Document


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported):  February 5, 2019
 
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 February 5, 2019, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the fourth quarter 2018, as well as the year ended December 31, 2018, and published supplemental information for the fourth quarter 2018, as well as the year ended December 31, 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:
February 5, 2019
 
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=12677353&doc=12

Piedmont Office Realty Trust Reports Fourth Quarter and Annual 2018 Results
ATLANTA, February 5, 2019--Piedmont Office Realty Trust, Inc. ("Piedmont" or the "Company") (NYSE:PDM), an owner of Class A office properties in select sub-markets located primarily within eight major Eastern U.S. office markets, today announced its results for the quarter and year ended December 31, 2018.

Highlights for the Quarter and Year Ended December 31, 2018:

Reported net income applicable to common stockholders of $45.4 million, or $0.35 per diluted share, and $130.3 million, or $1.00 per diluted share, for the quarter and year ended December 31, 2018, respectively, as compared with $(31.4) million, or $(0.21) per diluted share, and $133.6 million, or $0.92 per diluted share, for the quarter and year ended December 31, 2017, respectively;
Achieved Core Funds From Operations ("Core FFO") of $0.45 and $1.73 per diluted share for the quarter and year ended December 31, 2018, respectively;
Reported a 9.2% and 6.5% increase in Same Store NOI- Cash Basis as compared to the quarter and year ended December 31, 2017, respectively;
Completed approximately 1.6 million square feet of leasing during the year ended December 31, 2018, including 256,000 square feet in the fourth quarter, with over 25% of the annual leasing related to vacant space;
Reported occupancy of the Company's in-service portfolio increased from 89.7% at December 31, 2017 to 93.3% at December 31, 2018;
Also during the fourth quarter:
Sold the Company's last remaining West Coast asset, 800 North Brand Boulevard, and entered into a binding contract to sell a Washington, D.C. asset, One Independence Square;
Acquired two assets totaling $122.7 million in strategic sub markets; and
Repurchased 2.2 million shares of stock at an average share price of $17.13.
Commenting on the Company's results, Donald A. Miller, CFA, Chief Executive Officer, said, "We are very pleased with our fourth quarter transactional activity. We sold our last asset on the West Coast and used the proceeds to acquire two assets in our core markets, both at a substantial discount to replacement cost. In addition, we contracted to sell our largest non-core asset in Washington, D.C. which hits a number of strategic points for us - reducing our exposure to the southwest D.C. submarket, disposing of a fully stabilized asset with limited FFO growth potential, and freeing up capital to reduce our leverage level and/or invest accretively in other opportunities. We believe all of these capital allocation decisions during the fourth quarter will positively impact our 2019 results.”






Results for the Quarter ended December 31, 2018

Piedmont recognized net income applicable to common stockholders for the three months ended December 31, 2018 of $45.4 million, or $0.35 per diluted share, as compared with a net loss of $(31.4) million, or $(0.21) per diluted share, for the three months ended December 31, 2017. The difference between quarters primarily related to capital transactions in the respective periods. The current quarter's results include a $30.5 million, or $0.24 per diluted share, gain on sale primarily associated with the sale of 800 North Brand Boulevard, in Glendale, CA whereas the fourth quarter of 2017 included a $46.5 million, or $0.32 per diluted share, impairment loss associated with the sale of certain non-core assets in a 14-property portfolio. Additionally, the current quarter's results reflect increased operating income as a result of higher overall occupancy in the portfolio during the three months ended December 31, 2018.

Funds From Operations ("FFO") and Core FFO, which remove the impact of the impairment loss and gain on sale mentioned above (as well as depreciation and amortization), were both $0.45 per diluted share for the three months ended December 31, 2018, as compared with $0.42 per diluted share for the three months ended December 31, 2017, an increase of $0.03 per diluted share, despite significant net disposition activity since December 31, 2017. In addition to higher occupancy levels and increased rental rates, the increase in both FFO and Core FFO per diluted share is also attributable to a 15.7 million share decrease in our weighted average shares outstanding as a result of share repurchase activity pursuant to the Company's stock repurchase program during the year ended December 31, 2018.

Total revenues and property operating costs were $137.2 million and $55.2 million, respectively, for the three months ended December 31, 2018, compared to $139.4 million and $55.8 million, respectively, for the fourth quarter of 2017, with the decrease in both items primarily attributable to the net property sales mentioned above, substantially offset by increases due to increased rental rates and occupancy in the portfolio.

General and administrative expense was $8.2 million for the fourth quarter of 2018 compared to $7.5 million for the same period in 2017, with the $0.7 million increase primarily attributable to increased accruals for potential performance-based compensation.

Results for the Year ended December 31, 2018

Piedmont recognized net income applicable to common stockholders for the year ended December 31, 2018 of $130.3 million, or $1.00 per diluted share, as compared with net income of $133.6 million, or $0.92 per diluted share, for the year ended December 31, 2017. The year ended December 31, 2018 included approximately $75.7 million, or $0.58 per diluted share, of gains on sales of real estate assets, whereas the prior year included approximately $69.4 million, or $0.48 per diluted share, of gains on sales of real estate assets, net of an impairment loss. The current year results also reflect the positive impact of higher overall occupancy in the portfolio throughout the year ended December 31, 2018 as compared with the previous year.

Funds From Operations ("FFO") and Core FFO, which remove the impact of the gains on sales of real estate assets and impairment charge mentioned above (as well as depreciation and amortization), were $1.72 and $1.73 per diluted share, respectively for the year ended December 31, 2018, as compared with $1.75 per diluted share for both metrics for the year ended December 31, 2017. The decrease is attributable to approximately $850 million of net disposition activity that occurred during 2017 and 2018, offset by a 14.7 million share decrease in our weighted average shares outstanding as a result of share





repurchase activity during the year ended December 31, 2018 pursuant to the Company's stock repurchase program.

Total revenues and property operating costs were $526.0 million and $209.3 million, respectively, for the year ended December 31, 2018, compared to $574.2 million and $222.4 million, respectively, for the year ended December 31, 2017, with the decrease in both items primarily attributable to the net disposition activity mentioned above, partially offset by increases due to increased rental rates and occupancy in the portfolio during 2018.

