.

Supplemental Information

Quarterly supplemental information as of and for the period ended June 30, 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 optimism regarding it's leasing pipeline and whether the pipeline will result in increased leasing volume during the second half of the year, 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)
 
 
 
 
 
 
June 30, 2018
 
December 31, 2017
 
 
(unaudited)
 
 
Assets:
 
 
 
 
Real estate assets, at cost:
 
 
 
 
Land
 
$
547,602

 
$
544,794

Buildings and improvements
 
3,241,441

 
3,203,229

Buildings and improvements, accumulated depreciation
 
(831,692
)
 
(785,206
)
Intangible lease assets
 
150,205

 
176,950

Intangible lease assets, accumulated amortization
 
(79,934
)
 
(99,145
)
Construction in progress
 
17,831

 
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
 
3,045,453

 
3,384,742

Amounts due from unconsolidated joint ventures
 

 
10

Cash and cash equivalents
 
8,944

 
7,382

Tenant receivables, net of allowance for doubtful accounts
 
9,323

 
12,139

Straight line rent receivables
 
172,164

 
163,160

Notes receivable
 
3,200

 

Restricted cash and escrows
 
1,415

 
1,373

Prepaid expenses and other assets
 
29,180

 
22,517

Goodwill
 
98,918

 
98,918

Interest rate swaps
 
2,679

 
688

Deferred lease costs, less accumulated amortization
 
252,714

 
261,907

Other assets held for sale, net
 

 
47,131

Total assets
 
$
3,623,990

 
$
3,999,967

Liabilities:
 
 
 
 
Unsecured debt, net of discount and unamortized debt issuance costs
 
$
1,529,856

 
$
1,535,311

Secured debt, net of premiums and unamortized debt issuance costs
 
190,990

 
191,616

Accounts payable, accrued expenses, dividends payable, and accrued capital expenditures
 
94,215

 
216,653

Deferred income
 
25,532

 
29,582

Intangible lease liabilities, less accumulated amortization
 
40,341

 
38,458

Interest rate swaps
 

 
1,478

Other liabilities held for sale, net
 

 
380

Total liabilities
 
1,880,934

 
2,013,478

Stockholders' equity :
 
 
 
 
Common stock
 
1,284

 
1,424

Additional paid in capital
 
3,681,127

 
3,677,360

Cumulative distributions in excess of earnings
 
(1,953,291
)
 
(1,702,281
)
Other comprehensive income
 
12,141

 
8,164

Piedmont stockholders' equity
 
1,741,261

 
1,984,667

Non-controlling interest
 
1,795

 
1,822

Total stockholders' equity
 
1,743,056

 
1,986,489

Total liabilities and stockholders' equity
 
$
3,623,990

 
$
3,999,967

 
 
 
 
 
Number of shares of common stock outstanding as of end of period
 
128,371

 
142,359








Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
Consolidated Statements of Income
 
 
 
 
 
 
 
Unaudited (in thousands, except for per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
6/30/2018
 
6/30/2017
 
6/30/2018
 
6/30/2017
Revenues:
 
 
 
 
 
 
 
Rental income
$
101,478

 
$
118,492

 
$
202,932

 
$
236,531

Tenant reimbursements
22,047

 
24,285

 
45,041

 
49,122

Property management fee revenue
382

 
400

 
691

 
925

Other property related income
5,267

 
5,502

 
10,410

 
10,564

Total revenues
129,174

 
148,679

 
259,074

 
297,142

Expenses:
 
 
 
 
 
 
 
Property operating costs
52,637

 
56,287

 
104,496

 
112,117

Depreciation
27,115

 
30,059

 
54,260

 
60,827

Amortization
15,245

 
19,314

 
31,978

 
39,729

General and administrative
8,258

 
7,528

 
14,810

 
15,678

Total operating expenses
103,255

 
113,188

 
205,544

 
228,351

Real estate operating income
25,919

 
35,491

 
53,530

 
68,791

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(15,687
)
 
(18,421
)
 
(29,445
)
 
