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): July 29, 2020
(Exact name of registrant as specified in its charter)
Commission File Number: 001-34626
| (State or other jurisdiction of | (IRS Employer | |||||||
| incorporation) | Identification No.) | |||||||
(Address of principal executive offices, including zip code)
(770 ) 418-8800
(Registrant's telephone number, including area code)
Not applicable
(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:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
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 ☐
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 July 29, 2020, Piedmont Office Realty Trust, Inc. (the "Registrant") issued a press release announcing its financial results for the second quarter 2020, and published supplemental information for the second quarter 2020 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 | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
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: | July 29, 2020 | By: | /s/ Robert E. Bowers | ||||||||||||||
| Robert E. Bowers | |||||||||||||||||
| Chief Financial Officer and Executive Vice President | |||||||||||||||||
EXHIBIT 99.1
Piedmont Office Realty Trust Reports Second Quarter 2020 Results
ATLANTA, July 29, 2020--Piedmont Office Realty Trust, Inc. ("Piedmont" or the "Company") (NYSE:PDM), an owner of Class A office properties located primarily in select sub-markets within seven major Eastern U.S. office markets, today announced its results for the quarter ended June 30, 2020.
Highlights for the Quarter Ended June 30, 2020:
•Reported net income applicable to common stockholders of $192.4 million, or $1.52 per diluted share, for the quarter ended June 30, 2020, as compared with $8.2 million, or $0.06 per diluted share, for the quarter ended June 30, 2019;
•Achieved a 14% increase in Core Funds From Operations, reporting $0.49 per diluted share for the quarter ended June 30, 2020 as compared to $0.43 for the quarter ended June 30, 2019;
•Completed the disposition of 1901 Market Street, the Company's only Philadelphia asset, for approximately $360 million, resulting in the recognition of a $191.4 million gain on sale of real estate assets that is included in the second quarter's results of operations;
•Related to the sale of 1901 Market Street, the Company prepaid a $160 million mortgage secured by the property, resulting in the recognition of a $9.3 loss on early extinguishment of debt that is also included in the second quarter's results of operations;
•Completed approximately 271,000 square feet of primarily renewal leasing, resulting in an approximately 3.7% and 6.4% roll up in cash and accrual rents, respectively, on leases executed during the quarter for space vacant for one year or less; and
•Collected 99% of billed tenant receivables during the second quarter.
Commenting on the second quarter's results, Brent Smith, President and Chief Executive Officer, said, "The sale of 1901 Market Street was definitely the highlight of our quarter, concluding a successful recycling story for Piedmont, and allowing us to dispose of a long-term, 100%-leased asset in a non-strategic market, and to fully reinvest the proceeds accretively into a strategic submarket in Dallas. As a result of this significant transaction, 96% of our annualized lease revenue is now generated from our seven core markets, with approximately half from Sunbelt locations. While new leasing activity was curtailed during the quarter due to the COVID-19 restrictions, we continue to experience good lease renewals and strong rent collections from our portfolio of credit-worthy tenants and are thankful for the strong balance sheet and liquidity position that have always been a part of our operating objectives. We are beginning to see improved leasing activity in several of our markets, which are easily accessible, provide convenient, walkable amenities and are not dependent on mass transit."
Results for the Quarter ended June 30, 2020
Piedmont recognized net income applicable to common stockholders for the three months ended June 30, 2020 of $192.4 million, or $1.52 per diluted share, as compared with $8.2 million, or $0.06 per diluted
share, for the three months ended June 30, 2019. The second quarter of 2020 included a $191.4 million gain on sale of real estate asset and a $9.3 million loss on early extinguishment of debt associated with the sale of 1901 Market Street in Philadelphia, PA and resulting repayment of the $160 million mortgage associated with the property during the quarter.
Funds From Operations ("FFO"), which removes the impact of the gain on sale of real estate asset mentioned above, as well as depreciation and amortization, was $0.41 per diluted share for both the three months ended June 30, 2020 and 2019. The second quarter of 2020's results include the $9.3 million loss on early extinguishment of debt mentioned above, offset by rental rate growth throughout the portfolio over the past twelve months, cost savings from reduced active occupancy, the commencement of certain large leases, and net acquisition and disposition activity since April 1, 2019.
Core Funds From Operations ("Core FFO"), which removes the loss on early extinguishment of debt mentioned above, as well as the same items enumerated in calculating FFO, was $0.49 per diluted share for the three months ended June 30, 2020, as compared with $0.43 per diluted share for the three months ended June 30, 2019 reflecting rental rate growth throughout the portfolio over the past twelve months, the commencement of certain large leases, as well as net acquisition and disposition activity since April 1, 2019.
Total revenues and property operating costs were $134.6 million and $53.1 million, respectively, for the three months ended June 30, 2020, compared to $130.7 million and $52.4 million, respectively, for the second quarter of 2019, with both line items reflecting the commencement of new leases, lower costs from reduced active occupancy, the expiration of operating expense recovery abatements, and net transactional activity during the twelve months prior to June 30, 2020. General and administrative expense was $5.9 million for the second quarter of 2020 as compared to $12.4 million for the same period in 2019, with the three months ended June 30, 2020 reflecting decreased accruals for stock based compensation, while the amount for the second quarter of 2019 reflects $3.2 million of one-time expenses associated with the senior management transition that took place on June 30, 2019.
Leasing Update
During the three months ended June 30, 2020, Piedmont completed approximately 271,000 square feet of leasing across its portfolio, with most activity centering around renewals. The most significant lease executed during the second quarter was Brother International's renewal of their approximately 102,000 square feet at 200 Bridgewater Crossing in Bridgewater, NJ. The second quarter's executed leases for recently occupied space reflected a 3.7% roll up in cash rents and 6.4% increase in accrual rents.
As of June 30, 2020, the Company's reported leased percentage and weighted average remaining lease term were approximately 89% and 6.3 years, respectively, with approximately 1.5 million square feet of executed leases for vacant space yet to commence or under rental abatement. Other than the City of New York's 313,000 square foot lease that is currently in holdover status at 60 Broad Street in New York, the Company has no other lease expirations greater than 1% of annualized lease revenue during the eighteen month period following June 30, 2020. The Company remains in advanced discussions for the long-term renewal of substantially all of the City of New York's leased square footage.
Same Store Net Operating Income ("Same Store NOI") increased 1.7% and decreased (2.3)% on a cash and accrual basis, respectively, for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. The increase in cash basis Same Store NOI was attributable to the expiration of lease abatements while the decrease in accrual basis Same Store NOI was primarily the result of the recognition of charges against rental revenue for tenant-specific and general collectibility risks during the second quarter of 2020. Details outlining Piedmont's largest upcoming lease commencements and expirations, the status of certain major leasing activity and a schedule of the largest
lease abatements can be found in the Company's quarterly supplemental information package available at www.piedmontreit.com.
Transactional and Financing Update
During the three months ended June 30, 2020, Piedmont sold its approximately 801,000 square foot, 45-story, 100%-leased 1901 Market Street building in Philadelphia, PA for approximately $360 million, or $450 per square foot, and recognized a gain on sale of real estate assets of approximately $191.4 million in its second quarter results of operations. Additionally, as a result of the sale, Piedmont repaid the $160 million mortgage associated with the property and recognized a loss on early extinguishment of debt of $9.3 million as a result of the prepayment and write-off of unamortized debt issuance costs. The Company used a portion of the remaining proceeds of the sale to pay off the balance outstanding on its $500 million unsecured line of credit and, as a result, the full capacity of the $500 million line is currently available. The transaction was structured as a 1031 exchange with the Company's recent purchase of the Dallas Galleria Office Towers for tax purposes; therefore no special distribution of the gain on sale will be required. As a result of the disposition of 1901 Market Street, 96% of Piedmont’s annualized lease revenue is now generated from its seven core markets, with approximately half derived from its Sunbelt locations.
Third Quarter 2020 Dividend Declaration
On July 29, 2020, the board of directors of Piedmont declared a dividend for the third quarter of 2020 in the amount of $0.21 per share on its common stock to stockholders of record as of the close of business on August 28, 2020, payable on September 18, 2020.
Impact of COVID-19 on Guidance for 2020
As the duration and severity of the COVID-19 pandemic and the longer-term consequences on the economy and our tenants continue to be unknown, the Company is not providing guidance for 2020 at this time. Notwithstanding the economic backdrop, Piedmont has a strong, diversified tenant base, a majority of which is investment grade quality. Consequently, during the second quarter of 2020 the Company collected 99% of billed tenant receivables, net of approximately $3.6 million of tenant cash receipts that have been deferred until later in 2020 or 2021.
Additionally, the Company has a prudent balance sheet with excellent liquidity, including approximately $30 million in cash and full availability under its $500 million line of credit at June 30, 2020 and no debt maturities until late 2021. Despite the widespread impacts of the COVID-19 pandemic on the global economy, the Company currently anticipates that its overall leased percentage and expected 2020 financial performance will not be severely impacted by the pandemic.
While it is no longer providing guidance for 2020, the Company is providing additional information regarding performance year-to-date, identified trends and its current expectations for how the pandemic could impact performance for the year when compared to its original expectations for the year:
•New tenant leasing activity slowed during the second quarter. The Company believes this trend will continue throughout the third quarter, likely pushing “new tenant” leasing goals out several months, and modestly lowering 2020 net operating income (“NOI”) by approximately $5 million.
•Piedmont’s transient parking income is estimated to be lower by approximately $2 million for the year.
•With respect to retail tenant income, which is about 1% of the Company’s total 2020 revenues, overall retail NOI is estimated to be lower by approximately $2 million for the year.
•In addition to the items above, during the second quarter, the Company took an approximate charge of $1.8 million against rental revenue in recognition of an increase in collectibility risk. As a precautionary measure, the Company also established an additional approximately $5 million general reserve for potential future losses, which is approximately 1% of the Company’s annualized revenue.
•The Company expects lower operating expenses at its buildings during 2020. The Company-portion of the operating expense savings is anticipated to be $1 to $2 million for the year.
•The Company anticipates $5 million lower interest expense for 2020 due to lower prevailing interest rates.
These identified impacts of the COVID-19 pandemic on NOI during 2020 equate to a net reduction of approximately $10-12 million from our original expectations for the year. These estimated effects of COVID-19 on the Company's financial performance are based upon the premise that the economic slowdown abates during the fourth quarter of 2020. The Company will reevaluate guidance once the longer-term consequences of the COVID-19 pandemic on the economy and our tenants can be more thoroughly considered.
Non-GAAP Financial Measures
To supplement the presentation of the Company’s financial results prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), this release and the accompanying quarterly supplemental information as of and for the period ended June 30, 2020 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 Thursday, July 30, 2020 at 11:00 A.M. Eastern daylight time. The live, listen-only, audio web cast of the call may be accessed on the Company's website at http://investor.piedmontreit.com/news-and-events/events-calendar. Dial-in numbers for analysts who plan to actively participate in the call are (844) 369-8770 for participants in the United States and Canada and (862) 298-0840 for international participants. A replay of the conference call will be available through 11:00 A.M. Eastern daylight time on August 13, 2020, 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 35682. A web cast replay will also be available after the conference call in the Investor Relations section of the Company's website. During the audio web cast and conference call, the Company's management team will review second quarter 2020 performance, discuss recent events, and conduct a question-and-answer period.
Supplemental Information
Quarterly supplemental information as of and for the period ended June 30, 2020 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, redeveloper, and operator of high-quality, Class A office properties located primarily in select sub-markets within seven major Eastern U.S. office markets, with the majority of its revenue being generated from the Sunbelt. Its geographically-diversified, approximately $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 markets and is investment-grade rated by S&P Global Ratings (BBB) and Moody’s (Baa2). At the end of the second quarter, approximately 63% of the company’s portfolio was ENERGY STAR certified and approximately 41% was LEED certified. 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: whether the Company's overall leased percentage and expected 2020 financial performance will be severely impacted by the pandemic; whether new tenant leasing activity will continue to be slow throughout the third quarter, pushing “new tenant” leasing goals out several months, and modestly lowering 2020 net operating income (“NOI”) by approximately $5 million; whether Piedmont’s transient parking income will be lower by approximately $2 million for the year; whether overall retail NOI will be lower by approximately $2 million for the year; whether the Company will realize operating expense savings of $1 to $2 million for the year; whether the Company will realize $5 million of interest expense savings for 2020 due to lower prevailing interest rates; whether the identified impacts of the COVID-19 pandemic on NOI during 2020 will equate to a net reduction of approximately $10-12 million from our original expectations for the year; and whether the economic slowdown will abate during the fourth quarter of 2020.
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: 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, and the costs of operating our assets; economic, regulatory, socioeconomic 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; 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 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 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 uncertainty surrounding the United Kingdom’s withdrawal 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 co-working tenants, 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 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 Piedmont’s Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Reports on Form 10-Q for the three months ended March 31, 2020 and June 30, 2020.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company cannot guarantee the accuracy of any such forward-looking statements contained in this press release, and the Company does not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Research Analysts/ Institutional Investors Contact:
Eddie Guilbert
770-418-8592
research.analysts@piedmontreit.com
Shareholder Services/Transfer Agent Services Contact:
Computershare, Inc.
