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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 June 30, 2020
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)

Securities registered pursuant to Section 12(b) of the Act:
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  x 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 July 28, 2020:
126,028,762 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:

Actual or threatened public health epidemics or outbreaks, such as the novel coronavirus (COVID-19) pandemic that the world is currently experiencing, and governmental and private measures taken to combat such health crises, which may affect our personnel, tenants, demand for office space, and the costs of operating our assets;
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 real estate investment trusts ("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, civil unrest, or armed hostilities 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 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 uncertainty surrounding the United Kingdom's withdrawal
3

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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;
Additional risks and costs associated with owning properties occupied by tenants in particular industries, such as oil and gas, co-working, etc., including risks of default during start-up and during economic downturns;
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”) or otherwise adversely affect our stockholders;
The future effectiveness of our internal controls and procedures; and
Other factors, including the risk factor described in Item 1A. of this Quarterly Report on Form 10-Q, as well as the risk factors discussed under Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2019.

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) current 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 was 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 unleased 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 properties and properties taken out of service for redevelopment, 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, 2019. Piedmont’s results of operations for the six months ended June 30, 2020 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 (UNAUDITED)
(in thousands, except for share and per share amounts)
June 30,
2020
December 31,
2019
Assets:
Real estate assets, at cost:
Land
$505,228  $485,560  
Buildings and improvements, less accumulated depreciation of $776,870 and $730,750 as of June 30, 2020 and December 31, 2019, respectively
2,481,843  2,212,935  
Intangible lease assets, less accumulated amortization of $58,148 and $50,766 as of June 30, 2020 and December 31, 2019, respectively
105,997  74,405  
Construction in progress
51,045  29,920  
Real estate assets held for sale, net  139,690  
Total real estate assets3,144,113  2,942,510  
Cash and cash equivalents36,469  13,545  
Tenant receivables, net of allowance for doubtful accounts of $4,865 and $0 as of June 30, 2020 and December 31, 2019, respectively
8,494  8,226  
Straight-line rent receivables147,418  132,342  
Restricted cash and escrows1,769  1,841  
Prepaid expenses and other assets33,017  25,427  
Goodwill98,918  98,918  
Deferred lease costs, less accumulated amortization of $159,883 and $147,324 as of June 30, 2020 and December 31, 2019, respectively
299,515  265,747  
Other assets held for sale, net  28,201  
Total assets$3,769,713  $3,516,757  
Liabilities:
Unsecured debt, net of discount and unamortized debt issuance costs of $7,307 and $7,626 as of June 30, 2020 and December 31, 2019, respectively
$1,592,693  $1,292,374  
Secured debt, net of premiums and unamortized debt issuance costs of $539 and $343 as of June 30, 2020 and December 31, 2019, respectively
28,784  189,030  
Accounts payable, accrued expenses and accrued capital expenditures95,419  117,496  
Dividends payable  26,427  
Deferred income35,226  34,609  
Intangible lease liabilities, less accumulated amortization of $21,856 and $19,607 as of June 30, 2020 and December 31, 2019, respectively
41,179  25,069  
Interest rate swaps28,575  5,121  
Other liabilities held for sale  7,657  
Total liabilities1,821,876  1,697,783  
Commitments and Contingencies (Note 7)
    
Stockholders’ Equity:
Shares-in-trust, 150,000,000 shares authorized; none outstanding as of June 30, 2020 or December 31, 2019
    
Preferred stock, no par value, 100,000,000 shares authorized; none outstanding as of June 30, 2020 or December 31, 2019
    
Common stock, $0.01 par value, 750,000,000 shares authorized; 126,025,255 and 125,783,408 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively
1,260  1,258  
Additional paid-in capital3,691,377  3,686,398  
Cumulative distributions in excess of earnings(1,723,147) (1,871,375) 
Other comprehensive income/(loss)(23,360) 967  
Piedmont stockholders’ equity1,946,130  1,817,248  
Noncontrolling interest1,707  1,726  
Total stockholders’ equity1,947,837  1,818,974  
Total liabilities and stockholders’ equity$3,769,713  $3,516,757  
See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except for share and per share amounts)
 
Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Revenues:
Rental and tenant reimbursement revenue$131,247  $125,468  $263,401  $251,634  
Property management fee revenue622  422  1,395  2,414  
Other property related income2,762  4,778  7,006  9,556  
134,631  130,668  271,802  263,604  
Expenses:
Property operating costs53,148  52,380  106,338  104,185  
Depreciation27,200  26,348  55,084  52,873  
Amortization24,349  18,461  47,980  36,161  
General and administrative
5,937  12,418  14,580  21,786  
110,634  109,607  223,982  215,005  
Other income (expense):
Interest expense(13,953) (15,112) (29,217) (30,605) 
Other income349  752  498  1,029  
Loss on early extinguishment of debt(9,336)   (9,336)   
Gain on sale of real estate assets191,369  1,451  191,372  39,338  
168,429  (12,909) 153,317  9,762  
Net income192,426  8,152  201,137  58,361  
Net loss/(income) applicable to noncontrolling interest
1  1  (1)   
Net income applicable to Piedmont$192,427  $8,153  $201,136  $58,361  
Per share information – basic:
Net income applicable to common stockholders$1.53  $0.06  $1.60  $0.46  
Per share information – diluted:
Net income applicable to common stockholders$1.52  $0.06  $1.59  $0.46  
Weighted-average common shares outstanding – basic125,974,762  125,693,365  125,917,859  125,633,777  
Weighted-average common shares outstanding – diluted126,500,254  126,490,507  126,455,538  126,404,294  
See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)

Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Net income applicable to Piedmont$192,427  $8,153  $201,136  $58,361  
Other comprehensive loss:
Effective portion of loss on derivative instruments that are designated and qualify as cash flow hedges (See Note 5)
(2,569) (3,465) (24,506) (5,489) 
Plus/(less): Reclassification of net (gain)/loss included in net income (See Note 5)
185  (672) 179  (1,443) 
Other comprehensive loss(2,384) (4,137) (24,327) (6,932) 
Comprehensive income applicable to Piedmont
$190,043  $4,016  $176,809  $51,429  

See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2020 AND 2019
(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, March 31, 2020125,921  $1,259  $3,690,821  $(1,889,109) $(20,976) $1,722  $1,783,717  
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested
—  —  —  (26,465) —  (14) (26,479) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax
104  1  556  —  —  —  557  
Net loss applicable to noncontrolling interest—  —  —  —  —  (1) (1) 
Net income applicable to Piedmont—  —  —  192,427  —  —  192,427  
Other comprehensive loss—  —  —  —  (2,384) —  (2,384) 
Balance, June 30, 2020126,025  $1,260  $3,691,377  $(1,723,147) $(23,360) $1,707  $1,947,837  
Common  StockAdditional
Paid-In
Capital
Cumulative
Distributions
in Excess of
Earnings
Other
Comprehensive
Income/(Loss)
Non-
controlling
Interest
Total
Stockholders’
Equity
SharesAmount
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, 2019125,783  $1,258  $3,687,881  $(1,989,446) $1,530  $1,752  $1,702,975  


See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(in thousands, except per share amounts)

Common StockAdditional Paid-In CapitalCumulative Distributions in Excess of EarningsOther Comprehensive Income/(Loss)Non- controlling InterestTotal Stockholders’ Equity
SharesAmount
Balance, December 31, 2019125,783  $1,258  $3,686,398  $(1,871,375) $967  $1,726  $1,818,974  
Dividends to common stockholders ($0.42 per share), stockholders of subsidiaries, and dividends reinvested
—  —  (5) (52,908) —  (20) (52,933) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax
242  2  4,984  —  —  —  4,986  
Net income applicable to noncontrolling interest—  —  —  —  —  1  1  
Net income applicable to Piedmont—  —  —  201,136  —  —  201,136  
Other comprehensive loss—  —  —  —  (24,327) —  (24,327) 
Balance, June 30, 2020126,025  $1,260  $3,691,377  $(1,723,147) $(23,360) $1,707  $1,947,837  