(36,478
)
Other income/(expense)
731

 
38

 
1,177

 
(62
)
Equity in income of unconsolidated joint ventures

 
107

 

 
118

Loss on extinguishment of debt

 

 
(1,680
)
 

Gain/(loss) on sale of real estate assets
(23
)
 
6,492

 
45,186

 
6,439

Total other income/(expense)
(14,979
)
 
(11,784
)
 
15,238

 
(29,983
)
Net income
10,940

 
23,707

 
68,768

 
38,808

Plus: Net loss applicable to noncontrolling interest
2

 
3

 
4

 
6

Net income applicable to Piedmont
$
10,942

 
$
23,710

 
$
68,772

 
$
38,814

Weighted average common shares outstanding - diluted*
128,701

 
145,813

 
132,432

 
145,780

Per Share Information -- diluted:
 
 
 
 
 
 
 
Net income applicable to common stockholders
$
0.09

 
$
0.16

 
$
0.52

 
$
0.27

*Number of shares of common stock outstanding as of end of period
128,371

 
145,490

 
128,371

 
145,490







Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations
 
 
Unaudited (in thousands, except for per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
6/30/2018
 
6/30/2017
 
6/30/2018
 
6/30/2017
GAAP net income applicable to common stock
$
10,942

 
$
23,710

 
$
68,772

 
$
38,814

Depreciation of real estate assets(1) (2)
26,894

 
29,932

 
53,863

 
60,561

Amortization of lease-related costs(1)
15,229

 
19,315

 
31,945

 
39,721

(Gain)/loss on sale of real estate assets (1)
23

 
(6,492
)
 
(45,186
)
 
(6,439
)
NAREIT Funds From Operations applicable to common stock*
53,088

 
66,465

 
109,394

 
132,657

Acquisition costs

 

 

 
6

Loss on extinguishment of debt

 

 
1,680

 

Core Funds From Operations applicable to common stock*
53,088

 
66,465

 
111,074

 
132,663

Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on Unsecured Senior Notes
545

 
628

 
1,011

 
1,258

Depreciation of non real estate assets
213

 
184

 
382

 
379

Straight-line effects of lease revenue (1)
(4,806
)
 
(6,634
)
 
(8,279
)
 
(12,337
)
Stock-based and other non-cash compensation
2,513

 
911

 
2,801

 
2,952

Net effect of amortization of below-market in-place lease intangibles (1)
(1,987
)
 
(1,611
)
 
(3,630
)
 
(3,170
)
Acquisition costs

 

 

 
(6
)
Non-incremental capital expenditures (3)
(10,178
)
 
(9,073
)
 
(18,131
)
 
(16,745
)
Adjusted funds from operations applicable to common stock*
$
39,388

 
$
50,870

 
$
85,228

 
$
104,994

Weighted average common shares outstanding - diluted**
128,701

 
145,813

 
132,432

 
145,780

Funds from operations per share (diluted)
$
0.41

 
$
0.46

 
$
0.83

 
$
0.91

Core funds from operations per share (diluted)
$
0.41

 
$
0.46

 
$
0.84

 
$
0.91

 
 
 
 
 
 
 
 
**Number of shares of common stock outstanding as of end of period
128,371

 
145,490

 
128,371

 
145,490


(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
 
06/30/2018

 
06/30/2017

 
06/30/2018

 
06/30/2017

 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
10,942

 
23,710

 
10,942

 
23,710

Net loss applicable to noncontrolling interest
(2
)
 
(3
)
 
(2
)
 
(3
)
Interest expense
15,687

 
18,421

 
15,687

 
18,421

Depreciation (1)
27,107

 
30,116

 
27,107

 
30,116

Amortization (1)
15,229

 
19,315

 
15,229

 
19,315

(Gain)/loss on sale of real estate assets (1)
23

 
(6,492
)
 
23

 
(6,492
)
EBITDAre
68,986

 
85,067

 
68,986

 
85,067

Net loss from casualty events

 
(26
)
 