866-354-3485
investor.services@piedmontreit.com
| Piedmont Office Realty Trust, Inc. | ||||||||||||||
| Consolidated Balance Sheets | ||||||||||||||
| (in thousands) | ||||||||||||||
| June 30, 2020 | December 31, 2019 | |||||||||||||
| (unaudited) | ||||||||||||||
| Assets: | ||||||||||||||
Real estate assets, at cost: | ||||||||||||||
Land | $ | 505,228 | $ | 485,560 | ||||||||||
Buildings and improvements | 3,258,713 | 2,943,685 | ||||||||||||
Buildings and improvements, accumulated depreciation | (776,870) | (730,750) | ||||||||||||
Intangible lease assets | 164,145 | 125,171 | ||||||||||||
Intangible lease assets, accumulated amortization | (58,148) | (50,766) | ||||||||||||
Construction in progress | 51,045 | 29,920 | ||||||||||||
| Real estate assets held for sale, gross | — | 233,951 | ||||||||||||
Real estate assets held for sale, accumulated depreciation and amortization | — | (94,261) | ||||||||||||
Total real estate assets | 3,144,113 | 2,942,510 | ||||||||||||
Cash and cash equivalents | 36,469 | 13,545 | ||||||||||||
Tenant receivables | 8,494 | 8,226 | ||||||||||||
Straight line rent receivables | 147,418 | 132,342 | ||||||||||||
Restricted cash and escrows | 1,769 | 1,841 | ||||||||||||
Prepaid expenses and other assets | 33,017 | 25,427 | ||||||||||||
Goodwill | 98,918 | 98,918 | ||||||||||||
Deferred lease costs, gross | 459,398 | 413,071 | ||||||||||||
Deferred lease costs, accumulated depreciation | (159,883) | (147,324) | ||||||||||||
Other assets held for sale, gross | — | 63,158 | ||||||||||||
Other assets held for sale, accumulated depreciation | — | (34,957) | ||||||||||||
| Total assets | $ | 3,769,713 | $ | 3,516,757 | ||||||||||
| Liabilities: | ||||||||||||||
Unsecured debt, net of discount and unamortized debt issuance costs | $ | 1,592,693 | $ | 1,292,374 | ||||||||||
Secured debt, inclusive of premium and unamortized debt issuance costs | 28,784 | 189,030 | ||||||||||||
Accounts payable, accrued expenses, and accrued capital expenditures | 95,419 | 117,496 | ||||||||||||
Dividends payable | — | 26,427 | ||||||||||||
Deferred income | 35,226 | 34,609 | ||||||||||||
Intangible lease liabilities, less accumulated amortization | 41,179 | 25,069 | ||||||||||||
Interest rate swaps | 28,575 | 5,121 | ||||||||||||
Other liabilities held for sale | — | 7,657 | ||||||||||||
| Total liabilities | 1,821,876 | 1,697,783 | ||||||||||||
| Stockholders' equity : | ||||||||||||||
Common stock | 1,260 | 1,258 | ||||||||||||
Additional paid in capital | 3,691,377 | 3,686,398 | ||||||||||||
Cumulative distributions in excess of earnings | (1,723,147) | (1,871,375) | ||||||||||||
Other comprehensive income | (23,360) | 967 | ||||||||||||
| Piedmont stockholders' equity | 1,946,130 | 1,817,248 | ||||||||||||
Non-controlling interest | 1,707 | 1,726 | ||||||||||||
| Total stockholders' equity | 1,947,837 | 1,818,974 | ||||||||||||
| Total liabilities and stockholders' equity | $ | 3,769,713 | $ | 3,516,757 | ||||||||||
| Number of shares of common stock outstanding as of end of period | 126,025 | 125,783 | ||||||||||||
| Piedmont Office Realty Trust, Inc. | |||||||||||||||||||||||
| Consolidated Statements of Income | |||||||||||||||||||||||
| Unaudited (in thousands, except for per share data) | |||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| 6/30/2020 | 6/30/2019 | 6/30/2020 | 6/30/2019 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental and tenant reimbursement revenue | $ | 131,247 | $ | 125,468 | $ | 263,401 | $ | 251,634 | |||||||||||||||
| Property management fee revenue | 622 | 422 | 1,395 | 2,414 | |||||||||||||||||||
| Other property related income | 2,762 | 4,778 | 7,006 | 9,556 | |||||||||||||||||||
Total revenues | 134,631 | 130,668 | 271,802 | 263,604 | |||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Property operating costs | 53,148 | 52,380 | 106,338 | 104,185 | |||||||||||||||||||
| Depreciation | 27,200 | 26,348 | 55,084 | 52,873 | |||||||||||||||||||
| Amortization | 24,349 | 18,461 | 47,980 | 36,161 | |||||||||||||||||||
| General and administrative | 5,937 | 12,418 | 14,580 | 21,786 | |||||||||||||||||||
Total operating expenses | 110,634 | 109,607 | 223,982 | 215,005 | |||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense | (13,953) | (15,112) | (29,217) | (30,605) | |||||||||||||||||||
| Other income | 349 | 752 | 498 | 1,029 | |||||||||||||||||||
| Loss on early extinguishment of debt | (9,336) | — | (9,336) | — | |||||||||||||||||||
| Gain on sale of real estate assets | 191,369 | 1,451 | 191,372 | 39,338 | |||||||||||||||||||
Total other income (expense) | 168,429 | (12,909) | 153,317 | 9,762 | |||||||||||||||||||
| Net income | 192,426 | 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 | |||||||||||||||
| Weighted average common shares outstanding - diluted | 126,500 | 126,491 | 126,456 | 126,404 | |||||||||||||||||||
| Net income per share applicable to common stockholders - diluted | $ | 1.52 | $ | 0.06 | $ | 1.59 | $ | 0.46 | |||||||||||||||
| Piedmont Office Realty Trust, Inc. | |||||||||||||||||||||||
| Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations | |||||||||||||||||||||||
| Unaudited (in thousands, except for per share data) | |||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| 6/30/2020 | 6/30/2019 | 6/30/2020 | 6/30/2019 | ||||||||||||||||||||
| GAAP net income applicable to common stock | $ | 192,427 | $ | 8,153 | $ | 201,136 | $ | 58,361 | |||||||||||||||
Depreciation of real estate assets(1) | 26,873 | 26,128 | 54,424 | 52,437 | |||||||||||||||||||
Amortization of lease-related costs | 24,336 | 18,446 | 47,954 | 36,131 | |||||||||||||||||||
Gain on sale of real estate assets | (191,369) | (1,451) | (191,372) | (39,338) | |||||||||||||||||||
NAREIT Funds From Operations applicable to common stock* | 52,267 | 51,276 | 112,142 | 107,591 | |||||||||||||||||||
Retirement and separation expenses associated with senior management transition in June 2019 | — | 3,175 | — | 3,175 | |||||||||||||||||||
Loss on early extinguishment of debt | 9,336 | — | 9,336 | — | |||||||||||||||||||
| Core Funds From Operations applicable to common stock* | 61,603 | 54,451 | 121,478 | 110,766 | |||||||||||||||||||
Amortization of debt issuance costs, fair market adjustments on notes payable, and discounts on debt | 672 | 525 | 1,249 | 1,048 | |||||||||||||||||||
Depreciation of non real estate assets | 319 | 212 | 644 | 420 | |||||||||||||||||||
Straight-line effects of lease revenue | (7,278) | (3,223) | (14,063) | (5,906) | |||||||||||||||||||
Stock-based compensation adjustments | 645 | 2,184 | 2,945 | 4,964 | |||||||||||||||||||
Net effect of amortization of above/below-market in-place lease intangibles | (3,304) | (2,088) | (6,277) | (4,086) | |||||||||||||||||||
Non-incremental capital expenditures(2) | (7,689) | (9,691) | (42,451) | (3) | (13,058) | ||||||||||||||||||
| Adjusted Funds From Operations applicable to common stock* | $ | 44,968 | $ | 42,370 | $ | 63,525 | $ | 94,148 | |||||||||||||||
| Weighted average common shares outstanding - diluted | 126,500 | 126,491 | 126,456 | 126,404 | |||||||||||||||||||
| Funds From Operations per share (diluted) | $ | 0.41 | $ | 0.41 | $ | 0.89 | $ | 0.85 | |||||||||||||||
| Core Funds From Operations per share (diluted) | $ | 0.49 | $ | 0.43 | $ | 0.96 | $ | 0.88 | |||||||||||||||
(1)Excludes depreciation of non real estate assets.
(2)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.
(3)Includes the leasing commission for the approximately 20-year, 520,000-square-foot renewal and expansion of the State of New York's lease at our 60 Broad Street building in New York City that was executed during the fourth quarter of 2019.
| 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 | ||||||||||||||||||||||
| 6/30/2020 | 6/30/2019 | 6/30/2020 | 6/30/2019 | ||||||||||||||||||||
| Net income applicable to Piedmont (GAAP) | $ | 192,427 | $ | 8,153 | $ | 192,427 | $ | 8,153 | |||||||||||||||
Net loss applicable to noncontrolling interest | (1) | (1) | (1) | (1) | |||||||||||||||||||
Interest expense | 13,953 | 15,112 | 13,953 | 15,112 | |||||||||||||||||||
Depreciation | 27,192 | 26,340 | 27,192 | 26,340 | |||||||||||||||||||
Amortization | 24,336 | 18,446 | 24,336 | 18,446 | |||||||||||||||||||
Gain on sale of real estate assets | (191,369) | (1,451) | (191,369) | (1,451) | |||||||||||||||||||
EBITDAre* | 66,538 | 66,599 | 66,538 | 66,599 | |||||||||||||||||||
Loss on early extinguishment of debt | 9,336 | — | 9,336 | — | |||||||||||||||||||
Retirement and separation expenses associated with senior management transition | — | 3,175 | — | 3,175 | |||||||||||||||||||
| Core EBITDA* | 75,874 | 69,774 | 75,874 | 69,774 | |||||||||||||||||||
General & administrative expenses | 5,937 | 9,244 | 5,937 | 9,244 | |||||||||||||||||||
Management fee revenue | (282) | (201) | (282) | (201) | |||||||||||||||||||
Other income | (134) | (56) | (134) | (56) | |||||||||||||||||||
| Non-cash general reserve for uncollectible accounts | 4,865 | — | |||||||||||||||||||||
Straight line effects of lease revenue | (7,278) | (3,223) | |||||||||||||||||||||
Amortization of lease-related intangibles | (3,304) | (2,088) | |||||||||||||||||||||
| Property NOI* | 75,678 | 73,450 | 81,395 | 78,761 | |||||||||||||||||||
| Net operating income from: | |||||||||||||||||||||||
Acquisitions | (10,109) | (921) | (13,518) | (1,155) | |||||||||||||||||||
Dispositions | (4,384) | (12,320) | (5,195) | (13,424) | |||||||||||||||||||
Other investments(1) | (224) | (246) | (177) | (220) | |||||||||||||||||||
| Same Store NOI* | $ | 60,961 | $ | 59,963 | $ | 62,505 | $ | 63,962 | |||||||||||||||
| Change period over period in Same Store NOI | 1.7 | % | N/A | (2.3) | % | N/A | |||||||||||||||||
(1)Other investments consist of our investments in 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 Two Pierce Place in Itasca, IL are included in this line item.
| Piedmont Office Realty Trust, Inc. | |||||||||||||||||||||||
| EBITDAre, Core EBITDA, Property Net Operating Income (Cash and Accrual), Same Store Net Operating Income (Cash and Accrual) | |||||||||||||||||||||||
| Unaudited (in thousands) | |||||||||||||||||||||||
| Cash Basis | Accrual Basis | ||||||||||||||||||||||
| Six Months Ended | Six Months Ended | ||||||||||||||||||||||
| 6/30/2020 | 6/30/2019 | 6/30/2020 | 6/30/2019 | ||||||||||||||||||||
| Net income applicable to Piedmont (GAAP) | $ | 201,136 | $ | 58,361 | $ | 201,136 | $ | 58,361 | |||||||||||||||
| Net income applicable to noncontrolling interest | 1 | — | 1 | — | |||||||||||||||||||
| Interest expense | 29,217 | 30,605 | 29,217 | 30,605 | |||||||||||||||||||
| Depreciation | 55,069 | 52,858 | 55,069 | 52,858 | |||||||||||||||||||
| Amortization | 47,954 | 36,131 | 47,954 | 36,131 | |||||||||||||||||||
| Gain on sale of real estate assets | (191,372) | (39,338) | (191,372) | (39,338) | |||||||||||||||||||
| EBITDAre* | 142,005 | 138,617 | 142,005 | 138,617 | |||||||||||||||||||
| Loss on early extinguishment of debt | 9,336 | — | 9,336 | — | |||||||||||||||||||
| Retirement and separation expenses associated with senior management transition | — | 3,175 | — | 3,175 | |||||||||||||||||||
| Core EBITDA* | 151,341 | 141,792 | 151,341 | 141,792 | |||||||||||||||||||
| General & administrative expenses | 14,580 | 18,611 | 14,580 | 18,611 | |||||||||||||||||||
| Management fee revenue | (677) | (2,023) | (677) | (2,023) | |||||||||||||||||||
| Other (income)\expense | (67) | (118) | (67) | (118) | |||||||||||||||||||
| Non-cash general reserve for uncollectible accounts | 4,865 | — | |||||||||||||||||||||
| Straight line effects of lease revenue | (14,063) | (5,906) | |||||||||||||||||||||
| Amortization of lease-related intangibles | (6,277) | (4,086) | |||||||||||||||||||||
| Property NOI* | 149,702 | 148,270 | 165,177 | 158,262 | |||||||||||||||||||
| Net operating income from: | |||||||||||||||||||||||
| Acquisitions | (18,214) | (920) | (23,786) | (1,155) | |||||||||||||||||||
| Dispositions | (8,979) | (27,177) | (10,655) | (27,826) | |||||||||||||||||||
Other investments(1) | (306) | (285) | (239) | (270) | |||||||||||||||||||
| Same Store NOI * | $ | 122,203 | $ | 119,888 | $ | 130,497 | $ | 129,011 | |||||||||||||||
| Change period over period in Same Store NOI | 1.9 | % | N/A | 1.2 | % | N/A | |||||||||||||||||
(1)Other investments consist of our investments in 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 Two Pierce Place in Itasca, IL are included in this line item.
*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.
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.
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 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 99.2
Quarterly Supplemental Information
June 30, 2020
| 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 | |||||||||||||
| Income Statements | Property Detail - In-Service Portfolio | |||||||||||||
| Key Performance Indicators | COVID-19 Update | |||||||||||||
| Funds From Operations / Adjusted Funds From Operations | Risks, Uncertainties and Limitations | |||||||||||||
| 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 | ||||||||||||||
| Contractual Tenant Improvements & Leasing Commissions | ||||||||||||||
| Geographic Diversification | ||||||||||||||
| Geographic Diversification by Location Type | ||||||||||||||
| Industry Diversification | ||||||||||||||
| Property Investment Activity | ||||||||||||||
| Notice to Readers: | ||
Please refer to page 47 for a discussion of important risks related to the business of Piedmont Office Realty Trust, Inc., as well as an investment in its securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information. Considering these risks, uncertainties, assumptions, and limitations, the forward-looking statements about leasing, financial operations, leasing prospects, acquisitions, dispositions, etc. contained in this quarterly supplemental information report may differ from actual results. | ||
| Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. In addition, many of the schedules herein contain rounding to the nearest thousands or millions and, therefore, the schedules may not total due to this rounding convention. | ||
To supplement the presentation of the Company’s financial results prepared in accordance with U.S. generally accepted accounting principles (GAAP), this report contains certain financial measures that are not prepared in accordance with GAAP, including FFO, Core FFO, AFFO, Same Store NOI, Property NOI, EBITDAre and Core EBITDA. Definitions and reconciliations of these non-GAAP measures to their most comparable GAAP metrics are included beginning on page 39. Each of the non-GAAP measures included in this report has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of the Company’s results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the Company’s presentation of non-GAAP measures in this report may not be comparable to similarly titled measures disclosed by other companies, including other REITs. The Company may also change the calculation of any of the non-GAAP measures included in this report from time to time in light of its then existing operations. | ||
| In certain presentations herein, the Company has provided disaggregated financial and operational data (for example, some pieces of information are displayed by geography, industry, or lease expiration year) for informational purposes for readers; however, regardless of the various presentation approaches taken herein, we continue to evaluate and utilize our consolidated financial results in making operating decisions, allocating resources, and assessing our performance. | ||
Piedmont Office Realty Trust, Inc.
Corporate Data
Piedmont Office Realty Trust, Inc. (also referred to herein as "Piedmont" or the "Company") (NYSE: PDM) is an owner, manager, developer, redeveloper and operator of high-quality, Class A office properties in select sub-markets located primarily within seven major Eastern U.S. office markets, with approximately half of its revenue generated from the Sunbelt. Its geographically-diversified, approximately $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 markets and is investment-grade rated by Standard & Poor’s and Moody’s. At the end of the second quarter of 2020, approximately 63% of the Company's portfolio was Energy Star certified and approximately 41% was LEED certified. Piedmont is headquartered in Atlanta, GA.
