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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________ 
FORM 10-Q
_______________________________________________________________________________________  
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
For the Quarterly Period Ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
For the Transition Period From                      To                     
Commission file number 001-34626
Piedmont Office Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
 ____________________________________________________ 
Maryland58-2328421
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)

5565 Glenridge Connector Ste. 450
Atlanta, Georgia 30342
(Address of principal executive offices) (Zip Code)
(770) 418-8800
(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)

Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, $0.01 par valuePDMNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filerxAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No   x
Number of shares outstanding of the Registrant’s
common stock, as of October 29, 2019:
125,783,408 shares



Table of Contents
FORM 10-Q
PIEDMONT OFFICE REALTY TRUST, INC.
TABLE OF CONTENTS
 
 Page No.
PART IFinancial Information
Item 1.
Item 2.
Item 3.
Item 4.
PART II.Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q may constitute forward-looking statements within the meaning of the federal securities laws. In addition, Piedmont Office Realty Trust, Inc. ("Piedmont," "we," "our," or "us"), or its executive officers on Piedmont’s behalf, may from time to time make forward-looking statements in reports and other documents Piedmont files with the Securities and Exchange Commission or in connection with other written or oral statements made to the press, potential investors, or others. Statements regarding future events and developments and Piedmont’s future performance, as well as management’s expectations, beliefs, plans, estimates, or projections relating to the future, are forward-looking statements. Forward-looking statements include statements preceded by, followed by, or that include the words “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Examples of such statements in this report include descriptions of our real estate, financings, and operating objectives; discussions regarding future dividends and share repurchases; and discussions regarding the potential impact of economic conditions on our real estate and lease portfolio.

These statements are based on beliefs and assumptions of Piedmont’s management, which in turn are based on information available at the time the statements are made. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding the demand for office space in the markets in which Piedmont operates, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. The forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond Piedmont’s ability to control or predict. Such factors include, but are not limited to, the following:

Economic, regulatory, socio-economic changes, 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 specifically the seven markets in which we primarily operate where we have high concentrations of our Annualized Lease Revenue (see definition below);
Lease terminations, lease defaults, or changes in the financial condition of our tenants, 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, including an increased risk of default by government tenants during periods in which state or federal governments are shut down or on furlough;
Significant price and volume fluctuations in the public markets, including on the exchange which we listed our common stock;
Changes in the method pursuant to which the LIBOR rates are determined and the potential phasing out of LIBOR after 2021;
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;
Changes in the financial condition of our tenants directly or indirectly resulting from geopolitical developments that could negatively affect international trade, including the United Kingdom's referendum to withdraw from the European Union, the termination or threatened termination of existing international trade agreements, or the implementation of tariffs or retaliatory tariffs on imported or exported goods;
The effect of any litigation to which we are, or may become, subject;
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Changes in tax laws impacting real estate investment trusts ("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”) or otherwise adversely affect our stockholders;
The future effectiveness of our internal controls and procedures; and
Other factors, including the risk factors discussed under Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2018.

Management believes these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and management undertakes no obligation to update publicly any of them in light of new information or future events.

Information Regarding Disclosures Presented

Annualized Lease Revenue ("ALR"), a non-GAAP measure, is calculated by multiplying (i) rental payments (defined as base rent plus operating expense reimbursements, if payable by the tenant on a monthly basis under the terms of a lease that has been executed, but excluding (a) rental abatements and (b) rental payments related to executed but not commenced leases for space that is currently covered by an existing lease), by (ii) 12. In instances in which contractual rents or operating expense reimbursements are collected on an annual, semi-annual, or quarterly basis, such amounts are multiplied by a factor of 1, 2, or 4, respectively, to calculate the annualized figure. For leases that have been executed but not commenced relating to un-leased space, ALR is calculated by multiplying (i) the monthly base rental payment (excluding abatements) plus any operating expense reimbursements for the initial month of the lease term, by (ii) 12. Unless stated otherwise, this measure excludes revenues associated with development/re-development properties, if any.