 
(26
)
Core EBITDA*
68,986

 
85,041

 
68,986

 
85,041

General & administrative expenses (1)
8,258

 
7,551

 
8,258

 
7,551

Management fee revenue
(200
)
 
(180
)
 
(200
)
 
(180
)
Other income (1)
(157
)
 
(12
)
 
(157
)
 
(12
)
Straight line effects of lease revenue (1)
(4,806
)
 
(6,634
)
 
 
 
 
Amortization of lease-related intangibles (1)
(1,987
)
 
(1,611
)
 
 
 
 
Property NOI*
70,094

 
84,155

 
76,887

 
92,400

   Net operating income from:
 
 
 
 
 
 
 
Acquisitions
(917
)
 

 
(1,270
)
 

Dispositions
(205
)
 
(15,486
)
 
(205
)
 
(14,269
)
Other investments(2)
(920
)
 
(2,171
)
 
(1,044
)
 
(2,555
)
Same Store NOI *
68,052

 
66,498

 
74,368

 
75,576

Change period over period in Same Store NOI
2.3
%
 
N/A

 
(1.6
)%
 
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
 
Six Months Ended
 
Six Months Ended
 
6/30/2018
 
6/30/2017
 
6/30/2018
 
6/30/2017
 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
$
68,772

 
$
38,814

 
$
68,772

 
$
38,814

Net loss applicable to noncontrolling interest
(4
)
 
(6
)
 
(4
)
 
(6
)
Interest expense
29,445

 
36,478

 
29,445

 
36,478

Depreciation (1)
54,246

 
60,940

 
54,246

 
60,940

Amortization (1)
31,945

 
39,721

 
31,945

 
39,721

Gain on sale of real estate assets (1)
(45,186
)
 
(6,439
)
 
(45,186
)
 
(6,439
)
EBITDAre
139,218

 
169,508

 
139,218

 
169,508

Loss on extinguishment of debt
1,680

 

 
1,680

 

Acquisition costs

 
6

 

 
6

Net loss from casualty events

 
32

 

 
32

Core EBITDA*
140,898

 
169,546

 
140,898

 
169,546

General & administrative expenses (1)
14,810

 
15,706

 
14,810

 
15,706

Management fee revenue
(349
)
 
(510
)
 
(349
)
 
(510
)
Other (income)/expense (1)
(388
)
 
25

 
(388
)
 
25

Straight line effects of lease revenue (1)
(8,279
)
 
(12,337
)
 
 
 
 
Amortization of lease-related intangibles (1)
(3,630
)
 
(3,170
)
 
 
 
 
Property NOI*
143,062

 
169,260

 
154,971

 
184,767

   Net operating income from:
 
 
 
 
 
 
 
Acquisitions
(1,583
)
 

 
(2,132
)
 

Dispositions
(387
)
 
(31,076
)
 
(378
)
 
(28,656
)
Other investments(2)
(2,437
)
 
(3,937
)
 
(2,482
)
 
(4,778
)
Same Store NOI *
$
138,655

 
$
134,247

 
$
149,979

 
$
151,333

Change period over period in Same Store NOI
3.3
%
 
N/A

 
(0.9
)%
 
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=12383772&doc=11



Quarterly Supplemental Information
June 30, 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 46 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.

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
 
June 30, 2018
 
December 31, 2017
Number of consolidated office properties (1)
53
 
67
Rentable square footage (in thousands) (1)
16,176
 
19,061
Percent leased (2)
90.6
%
 
89.7
%
Capitalization (in thousands):
 
 
 
Total debt - principal amount outstanding (excludes premiums, discounts, and deferred financing costs)
$1,728,195
 
$1,733,670
Equity market capitalization (3)
$2,558,432
 
$2,791,659
Total market capitalization (3)
$4,286,627
 
$4,525,329
Total debt / Total market capitalization (3)
40.3
%
 
38.3
%
Average net debt to Core EBITDA
6.2 x

 
5.6 x

Total debt / Total gross assets
38.1
%
 
34.3
%
Common stock data:
 
 
 