This data supplements the information provided in our reports filed with the Securities and Exchange Commission and should be reviewed in conjunction with such filings.
| As of | As of | ||||||||||
| June 30, 2020 | December 31, 2019 | ||||||||||
Number of consolidated office properties (1) (2) | 57 | 55 | |||||||||
Rentable square footage (in thousands) (1) (2) | 17,164 | 16,533 | |||||||||
Percent leased (2) (3) | 88.6 | % | 89.7 | % | |||||||
| Capitalization (in thousands): | |||||||||||
| Total debt - principal amount outstanding (excludes premiums, discounts, and deferred financing costs) | $1,628,245 | $1,488,687 | |||||||||
Equity market capitalization (4) | $2,093,279 | $2,797,423 | |||||||||
Total market capitalization (4) | $3,721,524 | $4,286,110 | |||||||||
Total debt / Total market capitalization (4) | 43.8 | % | 34.7 | % | |||||||
| Average net debt to Core EBITDA | 6.2 x | 5.4 x | |||||||||
Normalized average net debt to Core EBITDA (5) | 5.6 x | ||||||||||
| Total debt / Total gross assets | 34.2 | % | 32.5 | % | |||||||
| Common stock data: | |||||||||||
| High closing price during quarter | $19.97 | $22.44 | |||||||||
| Low closing price during quarter | $13.60 | $20.32 | |||||||||
| Closing price of common stock at period end | $16.61 | $22.24 | |||||||||
| Weighted average fully diluted shares outstanding during quarter (in thousands) | 126,500 | 126,359 | |||||||||
| Shares of common stock issued and outstanding at period end (in thousands) | 126,025 | 125,783 | |||||||||
Annual regular dividend per share (6) | $0.84 | $0.84 | |||||||||
| Rating / Outlook: | |||||||||||
| Standard & Poor's | BBB / Stable | BBB / Stable | |||||||||
| Moody's | Baa2 / Stable | Baa2 / Stable | |||||||||
| Employees | 138 | 134 | |||||||||
| (1) | As of June 30, 2020, our consolidated office portfolio consisted of 57 properties. During the first quarter of 2020, we acquired One Galleria Tower, Two Galleria Tower and Three Galleria Tower, three office buildings comprised of 1,435,000 square feet in total, along with a 1.9 acre developable land parcel, located in Dallas, TX. During the second quarter of 2020, we sold 1901 Market Street, an 801,000 square foot office building located in Philadelphia, PA. | ||||
| (2) | This measure is presented for our consolidated office properties and the metric for December 31, 2019, has been restated to include one redevelopment property that was placed back into service on January 1, 2020. The redevelopment property is Two Pierce Place, a 484,000 square foot office building located in Itasca, IL. | ||||
| (3) | 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. Please refer to page 27 for additional analyses regarding Piedmont's leased percentage. | ||||
| (4) | Reflects common stock closing price, shares outstanding and outstanding debt as of the end of the reporting period, as appropriate. | ||||
| (5) | The average net debt to Core EBITDA ratio temporarily increased in early 2020 with the purchase of Dallas Galleria Office Towers using debt which was subsequently repaid with the sale of 1901 Market Street in Philadelphia, PA. The sale of 1901 Market Street did not close until late June 2020. Because our reported average net debt to Core EBITDA calculation is time-weighted, the positive effects of the sale of 1901 Market Street on this metric primarily due to the related reduction in outstanding debt are only marginally reflected in the measure for the period ended June 30, 2020. In order to disclose the anticipated effect of the sale of the asset on the metric for a full quarter, we calculated a normalized average net debt to Core EBITDA ratio. This normalized calculation starts with the Company's reported average net debt to Core EBITDA for the second quarter of 2020 and incorporates pro forma adjustments: 1) to remove the Core EBITDA contribution from 1901 Market Street to the Company's quarterly Core EBITDA and 2) to include the debt reductions related to the asset sale as if they occurred on April 1, 2020. The reduction to Core EBITDA for the second quarter of 2020 was $5,317,000 and the reduction to average net debt was $285,088,000. | ||||
| (6) | Total of the regular dividends per share for which record dates occurred 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 | |||||||||||
| C. Brent Smith | Robert E. Bowers | Edward H. Guilbert, III | Christopher A. Kollme | ||||||||
| Chief Executive Officer, President | Chief Financial and Administrative Officer | Executive Vice President, Finance, | Executive Vice President, | ||||||||
| and Director | and Executive Vice President | Assistant Secretary and Treasurer | Finance & Strategy | ||||||||
| Investor Relations Contact | |||||||||||
| Laura P. Moon | Joseph H. Pangburn | Thomas R. Prescott | Alex Valente | ||||||||
| Chief Accounting Officer and | Executive Vice President, | Executive Vice President, | Executive Vice President, | ||||||||
| Senior Vice President | Southwest Region | Midwest Region | Southeast Region | ||||||||
| George Wells | Robert K. Wiberg | ||||||||||
| Executive Vice President, | Executive Vice President, | ||||||||||
| Real Estate Operations | Northeast Region and Head of Development | ||||||||||
| Board of Directors | |||||||||||
| Frank C. McDowell | Dale H. Taysom | Kelly H. Barrett | Wesley E. Cantrell | ||||||||
| Director, Chairman of the Board of Directors, | Director, Vice Chairman of the | Director, Chair of the Audit Committee, | Director, Chair of the Governance | ||||||||
| Chair of the Compensation Committee, and | Board of Directors, and Member of the | and Member of the Governance Committee | Committee, and Member of the | ||||||||
| Member of the Audit and Governance Committees | Audit and Capital Committees | Compensation Committee | |||||||||
| Glenn G. Cohen | Barbara B. Lang | C. Brent Smith | Jeffery L. Swope | ||||||||
| Director and Member of the Audit Committee | Director and Member of the Compensation | Chief Executive Officer, President | Director, Chair of the Capital | ||||||||
| and Governance Committees | and Director | Committee, and Member of the | |||||||||
| Compensation Committee | |||||||||||
| Transfer Agent | Corporate Counsel | ||||
| Computershare | King & Spalding | ||||
| P.O. Box 30170 | 1180 Peachtree Street, NE | ||||
| College Station, TX 77842-3170 | Atlanta, GA 30309 | ||||
| Phone: 866.354.3485 | Phone: 404.572.4600 | ||||
4
Piedmont Office Realty Trust, Inc.
Financial Highlights
As of June 30, 2020
Financial Results (1)
Net income attributable to Piedmont for the quarter ended June 30, 2020 was $192.4 million, or $1.52 per share (diluted), compared to $8.2 million, or $0.06 per share (diluted), for the same quarter in 2019. Net income attributable to Piedmont for the six months ended June 30, 2020 was $201.1 million, or $1.59 per share (diluted), compared to $58.4 million, or $0.46 per share (diluted), for the same period in 2019. The increase in net income attributable to Piedmont for the three months and the six months ended June 30, 2020 when compared to the same periods in 2019 was principally due to the larger amount of net gains recorded in 2020 when compared to 2019 attributable to real estate asset and related debt transactions completed during the respective periods. In addition, 2020 results increased due to higher revenues in 2020 when compared to 2019 related to accrual basis rental rate increases associated with recent leasing activity across the portfolio as well as accretive capital recycling activities over the prior year. Partially offsetting the increase in net income attributable to Piedmont were higher amortization and depreciation expenses in 2020 when compared to 2019 attributable to over $720 million of acquisitions completed since the beginning of 2019.
Funds from operations (FFO) for the quarter ended June 30, 2020 was $52.3 million, or $0.41 per share (diluted), compared to $51.3 million, or $0.41 per share (diluted), for the same quarter in 2019. FFO for the six months ended June 30, 2020 was $112.1 million, or $0.89 per share (diluted), compared to $107.6 million, or $0.85 per share (diluted), for the same period in 2019. The increase in FFO for the three months and the six months ended June 30, 2020 when compared to the same periods in 2019 was principally the result of growth in revenue attributable to accrual basis rental rate increases associated with recent leasing activity across the portfolio as well as accretive capital recycling activities over the prior year, partially offset by a loss on the early extinguishment of debt recorded in 2020 as a result of the sale of 1901 Market Street in Philadelphia, PA and the repayment of the associated mortgage.
Core funds from operations (Core FFO) for the quarter ended June 30, 2020 was $61.6 million, or $0.49 per share (diluted), compared to $54.5 million, or $0.43 per share (diluted), for the same quarter in 2019. Core FFO for the six months ended June 30, 2020 was $121.5 million, or $0.96 per share (diluted), compared to $110.8 million, or $0.88 per share (diluted), for the same period in 2019. The increase in Core FFO for the three months and the six months ended June 30, 2020 when compared to the same periods in 2019 was primarily attributable to accrual basis rental rate increases associated with recent leasing activity across the portfolio as well as accretive capital recycling activities over the prior year.
Adjusted funds from operations (AFFO) for the quarter ended June 30, 2020 was $45.0 million, compared to $42.4 million for the same quarter in 2019. AFFO for the six months ended June 30, 2020 was $63.5 million, compared to $94.1 million for the same period in 2019. The increase in AFFO for the three months ended June 30, 2020 when compared to the same period in 2019 was primarily attributable to the same items described above for changes in Core FFO. The decrease in AFFO for the six months ended June 30, 2020 when compared to the same period in 2019 was primarily due to a greater amount of non-incremental capital expenditures during the first quarter of 2020 related to the large amount of recently executed new and renewal leases in our portfolio, including the 20-year lease renewal with the State of New York at 60 Broad Street in New York, NY, for which leasing commissions totaling $16.1 million were paid during the first quarter.
Update Related to COVID-19
During the second quarter of 2020, our buildings remained open and fully operational for our tenants, many of whom have the need for essential employees to continue to work in our buildings. As of June 2020, tenant occupancy per building varied, ranging up to 30% of our normal tenant population on any given day. The highest space utilization rate was observed at our properties located in Sunbelt markets.
We feel fortunate to have duration and durability in the cash flow generated by our tenant base. The majority of our tenants are of investment grade quality, and our in place leases have a weighted average lease term remaining of over 6 years. Only approximately 1% of our revenues are related to retail tenants and approximately 2% of our 2020 budgeted revenues are associated with the co-working sector, both of which have been particularly hard hit by the economic effects of the pandemic. Additionally, only approximately 1% of our annual revenues comes from transient parking.
| (1) | |||||
5
As a result of our diversification, limited exposure to the sectors of the economy most impacted by the pandemic and strong tenant credit profile, we have collected approximately 99% of the rents that were due for April, May and June based on contractual lease terms. However, our tenant base is not immune from the economic effects of the pandemic. During the quarter, we received requests from a small number of our tenants, predominantly from those operating in the retail, hospitality, travel, consulting and co-working sectors, for some type of rent relief. To date, of the approximately 1,000 leases in our portfolio, we have entered into rent relief agreements with approximately 50 tenants. The rent relief agreements were entered into with tenants occupying approximately 4% of the square footage in our portfolio. A total of approximately $4.5 million of rental obligations was addressed in the rent relief arrangements ($3.6 million of which was related to second quarter receipts) with the preponderance being rent deferrals, with an average deferral period of between 3 and 4 months with repayment occurring late in 2020 or in 2021 with interest.
As a result of COVID-19's impact on our tenants' operations, Piedmont undertook a review of outstanding tenant receivables, including assessing the collectability risk associated with the receivables, as well as evaluated the possibility that future financial duress may be suffered by some portion of the Company’s tenant base. Given the unique nature of the pandemic and the associated impact on the economy and the businesses of our tenants, Piedmont recorded approximately $1.8 million in charges against rental revenue in recognition of an increase in collectibility risk. Furthermore, as a precautionary measure, the Company also established an approximately $5 million general reserve for potential future losses, which is approximately 1% of the Company’s Annualized Lease Revenue. The Company will continue to reassess the reserve and make adjustments to the reserve as it deems appropriate.
Regarding Piedmont’s liquidity and capitalization, management believes the Company has sufficient liquidity and capital capacity to withstand the effects of the economic slowdown associated with COVID-19 and will be able to meet all of its financial obligations, including the servicing of its debt, as well as to meet all of its debt covenants, each with a significant buffer to the relevant threshold. Piedmont is in a strong balance sheet position, with over $30 million in cash and full availability under our $500 million line of credit. As of June 30, 2020, our debt to gross assets ratio was approximately 34%.
The COVID-19 pandemic had only a limited impact on the Company’s overall results during the first half of 2020. However, we do expect the coronavirus pandemic to continue to impact our tenants' operations and financial results and their ability to pay their lease obligations during the third quarter and potentially beyond. The short-term financial impacts caused by the pandemic on 2020 results are yet to be fully realized and will depend upon how long the economic disruption associated with the pandemic lasts. Leasing activity has slowed and will likely continue to delay some of the expected growth in the portfolio; some additional tenants, most likely small businesses, may ask for some additional rent deferrals; and a few tenant improvements and redevelopment projects will be delayed. Because the ultimate impact to the Company's financial performance will depend upon how long the economic disruption associated with the pandemic lasts, we are not providing financial guidance at the present time; we will provide revised guidance once the depth and duration of the disruption becomes more clear.
Operations and Leasing
As of June 30, 2020, Piedmont had 57 in-service office properties located primarily in seven major office markets in the eastern portion of the United States, with approximately half of our revenue coming from Sunbelt markets. On a square footage leased basis, our total in-service office portfolio was 88.6% leased as of June 30, 2020, as compared to 89.7% at December 31, 2019 (restated to include one out-of-service asset, Two Pierce Place in Itasca, IL, which was placed back into service on January 1, 2020). A main contributor to the reduction in leased percentage as of June 30, 2020 was the sale of the 100% leased 1901 Market Street in Philadelphia, PA, during the second quarter of 2020. Please refer to page 27 for additional leased percentage information.
The weighted average remaining lease term of our in-service portfolio was 6.3 years(1) as of June 30, 2020 as compared to 7.0 years at December 31, 2019. A contributor to the reduction in weighted average remaining lease term was the sale of 1901 Market Street in Philadelphia, PA, an 801,000 square foot, fully-leased building with approximately 13 years of lease term remaining. Our weighted average adjusted Annualized Lease Revenue(2) per square foot for our in-service portfolio was $36.17 as of June 30, 2020.