Leasing Update

The Company's completed leasing for the fourth quarter totaled approximately 256,000 square feet, with approximately 40% of that activity related to new tenant leases. Highlights included the following:

In Washington, D.C. - Bipartisan Policy Center renewed their 38,000 square foot lease through 2033 at 1225 Eye Street;

In Houston - Schlumberger Technology Corporation signed a new lease for an additional 28,000 square feet through 2028, bringing their total square footage at 1430 Enclave Parkway to over 250,000 square feet;

In Chicago - Utilities, Inc. signed a 27,000 square foot new lease through 2034 at 500 West Monroe Street and NNR Global Logistics USA, Inc. completed a new 10,000 square foot lease through 2030 at Two Pierce Place;

In Orlando - JPMorgan Chase Bank, N.A. executed a renewal and expansion totaling 26,000 square feet through 2025 at CNL Center I; and

In Boston - HERE North America executed a renewal totaling approximately 23,000 square feet through 2024 at 5&15 Wayside Road.

The Company's reported leased percentage and weighted average lease term were approximately 93.3% and 6.6 years, respectively, as of December 31, 2018, as compared to 89.7% and 6.5 years, respectively, as of December 31, 2017. Same Store NOI increased 9.2% on a cash basis and 5.2% on an accrual basis for the three months ended December 31, 2018 as compared to the three months ended December 31, 2017. With increased overall occupancy, Same Store NOI on a cash basis was favorably impacted by the expiration of several large lease abatements, and Same Store NOI on an accrual basis was additionally favorably impacted by the commencement of several large leases throughout the portfolio. 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.

Transactional Update

Transactional activity during the fourth quarter included the following:

The value-add acquisition of 9320 Excelsior Boulevard in Minneapolis, MN, for $48.7 million, representing a substantial discount to replacement cost and estimated GAAP and cash yields of approximately 10%. 9320 Excelsior Boulevard is a 7-story, 268,000 square foot, Class AA office building built in 2010 that is in close proximity to other Piedmont properties. The building, which





offers 20,000 square feet of on-site amenities, is currently 100% leased to Cargill, Inc. whose lease is scheduled to expire in 2023;

The acquisition of 25 Burlington Mall Road in Boston, MA for approximately $74.0 million. 25 Burlington Mall Road is a 6-story, approximately 288,000 square foot office building situated within one mile of over 800,000 square feet of shopping, dining and entertainment options, as well as Piedmont’s other Burlington sub-market holdings. The acquisition brings Piedmont’s market share of this Boston submarket’s Class A office space to approximately 40%. 25 Burlington Mall Road is approximately 89% leased to a diverse tenant roster anchored by Lahey Hospital & Medical Center and Bank of America Merrill Lynch; and

The sale of 800 North Brand Boulevard in Glendale, CA for approximately $160.0 million in total proceeds. The sale completed Piedmont’s exit from the West Coast.

Additionally during the three months ended December 31, 2018, Piedmont entered into a binding contract to sell the One Independence Square building located in the Southwest sub-market of Washington, D.C. The Company renovated the property in 2013, adding a rooftop deck, modern fitness facility and café, and has leased the building to 94% occupancy to multiple governmental tenants. Subject to customary closing conditions, the sale is expected to close during the first quarter of 2019 and follows the sale of the adjacent Two Independence Square building in 2017.

First Quarter 2019 Dividend Declaration

On February 5, 2019, the board of directors of Piedmont declared dividends for the first quarter of 2019 in the amount of $0.21 per share on its common stock to stockholders of record as of the close of business on February 28, 2019, payable on March 15, 2019.

Guidance for 2019

Based on management's expectations, the Company is introducing guidance for full-year 2019 as follows:
(in millions, except per share data)
 
Low
 
High
Net Income
 
$79
-
$83
Add:
 


 

         Depreciation
 
110

-
114
         Amortization
 
58

-
60
Less: Gain on Sale of Real Estate Assets
 
(28
)
-
(30)
NAREIT and Core FFO applicable to common stock
 
$
219

-
$227
NAREIT and Core FFO per diluted share
 
$1.74
-
$1.80

These estimates reflect management's view of current market conditions and incorporate certain economic and operational assumptions and projections but ignore the effect of any unannounced acquisition or disposition activity. Actual results could differ materially from these estimates based on a variety of factors, particularly the timing of any future acquisitions and dispositions as well as those factors discussed under "Forward Looking Statements" below.

Note that individual quarters may fluctuate on both a cash basis and an accrual basis due to lease commencements and expirations, abatement periods, the timing of repairs and maintenance, capital





expenditures, capital markets activities, seasonal general and administrative expenses, accrued potential performance-based compensation expenses, and one-time revenue or expense events. In addition, the Company's guidance is based on information available to management as of the date of this release.

Non-GAAP Financial Measures

To supplement the presentation of the Company’s financial results prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), this release and the accompanying quarterly supplemental information as of and for the period ended December 31, 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.

Conference Call Information

Piedmont has scheduled a conference call and an audio web cast for Wednesday, February 6, 2018 at 10:00 A.M. Eastern time. The live audio web cast of the call may be accessed on the Company's website at www.piedmontreit.com in the Investor Relations section. Dial-in numbers are (866) 682-6100 for participants in the United States and Canada and (862) 298-0702 for international participants. A replay of the conference call will be available through 10 A.M. Eastern time on February 20, 2019, 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 41973. A web cast replay will also be available after the conference call in the Investor Relations section of the Company's website. During the audio web cast and conference call, the Company's management team will review fourth quarter and annual 2018 performance, discuss recent events, and conduct a question-and-answer period.

Supplemental Information

Quarterly supplemental information as of and for the period ended December 31, 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 expected sale of One Independence Square, and the Company's estimated range of Net Income, Depreciation, Amortization, Gain on Sale of Real Estate Assets, NAREIT FFO/Core FFO and NAREIT FFO/Core FFO per diluted share for the year ending December 31, 2019.