High closing price during quarter
$19.93
 
$20.40
Low closing price during quarter
$17.26
 
$19.21
Closing price of common stock at period end
$19.93
 
$19.61
Weighted average fully diluted shares outstanding during quarter (in thousands)
128,701
 
144,503
Shares of common stock issued and outstanding at period end (in thousands)
128,371
 
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
136
 
136





(1)
As of June 30, 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. There were no acquisitions or dispositions of office properties completed during the second quarter of 2018.
(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, Vice Chairman of the
Director and Member of the Audit and
Director, Chairman of the Governance
Board of Directors and Chairman
Board of Directors, and Member of the
Governance Committees
Committee, and Member of the
of the Compensation Committee
Audit and Capital Committees
 
Compensation Committee
 
 
 
 
Barbara B. Lang
Donald A. Miller, CFA
Raymond G. Milnes, Jr.
Jeffery L. Swope
Director and Member of the Compensation
Chief Executive Officer, President
Director, Chairman of the Audit
Director, Chairman of the Capital
and Governance Committees
and Director
Committee, and Member of the
Committee, and Member of the
 
 
Capital Committee
Compensation Committee
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Transfer Agent
Corporate Counsel
 
 
Computershare
King & Spalding
P.O. Box 30170
1180 Peachtree Street, NE
College Station, TX 77842-3170
Atlanta, GA 30309
Phone: 866.354.3485
Phone: 404.572.4600


4



Piedmont Office Realty Trust, Inc.
Financial Highlights
As of June 30, 2018


Financial Results (1) 

Net income attributable to Piedmont for the quarter ended June 30, 2018 was $10.9 million, or $0.09 per share (diluted), compared to $23.7 million, or $0.16 per share (diluted), for the same quarter in 2017. Net income attributable to Piedmont for the six months ended June 30, 2018 was $68.8 million, or $0.52 per share (diluted), compared to $38.8 million, or $0.27 per share (diluted), for the same period in 2017. The decrease in net income attributable to Piedmont for the three months ended June 30, 2018 when compared to the same period in 2017 was primarily due to the loss of operating income contributions from 17 properties sold since the beginning of the second quarter of 2017, along with a $6.5 million gain on sale of real estate in the second quarter of 2017 that did not recur in 2018. The increase in net income attributable to Piedmont for the six months ended June 30, 2018 when compared to the same period in 2017 was principally due to a larger amount of total gains on sales of real estate in 2018 when compared to 2017, partially offset by a decrease in operating income in 2018 resulting from the net disposition of approximately $760 million in properties since the beginning of 2017.

Funds from operations (FFO) for the quarter ended June 30, 2018 was $53.1 million, or $0.41 per share (diluted), compared to $66.5 million, or $0.46 per share (diluted), for the same quarter in 2017. FFO for the six months ended June 30, 2018 was $109.4 million, or $0.83 per share (diluted), compared to $132.7 million, or $0.91 per share (diluted), for the same period in 2017. The decrease in FFO for the three months and the six months ended June 30, 2018 when compared to the same periods in 2017 was primarily attributable to net disposition activity completed since the beginning of 2017 amounting to approximately $760 million of properties, 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 June 30, 2018 was $53.1 million, or $0.41 per share (diluted), compared to $66.5 million, or $0.46 per share (diluted), for the same quarter in 2017. Core FFO for the six months ended June 30, 2018 was $111.1 million, or $0.84 per share (diluted), compared to $132.7 million, or $0.91 per share (diluted), for the same period in 2017. The decrease in Core FFO for the three months and the six months ended June 30, 2018 when compared to the same periods 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 June 30, 2018 was $39.4 million, compared to $50.9 million for the same quarter in 2017. AFFO for the six months ended June 30, 2018 was $85.2 million, compared to $105.0 million for the same period in 2017. The decrease in AFFO for the three months and the six months ended June 30, 2018 when compared to the same periods 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 90.6% leased as of June 30, 2018, as compared to 89.7% at the beginning of the year and 91.0% a year earlier. Please refer to page 27 for additional leased percentage information.