During the three months ended June 30, 2020, the Company completed approximately 271,000 square feet of leasing activity. Of the total leasing activity completed during the quarter, we signed renewal leases for approximately 259,000 square feet. During the six months ended June 30, 2020, the Company completed approximately 688,000 square feet of leasing activity, of which approximately 132,000 square feet was related to 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 six months ended June 30, 2020 (net of commitment expirations during the period) was $5.28 (see page 33).
| (1) | Remaining lease term (after taking into account leases for vacant spaces which had been executed but not commenced as of June 30, 2020) is weighted based on Annualized Lease Revenue, as defined on page 39. | ||||
| (2) | 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 incorporating the effective gross rental rate for those buildings. | ||||
6
Of the 271,000 square feet of leases executed during the three months ended June 30, 2020, five leases were greater than 10,000 square feet at our office properties. Information on those leases is set forth below.
| Tenant | Property | Market | Square Feet Leased | Expiration Year | Lease Type | ||||||||||||
| Brother International Corporation | 200 Bridgewater Crossing | New York | 101,724 | 2026 | Renewal | ||||||||||||
| RGN-South East, LLC | Glenridge Highlands One | Atlanta | 25,332 | 2023 | Renewal | ||||||||||||
| CareerStaff Unlimited, LLC | Las Colinas Corporate Center I | Dallas | 17,462 | 2026 | Renewal / Expansion | ||||||||||||
| Merrill Lynch, Pierce, Fenner & Smith Inc. | Galleria 300 | Atlanta | 11,817 | 2025 | Renewal / Contraction | ||||||||||||
| Buck Global, LLC | Galleria 100 | Atlanta | 11,402 | 2026 | Renewal | ||||||||||||
At the end of the second quarter of 2020, there was one tenant whose lease individually contributed greater than 1% in Annualized Lease Revenue expiring during the eighteen month period following June 30, 2020. Information regarding the leasing status of the space associated with this tenant's lease is presented below.
| Tenant | Property | Property Location | Net Square Footage Expiring | Net Percentage of Current Quarter Annualized Lease Revenue Expiring (%) | Expiration | Current Leasing Status | ||||||||||||||
| City of New York | 60 Broad Street | New York, NY | 313,022 | 2.9% | In Holdover | The tenant is currently in holdover. The Company is in advanced discussions with the tenant regarding a lease renewal. | ||||||||||||||
Future Lease Commencements and Abatements
As of June 30, 2020, our overall leased percentage was 88.6% and our economic leased percentage was 81.1%. 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 348,733 square feet of leases as of June 30, 2020, or 2.0% of the portfolio); and
2)leases which have commenced but are within rental abatement or deferral periods (amounting to 1,122,142 square feet of leases as of June 30, 2020, or a 5.5% 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, (2) abatements and deferrals associated with existing or newly executed leases commence and expire, and/or (3) properties are bought and sold. See below for more detail on existing large leases with abatements and deferrals. The gap this quarter between reported leased percentage and economic leased percentage increased by approximately 2.3% as a result of COVID-related rent relief (primarily rent deferrals).
Piedmont has leases with many large corporate office space users. The average size of lease in the Company's portfolio is approximately 20,000 square feet. Due to the large size and length of term of new leases, Piedmont typically signs leases several months in advance of their anticipated lease commencement dates. Presented below is a schedule of uncommenced leases greater than 50,000 square feet and their anticipated commencement dates. Lease renewals are excluded from this schedule.
| Tenant | Property | Property Location | Square Feet Leased | Space Status | Estimated Commencement Date | New / Expansion | ||||||||||||||
| Amazon.com Services, Inc. | One Galleria Tower | Dallas, TX | 81,628 | Vacant | Q3 2020 | New | ||||||||||||||
| WeWork Companies Inc. | 200 South Orange Avenue | Orlando, FL | 71,344 | Vacant | Late 2021 (1) | New | ||||||||||||||
| salesforce.com | 5 Wall Street | Burlington, MA | 51,913 | Not Vacant | Q3 2021 | New | ||||||||||||||
| (1) | In the construction permitting process, the tenant has been required by the local government to make modifications to its space plans resulting in a delay of the receipt of construction permits. | ||||
7
New leases frequently provide rental abatement concessions to tenants and these abatements typically occur at the beginning of the leases. Additionally, the Company has recently entered into rent deferral agreements with some tenants as a result of COVID-19's impact on their financial operations. 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 or deferral periods. Presented below is a schedule of leases with abatements or deferrals of 50,000 square feet or greater that are either currently under abatement or deferral or will be so within the next twelve months. (1)
Abatements
| Tenant | Property | Property Location | Abated Square Feet | Lease Commencement Date | Remaining Abatement Schedule | Lease Expiration | ||||||||||||||
| Transocean Offshore Deepwater Drilling, Inc. | Enclave Place | Houston, TX | 300,906 | Q4 2019 | Commencement through April 2021 | Q2 2036 | ||||||||||||||
| Advanced Micro Devices, Inc. | 90 Central Street | Boxborough, MA | 107,244 | Q1 2021 | January through March 2021 | Q1 2028 | ||||||||||||||
COVID-19 - Related Rent Deferrals
| Tenant | Property | Property Location | Square Feet | Deferral Terms | Repayment Schedule | Lease Expiration | ||||||||||||||
| Travelport, LP | Galleria 300 | Atlanta, GA | 123,193 | April through June 2020 (2) | October 2020 through March 2021 (2) | Q1 2025 | ||||||||||||||
| Ansira Partners, Inc. | Three Galleria Tower | Dallas, TX | 88,084 | May through July 2020 (3) | December 2020 or January through December 2021 (3) | Q4 2028 | ||||||||||||||
| Neovia Logistics, LP | Las Colinas Corporate Center II | Irving, TX | 54,682 | May through July 2020 (4) | December 2020 or January through December 2021 (4) | Q2 2024 | ||||||||||||||
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 the value potential during its ownership 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 operating 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 June 25, 2020, Piedmont completed the sale of 1901 Market Street, a 45-story, 100% leased, 801,000 square foot office building, located in Philadelphia, PA, for $360.0 million, or approximately $450 per square foot. The sale allowed the Company to exit a non-strategic market and an asset in which it believed the value potential during its ownership period had been realized. The Company recorded a $191 million gain on the sale of the asset; however, for federal tax purposes, the sale proceeds from 1901 Market Street were deemed reinvested during the first quarter of 2020 into the Dallas Galleria Office Towers through a reverse 1031 exchange investment structure, eliminating the need for a special distribution of the large capital gain. The sale proceeds from 1901 Market Street were redeployed strategically into one of the Company's operating markets and an investment providing both a higher yield and stronger growth prospects. As a result of the sale, approximately 96% of Piedmont's Annualized Lease Revenue is generated from its seven operating markets, with approximately 50% of its Annualized Lease Revenue coming from Sunbelt markets. The Company initially used funds drawn from its line of credit to complete the purchase of the Dallas Galleria Office Towers in the first quarter of 2020 in advance of the sale of 1901 Market Street. Once proceeds from the sale of 1901 Market Street were available in the second quarter of 2020, the Company paid off a $160 million mortgage associated with the property and it repaid all amounts outstanding on its revolving line of credit; additional detail on the debt repayments can be found under the Finance heading below.
| (1) | The State of New York lease does not contain any rental abatement provisions. The tenant's space will be reconstructed over a period of approximately four years. During the construction period, the tenant will not be required to pay rental charges for certain spaces that are under construction and not usable by the tenant. The amount of space for which the tenant will not be required to pay rent will vary over time and is expected to average approximately 80,000 square feet over the construction time period. | ||||
| (2) | Travelport, LP will fully repay deferred charges in six installments at 0% interest over the 6-month period from October 2020 through March 2021. As a condition to completing the rent deferral with no interest charges, the tenant also extended its lease by one month. | ||||
| (3) | Ansira Partners, Inc. will either fully repay deferred charges on or before December 31, 2020 at 0% interest or it will pay monthly installments over the period of January through December 2021, at 6% interest. | ||||
| (4) | Neovia Logistics, LP will either fully repay deferred charges on or before December 31, 2020 at 0% interest or it will pay monthly installments over the period of January through December 2021, at 6% interest. As a condition to completing the rent deferral, the tenant increased its security deposit. | ||||
8
Acquisitions
There were no acquisitions completed during the quarter ended June 30, 2020.
For additional information on acquisitions and dispositions completed over the previous eighteen months, please refer to page 37.
Development / Redevelopment
During the fourth quarter of 2019, Piedmont commenced an approximately $18.5 million redevelopment of 200 South Orange Avenue in Orlando, FL. The project will allow the Company to reposition the property, creating a premier environment for downtown office tenants - vibrant, inviting, communal and modern. The redevelopment plan includes a redesigned lobby and entry experience, an energized outdoor park, the addition of new food and beverage options, an upgraded conference center, a tenant lounge, and a new crown lighting system. As of June 30, 2020, the project remained on schedule and within budget.
Additional detail on the Company's developable land parcels, all of which are located adjacent to existing Piedmont properties, as well as information on current redevelopment projects, can be found on page 38.
Finance
During the second quarter of 2020, Piedmont completed the sale of 1901 Market Street in Philadelphia, PA, and used the net sale proceeds to repay debt. Specifically, the Company repaid a $160 million mortgage secured by the sold property as well as the entire outstanding balance on its $500 million unsecured line of credit. As a result of the debt repayment, Piedmont has full availability on its $500 million unsecured line of credit and only one remaining $28.2 million mortgage (over 98% of its debt is now unsecured and approximately 99% of its Annualized Lease Revenue is now unencumbered). The Company's total debt outstanding amounts to $1.6 billion as of the end of the second quarter of 2020, with a normalized average net debt to Core EBITDA ratio of 5.6 x. (1)
As of June 30, 2020, our ratio of total debt to total gross assets was 34.2%, and the same measure at December 31, 2019 was 32.5%. This debt ratio is based on total principal amount outstanding for our various loans as of the relevant measurement date.
As of June 30, 2020, our average net debt to Core EBITDA ratio was 6.2 x (our normalized average net debt to Core EBITDA ratio was 5.6 x(1)), and the same measure at December 31, 2019 was 5.4 x.
Stock Repurchase Program
No repurchases of the Company's common stock were completed during the first half of 2020. During 2019, the Company repurchased approximately 0.7 million shares at an average price of $17.14 per share, or approximately $12.5 million in aggregate (before the consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases totaled $200 million under the stock repurchase plan. Repurchases of stock under the program are made at the Company's discretion and are dependent on market conditions, the discount to estimated net asset value, other investment opportunities and other factors that the Company deems relevant.
Dividend
On April 29, 2020, the Board of Directors of Piedmont declared a dividend for the second quarter of 2020 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on May 29, 2020. The dividend was paid on June 19, 2020.
| (1) | The average net debt to Core EBITDA ratio temporarily increased in early 2020 with the purchase of Dallas Galleria Office Towers using debt which was subsequently repaid with the sale of 1901 Market Street in Philadelphia, PA. The sale of 1901 Market Street did not close until late June 2020. Because our reported average net debt to Core EBITDA calculation is time-weighted, the positive effects of the sale of 1901 Market Street on this metric primarily due to the related reduction in outstanding debt are only marginally reflected in the measure for the period ended June 30, 2020. In order to disclose the anticipated effect of the sale of the asset on the metric for a full quarter, we calculated a normalized average net debt to Core EBITDA ratio. This normalized calculation starts with the Company's reported average net debt to Core EBITDA for the second quarter of 2020 and incorporates pro forma adjustments: 1) to remove the Core EBITDA contribution from 1901 Market Street to the Company's quarterly Core EBITDA and 2) to include the debt reductions related to the asset sale as if they occurred on April 1, 2020. The reduction to Core EBITDA for the second quarter of 2020 was $5,317,000 and the reduction to average net debt was $285,088,000. | ||||
9
Subsequent Events
On July 29, 2020, the Board of Directors of Piedmont declared a dividend for the third quarter of 2020 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on August 28, 2020. The dividend is expected to be paid on September 18, 2020.
Guidance for 2020
Since the duration and severity of the COVID-19 pandemic and the longer-term consequences on the economy and our tenants continue to be unknown, the Company is not providing guidance for 2020 at this time. Notwithstanding the economic backdrop, Piedmont has a strong, diversified tenant base, a majority of which is investment grade quality. Consequently, the Company has collected 99% of billed tenant receivables for the second quarter of 2020, which is net of approximately $3.6 million of tenant cash receipts that have been deferred until later in 2020 or 2021.
Additionally, the Company has a prudent balance sheet with excellent liquidity, including approximately $30 million in cash and the full availability under its $500 million line of credit at June 30, 2020 and no debt maturities until late 2021. Despite the widespread impacts of the COVID-19 pandemic on the global economy, the Company currently anticipates that its overall leased percentage and expected 2020 financial performance will not be severely impacted by the pandemic.
While it is not providing guidance for 2020, the Company is providing additional information regarding performance year-to-date, identified trends and its current expectations for how the pandemic could impact performance for the year when compared to its original expectations for the year:
•New tenant leasing activity slowed during the second quarter. Although new tenant prospects have increased, particularly in Sunbelt markets, the Company believes this slow trend will continue throughout the third quarter, likely pushing all “new tenant” leasing goals out several months, which will modestly lower our originally anticipated net operating income (“NOI”) for 2020 by approximately $5 million, and lower our originally anticipated year end leased percentage.
•Much of Piedmont’s customary transient parking income will not be received during the third quarter and results will be similar to those for the second quarter; NOI from transient parking is estimated to be lower by approximately $2 million for the year.
•With respect to retail tenant income, which amounted to about 1% of the Company’s originally budgeted 2020 revenues, overall retail NOI is currently projected to be approximately $2 million lower than original expectations.
•In addition to the above, during the second quarter, the Company took an approximate charge of $1.8 million against rental revenue in recognition of an increase in collectibility risk. Further, as a precautionary measure, the Company established an approximately $5 million general reserve for potential future losses, which is approximately 1% of its Annualized Lease Revenue.
•With lower active occupancy levels in our buildings, the Company expects its portion of operating expense savings to amount to $1 to $2 million for the year.
•Due to lower interest rates and a delay in anticipated financing activity for the year, the Company expects interest expense savings of approximately $5 million.
•While the Company is not aware of other tenant situations that would indicate material reductions in collections in 2020, it does not believe the impact of the pandemic on subsequent months’ rent collections can be reasonably estimated at this time.
These identified impacts of the COVID-19 pandemic on net operating income during 2020 equate to a net reduction of approximately $10 million to $12 million from our original expectations for the year. The estimated effects of COVID-19 on the Company's financial performance are based upon the premise that the economic slowdown abates during the fourth quarter of 2020.
The Company will reevaluate guidance once the longer-term consequences of the COVID-19 pandemic on the economy and our tenants can be more thoroughly considered.
10
Piedmont Office Realty Trust, Inc.