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; adverse market and economic conditions, including any resulting impairment charges on both our long-lived assets or goodwill resulting therefrom; 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 regulatory restrictions to which REITS are subject and 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 and disposition of properties, many of which risks and uncertainties may not be known at the time of acquisition or disposition; 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; changes in the method pursuant to which the LIBOR rates are determined and the potential phasing out of LIBOR after 2021; 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, including an increased risk of default by government tenants during periods in which state or federal governments are shut down or on furlough; any change in the financial condition of any of our large lead tenants; changes in the financial condition of our tenants directly or indirectly resulting from the United Kingdom’s referendum to withdraw from the European Union; 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
 
 
 
 
 Unaudited (in thousands)
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
December 31, 2017
 
 
  
 
 
Assets:
 
 
 
 
Real estate assets, at cost:
 
 
 
 
Land
 
$
507,422

 
$
490,625

Buildings and improvements
 
3,077,189

 
2,927,289

Buildings and improvements, accumulated depreciation
 
(772,093
)
 
(683,770
)
Intangible lease assets
 
165,067

 
176,950

Intangible lease assets, accumulated amortization
 
(87,391
)
 
(99,145
)
Construction in progress
 
15,848

 
11,344

Real estate assets held for sale, gross
 
159,005

 
832,001

Real estate assets held for sale, accumulated depreciation and amortization
 
(48,453
)
 
(270,552
)
Total real estate assets
 
3,016,594

 
3,384,742

Amounts due from unconsolidated joint ventures
 

 
10

Cash and cash equivalents
 
4,571

 
7,382

Tenant receivables, net of allowance for doubtful accounts
 
10,800

 
12,139

Straight line rent receivables
 
162,589

 
144,469

Restricted cash and escrows
 
1,463

 
1,373

Prepaid expenses and other assets
 
25,356

 
20,778

Goodwill
 
98,918

 
98,918

Interest rate swaps
 
1,199

 
688

Deferred lease costs, gross
 
433,759

 
425,295

Deferred lease costs, accumulated depreciation
 
(183,611
)
 
(180,120
)
Other assets held for sale, gross
 
23,237

 
104,462

Other assets held for sale, accumulated depreciation
 
(2,446
)
 
(20,169
)
Total assets
 
$
3,592,429

 
$
3,999,967

Liabilities:
 
 
 
 
Unsecured debt, net of discount and unamortized debt issuance costs
 
$
1,495,121

 
$
1,535,311

Secured debt, net of premiums and unamortized debt issuance costs
 
190,351

 
191,616

Accounts payable, accrued expenses, dividends payable, and accrued capital expenditures
 
129,491

 
216,653

Deferred income
 
28,779

 
29,582

Intangible lease liabilities, less accumulated amortization
 
35,708

 
38,458

Interest rate swaps
 
839

 
1,478

Other liabilities held for sale, net
 

 
380

Total liabilities
 
1,880,289

 
2,013,478

Stockholders' equity :
 
 
 
 
Common stock
 
1,262

 
1,424

Additional paid in capital
 
3,683,186

 
3,677,360

Cumulative distributions in excess of earnings
 
(1,982,542
)
 
(1,702,281
)
Other comprehensive income
 
8,462

 
8,164

Piedmont stockholders' equity
 
1,710,368

 
1,984,667

Non-controlling interest
 
1,772

 
1,822

Total stockholders' equity
 
1,712,140

 
1,986,489

Total liabilities and stockholders' equity
 
$
3,592,429

 
$
3,999,967

 
 
 
 
 
Number of shares of common stock outstanding as of end of period
 
126,219

 
142,359








Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
Consolidated Statements of Income
 
 
 
 
 
 
 
Unaudited (in thousands, except for per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Year Ended
 
12/31/2018
 
12/31/2017
 
12/31/2018
 
12/31/2017
Revenues:
 
 
 
 
 
 
 
Rental income
$
107,387

 
$
109,726

 
$
411,667

 
$
455,125

Tenant reimbursements
24,532

 
24,764

 
92,743

 
98,139

Property management fee revenue
391

 
356

 
1,450

 
1,735

Other property related income
4,875

 
4,598

 
20,107

 
19,174

Total revenues
137,185

 
139,444

 
525,967

 
574,173

Expenses:
 
 
 
 
 
 
 
Property operating costs
55,163

 
55,806

 
209,338

 
222,441

Depreciation
26,844

 
28,461

 
107,956

 
119,288

Amortization
16,477

 
17,515

 
63,295

 
75,367

Impairment loss on real estate assets

 
46,461

 

 
46,461

General and administrative
8,226

 
7,451

 
29,713

 
29,319

Total operating expenses
106,710

 
155,694

 
410,302

 
492,876

Real estate operating income
30,475

 
(16,250
)
 
115,665

 
81,297

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(15,729
)
 
(15,463
)
 
(61,023
)
 
(68,124
)
Other income
158

 
429

 
1,638

 
657

Equity in income of unconsolidated joint ventures

 
(27
)
 

 
3,845

Loss on extinguishment of debt

 

 
(1,680
)
 

Gain/(loss) on sale of real estate assets
30,505

 
(77
)
 
75,691

 
115,874

Total other income/(expense)
14,934

 
(15,138
)
 
14,626

 
52,252

Net income
45,409

 
(31,388
)
 
130,291

 
133,549

Plus: Net loss applicable to noncontrolling interest
1

 
5

 
5

 
15

Net income/ (loss) applicable to Piedmont
$
45,410

 
$
(31,383
)
 
$
130,296

 
$
133,564

Weighted average common shares outstanding - diluted*
128,811

 
144,503

 
130,636

 
145,380

Per Share Information -- diluted:
 
 
 
 
 
 
 
Net income/ (loss) applicable to common stockholders
$
0.35

 
$
(0.21
)
 
$
1.00

 
$
0.92

*Number of shares of common stock outstanding as of end of period
126,219

 
142,359

 
126,219

 
142,359







Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations
 
 
Unaudited (in thousands, except for per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Year Ended
 
12/31/2018
 
12/31/2017
 
12/31/2018
 
12/31/2017
GAAP net income/ (loss) applicable to common stock
$
45,410

 
$
(31,383
)
 
$
130,296

 
$
133,564

Depreciation of real estate assets(1) (2)
26,582

 
28,242

 
107,113

 
118,577

Amortization of lease-related costs(1)
16,462

 
17,499

 
63,235

 
75,327

Impairment loss on real estate assets

 
46,461

 

 
46,461

(Gain)/loss on sale of real estate assets (1)
(30,505
)
 
77

 
(75,691
)
 
(119,557
)
NAREIT Funds From Operations applicable to common stock*
57,949

 
60,896

 
224,953

 
254,372

Acquisition costs

 

 

 
6

Loss on extinguishment of debt

 

 
1,680

 

Core Funds From Operations applicable to common stock*
57,949

 
60,896

 
226,633

 
254,378

Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on Unsecured Senior Notes
522

 
604

 
2,083

 
2,496

Depreciation of non real estate assets
255

 
212

 
813

 
809

Straight-line effects of lease revenue (1)
(2,491
)
 
(5,553
)
 
(13,980
)
 
(21,492
)
Stock-based and other non-cash compensation
3,066

 
1,937

 
7,528

 
6,139

Net effect of amortization of below-market in-place lease intangibles (1)
(1,979
)
 
(1,685
)
 
(7,615
)
 
(6,575
)
Acquisition costs

 

 