The weighted average remaining lease term of our in-service portfolio was 6.7 years(2) as of June 30, 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 June 30, 2018) is weighted based on Annualized Lease Revenue, as defined on page 39.

5




During the three months ended June 30, 2018, the Company completed approximately 425,000 square feet of total leasing. Of the total leasing activity completed during the quarter, we signed new tenant leases for approximately 140,000 square feet. During the six months ended June 30, 2018, we completed approximately 765,000 square feet of leasing for our consolidated office properties, including approximately 289,000 square feet of new tenant leases. The average committed capital cost per square foot per year of lease term for all leasing activity completed during the six months ended June 30, 2018 (net of commitment expirations during the period) was $4.48 (see page 33).

During the three months ended June 30, 2018, we executed six leases greater than 10,000 square feet at our consolidated office properties. Information on those leases is set forth below.
Tenant
Property
Property Location
Square Feet
Leased
Expiration
Year
Lease Type
Schlumberger Technology Corporation
1430 Enclave Parkway
Houston, TX
225,726
2028
Renewal / Expansion
Access Clinical Partners, LLC
Glenridge Highlands One
Atlanta, GA
27,815
2026
Renewal / Expansion
Symantec Corporation
80 Central Street
Boxborough, MA
27,052
2026
Renewal / Contraction
Association for the Advancement of Medical Instrumentation, Inc.
Arlington Gateway
Arlington, VA
26,421
2030
New
Dahlquist and Lutzow Architects, Ltd.
Two Pierce Place
Itasca, IL
16,071
2027
Renewal / Expansion
Chicago Office Technology Group, Inc.
Two Pierce Place
Itasca, IL
12,628
2024
Renewal / Contraction

At the end of the second quarter of 2018, there was one tenant whose lease individually contributed greater than 1% in Annualized Lease Revenue expiring during the eighteen month period following June 30, 2018. Information regarding the leasing status of the space associated with this tenant's lease is presented below.
Tenant
Property
Property Location
Net
Square
Footage
Expiring
Net Percentage of
Current Quarter
Annualized Lease
Revenue Expiring
(%)
Expiration
Current Leasing Status
State of New York
60 Broad Street
New York, NY
480,708
5.2%
Q1 2019
The Company is in advanced discussions with the tenant regarding a long-term lease renewal and potential modest square footage contraction.

During the second quarter of 2018, the Company resolved approximately half of an impending lease expiration for a lease that, as of the end of the first quarter of 2018, individually contributed greater than 1% in Annualized Lease Revenue and was set to expire during the eighteen month period following March 31, 2018. Updated information for the affected space is presented below.
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
Technip
1430 Enclave Parkway
Houston, TX
86,838
0.7%
Q4 2018
During the second quarter, Schlumberger executed a 225,726 square foot lease renewal and expansion. The expansion component is comprised of 63,145 square feet and is space that Schlumberger currently subleases from Technip. The lease with Schlumberger for that space will commence immediately following the Technip lease expiration at year-end 2018 and will continue through the end of 2028. Schlumberger has certain rights to expand into the remaining portion of the Technip space, comprised of 87,000 square feet, which the Company is actively marketing for lease.




6




Future Lease Commencements and Abatements

As of June 30, 2018, our overall leased percentage was 90.6% and our economic leased percentage was 85.7%. 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 285,025 square feet of leases as of June 30, 2018, or 1.8% of the portfolio); and
2)
leases which have commenced but are within rental abatement periods (amounting to 746,966 square feet of leases as of June 30, 2018, or a 3.1% impact to leased percentage on an economic basis).