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PART I.  FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.

The information presented in the accompanying consolidated balance sheets and related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows reflects all adjustments that are, in management’s opinion, necessary for a fair and consistent presentation of financial position, results of operations, and cash flows in accordance with GAAP.
The accompanying financial statements should be read in conjunction with the notes to Piedmont’s financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report on Form 10-Q and with Piedmont’s Annual Report on Form 10-K for the year ended December 31, 2018. Piedmont’s results of operations for the nine months ended September 30, 2019 are not necessarily indicative of the operating results expected for the full year.
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
(Unaudited)
September 30,
2019
December 31,
2018
Assets:
Real estate assets, at cost:
Land
$506,440  $470,432  
Buildings and improvements, less accumulated depreciation of $772,122 and $718,070 as of September 30, 2019 and December 31, 2018, respectively
2,327,055  2,121,570  
Intangible lease assets, less accumulated amortization of $77,483 and $87,391 as of September 30, 2019 and December 31, 2018, respectively
88,371  77,676  
Construction in progress
13,866  15,848  
Real estate assets held for sale, net213,094  331,068  
Total real estate assets3,148,826  3,016,594  
Cash and cash equivalents10,284  4,571  
Tenant receivables
10,091  10,800  
Straight-line rent receivables147,197  136,762  
Restricted cash and escrows1,820  1,463  
Prepaid expenses and other assets27,143  24,691  
Goodwill98,918  98,918  
Interest rate swaps
  1,199  
Deferred lease costs, less accumulated amortization of $173,490 and $176,919 as of September 30, 2019 and December 31, 2018, respectively
267,616  236,198  
Other assets held for sale, net40,036  61,233  
Total assets$3,751,931  $3,592,429  
Liabilities:
Unsecured debt, net of discount and unamortized debt issuance costs of $8,207 and $9,879 as of September 30, 2019 and December 31, 2018, respectively
$1,689,793  $1,495,121  
Secured debt, net of premiums and unamortized debt issuance costs of $418 and $645 as of September 30, 2019 and December 31, 2018, respectively
189,451  190,351  
Accounts payable, accrued expenses and accrued capital expenditures114,812  93,739  
Dividends payable  26,972  
Deferred income27,985  28,779  
Intangible lease liabilities, less accumulated amortization of $49,613 and $59,144 as of September 30, 2019 and December 31, 2018, respectively
34,970  35,708  
Interest rate swaps6,862  839  
Other liabilities held for sale7,275  8,780  
Total liabilities2,071,148  1,880,289  
Commitments and Contingencies (Note 8)
    
Stockholders’ Equity:
Shares-in-trust, 150,000,000 shares authorized; none outstanding as of September 30, 2019 or December 31, 2018
    
Preferred stock, no par value, 100,000,000 shares authorized; none outstanding as of September 30, 2019 or December 31, 2018
    
Common stock, $0.01 par value, 750,000,000 shares authorized; 125,783,408 and 126,218,554 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
1,258  1,262  
Additional paid-in capital3,685,504  3,683,186  
Cumulative distributions in excess of earnings(2,007,438) (1,982,542) 
Other comprehensive income/(loss)(283) 8,462  
Piedmont stockholders’ equity1,679,041  1,710,368  
Noncontrolling interest1,742  1,772  
Total stockholders’ equity1,680,783  1,712,140  
Total liabilities and stockholders’ equity$3,751,931  $3,592,429  
See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share and per share amounts)
 