Consolidated Balance Sheets
Unaudited (in thousands)
| June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | June 30, 2019 | |||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Real estate, at cost: | |||||||||||||||||||||||||||||
| Land assets | $ | 505,228 | $ | 505,234 | $ | 485,560 | $ | 485,610 | $ | 459,660 | |||||||||||||||||||
| Buildings and improvements | 3,258,713 | 3,249,947 | 2,943,685 | 2,920,067 | 2,737,978 | ||||||||||||||||||||||||
| Buildings and improvements, accumulated depreciation | (776,870) | (755,152) | (730,750) | (706,774) | (689,657) | ||||||||||||||||||||||||
| Intangible lease asset | 164,145 | 167,972 | 125,171 | 131,843 | 138,200 | ||||||||||||||||||||||||
| Intangible lease asset, accumulated amortization | (58,148) | (52,538) | (50,766) | (50,474) | (66,300) | ||||||||||||||||||||||||
| Construction in progress | 51,045 | 42,028 | 29,920 | 13,866 | 13,231 | ||||||||||||||||||||||||
| Real estate assets held for sale, gross | — | 233,951 | 233,951 | 508,624 | 508,566 | ||||||||||||||||||||||||
| Real estate assets held for sale, accumulated depreciation & amortization | — | (96,164) | (94,261) | (153,936) | (149,588) | ||||||||||||||||||||||||
| Total real estate assets | 3,144,113 | 3,295,278 | 2,942,510 | 3,148,826 | 2,952,090 | ||||||||||||||||||||||||
| Cash and cash equivalents | 36,469 | 7,920 | 13,545 | 10,284 | 7,748 | ||||||||||||||||||||||||
| Tenant receivables, net of allowance for doubtful accounts | 8,494 | 10,596 | 8,226 | 10,091 | 10,494 | ||||||||||||||||||||||||
| Straight line rent receivable | 147,418 | 139,617 | 132,342 | 128,786 | 127,354 | ||||||||||||||||||||||||
| Escrow deposits and restricted cash | 1,769 | 1,758 | 1,841 | 1,820 | 1,480 | ||||||||||||||||||||||||
| Prepaid expenses and other assets | 33,017 | 23,933 | 25,427 | 27,143 | 32,564 | ||||||||||||||||||||||||
| Goodwill | 98,918 | 98,918 | 98,918 | 98,918 | 98,918 | ||||||||||||||||||||||||
| Interest rate swap | — | — | — | — | 10 | ||||||||||||||||||||||||
| Deferred lease costs, gross | 459,398 | 463,760 | 413,071 | 396,724 | 381,012 | ||||||||||||||||||||||||
| Deferred lease costs, accumulated amortization | (159,883) | (148,972) | (147,324) | (139,092) | (155,009) | ||||||||||||||||||||||||
| Other assets held for sale, gross | — | 63,524 | 63,158 | 111,661 | 110,911 | ||||||||||||||||||||||||
| Other assets held for sale, accumulated amortization | — | (35,516) | (34,957) | (43,230) | (42,205) | ||||||||||||||||||||||||
| Total assets | $ | 3,769,713 | $ | 3,920,816 | $ | 3,516,757 | $ | 3,751,931 | $ | 3,525,367 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Unsecured debt, net of discount | $ | 1,592,693 | $ | 1,743,905 | $ | 1,292,374 | $ | 1,689,793 | $ | 1,472,194 | |||||||||||||||||||
| Secured debt | 28,784 | 188,779 | 189,030 | 189,451 | 189,782 | ||||||||||||||||||||||||
| Accounts payable, accrued expenses, and accrued capital expenditures | 95,419 | 90,459 | 143,923 | 114,812 | 87,519 | ||||||||||||||||||||||||
| Deferred income | 35,226 | 35,443 | 34,609 | 27,985 | 24,641 | ||||||||||||||||||||||||
| Intangible lease liabilities, less accumulated amortization | 41,179 | 44,646 | 25,069 | 26,814 | 24,069 | ||||||||||||||||||||||||
| Interest rate swaps | 28,575 | 26,709 | 5,121 | 6,862 | 5,549 | ||||||||||||||||||||||||
| Other liabilities held for sale | — | 7,158 | 7,657 | 15,431 | 18,638 | ||||||||||||||||||||||||
| Total liabilities | $ | 1,821,876 | $ | 2,137,099 | $ | 1,697,783 | $ | 2,071,148 | $ | 1,822,392 | |||||||||||||||||||
| Stockholders' equity: | |||||||||||||||||||||||||||||
| Common stock | 1,260 | 1,259 | 1,258 | 1,258 | 1,258 | ||||||||||||||||||||||||
| Additional paid in capital | 3,691,377 | 3,690,821 | 3,686,398 | 3,685,504 | 3,687,881 | ||||||||||||||||||||||||
| Cumulative distributions in excess of earnings | (1,723,147) | (1,889,109) | (1,871,375) | (2,007,438) | (1,989,446) | ||||||||||||||||||||||||
| Other comprehensive loss | (23,360) | (20,976) | 967 | (283) | 1,530 | ||||||||||||||||||||||||
| Piedmont stockholders' equity | 1,946,130 | 1,781,995 | 1,817,248 | 1,679,041 | 1,701,223 | ||||||||||||||||||||||||
| Non-controlling interest | 1,707 | 1,722 | 1,726 | 1,742 | 1,752 | ||||||||||||||||||||||||
| Total stockholders' equity | 1,947,837 | 1,783,717 | 1,818,974 | 1,680,783 | 1,702,975 | ||||||||||||||||||||||||
| Total liabilities, redeemable common stock and stockholders' equity | $ | 3,769,713 | $ | 3,920,816 | $ | 3,516,757 | $ | 3,751,931 | $ | 3,525,367 | |||||||||||||||||||
| Common stock outstanding at end of period | 126,025 | 125,921 | 125,783 | 125,783 | 125,783 | ||||||||||||||||||||||||
11
Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)
| Three Months Ended | ||||||||||||||||||||||||||||||||
| 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | 6/30/2019 | ||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
Rental income (1) | $ | 109,714 | $ | 111,496 | $ | 106,742 | $ | 105,207 | $ | 102,637 | ||||||||||||||||||||||
Tenant reimbursements (1) | 21,533 | 20,658 | 22,950 | 25,372 | 22,831 | |||||||||||||||||||||||||||
| Property management fee revenue | 622 | 773 | 579 | 405 | 422 | |||||||||||||||||||||||||||
| Other property related income | 2,762 | 4,244 | 3,882 | 4,437 | 4,778 | |||||||||||||||||||||||||||
| 134,631 | 137,171 | 134,153 | 135,421 | 130,668 | ||||||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||||||||
| Property operating costs | 53,148 | 53,190 | 52,582 | 54,613 | 52,380 | |||||||||||||||||||||||||||
| Depreciation | 27,200 | 27,884 | 26,011 | 27,131 | 26,348 | |||||||||||||||||||||||||||
| Amortization | 24,349 | 23,631 | 21,000 | 19,505 | 18,461 | |||||||||||||||||||||||||||
| Impairment loss on real estate assets | — | — | 7,000 | 1,953 | — | |||||||||||||||||||||||||||
| General and administrative | 5,937 | 8,643 | 8,159 | 7,950 | 12,418 | |||||||||||||||||||||||||||
| 110,634 | 113,348 | 114,752 | 111,152 | 109,607 | ||||||||||||||||||||||||||||
| Other income / (expense): | ||||||||||||||||||||||||||||||||
| Interest expense | (13,953) | (15,264) | (14,844) | (16,145) | (15,112) | |||||||||||||||||||||||||||
| Other income / (expense) | 349 | 149 | 279 | 263 | 752 | |||||||||||||||||||||||||||
| Gain / (loss) on extinguishment of debt | (9,336) | — | — | — | — | |||||||||||||||||||||||||||
Gain / (loss) on sale of real estate (2) | 191,369 | 3 | 157,640 | 32 | 1,451 | |||||||||||||||||||||||||||
| Net income | 192,426 | 8,711 | 162,476 | 8,419 | 8,152 | |||||||||||||||||||||||||||
| Less: Net (income) / loss attributable to noncontrolling interest | 1 | (2) | 2 | 3 | 1 | |||||||||||||||||||||||||||
| Net income attributable to Piedmont | $ | 192,427 | $ | 8,709 | $ | 162,478 | $ | 8,422 | $ | 8,153 | ||||||||||||||||||||||
| Weighted average common shares outstanding - diluted | 126,500 | 126,360 | 126,359 | 126,240 | 126,491 | |||||||||||||||||||||||||||
| Net income per share available to common stockholders - diluted | $ | 1.52 | $ | 0.07 | $ | 1.29 | $ | 0.07 | $ | 0.06 | ||||||||||||||||||||||
| Common stock outstanding at end of period | 126,025 | 125,921 | 125,783 | 125,783 | 125,783 | |||||||||||||||||||||||||||
| (1) | The presentation method used for this line is not in conformance with GAAP. To be in conformance with the current GAAP standard, the Company would need to combine amounts presented on the rental income line with amounts presented on the tenant reimbursements line and present that aggregated figure on one line entitled "rental and tenant reimbursement income." The amounts presented on this line were determined based upon the Company's interpretation of the rental charges and billing method provisions in each of the Company's lease documents. | ||||
| (2) | The gain on sale of real estate reflected in the second quarter of 2020 was primarily related to the sale of 1901 Market Street in Philadelphia, PA. The gain on sale of real estate reflected in the fourth quarter of 2019 was nearly all related to the sale of 500 West Monroe Street in Chicago, IL. | ||||
12
Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| 6/30/2020 | 6/30/2019 | Change ($) | Change (%) | 6/30/2020 | 6/30/2019 | Change ($) | Change (%) | ||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||
Rental income (1) | $ | 109,714 | $ | 102,637 | $ | 7,077 | 6.9 | % | $ | 221,210 | $ | 206,296 | $ | 14,914 | 7.2 | % | |||||||||||||||||||
Tenant reimbursements (1) | 21,533 | 22,831 | (1,298) | (5.7) | % | 42,191 | 45,338 | (3,147) | (6.9) | % | |||||||||||||||||||||||||
| Property management fee revenue | 622 | 422 | 200 | 47.4 | % | 1,395 | 2,414 | (1,019) | (42.2) | % | |||||||||||||||||||||||||
| Other property related income | 2,762 | 4,778 | (2,016) | (42.2) | % | 7,006 | 9,556 | (2,550) | (26.7) | % | |||||||||||||||||||||||||
| 134,631 | 130,668 | 3,963 | 3.0 | % | 271,802 | 263,604 | 8,198 | 3.1 | % | ||||||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||||||||
| Property operating costs | 53,148 | 52,380 | (768) | (1.5) | % | 106,338 | 104,185 | (2,153) | (2.1) | % | |||||||||||||||||||||||||
| Depreciation | 27,200 | 26,348 | (852) | (3.2) | % | 55,084 | 52,873 | (2,211) | (4.2) | % | |||||||||||||||||||||||||
| Amortization | 24,349 | 18,461 | (5,888) | (31.9) | % | 47,980 | 36,161 | (11,819) | (32.7) | % | |||||||||||||||||||||||||
| General and administrative | 5,937 | 12,418 | 6,481 | 52.2 | % | 14,580 | 21,786 | 7,206 | 33.1 | % | |||||||||||||||||||||||||
| 110,634 | 109,607 | (1,027) | (0.9) | % | 223,982 | 215,005 | (8,977) | (4.2) | % | ||||||||||||||||||||||||||
| Other income / (expense): | |||||||||||||||||||||||||||||||||||
| Interest expense | (13,953) | (15,112) | 1,159 | 7.7 | % | (29,217) | (30,605) | 1,388 | 4.5 | % | |||||||||||||||||||||||||
| Other income / (expense) | 349 | 752 | (403) | (53.6) | % | 498 | 1,029 | (531) | (51.6) | % | |||||||||||||||||||||||||
| Gain / (loss) on extinguishment of debt | (9,336) | — | (9,336) | (100.0) | % | (9,336) | — | (9,336) | (100.0) | % | |||||||||||||||||||||||||
Gain / (loss) on sale of real estate (2) | 191,369 | 1,451 | 189,918 | 13,088.8 | % | 191,372 | 39,338 | 152,034 | 386.5 | % | |||||||||||||||||||||||||
| Net income | 192,426 | 8,152 | 184,274 | 2,260.5 | % | 201,137 | 58,361 | 142,776 | 244.6 | % | |||||||||||||||||||||||||
| Less: Net (income) / loss attributable to noncontrolling interest | 1 | 1 | — | — | % | (1) | — | (1) | (100.0) | % | |||||||||||||||||||||||||
| Net income attributable to Piedmont | $ | 192,427 | $ | 8,153 | $ | 184,274 | 2,260.2 | % | $ | 201,136 | $ | 58,361 | $ | 142,775 | 244.6 | % | |||||||||||||||||||
| Weighted average common shares outstanding - diluted | 126,500 | 126,491 | 126,456 | 126,404 | |||||||||||||||||||||||||||||||
| Net income per share available to common stockholders - diluted | $ | 1.52 | $ | 0.06 | $ | 1.59 | $ | 0.46 | |||||||||||||||||||||||||||
| Common stock outstanding at end of period | 126,025 | 125,783 | 126,025 | 125,783 | |||||||||||||||||||||||||||||||
| (1) | The presentation method used for this line is not in conformance with GAAP. To be in conformance with the current GAAP standard, the Company would need to combine amounts presented on the rental income line with amounts presented on the tenant reimbursements line and present that aggregated figure on one line entitled "rental and tenant reimbursement income." The amounts presented on this line were determined based upon the Company's interpretation of the rental charges and billing method provisions in each of the Company's lease documents. | ||||
| (2) | The gain on sale of real estate for the three months and the six months ended June 30, 2020 was primarily related to the sale of 1901 Market Street in Philadelphia, PA. The gain on sale of real estate for the six months ended June 30, 2019 was primarily related to the sale of One Independence Square in Washington, DC, on which the Company recorded a total gain of $33.2 million. | ||||
13
Piedmont Office Realty Trust, Inc.