Common StockAdditional Paid-In CapitalCumulative Distributions in Excess of EarningsOther Comprehensive Income/(Loss)Non- controlling InterestTotal 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 ($0.42 per share), stockholders of subsidiaries, and dividends reinvested
—  —  (142) (52,790) —  (20) (52,952) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax
292  3  4,837  —  —  —  4,840  
Net income applicable to Piedmont—  —  —  58,361  —  —  58,361  
Other comprehensive loss—  —  —  —  (6,932) —  (6,932) 
Balance, June 30, 2019125,783  $1,258  $3,687,881  $(1,989,446) $1,530  $1,752  $1,702,975  

See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands) 

Six Months Ended
June 30,
20202019
Cash Flows from Operating Activities:
Net income$201,137  $58,361  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation55,084  52,873  
Amortization of debt issuance costs net of favorable settlement of interest rate swaps
530  261  
Other amortization43,435  33,650  
Loss on early extinguishment of debt349    
General reserve for uncollectible accounts4,865    
Stock compensation expense5,545  9,831  
Gain on sale of real estate assets(191,372) (39,338) 
Changes in assets and liabilities:
Increase in tenant and straight-line rent receivables(20,923) (8,683) 
Increase in prepaid expenses and other assets(8,464) (7,644) 
Increase/(decrease) in accounts payable and accrued expenses518  (5,255) 
Decrease in deferred income(124) (2,117) 
Net cash provided by operating activities90,580  91,939  
Cash Flows from Investing Activities:
Acquisition of real estate assets and intangibles(396,745) (94,581) 
Capitalized expenditures(54,952) (32,279) 
Net sales proceeds from wholly-owned properties350,752  168,342  
Deferred lease costs paid(23,072) (5,358) 
Net cash (used in)/provided by investing activities(124,017) 36,124  
Cash Flows from Financing Activities:
Debt issuance and other costs paid(409) (88) 
Proceeds from debt840,625  253,000  
Repayments of debt(701,441) (277,663) 
Discount paid due to loan modification(525)   
Value of shares withheld for payment of taxes related to employee stock compensation(2,601) (3,295) 
Repurchases of common stock as part of announced plan  (16,899) 
Dividends paid and discount on dividend reinvestments(79,360) (79,924) 
Net cash provided by/(used in) financing activities56,289  (124,869) 
Net increase in cash, cash equivalents, and restricted cash and escrows22,852  3,194  
Cash, cash equivalents, and restricted cash and escrows, beginning of period15,386  6,034  
Cash, cash equivalents, and restricted cash and escrows, end of period$38,238  $9,228  

See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020
(unaudited)

1. Organization
Piedmont Office Realty Trust, Inc. (“Piedmont”) (NYSE: PDM) is a Maryland corporation that operates in a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes and engages in the acquisition, development, redevelopment, management, and ownership of commercial real estate properties located primarily in select sub-markets within seven major Eastern U.S. office markets, including properties that are under construction, are newly constructed, or have operating histories. Piedmont was incorporated in 1997 and commenced operations in 1998. Piedmont conducts business primarily through Piedmont Operating Partnership, L.P. (“Piedmont OP”), a Delaware limited partnership, as well as performing the management of its buildings through two wholly-owned subsidiaries, Piedmont Government Services, LLC and Piedmont Office Management, LLC. Piedmont owns 99.9% of, and is the sole general partner of, Piedmont OP and as such, possesses full legal control and authority over the operations of Piedmont OP. The remaining 0.1% ownership interest of Piedmont OP is held indirectly by Piedmont through its wholly-owned, taxable REIT subsidiary, Piedmont Office Holdings, Inc. ("POH"), the sole limited partner of Piedmont OP. Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through various joint ventures which it controls. References to Piedmont herein shall include Piedmont and all of its subsidiaries, including Piedmont OP and its subsidiaries and joint ventures.

As of June 30, 2020, Piedmont owned 57 in-service office properties in select sub-markets located within seven major U.S. office markets: Atlanta, Boston, Dallas, Minneapolis, New York, Orlando, and Washington, D.C. As of June 30, 2020, Piedmont's 57 in-service office properties comprised approximately 17.2 million square feet of primarily Class A commercial office space and were 88.6% leased.

Piedmont internally evaluates all of its real estate assets as one operating segment, and accordingly does not report segment information.

2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation

The consolidated financial statements of Piedmont have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of a full year’s results.