As anticipated and previously communicated, this gap has continued to narrow after the end of the fourth quarter of 2017, primarily attributable to the burn off of several large abatements and the removal of components related to the 14-property disposition completed in January 2018. 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 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 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
Gartner, Inc.
6011 Connection Drive
Irving, TX
152,086
Vacant
Q3 2018 (98,134 SF)(1) 
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
Schlumberger Technology Corporation
1430 Enclave Parkway
Houston, TX
63,145
Not Vacant
Q1 2019
New (2)
Children's Hospital Los Angeles
800 North Brand Boulevard
Glendale, CA
50,285
Not Vacant
Q2 2021
New









(1)
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. The other two phases will not receive any rental abatements.
(2)
During the second quarter of 2018, Schlumberger signed a 225,726 square foot lease renewal and expansion. The expansion component is comprised of 63,145 square feet and is the portion of the lease presented on this line. Schlumberger currently subleases the 63,145 square feet from Technip. Schlumberger's direct lease for the space will commence on January 1, 2019, immediately following the expiration of Technip's lease.
 
 
 
 


7



New leases frequently provide rental abatement concessions to tenants and these abatements typically occur at the beginning of the leases. The currently reported cash net operating income and AFFO understate the Company's long-term cash generation ability due to several leases being in abatement periods. 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 second 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
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

Current / Future Abatements
Tenant
Property
Property Location
Abated Square Feet
Lease Commencement Date
Remaining Abatement Schedule
Lease Expiration
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
Q2 2018
June 2018 through June 2019 (1)
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 (2)
December 2018 through February 2019
Q1 2024
Schlumberger Technology Corporation
1430 Enclave Parkway
Houston, TX
225,726
Q1 2019
January through June 2019
Q4 2028
District of Columbia
(Department of Disability Services)
One Independence Square
Washington, DC
101,982
Q2 2016
June 2019 and June 2020
Q1 2028











(1)
The rental abatement commenced on an estimated date of June 19, 2018 and will continue for a period of one year.
(2)
Represents the commencement date of the renewal term.
 
 
 
 



8



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
There were no dispositions completed during the quarter ended June 30, 2018.

Acquisitions
There were no acquisitions completed during the quarter ended June 30, 2018.

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

Development / Redevelopment
The Company had no developments underway as of June 30, 2018. During the second 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 June 30, 2018, our ratio of debt to total gross assets was 38.1%. This debt ratio is based on total principal amount outstanding for our various loans at June 30, 2018.
As of June 30, 2018, our average net debt to Core EBITDA ratio was 6.2 x, and the same measure at December 31, 2017 was 5.6 x. The increase in the average net debt to Core EBITDA ratio was principally due to a decrease in Core EBITDA resulting from the 14-property portfolio sale completed on January 4, 2018, and the use of the sale proceeds to fund approximately $265 million of common stock repurchases since January 2018.
Stock Repurchase Program
During the second quarter of 2018, the Company repurchased approximately 1.9 million shares of common stock under its share repurchase program at an average price of $17.67 per share, or approximately $32.9 million (before the consideration of transaction costs). Since the stock repurchase program began in December 2011, the Company has repurchased approximately 45.8 million shares at an average price of $17.74 per share, or approximately $812.7 million in aggregate (before the consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases totaled approximately $123.5 million under the stock repurchase plan.

Dividend
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 was paid on June 15, 2018. The Company's dividend payout percentage (for dividends declared) for the six months ended June 30, 2018 was 50% of Core FFO and 65% of AFFO.

9



Subsequent Events

On August 1, 2018, the Board of Directors of Piedmont declared a dividend for the third quarter of 2018 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on August 31, 2018. The dividend is expected to be paid on September 21, 2018.

Guidance for 2018

The following financial guidance for calendar year 2018 has been increased and is based upon year-to-date results and management's expectations at this time.
 