(Unaudited)(Unaudited)
Three Months EndedNine Months Ended
 September 30,September 30,
 2019201820192018
Revenues:
Rental and tenant reimbursement revenue$130,579  $124,518  $382,213  $372,491  
Property management fee revenue405  368  2,819  1,059  
Other property related income4,437  4,822  13,993  15,232  
135,421  129,708  399,025  388,782  
Expenses:
Property operating costs54,613  49,679  158,798  154,175  
Depreciation27,131  26,852  80,004  81,112  
Amortization19,505  14,840  55,666  46,818  
Impairment loss on real estate assets1,953    1,953    
General and administrative
7,950  6,677  29,736  21,487  
111,152  98,048  326,157  303,592  
Other income (expense):
Interest expense(16,145) (15,849) (46,750) (45,294) 
Other income263  303  1,292  1,480  
Loss on extinguishment of debt      (1,680) 
Gain on sale of real estate assets32    39,370  45,186  
(15,850) (15,546) (6,088) (308) 
Net income8,419  16,114  66,780  84,882  
Net loss applicable to noncontrolling interest
3    3  4  
Net income applicable to Piedmont$8,422  $16,114  $66,783  $84,886  
Per share information – basic and diluted:
Net income applicable to common stockholders$0.07  $0.13  $0.53  $0.65  
Weighted-average common shares outstanding – basic125,783,408  128,371,062  125,684,202  130,837,223  
Weighted-average common shares outstanding – diluted126,239,744  128,818,658  126,189,851  131,187,127  
See accompanying notes

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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

(Unaudited)(Unaudited)
Three Months Ended  Nine Months Ended
 September 30,September 30,
 2019201820192018
Net income applicable to Piedmont$8,422  $16,114  $66,783  $84,886  
Other comprehensive income/(loss):
Effective portion of gain/(loss) on derivative instruments that are designated and qualify as cash flow hedges (See Note 5)
(1,386) 1,144  (6,874) 4,408  
Plus/(less): Reclassification of net loss/(gain) included in net income (See Note 5)
(427) (434) (1,871) 373  
Other comprehensive income/(loss)(1,813) 710  (8,745) 4,781  
Comprehensive income applicable to Piedmont
$6,609  $16,824  $58,038  $89,667  

See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 (UNAUDITED)
(in thousands, except per share amounts)

 
 Common  StockAdditional
Paid-In
Capital
Cumulative
Distributions
in Excess of
Earnings
Other
Comprehensive
Income/(Loss)
Non-
controlling
Interest
Total
Stockholders’
Equity
 SharesAmount
Balance, December 31, 2018126,219  $1,262  $3,683,186  $(1,982,542) $8,462  $1,772  $1,712,140  
Share repurchases as part of an announced plan(728) (7) —  (12,475) —  —  (12,482) 
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested
—  —  (48) (26,375) —  (7) (26,430) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax
106  1  2,879  —  —  —  2,880  
Net income applicable to noncontrolling interest—  —  —  —  —  1  1  
Net income applicable to Piedmont—  —  —  50,208  —  —  50,208  
Other comprehensive loss—  —  —  —  (2,795) —  (2,795) 
Balance, March 31, 2019125,597  $1,256  $3,686,017  $(1,971,184) $5,667  $1,766  $1,723,522  
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested
—  —  (94) (26,415) —  (13) (26,522) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax
186  2  1,958  —  —  —  1,960  
Net loss applicable to noncontrolling interest—  —  —  —  —  (1) (1) 
Net income applicable to Piedmont—  —  —  8,153  —  —  8,153  
Other comprehensive loss—  —  —  —  (4,137) —  (4,137) 
Balance, June 30, 2019  125,783  $1,258  $3,687,881  $(1,989,446) $1,530  $1,752  $1,702,975  
Offering costs—  —  (700) —  —  —  (700) 
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested
—  —  (74) (26,414) —  (7) (26,495) 
Shares amortized under the 2007 Omnibus Incentive Plan, net of tax
    (1,603) —  —  —  (1,603) 
Net loss applicable to noncontrolling interest—  —  —  —  —  (3) (3) 
Net income applicable to Piedmont—  —  —  8,422  —  —  8,422  
Other comprehensive loss—  —  —  —  (1,813) —  (1,813) 
Balance, September 30, 2019125,783  $1,258  $3,685,504  $(2,007,438) $(283) $1,742  $1,680,783  