 
(6
)
Non-incremental capital expenditures (3)
(16,597
)
 
(13,463
)
 
(44,004
)
 
(35,437
)
Adjusted funds from operations applicable to common stock*
$
40,725

 
$
42,948

 
$
171,458

 
$
200,312

Weighted average common shares outstanding - diluted**
128,811

 
144,503

 
130,636

 
145,380

Funds from operations per share (diluted)
$
0.45

 
$
0.42

 
$
1.72

 
$
1.75

Core funds from operations per share (diluted)
$
0.45

 
$
0.42

 
$
1.73

 
$
1.75

 
 
 
 
 
 
 
 
**Number of shares of common stock outstanding as of end of period
126,219

 
142,359

 
126,219

 
142,359


(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
 
12/31/2018

 
12/31/2017

 
12/31/2018

 
12/31/2017

 
 
 
 
 
 
 
 
GAAP net income/ (loss) applicable to common stock
45,410

 
(31,383
)
 
45,410

 
(31,383
)
Net loss applicable to noncontrolling interest
(1
)
 
(5
)
 
(1
)
 
(5
)
Interest expense
15,729

 
15,463

 
15,729

 
15,463

Depreciation (1)
26,837

 
28,454

 
26,837

 
28,454

Amortization (1)
16,462

 
17,499

 
16,462

 
17,499

Impairment loss on real estate assets

 
46,461

 

 
46,461

(Gain)/loss on sale of real estate assets (1)
(30,505
)
 
77

 
(30,505
)
 
77

EBITDAre
73,932

 
76,566

 
73,932

 
76,566

Net loss from casualty events

 
(57
)
 

 
(57
)
Core EBITDA*
73,932

 
76,509

 
73,932

 
76,509

General & administrative expenses (1)
8,226

 
7,466

 
8,226

 
7,466

Management fee revenue
(181
)
 
(161
)
 
(181
)
 
(161
)
Other income/ (expense) (1)
57

 
(156
)
 
57

 
(156
)
Straight line effects of lease revenue (1)
(2,491
)
 
(5,553
)
 
 
 
 
Amortization of lease-related intangibles (1)
(1,979
)
 
(1,685
)
 
 
 
 
Property NOI*
77,564

 
76,420

 
82,034

 
83,658

   Net operating income from:
 
 
 
 
 
 
 
Acquisitions
(2,178
)
 
(23
)
 
(2,569
)
 
(27
)
Dispositions
(4,774
)
 
(9,859
)
 
(3,567
)
 
(9,827
)
Other investments(2)
(633
)
 
(2,442
)
 
(711
)
 
(2,339
)
Same Store NOI *
69,979

 
64,096

 
75,187

 
71,465

Change period over period in Same Store NOI
9.2
%
 
N/A

 
5.2
%
 
N/A







Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
EBITDAre, Core EBITDA, Property Net Operating Income (Cash and Accrual), Same Store Net Operating Income (Cash and Accrual)
 
 
 
Unaudited (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Basis
 
Accrual Basis
 
Year Ended
 
Year Ended
 
12/31/2018
 
12/31/2017
 
12/31/2018
 
12/31/2017
 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
$
130,296

 
$
133,564

 
$
130,296

 
$
133,564

Net loss applicable to noncontrolling interest
(5
)
 
(15
)
 
(5
)
 
(15
)
Interest expense
61,023

 
68,124

 
61,023

 
68,124

Depreciation (1)
107,927

 
119,386

 
107,927

 
119,386

Amortization (1)
63,235

 
75,327

 
63,235

 
75,327

Impairment loss on real estate assets

 
46,461

 

 
46,461

Gain on sale of real estate assets (1)
(75,691
)
 
(119,557
)
 
(75,691
)
 
(119,557
)
EBITDAre
286,785

 
323,290

 
286,785

 
323,290

Loss on extinguishment of debt
1,680

 

 
1,680

 

Acquisition costs

 
6

 

 
6

Net loss from casualty events

 

 

 

Core EBITDA*
288,465

 
323,296

 
288,465

 
323,296

General & administrative expenses (1)
29,713

 
29,374

 
29,713

 
29,374

Management fee revenue
(712
)
 
(922
)
 
(712
)
 
(922
)
Other (income)/expense (1)
(418
)
 
(303
)
 
(418
)
 
(303
)
Straight line effects of lease revenue (1)
(13,980
)
 
(21,492
)
 
 
 
 
Amortization of lease-related intangibles (1)
(7,615
)
 
(6,575
)
 
 
 
 
Property NOI*
295,453

 
323,378

 
317,048

 
351,445

   Net operating income from:
 
 
 
 
 
 
 
Acquisitions
(4,718
)
 
(23
)
 
(5,993
)
 
(27
)
Dispositions
(13,841
)
 
(58,177
)
 
(11,396
)
 
(54,650
)
Other investments(2)
(3,730
)
 
(8,718
)
 
(4,021
)
 
(9,418
)
Same Store NOI *
$
273,164

 
$
256,460

 
$
295,638

 
$
287,350

Change period over period in Same Store NOI
6.5
%
 
N/A

 
2.9
%
 
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=12677353&doc=11



Quarterly Supplemental Information
December 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 45 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 38. 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
 
December 31, 2018
 
December 31, 2017
Number of consolidated office properties (1)
54
 
67
Rentable square footage (in thousands) (1)
16,208
 
19,061
Percent leased (2)
93.3
%
 
89.7
%
Capitalization (in thousands):
 
 
 
Total debt - principal amount outstanding (excludes premiums, discounts, and deferred financing costs)
$1,694,706
 
$1,733,670
Equity market capitalization (3)
$2,150,764
 
$2,791,659
Total market capitalization (3)
$3,845,470
 
$4,525,329
Total debt / Total market capitalization (3)
44.1
%
 
38.3
%
Average net debt to Core EBITDA
5.8 x

 
5.6 x

Total debt / Total gross assets
36.2
%
 
33.0
%
Common stock data:
 
 
 
High closing price during quarter
$18.90
 
$20.40
Low closing price during quarter
$16.49
 
$19.21
Closing price of common stock at period end
$17.04
 
$19.61
Weighted average fully diluted shares outstanding during quarter (in thousands)
128,811
 
144,503
Shares of common stock issued and outstanding at period end (in thousands)
126,219
 