Key Performance Indicators
Unaudited (in thousands except for per share data)
This section of our supplemental report includes non-GAAP financial measures, including, but not limited to, Earnings Before Interest, Taxes, Depreciation, and Amortization for real estate (EBITDAre), Core Earnings Before Interest, Taxes, Depreciation, and Amortization (Core EBITDA), Funds from Operations (FFO), Core Funds from Operations (Core FFO), and Adjusted Funds from Operations (AFFO). Definitions of these non-GAAP measures are provided on page 39 and reconciliations are provided beginning on page 41. For comparison purposes, on January 1, 2020, Piedmont placed back into service one redevelopment property, Two Pierce Place in Itasca, IL. The building was approximately 42% leased at the time it was placed back into service. No other properties were placed back into service during any of the periods presented. | ||
| Three Months Ended | ||||||||||||||||||||||||||||||||
| Selected Operating Data | 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | 6/30/2019 | |||||||||||||||||||||||||||
Percent leased (1) | 88.6 | % | 89.6 | % | 91.2 | % | 91.9 | % | 92.6 | % | ||||||||||||||||||||||
Percent leased - economic (1) (2) | 81.1 | % | 84.0 | % | 85.5 | % | 86.4 | % | 85.9 | % | ||||||||||||||||||||||
| Total revenues | $134,631 | $137,171 | $134,153 | $135,421 | $130,668 | |||||||||||||||||||||||||||
| Net income attributable to Piedmont | $192,427 | $8,709 | $162,478 | $8,422 | $8,153 | |||||||||||||||||||||||||||
| Core EBITDA | $75,874 | $75,467 | $73,671 | $73,100 | $69,774 | |||||||||||||||||||||||||||
| Core FFO applicable to common stock | $61,603 | $59,875 | $58,591 | $56,743 | $54,451 | |||||||||||||||||||||||||||
| Core FFO per share - diluted | $0.49 | $0.47 | $0.46 | $0.45 | $0.43 | |||||||||||||||||||||||||||
| AFFO applicable to common stock | $44,968 | $18,557 | $34,906 | $36,662 | $42,370 | |||||||||||||||||||||||||||
Gross regular dividends (3) | $26,465 | $26,443 | $26,415 | $26,415 | $26,415 | |||||||||||||||||||||||||||
Regular dividends per share (3) | $0.21 | $0.21 | $0.21 | $0.21 | $0.21 | |||||||||||||||||||||||||||
| Selected Balance Sheet Data | ||||||||||||||||||||||||||||||||
| Total real estate assets, net | $3,144,113 | $3,295,278 | $2,942,510 | $3,148,826 | $2,952,090 | |||||||||||||||||||||||||||
| Total assets | $3,769,713 | $3,920,816 | $3,516,757 | $3,751,931 | $3,525,367 | |||||||||||||||||||||||||||
| Total liabilities | $1,821,876 | $2,137,099 | $1,697,783 | $2,071,148 | $1,822,392 | |||||||||||||||||||||||||||
| Ratios & Information for Debt Holders | ||||||||||||||||||||||||||||||||
Core EBITDA margin (4) | 56.4 | % | 55.0 | % | 54.9 | % | 54.0 | % | 53.4 | % | ||||||||||||||||||||||
Fixed charge coverage ratio (5) | 5.3 x | 4.8 x | 4.7 x | 4.3 x | 4.4 x | |||||||||||||||||||||||||||
Average net debt to Core EBITDA (6) | 6.2 x | 5.7 x | 5.4 x | 6.0 x | 5.8 x | |||||||||||||||||||||||||||
Normalized average net debt to Core EBITDA (7) | 5.6 x | |||||||||||||||||||||||||||||||
| Total gross real estate assets | $3,979,131 | $4,199,132 | $3,818,287 | $4,060,010 | $3,857,635 | |||||||||||||||||||||||||||
Net debt (8) | $1,590,007 | $1,930,834 | $1,473,301 | $1,874,929 | $1,661,060 | |||||||||||||||||||||||||||
| (1) | Please refer to page 27 for additional leased percentage information. | ||||
| (2) | Economic leased percentage excludes the square footage associated with executed but not commenced leases for currently vacant spaces and the square footage associated with tenants receiving rental abatements (after proportional adjustments for tenants receiving only partial rental abatements). Due to variations in rental abatement structures whereby some abatements are provided for the first few months of each lease year as opposed to being provided entirely at the beginning of the lease, there will be variability to the economic leased percentage over time as abatements commence and expire. Please see the Future Lease Commencements and Abatements section of Financial Highlights for details on near-term abatements for large leases. | ||||
| (3) | Dividends are reflected in the quarter in which the record date occurred. | ||||
| (4) | Core EBITDA margin is calculated as Core EBITDA divided by total revenues. | ||||
| (5) | The fixed charge coverage ratio is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. The Company had no preferred dividends during any of the periods presented; the Company had capitalized interest of $183,846 for the quarter ended June 30, 2020, $176,040 for the quarter ended March 31, 2020, $502,646 for the quarter ended December 31, 2019, $542,505 for the quarter ended September 30, 2019, and $562,449 for the quarter ended June 30, 2019; the Company had principal amortization of $266,128 for the quarter ended June 30, 2020, $175,383 for the quarter ended March 31, 2020, $345,948 for the quarter ended December 31, 2019, $255,303 for the quarter ended September 30, 2019, and $251,793 for the quarter ended June 30, 2019. | ||||
| (6) | For the purposes of this calculation, we annualize the period's Core EBITDA and use the average daily balance of debt outstanding during the period, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the period. | ||||
| (7) | The average net debt to Core EBITDA ratio temporarily increased in early 2020 with the purchase of Dallas Galleria Office Towers using debt which was subsequently repaid with the sale of 1901 Market Street in Philadelphia, PA. The sale of 1901 Market Street did not close until late June 2020. Because our reported average net debt to Core EBITDA calculation is time-weighted, the positive effects of the sale of 1901 Market Street on this metric primarily due to the related reduction in outstanding debt are only marginally reflected in the measure for the period ended June 30, 2020. In order to disclose the anticipated effect of the sale of the asset on the metric for a full quarter, we calculated a normalized average net debt to Core EBITDA ratio. This normalized calculation starts with the Company's reported average net debt to Core EBITDA for the second quarter of 2020 and incorporates pro forma adjustments: 1) to remove the Core EBITDA contribution from 1901 Market Street to the Company's quarterly Core EBITDA and 2) to include the debt reductions related to the asset sale as if they occurred on April 1, 2020. The reduction to Core EBITDA for the second quarter of 2020 was $5,317,000 and the reduction to average net debt was $285,088,000. | ||||
| (8) | Net debt is calculated as the total principal amount of debt outstanding minus cash and cash equivalents and escrow deposits and restricted cash as of the end of the period. | ||||
14
Piedmont Office Realty Trust, Inc.
Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations
Unaudited (in thousands except for per share data)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| 6/30/2020 | 6/30/2019 | 6/30/2020 | 6/30/2019 | |||||||||||||||||||||||
| GAAP net income applicable to common stock | $ | 192,427 | $ | 8,153 | $ | 201,136 | $ | 58,361 | ||||||||||||||||||
Depreciation (1) (2) | 26,873 | 26,128 | 54,424 | 52,437 | ||||||||||||||||||||||
Amortization (1) | 24,336 | 18,446 | 47,954 | 36,131 | ||||||||||||||||||||||
Loss / (gain) on sale of properties (1) | (191,369) | (1,451) | (191,372) | (39,338) | ||||||||||||||||||||||
| NAREIT funds from operations applicable to common stock | 52,267 | 51,276 | 112,142 | 107,591 | ||||||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Retirement and separation expenses associated with senior management transition | — | 3,175 | — | 3,175 | ||||||||||||||||||||||
| Loss / (gain) on extinguishment of debt | 9,336 | — | 9,336 | — | ||||||||||||||||||||||
| Core funds from operations applicable to common stock | 61,603 | 54,451 | 121,478 | 110,766 | ||||||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on senior notes | 672 | 525 | 1,249 | 1,048 | ||||||||||||||||||||||
| Depreciation of non real estate assets | 319 | 212 | 644 | 420 | ||||||||||||||||||||||
Straight-line effects of lease revenue (1) | (7,278) | (3,223) | (14,063) | (5,906) | ||||||||||||||||||||||
| Stock-based compensation adjustments | 645 | 2,184 | 2,945 | 4,964 | ||||||||||||||||||||||
Amortization of lease-related intangibles (1) | (3,304) | (2,088) | (6,277) | (4,086) | ||||||||||||||||||||||
Non-incremental capital expenditures (3) | (7,689) | (9,691) | (42,451) | (13,058) | ||||||||||||||||||||||
| Adjusted funds from operations applicable to common stock | $ | 44,968 | $ | 42,370 | $ | 63,525 | $ | 94,148 | ||||||||||||||||||
| Weighted average common shares outstanding - diluted | 126,500 | 126,491 | 126,456 | 126,404 | ||||||||||||||||||||||
| Funds from operations per share (diluted) | $ | 0.41 | $ | 0.41 | $ | 0.89 | $ | 0.85 | ||||||||||||||||||
| Core funds from operations per share (diluted) | $ | 0.49 | $ | 0.43 | $ | 0.96 | $ | 0.88 | ||||||||||||||||||
| Common stock outstanding at end of period | 126,025 | 125,783 | 126,025 | 125,783 | ||||||||||||||||||||||
| (1) | Includes our proportionate share of amounts attributable to consolidated properties. | ||||
| (2) | Excludes depreciation of non real estate assets. | ||||
| (3) | Non-incremental capital expenditures are defined on page 39. Non-incremental capital expenditures for the six months ended June 30, 2020 include approximately $20.4 million of leasing commissions, with the largest contributor to that amount being the leasing commissions related to the 20-year, approximately 500,000 square foot lease renewal with the State of New York at 60 Broad Street in New York, NY. | ||||
15
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| 6/30/2020 | 6/30/2019 | 6/30/2020 | 6/30/2019 | ||||||||||||||||||||
| Net income attributable to Piedmont | $ | 192,427 | $ | 8,153 | $ | 201,136 | $ | 58,361 | |||||||||||||||
| Net income / (loss) attributable to noncontrolling interest | (1) | (1) | 1 | — | |||||||||||||||||||
Interest expense (1) | 13,953 | 15,112 | 29,217 | 30,605 | |||||||||||||||||||
Depreciation (1) | 27,192 | 26,340 | 55,069 | 52,858 | |||||||||||||||||||
Amortization (1) | 24,336 | 18,446 | 47,954 | 36,131 | |||||||||||||||||||
Loss / (gain) on sale of properties (1) | (191,369) | (1,451) | (191,372) | (39,338) | |||||||||||||||||||
| EBITDAre | 66,538 | 66,599 | 142,005 | 138,617 | |||||||||||||||||||
| Retirement and separation expenses associated with senior management transition | — | 3,175 | — | 3,175 | |||||||||||||||||||
| (Gain) / loss on extinguishment of debt | 9,336 | — | 9,336 | — | |||||||||||||||||||
Core EBITDA (2) | 75,874 | 69,774 | 151,341 | 141,792 | |||||||||||||||||||
General & administrative expenses (1) | 5,937 | 9,244 | 14,580 | 18,611 | |||||||||||||||||||
Non-cash general reserve for uncollectible accounts (3) | 4,865 | — | 4,865 | — | |||||||||||||||||||
Management fee revenue (4) | (282) | (201) | (677) | (2,023) | |||||||||||||||||||
Other (income) / expense (1) (5) | (134) | (56) | (67) | (118) | |||||||||||||||||||
Straight-line effects of lease revenue (1) | (7,278) | (3,223) | (14,063) | (5,906) | |||||||||||||||||||
Amortization of lease-related intangibles (1) | (3,304) | (2,088) | (6,277) | (4,086) | |||||||||||||||||||
| Property net operating income (cash basis) | 75,678 | 73,450 | 149,702 | 148,270 | |||||||||||||||||||
| Deduct net operating (income) / loss from: | |||||||||||||||||||||||
Acquisitions (6) | (10,109) | (921) | (18,214) | (920) | |||||||||||||||||||
Dispositions (7) | (4,384) | (12,320) | (8,979) | (27,177) | |||||||||||||||||||
Other investments (8) | (224) | (246) | (306) | (285) | |||||||||||||||||||
Same store net operating income (cash basis) (9) | $ | 60,961 | $ | 59,963 | $ | 122,203 | $ | 119,888 | |||||||||||||||
| Change period over period | 1.7 | % | N/A | 1.9 | % | N/A | |||||||||||||||||
| (1) | Includes our proportionate share of amounts attributable to consolidated properties. | ||||
| (2) | The Company has historically recognized approximately $2 to $3 million of termination income on an annual basis (over the last 5 years). Given the size of its asset base and the number of tenants with which it conducts business, Piedmont considers termination income of that magnitude to be a normal part of its operations and a recurring part of its revenue stream; however, the recognition of termination income is typically variable between quarters and throughout any given year and is dependent upon when during the year the Company receives termination notices from tenants. During the three months ended June 30, 2020, Piedmont recognized $0.6 million in termination income, as compared with none during the same period in 2019. During the six months ended June 30, 2020, Piedmont recognized $1.2 million in termination income, as compared with $1.8 million during the same period in 2019. During the calendar year 2019, Piedmont recognized a total of $2.8 million in termination income. | ||||
| (3) | As a result of COVID-19 and as a precautionary measure, the Company established a general reserve for potential future losses amounting to approximately $5 million. The general reserve is non-cash in nature and is, therefore, removed from the calculation of cash basis same store net operating income. No such reserves were made in prior periods. | ||||
| (4) | Presented net of related operating expenses incurred to earn the revenue; therefore, the information presented on this line will not tie to the data presented on the income statements. | ||||
| (5) | Figures presented on this line may not tie back to the relevant sources as some activity is attributable to property operations and is, therefore, presented in property net operating income. | ||||
| (6) | Acquisitions consist of Galleria 100 and land in Atlanta, GA, purchased on May 6, 2019; Galleria 400, Galleria 600 and land in Atlanta, GA, purchased on August 23, 2019; and One Galleria Tower, Two Galleria Tower, Three Galleria Tower and land in Dallas, TX, purchased on February 12, 2020. | ||||
| (7) | Dispositions consist of One Independence Square in Washington, D.C., sold on February 28, 2019; The Dupree in Atlanta, GA, sold on September 4, 2019; 500 West Monroe Street in Chicago, IL, sold on October 28, 2019; and 1901 Market Street in Philadelphia, PA, sold on June 25, 2020. | ||||
| (8) | Other investments consist of active out-of-service redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. Additional information on our land holdings can be found on page 38. The operating results from Two Pierce Place in Itasca, IL, are included in this line item. | ||||
| (9) | For the periods ending June 30, 2020, amounts reflect a decrease in cash collections of approximately $3.6 million as a result of COVID-19 rent relief agreements. | ||||
16
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)
| Same Store Net Operating Income (Cash Basis) | |||||||||||||||||||||||||||||||||||
| Contributions from Strategic Operating Markets | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||
| 6/30/2020 | 6/30/2019 | 6/30/2020 | 6/30/2019 | ||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||
| Boston | $ | 9,990 | 16.4 | $ | 10,187 | 17.0 | $ | 20,257 | 16.6 | $ | 19,884 | 16.6 | |||||||||||||||||||||||
Washington, D.C. (1) | 9,911 | 16.2 | 8,217 | 13.7 | 19,620 | 16.0 | 16,647 | 13.9 | |||||||||||||||||||||||||||
Minneapolis | 8,994 | 14.7 | 9,390 | 15.6 | 18,230 | 14.9 | 18,757 | 15.6 | |||||||||||||||||||||||||||
New York (2) | 8,897 | 14.6 | 11,514 | 19.2 | 17,795 | 14.6 | 22,574 | 18.8 | |||||||||||||||||||||||||||
Atlanta (3) | 8,613 | 14.1 | 8,734 | 14.6 | 16,535 | 13.5 | 17,631 | 14.7 | |||||||||||||||||||||||||||
Orlando (4) | 7,475 | 12.3 | 8,257 | 13.8 | 15,711 | 12.9 | 16,665 | 13.9 | |||||||||||||||||||||||||||
Dallas (5) | 7,657 | 12.6 | 6,320 | 10.5 | 15,529 | 12.7 | 12,662 | 10.6 | |||||||||||||||||||||||||||
Other (6) | (576) | (0.9) | (2,656) | (4.4) | (1,474) | (1.2) | (4,932) | (4.1) | |||||||||||||||||||||||||||