Low
 
High
 
 
 
 
Net Income
$94 million
to
$98 million
Add:
 
 
 
         Depreciation
109 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
$219 million
 
$226 million
NAREIT Funds from Operations per diluted share
$1.68
to
$1.73
 
 
 
 
Less:
 
 
 
         Loss on Extinguishment of Debt
$2 million
to
$2 million
Core Funds From Operations
$221 million
to
$228 million
Core Funds from Operations per diluted share
$1.69
to
$1.75

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)

 
June 30, 2018

March 31, 2018

December 31, 2017

September 30, 2017

June 30, 2017
Assets:

 
 
 
 
 
 
 
 
Real estate, at cost:

 
 
 
 
 
 
 
 
Land assets
$
547,602

 
$
547,602

 
$
544,794

 
$
540,436

 
$
540,436

Buildings and improvements
3,241,441

 
3,236,330

 
3,203,229

 
3,178,184

 
3,168,725

Buildings and improvements, accumulated depreciation
(831,692
)
 
(811,760
)
 
(785,206
)
 
(758,800
)
 
(733,568
)
Intangible lease asset
150,205

 
158,338

 
176,950

 
171,965

 
179,540

Intangible lease asset, accumulated amortization
(79,934
)
 
(83,063
)
 
(99,145
)
 
(93,265
)
 
(94,551
)
Construction in progress
17,831

 
15,226

 
11,710

 
7,560

 
14,671

Real estate assets held for sale, gross

 

 
501,526

 
546,979

 
860,302

Real estate assets held for sale, accumulated depreciation & amortization

 

 
(169,116
)
 
(167,305
)
 
(252,583
)
Total real estate assets
3,045,453

 
3,062,673

 
3,384,742

 
3,425,754

 
3,682,972

Investments in and amounts due from unconsolidated joint ventures

 
10

 
10

 
49

 
7,762

Cash and cash equivalents
8,944

 
6,729

 
7,382

 
36,108

 
9,596

Tenant receivables, net of allowance for doubtful accounts
9,323

 
12,040

 
12,139

 
12,802

 
24,269

Straight line rent receivable
172,164

 
167,535

 
163,160

 
157,289

 
152,084

Notes receivable
3,200

 
3,200

 

 

 

Escrow deposits and restricted cash
1,415

 
1,464

 
1,373

 
1,260

 
1,290

Prepaid expenses and other assets
29,180

 
25,028

 
22,517

 
27,893

 
29,866

Goodwill
98,918

 
98,918

 
98,918

 
98,918

 
98,918

Interest rate swap
2,679

 
725

 
688

 
34

 

Deferred lease costs, less accumulated amortization
252,714

 
257,368

 
261,907

 
253,608

 
257,677

Other assets held for sale

 

 
47,131

 
46,935

 
55,878

Total assets
$
3,623,990

 
$
3,635,690

 
$
3,999,967

 
$
4,060,650

 
$
4,320,312

Liabilities:
 
 
 
 
 
 
 
 
 
Unsecured debt, net of discount
$
1,529,856

 
$
1,498,339

 
$
1,535,311

 
$
1,511,663

 
$
1,720,986

Secured debt
190,990

 
191,305

 
191,616

 
191,923

 
332,196

Accounts payable, accrued expenses, and accrued capital expenditures
94,215

 
83,786

 
216,653

 
108,120

 
111,011

Deferred income
25,532

 
29,751

 
29,582

 
29,970

 
27,416

Intangible lease liabilities, less accumulated amortization
40,341

 
42,699

 
38,458

 
40,662

 
42,905

Interest rate swaps

 
222

 
1,478

 
3,915

 
5,061

Other liabilities held for sale

 

 
380

 
402

 
423

Total liabilities
$
1,880,934

 
$
1,846,102

 
$
2,013,478

 
$
1,886,655

 
$
2,239,998

Stockholders' equity:
 
 
 
 
 
 
 
 
 
Common stock
1,284

 
1,300

 
1,424

 
1,453

 
1,455

Additional paid in capital
3,681,127

 
3,680,241

 
3,677,360

 
3,676,706

 
3,675,562

Cumulative distributions in excess of earnings
(1,953,291
)
 
(1,904,404
)
 
(1,702,281
)
 
(1,511,428
)
 