142,359
Annual regular dividend per share (4)
$0.84
 
$0.84
Special dividend per share declared during calendar year
NA

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

 
BBB / Stable

Moody's
Baa2 / Stable

 
Baa2 / Stable

Employees
134
 
136


(1)
As of December 31, 2018, our consolidated office portfolio consisted of 54 properties (exclusive of one 487,000 square foot 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 36), 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 and third quarters of 2018. During the fourth quarter of 2018, the Company acquired 9320 Excelsior Boulevard, a 268,000 square foot office building located in Hopkins, MN, and 25 Burlington Mall Road, a 288,000 square foot office building located in Burlington, MA, and we sold 800 North Brand Boulevard, a 527,000 square foot office building located in Glendale, CA.
(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, since January 1, 2018, it has excluded one out of service property. Please refer to page 26 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 regular dividends per share 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
C. Brent Smith
Robert E. Bowers
Edward H. Guilbert, III
Chief Executive Officer and
President, Chief Investment Officer, and
Chief Financial and Administrative Officer and
Senior Vice President, Finance and
Director
Executive Vice President, Northeast Region
Executive Vice President
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 and
Director, Chairman of the Audit
Director, Chairman of the Capital
and Governance Committees
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 December 31, 2018


Financial Results (1) 

Net income attributable to Piedmont for the quarter ended December 31, 2018 was $45.4 million, or $0.35 per share (diluted), compared to $(31.4) million, or $(0.21) per share (diluted), for the same quarter in 2017. Net income attributable to Piedmont for the twelve months ended December 31, 2018 was $130.3 million, or $1.00 per share (diluted), compared to $133.6 million, or $0.92 per share (diluted), for the same period in 2017. The increase in net income attributable to Piedmont for the three months ended December 31, 2018 when compared to the same period in 2017 was principally due to gains and losses recorded on asset sales during the respective periods. During the fourth quarter of 2017, the Company accrued impairment losses related to certain properties in the multiple property disposition that closed during the first quarter of 2018, and, in the fourth quarter of 2018, it recognized a large gain on the sale of an asset.

Funds from operations (FFO) for the quarter ended December 31, 2018 was $57.9 million, or $0.45 per share (diluted), compared to $60.9 million, or $0.42 per share (diluted), for the same quarter in 2017. FFO for the twelve months ended December 31, 2018 was $225.0 million, or $1.72 per share (diluted), compared to $254.4 million, or $1.75 per share (diluted), for the same period in 2017. The decrease in dollar amount of FFO for the three months and the twelve months ended December 31, 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 $800 million of properties, including the sales of Two Independence Square in Washington, D.C., in July 2017, a 14-property portfolio in January 2018, and 800 North Brand Boulevard in Glendale, CA, in November 2018. In addition to the explanations provided above, the per share results for 2018 were positively influenced by the amount of shares of Company stock repurchased through Piedmont's board-approved stock repurchase program during the year, amounting to approximately 16.5 million shares, or about $302 million, of repurchases.

Core funds from operations (Core FFO) for the quarter ended December 31, 2018 was $57.9 million, or $0.45 per share (diluted), compared to $60.9 million, or $0.42 per share (diluted), for the same quarter in 2017. Core FFO for the twelve months ended December 31, 2018 was $226.6 million, or $1.73 per share (diluted), compared to $254.4 million, or $1.75 per share (diluted), for the same period in 2017. The decrease in dollar amount of Core FFO for the three months and the twelve months ended December 31, 2018 when compared to the same periods in 2017 was primarily attributable to the net disposition activity described above for changes in FFO. The per share results for 2018 were positively influenced by the Company's share repurchase activity described above for changes in FFO per share.

Adjusted funds from operations (AFFO) for the quarter ended December 31, 2018 was $40.7 million, compared to $42.9 million for the same quarter in 2017. AFFO for the twelve months ended December 31, 2018 was $171.5 million, compared to $200.3 million for the same period in 2017. The decrease in AFFO for the three months and the twelve months ended December 31, 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 54 office properties located primarily in eight major office markets in the eastern portion of the United States and one redevelopment property. The Company's redevelopment property is Two Pierce Place, an approximately 487,000 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 37 of this report.

On a square footage leased basis, our total in-service office portfolio was 93.3% leased as of December 31, 2018, as compared to 89.7% at December 31, 2017. Please refer to page 26 for additional leased percentage information.

The weighted average remaining lease term of our in-service portfolio was 6.6 years(2) as of December 31, 2018 as compared to 6.5 years at December 31, 2017. Our weighted average adjusted Annualized Lease Revenue(3) per square foot for our in service portfolio was $35.83 as of December 31, 2018.

(1)
FFO, Core FFO and AFFO are supplemental non-GAAP financial measures. See page 38 for definitions of these non-GAAP financial measures, and pages 14 and 40 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 December 31, 2018) is weighted based on Annualized Lease Revenue, as defined on page 38.
(3)
Annualized Lease Revenue is adjusted for buildings at which tenants pay operating expenses directly to include such operating expenses as if they were paid by the Company and reimbursed by the tenants as under a typical net lease structure, thereby reflecting the true gross rental rate for those buildings.

5




During the three months ended December 31, 2018, the Company completed approximately 256,000 square feet of total leasing. Of the total leasing activity completed during the quarter, we signed new tenant leases for approximately 100,000 square feet. During the twelve months ended December 31, 2018, we completed approximately 1,634,000 square feet of leasing for our consolidated office properties, including approximately 864,000 square feet of new tenant leases. The average committed capital for tenant improvements and leasing commissions per square foot per year of lease term for all leasing activity completed during the twelve months ended December 31, 2018 (net of commitment expirations during the period) was $5.64 (see page 32).

During the three months ended December 31, 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
Bipartisan Policy Center
1225 Eye Street
Washington, DC
38,092
2033
Renewal
Schlumberger Technology Corporation
1430 Enclave Parkway
Houston, TX
28,271
2028
Expansion
Utilities, Inc.
500 West Monroe Street
Chicago, IL
26,975
2034
New
JPMorgan Chase Bank, N.A.
CNL Center I
Orlando, FL
26,372
2025
Renewal / Expansion
HERE North America, LLC
5 & 15 Wayside Road
Burlington, MA
22,900
2024
Renewal
NNR Global Logistics USA Inc.
Two Pierce Place
Itasca, IL
10,247
2030
New

At the end of the fourth 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 December 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
State of New York
60 Broad Street
New York, NY
480,708
5.1%
Q1 2019
The Company is in advanced stages of the lease renewal process with the tenant. Progress continues to be made and the anticipated outcome is a lease renewal with a modest square footage contraction.
City of New York
60 Broad Street
New York, NY
313,022
2.1%
Q2 2020
The Company is in advanced discussions with the tenant regarding a long-term lease renewal.