Piedmont’s consolidated financial statements include the accounts of Piedmont, Piedmont’s wholly-owned subsidiaries, any variable interest entity ("VIE") for which Piedmont or any of its wholly-owned subsidiaries is considered to have the power to direct the activities of the entity and the obligation to absorb losses/right to receive benefits, or any entity in which Piedmont or any of its wholly-owned subsidiaries owns a controlling interest. In determining whether Piedmont or Piedmont OP has a controlling interest, the following factors, among others, are considered: equity ownership, voting rights, protective rights of investors, and participatory rights of investors. For further information, refer to the financial statements and footnotes included in Piedmont’s Annual Report on Form 10-K for the year ended December 31, 2019.

All intercompany balances and transactions have been eliminated upon consolidation.

Further, Piedmont has formed special purpose entities to acquire and hold real estate. Each special purpose entity is a separate legal entity. Consequently, the assets of these special purpose entities are not available to all creditors of Piedmont. The assets owned by these special purpose entities are being reported on a consolidated basis with Piedmont’s assets for financial reporting purposes only.

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Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and notes. The most significant of these estimates include the underlying cash flows and holding periods used in assessing impairment, judgements regarding the recoverability of goodwill, and the assessment of the collectibility of receivables. Future impacts of the COVID-19 pandemic on Piedmont and its tenants may affect these and other estimates used in the preparation of these financial statements. While Piedmont has made, what it believes to be, appropriate accounting estimates based on the facts and circumstances available as of the reporting date, actual results could materially differ from those estimates.

Income Taxes

Piedmont has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and has operated as such, beginning with its taxable year ended December 31, 1998. To qualify as a REIT, Piedmont must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income. As a REIT, Piedmont is generally not subject to federal income taxes, subject to fulfilling, among other things, its taxable income distribution requirement. Piedmont is subject to certain taxes related to the operations of properties in certain locations, as well as operations conducted by its taxable REIT subsidiary, POH, which have been provided for in the financial statements.

Operating Leases

Piedmont recognized the following fixed and variable lease payments, which together comprised rental and tenant reimbursement revenue in the accompanying consolidated statements of income for the three and six months ended June 30, 2020 and 2019, respectively, as follows (in thousands):


Three Months EndedSix Months Ended
June 30,
2020
June 30,
2019
June 30,
2020
June 30,
2019
Fixed payments$109,714  $102,637  $221,210  $206,296  
Variable payments21,533  22,831  42,191  45,338  
Total Rental and Tenant Reimbursement Revenue
$131,247  $125,468  $263,401  $251,634  

Operating leases where Piedmont is the lessee relate primarily to office space in buildings owned by third parties. For both the three and six months ended June 30, 2020 and 2019, Piedmont recognized approximately $20,000 and $41,000, respectively, of operating lease costs related to these office space leases. As of June 30, 2020, the weighted-average lease term of Piedmont's right of use assets is approximately two years, and the weighted-average discount rate is 3.35%.

Intangible Assets and Liabilities Resulting from Purchasing Real Estate Assets

Upon the acquisition of real properties, Piedmont allocates the purchase price of the properties to tangible assets, consisting of land, building, site improvements, and identified intangible assets and liabilities, including the value of in-place leases, based in each case on Piedmont's estimate of their fair values in accordance with Accounting Standards Codification ("ASC") 820 Fair Value Measurements.

Gross intangible lease assets and liabilities arising from in-place leases, inclusive of amounts classified as real estate assets held for sale, recorded at acquisition as of June 30, 2020 and December 31, 2019, respectively, are as follows (in thousands):

June 30, 2020December 31, 2019
Intangible Lease Assets:
Above-Market In-Place Lease Assets$1,457  $2,082  
In-Place Lease Valuation$162,688  $157,101  
Intangible Lease Origination Costs (included as component of Deferred Lease Costs)$258,054  $256,627  
Intangible Lease Liabilities (Below-Market In-Place Leases)$63,035  $84,292  

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For the three and six months ended June 30, 2020 and 2019, respectively, Piedmont recognized amortization of intangible lease costs as follows (in thousands):

Three Months EndedSix Months Ended
June 30,
2020
June 30,
2019
June 30,
2020
June 30,
2019
Amortization of Intangible Lease Origination Costs and In-Place Lease Valuation included in amortization expense
$20,406  $14,992  $40,152