| Total | $ | 60,961 | 100.0 | $ | 59,963 | 100.0 | $ | 122,203 | 100.0 | $ | 119,888 | 100.0 | |||||||||||||||||||||||
| NOTE: | The Company has provided disaggregated financial data for informational purposes for readers; however, regardless of the presentation approach used, we continue to evaluate and utilize our consolidated financial results in making operating decisions, allocating resources, and assessing our performance. | ||||
| (1) | The increase in Washington, D.C. Same Store Net Operating Income for the three months and the six months ended June 30, 2020 as compared to the same periods in 2019 was primarily due to increased economic occupancy as a result of recent leasing activity at 1201 Eye Street and 400 Virginia Avenue, both located in Washington, D.C., and Arlington Gateway, located in Arlington, VA. | ||||
| (2) | The decrease in New York Same Store Net Operating Income for the three months and the six months ended June 30, 2020 as compared to the same periods in 2019 was primarily attributable to decreased economic occupancy as a result of 1) a lease expiration during the second half of 2019, 2) temporary vacancy due to the restacking of the State of New York space related to its long-term lease renewal, and 3) a rental rate roll down, all at 60 Broad Street in New York, NY. | ||||
| (3) | The decrease in Atlanta Same Store Net Operating Income for the six months ended June 30, 2020 as compared to the same period in 2019 was primarily due to reduced average occupancy as a result of the expiration of a major tenant's lease during the second half of 2019 as well as rental abatements associated with the commencement of replacement leases at 1155 Perimeter Center West in Atlanta, GA. | ||||
| (4) | The decrease in Orlando Same Store Net Operating Income for the three months and the six months ended June 30, 2020 as compared to the same periods in 2019 was due to decreased rental income as a result of decreased economic occupancy related to a major lease expiration during the second half of 2019 and pandemic-related decreased parking activity at 200 South Orange Avenue in Orlando, FL. | ||||
| (5) | The increase in Dallas Same Store Net Operating Income for the three months and the six months ended June 30, 2020 as compared to the same periods in 2019 was primarily due to increased economic occupancy associated with the cash rent commencement for a whole-building lease at 6011 Connection Drive and the recognition of lease termination income during the first half of 2020 at Las Colinas Corporate Center I, both located in Irving, TX. | ||||
| (6) | The increase in Other Same Store Net Operating Income for the three months and the six months ended June 30, 2020 as compared to the same periods in 2019 was primarily attributable to increased economic occupancy at 1430 Enclave Parkway in Houston, TX, as a result of the expiration of the rental abatement period for the building's primary tenant. Other Same Store Net Operating Income remains negative in 2020 primarily as a result of the gross rental abatement that remains in effect under the recently commenced full-building lease at Enlcave Place in Houston, TX, | ||||
17
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Accrual Basis)
Unaudited (in thousands)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| 6/30/2020 | 6/30/2019 | 6/30/2020 | 6/30/2019 | ||||||||||||||||||||
| Net income attributable to Piedmont | $ | 192,427 | $ | 8,153 | $ | 201,136 | $ | 58,361 | |||||||||||||||
| Net income / (loss) attributable to noncontrolling interest | (1) | (1) | 1 | — | |||||||||||||||||||
Interest expense (1) | 13,953 | 15,112 | 29,217 | 30,605 | |||||||||||||||||||
Depreciation (1) | 27,192 | 26,340 | 55,069 | 52,858 | |||||||||||||||||||
Amortization (1) | 24,336 | 18,446 | 47,954 | 36,131 | |||||||||||||||||||
Loss / (gain) on sale of properties (1) | (191,369) | (1,451) | (191,372) | (39,338) | |||||||||||||||||||
| EBITDAre | 66,538 | 66,599 | 142,005 | 138,617 | |||||||||||||||||||
| Retirement and separation expenses associated with senior management transition | — | 3,175 | — | 3,175 | |||||||||||||||||||
| (Gain) / loss on extinguishment of debt | 9,336 | — | 9,336 | — | |||||||||||||||||||
Core EBITDA (2) | 75,874 | 69,774 | 151,341 | 141,792 | |||||||||||||||||||
General & administrative expenses (1) | 5,937 | 9,244 | 14,580 | 18,611 | |||||||||||||||||||
Management fee revenue (3) | (282) | (201) | (677) | (2,023) | |||||||||||||||||||
Other (income) / expense (1) (4) | (134) | (56) | (67) | (118) | |||||||||||||||||||
| Property net operating income (accrual basis) | 81,395 | 78,761 | 165,177 | 158,262 | |||||||||||||||||||
| Deduct net operating (income) / loss from: | |||||||||||||||||||||||
Acquisitions (5) | (13,518) | (1,155) | (23,786) | (1,155) | |||||||||||||||||||
Dispositions (6) | (5,195) | (13,424) | (10,655) | (27,826) | |||||||||||||||||||
Other investments (7) | (177) | (220) | (239) | (270) | |||||||||||||||||||
| Same store net operating income (accrual basis) | $ | 62,505 | $ | 63,962 | $ | 130,497 | $ | 129,011 | |||||||||||||||
| Change period over period | (2.3) | % | N/A | 1.2 | % | N/A | |||||||||||||||||
For informational purposes (8) | |||||||||||||||||||||||
| Add back: Non-cash general reserve for uncollectible accounts | 4,865 | — | 4,865 | — | |||||||||||||||||||
| Adjusted same store net operating income (accrual basis) | $ | 67,370 | $ | 63,962 | $ | 135,362 | $ | 129,011 | |||||||||||||||
| Change period over period | 5.3 | % | N/A | 4.9 | % | N/A | |||||||||||||||||
| (1) | Includes our proportionate share of amounts attributable to consolidated properties. | ||||
| (2) | The Company has historically recognized approximately $2 to $3 million of termination income on an annual basis (over the last 5 years). Given the size of its asset base and the number of tenants with which it conducts business, Piedmont considers termination income of that magnitude to be a normal part of its operations and a recurring part of its revenue stream; however, the recognition of termination income is typically variable between quarters and throughout any given year and is dependent upon when during the year the Company receives termination notices from tenants. During the three months ended June 30, 2020, Piedmont recognized $0.6 million in termination income, as compared with none during the same period in 2019. During the six months ended June 30, 2020, Piedmont recognized $1.2 million in termination income, as compared with $1.8 million during the same period in 2019. During the calendar year 2019, Piedmont recognized a total of $2.8 million in termination income. | ||||
| (3) | Presented net of related operating expenses incurred to earn the revenue; therefore, the information presented on this line will not tie to the data presented on the income statements. | ||||
| (4) | Figures presented on this line may not tie back to the relevant sources as some activity is attributable to property operations and is, therefore, presented in property net operating income. | ||||
| (5) | Acquisitions consist of Galleria 100 and land in Atlanta, GA, purchased on May 6, 2019; Galleria 400, Galleria 600 and land in Atlanta, GA, purchased on August 23, 2019; and One Galleria Tower, Two Galleria Tower, Three Galleria Tower and land in Dallas, TX, purchased on February 12, 2020. | ||||
| (6) | Dispositions consist of One Independence Square in Washington, D.C., sold on February 28, 2019; The Dupree in Atlanta, GA, sold on September 4, 2019; 500 West Monroe Street in Chicago, IL, sold on October 28, 2019; and 1901 Market Street in Philadelphia, PA, sold on June 25, 2020. | ||||
| (7) | Other investments consist of active out-of-service redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. Additional information on our land holdings can be found on page 38. The operating results from Two Pierce Place in Itasca, IL, are included in this line item. | ||||
| (8) | As a result of COVID-19 and as a precautionary measure, the Company established a general reserve for potential future losses amounting to approximately $5 million. The general reserve reduced the Company's accrual basis same store net operating income. Because of the unique nature of the reserve, the Company has provided this supplemental disclosure to calculate what the accrual basis same store net operating income growth would have been had no general reserve for potential future losses been established. No such reserves were made in prior periods. | ||||
18
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Accrual Basis)
Unaudited (in thousands)
| Same Store Net Operating Income (Accrual Basis) | |||||||||||||||||||||||||||||||||||
| Contributions from Strategic Operating Markets | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||
| 6/30/2020 | 6/30/2019 | 6/30/2020 | 6/30/2019 | ||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||
New York (1) | $ | 11,342 | 18.1 | $ | 11,210 | 17.5 | $ | 22,456 | 17.2 | $ | 21,237 | 16.5 | |||||||||||||||||||||||
Boston (2) | 10,552 | 16.9 | 11,529 | 18.0 | 21,249 | 16.3 | 22,692 | 17.6 | |||||||||||||||||||||||||||
| Washington, D.C. | 9,375 | 15.0 | 9,208 | 14.4 | 19,816 | 15.2 | 19,847 | 15.4 | |||||||||||||||||||||||||||
| Atlanta | 9,558 | 15.3 | 9,057 | 14.2 | 18,946 | 14.5 | 18,413 | 14.3 | |||||||||||||||||||||||||||
Orlando (3) | 7,976 | 12.8 | 8,654 | 13.6 | 16,931 | 13.0 | 17,825 | 13.8 | |||||||||||||||||||||||||||
Minneapolis (4) | 8,066 | 12.9 | 8,839 | 13.8 | 16,766 | 12.9 | 17,733 | 13.7 | |||||||||||||||||||||||||||
Dallas (5) | 7,910 | 12.6 | 7,106 | 11.1 | 15,705 | 12.0 | 14,210 | 11.0 | |||||||||||||||||||||||||||
Other (6) | (2,274) | (3.6) | (1,641) | (2.6) | (1,372) | (1.1) | (2,946) | (2.3) | |||||||||||||||||||||||||||
| Total | $ | 62,505 | 100.0 | $ | 63,962 | 100.0 | $ | 130,497 | 100.0 | $ | 129,011 | 100.0 | |||||||||||||||||||||||
| NOTE: | The Company has provided disaggregated financial data for informational purposes for readers; however, regardless of the presentation approach used, we continue to evaluate and utilize our consolidated financial results in making operating decisions, allocating resources, and assessing our performance. | ||||
| (1) | The increase in New York Same Store Net Operating Income for the three months and the six months ended June 30, 2020 as compared to the same periods in 2019 was primarily due to increased rental income attributable to the State of New York lease renewal at a higher straight-lined rental rate at 60 Broad Street in New York, NY. | ||||
| (2) | The decrease in Boston Same Store Net Operating Income for the three months and the six months ended June 30, 2020 as compared to the same periods in 2019 was primarily due to lower income as a result of decreased occupancy related to several small lease expirations at 25 Burlington Mall Road in Burlington, MA, along with a large tenant renewal at a lower effective rental rate at 225 and 235 Presidential Way in Woburn, MA. | ||||
| (3) | The decrease in Orlando Same Store Net Operating Income for the three months and the six months ended June 30, 2020 as compared to the same periods in 2019 was due to a decrease in rental income as a result of decreased occupancy related to a major lease expiration during the second half of 2019 and pandemic-related decreased parking activity at 200 South Orange Avenue in Orlando, FL. | ||||
| (4) | The decrease in Minneapolis Same Store Net Operating Income for the three months and the six months ended June 30, 2020 as compared to the same periods in 2019 was primarily due to decreased occupancy at US Bancorp Center in Minneapolis, MN, and Crescent Ridge II in Minnetonka, MN. | ||||
| (5) | The increase in Dallas Same Store Net Operating Income for the three months and the six months ended June 30, 2020 as compared to the same periods in 2019 was primarily due to increased rental income resulting from the commencement of the final portion of a whole-building lease at 6011 Connection Drive, along with the recognition of approximately $1.1 million of net lease termination income during the first half of 2020 at Las Colinas Corporate Center I, both located in Irving, TX. | ||||
| (6) | The decrease in Other Same Store Net Operating Income for the three months ended June 30, 2020 as compared to the same period in 2019 was primarily due to the precautionary establishment an approximately $5 million general reserve for potential future losses as a result of COVID-19. The reserve is considered general in nature and is, therefore, presented in Other Same Store Net Operating Income. The increase in Other Same Store Net Operating Income for the six months ended June 30, 2020 as compared to the same period in 2019 was primarily due to increased rental income from the commencement of the full-building lease at Enclave Place, as well as the expiration of the operating expense recovery abatement related to the lease renewal and expansion of the building's primary tenant at 1430 Enclave Parkway, both located in Houston, TX. | ||||
19
Piedmont Office Realty Trust, Inc.
Capitalization Analysis
Unaudited (in thousands except for per share data)
| As of | As of | ||||||||||
| June 30, 2020 | December 31, 2019 | ||||||||||
| Market Capitalization | |||||||||||
| Common stock price | $16.61 | $22.24 | |||||||||
| Total shares outstanding | 126,025 | 125,783 | |||||||||
Equity market capitalization (1) | $2,093,279 | $2,797,423 | |||||||||
| Total debt - principal amount outstanding (excludes premiums, discounts, and deferred financing costs) | $1,628,245 | $1,488,687 | |||||||||
Total market capitalization (1) | $3,721,524 | $4,286,110 | |||||||||
Total debt / Total market capitalization (1) | 43.8 | % | 34.7 | % | |||||||
| Ratios & Information for Debt Holders | |||||||||||
Total gross assets (2) | $4,764,614 | $4,574,815 | |||||||||
Total debt / Total gross assets (2) | 34.2 | % | 32.5 | % | |||||||
Average net debt to Core EBITDA (3) | 6.2 x | 5.4 x | |||||||||
Normalized average net debt to Core EBITDA (4) | 5.6 x | ||||||||||
| (1) | Reflects common stock closing price, shares outstanding, and outstanding debt as of the end of the reporting period, as appropriate. | ||||
| (2) | Total gross assets is defined as total assets with the add-back of accumulated depreciation and accumulated amortization related to real estate assets and accumulated amortization related to deferred lease costs. | ||||
| (3) | For the purposes of this calculation, we annualize the Core EBITDA for the quarter and use the average daily balance of debt outstanding during the quarter, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the quarter. | ||||
| (4) | The average net debt to Core EBITDA ratio temporarily increased in early 2020 with the purchase of Dallas Galleria Office Towers using debt which was subsequently repaid with the sale of 1901 Market Street in Philadelphia, PA. The sale of 1901 Market Street did not close until late June 2020. Because our reported average net debt to Core EBITDA calculation is time-weighted, the positive effects of the sale of 1901 Market Street on this metric primarily due to the related reduction in outstanding debt are only marginally reflected in the measure for the period ended June 30, 2020. In order to disclose the anticipated effect of the sale of the asset on the metric for a full quarter, we calculated a normalized average net debt to Core EBITDA ratio. This normalized calculation starts with the Company's reported average net debt to Core EBITDA for the second quarter of 2020 and incorporates pro forma adjustments: 1) to remove the Core EBITDA contribution from 1901 Market Street to the Company's quarterly Core EBITDA and 2) to include the debt reductions related to the asset sale as if they occurred on April 1, 2020. The reduction to Core EBITDA for the second quarter of 2020 was $5,317,000 and the reduction to average net debt was $285,088,000. | ||||
20
Piedmont Office Realty Trust, Inc.