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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)
(in thousands, except per share amounts)

Common  StockAdditional
Paid-In
Capital
Cumulative
Distributions
in Excess of
Earnings
Other
Comprehensive
Income/(Loss)
Non-
controlling
Interest
Total
Stockholders’
Equity
SharesAmount
Balance, December 31, 2017142,359  $1,424  $3,677,360  $(1,702,281) $8,164  $1,822  $1,986,489  
Cumulative effect of accounting change (adoption of ASU 2016-01)
—  —  —  94  (94) —  —  
Share repurchases as part of an announced plan
(12,482) (125) —  (231,763) —  —  (231,888) 
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested
—  —  (19) (28,284) —  (8) (28,311) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax
148  1  2,900  —  —  —  2,901  
Net loss applicable to noncontrolling interest
—  —  —  —  —  (2) (2) 
Net income applicable to Piedmont
—  —  —  57,830  —  —  57,830  
Other comprehensive income
—  —  —  —  2,569  —  2,569  
Balance, March 31, 2018130,025  $1,300  $3,680,241  $(1,904,404) $10,639  $1,812  $1,789,588  
Share repurchases as part of an announced plan
(1,861) (18)   (32,879) —  —  (32,897) 
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested
—  —  (32) (26,950) —  (15) (26,997) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax
207  2  918  —  —  —  920  
Net loss applicable to noncontrolling interest
—  —  —  —  —  (2) (2) 
Net income applicable to Piedmont
—  —  —  10,942  —  —  10,942  
Other comprehensive income
—  —  —  —  1,502  —  1,502  
Balance, June 30, 2018  128,371  $1,284  $3,681,127  $(1,953,291) $12,141  $1,795  $1,743,056  
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested
—  —  (5) (26,958) (8) (26,971) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax
    1,087  —  —  —  1,087  
Net income applicable to Piedmont
—  —  —  16,114  —  —  16,114  
Other comprehensive income
—  —  —  —  710  —  710  
Balance, September 30, 2018  128,371  $1,284  $3,682,209  $(1,964,135) $12,851  $1,787  $1,733,996  

See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) 
(Unaudited)
Nine Months Ended
September 30,
20192018
Cash Flows from Operating Activities:
Net income$66,780  $84,882  
Operating distributions received from unconsolidated joint ventures  10  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation80,004  81,112  
Amortization of debt issuance costs net of favorable settlement of interest rate swaps
419  (215) 
Other amortization52,057  42,882  
Impairment loss on real estate assets1,953  —  
Loss on extinguishment of debt  1,665  
Stock compensation expense12,365  6,671  
Gain on sale of real estate assets(39,370) (45,186) 
Changes in assets and liabilities:
Increase in tenant and straight-line rent receivables(10,660) (12,361) 
Increase in prepaid expenses and other assets(1,958) (8,496) 
Decrease in accounts payable and accrued expenses(2,496) (10,377) 
Increase/(decrease) in deferred income1,149  (2,265) 
Net cash provided by operating activities160,243  138,322  
Cash Flows from Investing Activities:
Acquisition of real estate assets and intangibles(326,144) (28,176) 
Capitalized expenditures(57,368) (44,998) 
Net sales proceeds from wholly-owned properties180,975  419,554  
Note receivable issuance  (3,200) 
Deferred lease costs paid(16,632) (15,831) 
Net cash (used in)/provided by investing activities(219,169) 327,349  
Cash Flows from Financing Activities:
Debt issuance and other costs paid(91) (947) 
Proceeds from debt550,000  820,061  
Repayments of debt(358,041) (833,005) 
Costs of issuance of common stock(259)   
Value of shares withheld for payment of taxes related to employee stock compensation(