Future Lease Commencements and Abatements

As of December 31, 2018, our overall leased percentage was 93.3% and our economic leased percentage was 86.8%. 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 465,133 square feet of leases as of December 31, 2018, or 2.8% of the portfolio); and
2)
leases which have commenced but are within rental abatement periods (amounting to 666,791 square feet of leases as of December 31, 2018, or a 3.7% impact to leased percentage on an economic basis).

The gap between reported leased percentage and economic leased percentage will fluctuate over time as (1) new leases are signed for vacant spaces (with the gap this quarter being heavily influenced by the Transocean lease for 301,000 square feet of vacant space at Enclave Place in Houston, TX, attributable for 1.9% of the 6.5% gap), (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. Consequently, the absolute level of economic leased percentage and its growth over time are the primary management metrics and not the spread between reported and economic leased percentages at any one point in time. As additional leasing is completed for vacant space and the overall portfolio leased percentage increases, the economic leased percentage will naturally follow as new leases commence and any related abatement periods expire. Since the beginning of 2014, the reported leased percentage has increased 6.6% and the economic leased percentage has increased 12.8%.


6



Piedmont has leases with many large corporate office space users. The average size of lease in the Company's portfolio is approximately 19,000 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
Transocean Offshore Deepwater Drilling, Inc.
Enclave Place
Houston, TX
300,906
Vacant
Q3 2019 (1)
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
91,416
Not Vacant
Q1 2019 (63,145 SF) Q2 2019 (28,271 SF)
New (2)
Gartner, Inc.
6011 Connection Drive
Irving, TX
53,952
Vacant
Q2 2019 (27,198 SF)(3) 
Q3 2019 (26,754 SF)
New

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 from existing signed leases 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 fourth 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
Remaining Abatement Schedule
Lease Expiration
Norris, McLaughlin & Marcus
400 Bridgewater Crossing
Bridgewater, NJ
61,642
Q4 2016
October through December 2018
Q4 2029

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 (4)
Q2 2028
Gartner, Inc.
6011 Connection Drive
Irving, TX
98,134 (5)
Q3 2018
September 2018 through April 2019 (98,134 square feet);
May and June 2019 (125,332 square feet)
Q2 2034
Holland & Knight, LLP
SunTrust Center
Orlando, FL
50,655
Q4 2018 (6)
December 2018 through February 2019
Q1 2024
Schlumberger Technology Corporation
1430 Enclave Parkway
Houston, TX
225,726 (5)
Q1 2019 (7)
January through May 2019 (225,726 square feet);
June 2019 (253,997 square feet)
Q4 2028
District of Columbia
(Department of Disability Services)
One Independence Square
Washington, DC
101,982
Q2 2016
Months of June 2019, June 2020
Q1 2028
Transocean Offshore Deepwater Drilling, Inc.
Enclave Place
Houston, TX
300,906
Q3 2019 (1)
July 2019 through April 2021 (8)
Q2 2036
Norris, McLaughlin & Marcus
400 Bridgewater Crossing
Bridgewater, NJ
61,642
Q4 2016
November and December 2019
Q4 2029
(1)
The lease is scheduled to commence in Q3 2019. GAAP revenue recognition is anticipated to commence in Q4 2019, conditional upon the substantial completion of the tenant's improvements to the space. The rental abatement period is fixed and will not vary based upon the timing of GAAP revenue recognition.
(2)
During 2018, Schlumberger signed a total of 253,997 square feet of leasing (consisting of a renewal and an expansion) at 1430 Enclave Parkway. The expansion component is comprised of 91,416 square feet, 63,145 square feet of which Schlumberger subleases from Technip. Schlumberger's direct lease for the space that it currently subleases will commence on January 1, 2019, immediately following the expiration of Technip's lease. The remaining portion of the expansion, comprised of 28,271 square feet, is estimated to commence on June 1, 2019.
(3)
The commencement of the Gartner lease is occurring in three phases. The first phase of 98,134 square feet commenced during the third quarter of 2018. The remaining two phases presented in this table have not yet commenced. The first phase of 98,134 square feet is receiving ten months of rental abatements and the second phase consisting of 27,198 square feet will receive two months of rental abatements. The third phase will not receive any rental abatements.
(4)
The rental abatement commenced on June 19, 2018 and will continue for a period of one year.
(5)
The amount of square feet under abatement varies over time; see additional detail under the column entitled Remaining Abatement Schedule.
(6)
Represents the commencement date of the renewal term.
(7)
Represents the commencement date of the renewal term and 63,145 square feet of expansion. An additional expansion of 28,271 square feet will occur in Q2 2019.
(8)
The tenant's existing lease at another building in Houston terminates in 2021. The tenant desired to have access to its new space at Enclave Place on an accelerated basis without duplicative rental charges. Piedmont was able to negotiate into the lease other economic and credit-supporting terms as a result of this longer potential free rent period.

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 full value has been reached 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 November 29, 2018, Piedmont completed the sale of 800 North Brand Boulevard, a 21-story, 90% leased, 527,000 square foot office building located in Glendale, CA, for $160.0 million, or $303 per square foot. The Company recorded a $30.4 million gain on the sale of the asset. The transaction allowed Piedmont to:
reduce the number of projects owned outside of its eight strategic operating markets to two; and
dispose of its last remaining West Coast property.
The two remaining projects that Piedmont owns outside of its eight strategic markets currently have a combined leased percentage of 100% and a weighted average lease term remaining of over 13 years.

On December 21, 2018, Piedmont entered into a binding contract to sell One Independence Square, a nine-story, 94% leased, 334,000 square foot office building located in Washington, DC. The sale price is $170.0 million, or approximately $508 per square foot. The sale is expected to close during the first quarter of 2019 (subject to customary closing conditions) and will allow the Company to reduce its exposure to the non-strategic Southwest submarket in Washington, DC.

Acquisitions
On October 25, 2018, Piedmont completed the purchase of 9320 Excelsior Boulevard, a 268,000 square foot, 100% leased, seven-story, Class AA office building with a three-level parking structure (offering 4.6 spaces per 1,000 square feet of space), located in Hopkins, MN, for $48.7 million, or approximately $182 per square foot. The 2010-vintage building is currently leased and occupied by an investment-grade tenant through 2023; however, the investment offers upside potential as the sole tenant desires to rationalize its space usage, although it has no contractual rights to do so. This situation provides Piedmont with time to consider various restructuring alternatives to find a solution that will work for both the Company and the tenant and which will provide a compelling risk-adjusted return for investors. The property is situated within a large-scale, highly amenitized office development at the northeast corner of Highway 169 and Excelsior Boulevard, between the prominent suburbs of Minnetonka and Edina, with easy accessibility to Interstates 394 and 494, offering excellent connectivity to the entire Minneapolis metropolitan area. The asset complements the Company's existing Minneapolis portfolio in terms of physical quality and location, allowing both marketing and operating synergies. The acquisition was completed at an estimated discount to replacement cost of almost 50%.