(1,603,119
)
Other comprehensive loss
12,141

 
10,639

 
8,164

 
5,400

 
4,547

Piedmont stockholders' equity
1,741,261

 
1,787,776

 
1,984,667

 
2,172,131

 
2,078,445

Non-controlling interest
1,795

 
1,812

 
1,822

 
1,864

 
1,869

Total stockholders' equity
1,743,056

 
1,789,588

 
1,986,489

 
2,173,995

 
2,080,314

Total liabilities, redeemable common stock and stockholders' equity
$
3,623,990

 
$
3,635,690

 
$
3,999,967

 
$
4,060,650

 
$
4,320,312

Common stock outstanding at end of period
128,371

 
130,025

 
142,359

 
145,295

 
145,490



11



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

 
 
Three Months Ended
 
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
Revenues:
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
101,478

 
$
101,454

 
$
109,726

 
$
108,868

 
$
118,492

Tenant reimbursements
 
22,047

 
22,994

 
24,764

 
24,253

 
24,285

Property management fee revenue
 
382

 
309

 
356

 
454

 
400

Other property related income
 
5,267

 
5,143

 
4,598

 
4,012

 
5,502

 
 
129,174

 
129,900

 
139,444

 
137,587

 
148,679

Expenses:
 
 
 
 
 
 
 
 
 
 
Property operating costs
 
52,637

 
51,859

 
55,806

 
54,518

 
56,287

Depreciation
 
27,115

 
27,145

 
28,461

 
30,000

 
30,059

Amortization
 
15,245

 
16,733

 
17,515

 
18,123

 
19,314

Impairment loss on real estate assets (1)
 

 

 
46,461

 

 

General and administrative
 
8,258

 
6,552

 
7,451

 
6,190

 
7,528

 
 
103,255

 
102,289

 
155,694

 
108,831

 
113,188

Real estate operating income
 
25,919

 
27,611

 
(16,250
)
 
28,756

 
35,491

Other income / (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(15,687
)
 
(13,758
)
 
(15,463
)
 
(16,183
)
 
(18,421
)
Other income / (expense)
 
731

 
446

 
429

 
290

 
38

Equity in income / (loss) of unconsolidated joint ventures
 

 

 
(27
)
 
3,754

 
107

Gain / (loss) on extinguishment of debt
 

 
(1,680
)
 

 

 

 
 
(14,956
)
 
(14,992
)
 
(15,061
)
 
(12,139
)
 
(18,276
)
Income from continuing operations
 
10,963

 
12,619

 
(31,311
)
 
16,617

 
17,215

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)
 
(23
)
 
45,209

 
(77
)
 
109,512

 
6,492

Net income
 
10,940

 
57,828

 
(31,388
)
 
126,129

 
23,707

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

 
2

 
5

 
4

 
3

Net income attributable to Piedmont
 
$
10,942

 
$
57,830

 
$
(31,383
)
 
$
126,133

 
$
23,710

Weighted average common shares outstanding - diluted
 
128,701

 
136,183

 
144,503

 
145,719

 
145,813

Net income per share available to common stockholders - diluted
 
$
0.09

 
$
0.42

 
$
(0.21
)
 
$
0.87

 
$
0.16

Common stock outstanding at end of period
 
128,371

 
130,025

 
142,359

 
145,295

 
145,490

(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
 
Six Months Ended
 
6/30/2018
6/30/2017
 
Change ($)
Change (%)
 
6/30/2018
6/30/2017
 
Change ($)
Change (%)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
101,478

$
118,492

 
$
(17,014
)
(14.4
)%
 
$
202,932

$
236,531

 
$
(33,599
)
(14.2
)%
Tenant reimbursements
22,047

24,285

 
(2,238
)
(9.2
)%
 
45,041

49,122

 
(4,081
)
(8.3
)%
Property management fee revenue
382

400

 
(18
)
(4.5
)%
 
691

925

 
(234
)
(25.3
)%
Other property related income
5,267

5,502

 
(235
)
(4.3
)%
 
10,410

10,564

 
(154
)
(1.5
)%
 
129,174

148,679

 
(19,505
)
(13.1
)%
 
259,074

297,142

 
(38,068
)
(12.8
)%
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
52,637

56,287

 
3,650

6.5
 %
 
104,496

112,117

 
7,621

6.8
 %
Depreciation
27,115

30,059