On December 12, 2018, Piedmont completed the purchase of 25 Burlington Mall Road, a 288,000 square foot, 89% leased, six-story, Class A office building located in Burlington, MA, for $74.0 million, or approximately $257 per square foot. The property is situated adjacent to Route 128 / Interstate 95, allowing easy access by commuters, and it is centrally located within the submarket, affording tenants quick access to the area's deep amenity base, which includes over 800,000 square feet of upscale dining, retail and entertainment within one mile, along with a multitude of hotel and housing options. The acquisition, which increases the Company's Class A submarket share to nearly 40%, will allow Piedmont to capture additional marketing and operating synergies. With a floorplate better suited for small- to medium-sized tenants, the asset complements Piedmont's existing holdings in Burlington, allowing the Company to present prospective tenants with a full spectrum of space offerings in the market. The acquisition was completed at an estimated discount to replacement cost of approximately 40%.

In summary, during the fourth quarter of 2018, the Company sold one asset for $160 million, and it used the proceeds to buy two assets in its strategic operating markets for a combined approximately $123 million, as well as pay down debt and repurchase stock. During the year ended December 31, 2018, Piedmont sold 15 properties for approximately $590 million and it purchased three properties in close proximity to existing assets in its strategic operating markets for nearly $151 million; the remaining net sales proceeds were used to repurchase approximately $302 million of Company stock, to reduce debt by nearly $40 million and to fund capital projects within the portfolio.

For additional information on acquisitions and dispositions completed over the previous eighteen months, please refer to page 36.

Development / Redevelopment
The Company had no ground-up developments underway as of December 31, 2018.

During the fourth quarter of 2018, the Company substantially completed a $14 million redevelopment at Two Pierce Place in Itasca, IL. The project included a renovation of the property's lobby and exterior plaza, an elevator modernization, the enhancement and addition of building amenities, and the acquisition and improvement of additional land to increase the building's parking ratio.

8



During the fourth quarter of 2018, Piedmont commenced an approximately $8.5 million project to add a tenant-only amenity center at US Bancorp Center in Minneapolis, MN. The amenity center, with approximately 24-foot ceilings and large-windowed views of the downtown skyline, is being constructed on the thirty-first floor of the building in former mechanical system space and will provide tenants a full fitness center, a tenant lounge and conference rooms.

Additional detail on the Company's developable land parcels, all of which are located adjacent to existing Piedmont properties, as well as information on its redevelopment project, can be found on page 37.

Finance
As of December 31, 2018, our ratio of total debt to total gross assets was 36.2%. This debt ratio is based on total principal amount outstanding for our various loans at December 31, 2018.

As of December 31, 2018, our average net debt to Core EBITDA ratio was 5.8 x, and the same measure at December 31, 2017 was 5.6 x.
Stock Repurchase Program
During the fourth quarter of 2018, the Company repurchased approximately 2.2 million shares of common stock under its share repurchase program at an average price of $17.13 per share, or approximately $36.9 million (before the consideration of transaction costs). Since the stock repurchase program began in December 2011, the Company has repurchased approximately 48.0 million shares at an average price of $17.71 per share, or approximately $849.5 million in aggregate (before the consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases totaled approximately $86.6 million under the stock repurchase plan. Repurchases of stock under the program will be made at the Company's discretion and will depend on market conditions, other investment opportunities and other factors that the Company deems relevant.

Dividend
On October 30, 2018, the Board of Directors of Piedmont declared a dividend for the fourth quarter of 2018 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on November 30, 2018. The dividend was paid on January 3, 2019. The Company's dividend payout percentage (for dividends declared) for the twelve months ended December 31, 2018 was 48% of Core FFO and 64% of AFFO.

Subsequent Events

On February 5, 2019, the Board of Directors of Piedmont declared a dividend for the first quarter of 2019 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on February 28, 2019. The dividend is expected to be paid on March 15, 2019.

Guidance for 2019

The following financial guidance for calendar year 2019 is based upon management's expectations at this time, including the anticipated sale of One Independence Square in Washington, DC; this financial guidance, however, does not include the potential effects of any additional acquisition or disposition activity.
 
Low
 
High
 
 
 
 
Net Income
$79 million
to
$83 million
Add:
 
 
 
         Depreciation
110 million
to
114 million
         Amortization
58 million
to
60 million
Less:
 
 
 
         Gain on Sale of Real Estate Assets
(28) million
to
(30) million
NAREIT Funds from Operations and Core Funds from Operations applicable to Common Stock
$219 million
 
$227 million
NAREIT Funds from Operations and Core Funds from Operations per diluted share
$1.74
to
$1.80
 
 
 
 
 
 
 
 

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.

9



Piedmont Office Realty Trust, Inc.
Consolidated Balance Sheets
Unaudited (in thousands)

 
December 31, 2018

September 30, 2018

June 30, 2018

March 31, 2018

December 31, 2017
Assets:

 
 
 
 
 
 
 
 
Real estate, at cost:

 
 
 
 
 
 
 
 
Land assets
$
507,422

 
$
493,433

 
$
493,432

 
$
493,432

 
$
490,625

Buildings and improvements
3,077,189

 
2,980,752

 
2,964,453

 
2,960,168

 
2,927,289

Buildings and improvements, accumulated depreciation
(772,093
)
 
(749,699
)
 
(725,635
)
 
(708,027
)
 
(683,770
)
Intangible lease asset
165,067

 
149,795

 
150,205

 
158,338

 
176,950

Intangible lease asset, accumulated amortization
(87,391
)
 
(84,268
)
 
(79,934
)
 
(83,063
)
 
(99,145
)
Construction in progress
15,848

 
22,561

 
17,753

 
15,171

 
11,344

Real estate assets held for sale, gross
159,005

 
331,378

 
331,236

 
330,387

 
832,001

Real estate assets held for sale, accumulated depreciation & amortization
(48,453
)
 
(107,957
)
 
(106,057
)
 
(103,733
)
 
(270,552
)
Total real estate assets
3,016,594

 
3,035,995

 
3,045,453

 
3,062,673

 
3,384,742

Investments in and amounts due from unconsolidated joint ventures

 

 

 
10

 
10

Cash and cash equivalents
4,571

 
6,807

 
8,944

 
6,729

 
7,382

Tenant receivables, net of allowance for doubtful accounts
10,800

 
10,522

 
9,323

 
12,040

 
12,139

Straight line rent receivable
162,589

 
158,380

 
154,297

 
149,304

 
144,469

Notes receivable

 
3,200

 
3,200

 
3,200

 

Escrow deposits and restricted cash
1,463

 
1,374

 
1,415

 
1,464

 
1,373

Prepaid expenses and other assets
25,356

 
31,012

 
27,565

 
23,361

 
20,778

Goodwill
98,918

 
98,918

 
98,918

 
98,918

 
98,918

Interest rate swap
1,199

 
4,069

 
2,679

 
725

 
688

Deferred lease costs, gross
433,759


413,593


401,833


404,967


425,295

Deferred lease costs, accumulated amortization
(183,611
)

(175,194
)

(165,115
)

(163,924
)

(180,120
)
Other assets held for sale, gross
23,237


39,797


39,619


40,318


104,462

Other assets held for sale, accumulated amortization
(2,446
)

(4,583
)

(4,141
)

(4,095
)

(20,169
)
Total assets
$
3,592,429

 
$
3,623,890

 
$
3,623,990

 
$
3,635,690

 
$
3,999,967

Liabilities:
 
 
 
 
 
 
 
 
 
Unsecured debt, net of discount
$
1,495,121

 
$
1,524,618

 
$
1,529,856

 
$
1,498,339

 
$
1,535,311

Secured debt
190,351

 
190,753

 
190,990

 
191,305

 
191,616

Accounts payable, accrued expenses, and accrued capital expenditures
129,491

 
109,087

 
94,215

 
83,786

 
216,653

Deferred income
28,779

 
27,450

 
25,532

 
29,751

 
29,582

Intangible lease liabilities, less accumulated amortization
35,708

 
37,986

 
40,341

 
42,699

 
38,458

Interest rate swaps
839

 

 

 
222

 
1,478

Other liabilities held for sale

 

 

 

 
380

Total liabilities
$
1,880,289

 
$
1,889,894

 
$
1,880,934

 
$
1,846,102

 
$
2,013,478

Stockholders' equity:
 
 
 
 
 
 
 
 
 
Common stock
1,262

 
1,284

 
1,284

 
1,300

 
1,424

Additional paid in capital
3,683,186

 
3,682,209

 
3,681,127

 
3,680,241

 
3,677,360

Cumulative distributions in excess of earnings
(1,982,542
)
 
(1,964,135
)
 
(1,953,291
)
 
(1,904,404
)
 
(1,702,281
)
Other comprehensive loss
8,462

 
12,851

 
12,141

 
10,639

 
8,164

Piedmont stockholders' equity
1,710,368

 
1,732,209

 
1,741,261

 
1,787,776

 
1,984,667

Non-controlling interest
1,772

 
1,787

 
1,795

 
1,812

 
1,822

Total stockholders' equity
1,712,140

 
1,733,996

 
1,743,056

 
1,789,588

 
1,986,489

Total liabilities, redeemable common stock and stockholders' equity
$
3,592,429

 
$
3,623,890

 
$
3,623,990

 
$
3,635,690

 
$
3,999,967

Common stock outstanding at end of period
126,219

 
128,371

 
128,371

 
130,025

 
142,359



10



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

 
 
Three Months Ended
 
 
12/31/2018
 
9/30/2018
 
6/30/2018
 
3/31/2018
 
12/31/2017
Revenues:
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
107,387

 
$
101,348

 
$
101,478

 
$
101,454

 
$
109,726

Tenant reimbursements
 
24,532

 
23,170

 
22,047

 
22,994

 
24,764

Property management fee revenue
 
391

 
368

 
382

 
309

 
356

Other property related income
 
4,875

 
4,822

 
5,267

 
5,143

 
4,598

 
 
137,185

 
129,708

 
129,174

 
129,900

 
139,444

Expenses:
 
 
 
 
 
 
 
 
 
 
Property operating costs
 
55,163

 
49,679

 
52,637

 
51,859

 
55,806

Depreciation
 
26,844

 
26,852

 
27,115

 
27,145

 
28,461

Amortization
 
16,477

 
14,840

 
15,245

 
16,733

 
17,515

Impairment loss on real estate assets (1)
 

 

 

 

 
46,461

General and administrative
 
8,226

 
6,677

 
8,258

 
6,552

 
7,451

 
 
106,710

 
98,048

 
103,255

 
102,289

 
155,694

Real estate operating income
 
30,475

 
31,660

 
25,919

 
27,611

 
(16,250
)
Other income / (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(15,729
)
 
(15,849
)
 
(15,687
)
 
(13,758
)
 
(15,463
)
Other income / (expense)
 
158

 
303

 
731

 
446

 
429

Equity in income / (loss) of unconsolidated joint ventures
 

 

 

 

 
(27
)
Gain / (loss) on extinguishment of debt
 

 

 

 
(1,680
)
 

 
 
(15,571
)
 
(15,546
)
 
(14,956
)
 
(14,992
)
 
(15,061
)
Income from continuing operations
 
14,904

 
16,114

 
10,963

 
12,619

 
(31,311
)
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) (2)
 
30,505

 

 
(23
)
 
45,209

 
(77
)
Net income
 
45,409

 
16,114

 
10,940

 
57,828

 
(31,388
)
Less: Net (income) / loss attributable to noncontrolling interest
 
1

 

 
2

 
2

 
5

Net income attributable to Piedmont
 
$
45,410

 
$
16,114

 
$
10,942

 
$
57,830

 
$
(31,383
)
Weighted average common shares outstanding - diluted
 
128,811

 
128,819

 
128,701

 
136,183

 
144,503

Net income per share available to common stockholders - diluted
 
$
0.35

 
$
0.13

 
$
0.09

 
$
0.42

 
$
(0.21
)
Common stock outstanding at end of period
 
126,219

 
128,371

 
128,371

 
130,025

 
142,359

(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 fourth quarter of 2018 was primarily related to the sale of 800 North Brand Boulevard in Glendale, CA, on which the Company recorded a $30.4 million gain.

11



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

 
Three Months Ended
 
Twelve Months Ended
 
12/31/2018
12/31/2017
 
Change ($)
Change (%)
 
12/31/2018
12/31/2017
 
Change ($)
Change (%)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
107,387

$
109,726