Debt Summary
As of June 30, 2020
Unaudited ($ in thousands)
| Floating Rate & Fixed Rate Debt |  | ||||||||||||||||
Debt (1) | Principal Amount Outstanding | Weighted Average Stated Interest Rate (2) | Weighted Average Maturity | ||||||||||||||
| Floating Rate | $750,000 | (3) | 1.34% | 26.4 months | |||||||||||||
| Fixed Rate | 878,245 | 3.97% | 41.2 months | ||||||||||||||
| Total | $1,628,245 | 2.76% | 34.4 months | ||||||||||||||
| Unsecured & Secured Debt |  | |||||||||||||||||||
Debt (1) | Principal Amount Outstanding | Weighted Average Stated Interest Rate (2) | Weighted Average Maturity | |||||||||||||||||
| Unsecured | $1,600,000 | 2.71% | 34.7 months | |||||||||||||||||
| Secured | 28,245 | 5.55% | 14.1 months | |||||||||||||||||
| Total | $1,628,245 | 2.76% | 34.4 months | |||||||||||||||||
Debt Maturities (4) | ||||||||||||||||||||||||||
| Maturity Year | Secured Debt - Principal Amount Outstanding (1) | Unsecured Debt - Principal Amount Outstanding (1) | Weighted Average Stated Interest Rate (2) | Percentage of Total |  | |||||||||||||||||||||
| 2020 | $— | $— | N/A | —% | ||||||||||||||||||||||
| 2021 | 28,245 | 300,000 | 1.57% | 20.2% | ||||||||||||||||||||||
| 2022 | — | 300,000 | 1.60% | 18.4% | ||||||||||||||||||||||
| 2023 | — | 350,000 | 3.40% | 21.5% | ||||||||||||||||||||||
| 2024 | — | 400,000 | 4.45% | 24.6% | ||||||||||||||||||||||
| 2025 + | — | 250,000 | 2.10% | 15.3% | ||||||||||||||||||||||
| Total | $28,245 | $1,600,000 | 2.76% | 100.0% | ||||||||||||||||||||||
| (1) | All of Piedmont's outstanding debt as of June 30, 2020 was interest-only debt with the exception of the $28.2 million of outstanding mortgage associated with 5 Wall Street located in Burlington, MA. | ||||
| (2) | Weighted average stated interest rate is calculated based upon the principal amounts outstanding. | ||||
| (3) | The amount of floating rate debt is comprised of the $150 million in principal amount of the $250 million unsecured term loan that remained unhedged as of June 30, 2020, the entire principal balance of the $300 million unsecured term loan that closed in 2011 and the entire principal balance of the $300 million unsecured term loan that closed in 2020. There is an additional $500 million unsecured revolving credit facility but it had no outstanding balance as of June 30, 2020. The $250 million unsecured term loan that closed in 2018 has a stated variable rate. However, Piedmont entered into $100 million in notional amount of seven-year interest rate swap agreements resulting in an effectively fixed interest rate for $100 million in principal amount of the term loan (at 3.56% effective as of June 30, 2020, assuming no credit rating change for the Company) through the loan's maturity date of March 31, 2025. Additional details regarding the floating rate debt can be found on the following page. | ||||
| (4) | For loans which provide extension options that are conditional solely upon the Company providing proper notice to the loan's administrative agent and the payment of an extension fee, the final extended maturity date is reflected herein. | ||||
21
Piedmont Office Realty Trust, Inc.
Debt Detail
Unaudited ($ in thousands)
Facility (1) | Property | Stated Rate | Maturity | Principal Amount Outstanding as of June 30, 2020 | |||||||||||||
| Secured | |||||||||||||||||
$35.0 Million Fixed-Rate Loan (2) | 5 Wall Street | 5.55 | % | (3) | 9/1/2021 | $ | 28,245 | ||||||||||
Subtotal / Weighted Average (4) | 5.55 | % | $ | 28,245 | |||||||||||||
| Unsecured | |||||||||||||||||
| $300.0 Million Unsecured 2011 Term Loan | N/A | 1.19 | % | (5) | 11/30/2021 | $ | 300,000 | ||||||||||
$300.0 Million Unsecured 2020 Term Loan (6) | N/A | 1.60 | % | (7) | 3/11/2022 | 300,000 | |||||||||||
| $350.0 Million Unsecured Senior Notes | N/A | 3.40 | % | (8) | 6/1/2023 | 350,000 | |||||||||||
$500.0 Million Unsecured Line of Credit (9) | N/A | — | % | (10) | 9/29/2023 | — | |||||||||||
| $400.0 Million Unsecured Senior Notes | N/A | 4.45 | % | (11) | 3/15/2024 | 400,000 | |||||||||||
| $250.0 Million Unsecured Term Loan | N/A | 2.10 | % | (12) | 3/31/2025 | 250,000 | |||||||||||
Subtotal / Weighted Average (4) | 2.71 | % | $ | 1,600,000 | |||||||||||||
Total Debt - Principal Amount Outstanding / Weighted Average Stated Rate (4) | 2.76 | % | $ | 1,628,245 | |||||||||||||
GAAP Accounting Adjustments (13) | (6,768) | ||||||||||||||||
| Total Debt - GAAP Amount Outstanding | $ | 1,621,477 | |||||||||||||||
| (1) | All of Piedmont’s outstanding debt as of June 30, 2020, was interest-only debt with the exception of the $28.2 million of outstanding mortgage debt associated with 5 Wall Street located in Burlington, MA. | ||||
| (2) | The loan is amortizing based on a 25-year amortization schedule. | ||||
| (3) | The loan has a stated interest rate of 5.55%; however, upon acquiring 5 Wall Street and assuming the loan, the Company marked the debt to its estimated fair value as of that time, resulting in an effective interest rate of 3.75%. | ||||
| (4) | Weighted average is based on the principal amounts outstanding and interest rates at June 30, 2020. | ||||
| (5) | The $300 million unsecured 2011 term loan has a variable interest rate. Piedmont may select from multiple interest rate options, including the prime rate and various length LIBOR locks. The all-in interest rate associated with each LIBOR interest period selection is comprised of the relevant base LIBOR interest rate plus a credit spread (1.00% as of June 30, 2020) based on Piedmont's then current credit rating. | ||||
| (6) | The $300 million unsecured 2020 term loan has an initial maturity date of March 12, 2021; however, there are two, six-month extension options available under the financing providing for a total extension of up to one year to March 11, 2022. The final extended maturity date is presented on this schedule. | ||||
| (7) | The $300 million unsecured 2020 term loan has a variable interest rate. Piedmont may select from multiple interest rate options, including the prime rate and various length LIBOR locks. The all-in interest rate associated with each LIBOR interest period selection is comprised of the relevant base LIBOR interest rate plus a credit spread (1.40% as of June 30, 2020) based on Piedmont's then current credit rating. | ||||
| (8) | The $350 million unsecured senior notes were offered for sale at 99.601% of the principal amount. The resulting effective cost of the financing is approximately 3.45% before the consideration of transaction costs and proceeds from interest rate hedges. After the application of proceeds from interest rate hedges, the effective cost of the financing is approximately 3.43%. | ||||
| (9) | All of Piedmont’s outstanding debt as of June 30, 2020 was term debt with the exception of our unsecured revolving credit facility (which had no balance outstanding as of June 30, 2020). The $500 million unsecured revolving credit facility has an initial maturity date of September 30, 2022; however, there are two, six-month extension options available under the facility providing for a total extension of up to one year to September 29, 2023. The final extended maturity date is presented on this schedule. | ||||
| (10) | There was no balance outstanding under our unsecured revolving credit facility as of the end of the second quarter of 2020; therefore, no interest rate is presented. Had any draws been made under the $500 million unsecured revolving credit facility as of the end of the second quarter of 2020, the applicable interest rate would have been approximately 1.07%. Piedmont may select from multiple interest rate options with each draw under the facility, including the prime rate and various length LIBOR locks. The all-in interest rate associated with each LIBOR interest period selection is comprised of the relevant base LIBOR interest rate plus a credit spread (0.90% as of June 30, 2020) based on Piedmont's then current credit rating. | ||||
| (11) | The $400 million unsecured senior notes were offered for sale at 99.791% of the principal amount. The resulting effective cost of the financing is approximately 4.48% before the consideration of transaction costs and proceeds from interest rate hedges. After the application of proceeds from interest rate hedges, the effective cost of the financing is approximately 4.10%. | ||||
| (12) | The $250 million unsecured term loan that closed in 2018 has a stated variable interest rate; however, Piedmont entered into $100 million in notional amount of seven-year interest rate swap agreements that effectively fixed the interest rate on $100 million of the term loan (at 3.56% effective as of June 30, 2020, assuming no credit rating change for the Company) through the loan's maturity date of March 31, 2025. For the portion of the loan that continues to have a variable interest rate, Piedmont may select from multiple interest rate options, including the prime rate and various length LIBOR locks. The all-in interest rate associated with each LIBOR interest period selection is comprised of the relevant base LIBOR interest rate plus a credit spread (0.95% as of June 30, 2020) based on Piedmont's then current credit rating. | ||||
| (13) | The GAAP accounting adjustments relate to original issue discounts, third-party fees, and lender fees resulting from the procurement processes for our various debt facilities, along with debt fair value adjustments associated with the assumed 5 Wall Street debt. The original issue discounts and fees, along with the debt fair value adjustments, are amortized to interest expense over the contractual term of the related debt. | ||||
22
Piedmont Office Realty Trust, Inc.
Debt Covenant & Ratio Analysis (for Debt Holders)
As of June 30, 2020
Unaudited
| Three Months Ended | ||||||||||||||||||||
Bank Debt Covenant Compliance (1) | Required | 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | 6/30/2019 | ||||||||||||||
| Maximum leverage ratio | 0.60 | 0.34 | 0.38 | 0.31 | 0.37 | 0.34 | ||||||||||||||
Minimum fixed charge coverage ratio (2) | 1.50 | 4.32 | 4.14 | 4.12 | 4.07 | 4.07 | ||||||||||||||
| Maximum secured indebtedness ratio | 0.40 | 0.01 | 0.04 | 0.04 | 0.04 | 0.04 | ||||||||||||||
| Minimum unencumbered leverage ratio | 1.60 | 2.91 | 2.71 | 3.39 | 2.74 | 3.02 | ||||||||||||||
Minimum unencumbered interest coverage ratio (3) | 1.75 | 4.92 | 4.74 | 4.70 | 4.60 | 4.60 | ||||||||||||||
| Three Months Ended | ||||||||||||||||||||
Bond Covenant Compliance (4) | Required | 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | 6/30/2019 | ||||||||||||||
| Total debt to total assets | 60% or less | 40.5% | 46.0% | 38.8% | 46.3% | 43.1% | ||||||||||||||
| Secured debt to total assets | 40% or less | 0.7% | 4.5% | 4.9% | 4.6% | 4.9% | ||||||||||||||
| Ratio of consolidated EBITDA to interest expense | 1.50 or greater | 5.15 | 4.88 | 4.80 | 4.73 | 4.77 | ||||||||||||||
| Unencumbered assets to unsecured debt | 150% or greater | 248% | 224% | 273% | 223% | 242% | ||||||||||||||
| Three Months Ended | Six Months Ended | Twelve Months Ended | |||||||||
| Other Debt Coverage Ratios for Debt Holders | June 30, 2020 | June 30, 2020 | December 31, 2019 | ||||||||
Average net debt to core EBITDA (5) | 6.2 x | 5.9 x | 5.8 x | ||||||||
Normalized average net debt to core EBITDA (6) | 5.6 x | ||||||||||
Fixed charge coverage ratio (7) | 5.3 x | 5.0 x | 4.5 x | ||||||||
Interest coverage ratio (8) | 5.4 x | 5.1 x | 4.5 x | ||||||||
| (1) | Bank debt covenant compliance calculations relate to specific calculations detailed in the relevant credit agreements. | ||||
| (2) | Defined as EBITDA for the trailing four quarters (including the Company's share of EBITDA from unconsolidated interests), excluding one-time or non-recurring gains or losses, less a $0.15 per square foot capital reserve, and excluding the impact of straight line rent leveling adjustments and amortization of intangibles divided by the Company's share of fixed charges, as more particularly described in the credit agreements. This definition of fixed charge coverage ratio as prescribed by our credit agreements is different from the fixed charge coverage ratio definition employed elsewhere within this report. | ||||
| (3) | Defined as net operating income for the trailing four quarters for unencumbered assets (including the Company's share of net operating income from partially-owned entities and subsidiaries that are deemed to be unencumbered) less a $0.15 per square foot capital reserve divided by the Company's share of interest expense associated with unsecured financings only, as more particularly described in the credit agreements. | ||||
| (4) | Bond covenant compliance calculations relate to specific calculations prescribed in the relevant debt agreements. Please refer to the Indenture dated May 9, 2013, and the Indenture and the Supplemental Indenture dated March 6, 2014, for detailed information about the calculations. | ||||
| (5) | For the purposes of this calculation, we use the average daily balance of debt outstanding during the period, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the period. | ||||
| (6) | The average net debt to Core EBITDA ratio temporarily increased in early 2020 with the purchase of Dallas Galleria Office Towers using debt which was subsequently repaid with the sale of 1901 Market Street in Philadelphia, PA. The sale of 1901 Market Street did not close until late June 2020. Because our reported average net debt to Core EBITDA calculation is time-weighted, the positive effects of the sale of 1901 Market Street on this metric primarily due to the related reduction in outstanding debt are only marginally reflected in the measure for the period ended June 30, 2020. In order to disclose the anticipated effect of the sale of the asset on the metric for a full quarter, we calculated a normalized average net debt to Core EBITDA ratio. This normalized calculation starts with the Company's reported average net debt to Core EBITDA for the second quarter of 2020 and incorporates pro forma adjustments: 1) to remove the Core EBITDA contribution from 1901 Market Street to the Company's quarterly Core EBITDA and 2) to include the debt reductions related to the asset sale as if they occurred on April 1, 2020. The reduction to Core EBITDA for the second quarter of 2020 was $5,317,000 and the reduction to average net debt was $285,088,000. | ||||
| (7) | Fixed charge coverage ratio is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. The Company had no preferred dividends during the periods ended June 30, 2020 and December 31, 2019. The Company had capitalized interest of $183,846 for the three months ended June 30, 2020, $359,887 for the six months ended June 30, 2020, and $2,135,150 for the twelve months ended December 31, 2019. The Company had principal amortization of $266,128 for the three months ended June 30, 2020, $441,511 for the six months ended June 30, 2020, and $1,018,979 for the twelve months ended December 31, 2019. | ||||
| (8) | Interest coverage ratio is calculated as Core EBITDA divided by the sum of interest expense and capitalized interest. The Company had capitalized interest of $183,846 for the three months ended June 30, 2020, $359,887 for the six months ended June 30, 2020, and $2,135,150 for the twelve months ended December 31, 2019. | ||||
23
Piedmont Office Realty Trust, Inc.
Tenant Diversification (1)
As of June 30, 2020
(in thousands except for number of properties)
| Tenant | Credit Rating (2) | Number of Properties | Lease Expiration (3) | Annualized Lease Revenue | Percentage of Annualized Lease Revenue (%) | Leased Square Footage | Percentage of Leased Square Footage (%) | ||||||||||||||||||||||
| US Bancorp | A+ / A1 | 3 | 2023 / 2024 | $26,567 | 4.9 | 787 | 5.2 | ||||||||||||||||||||||
| State of New York | AA+ / Aa1 | 1 | 2024 / 2039 | 25,560 | 4.7 | 504 | 3.3 | ||||||||||||||||||||||
| City of New York | AA / Aa1 | 1 | In Holdover | (4) | 15,409 | 2.9 | 313 | 2.0 | |||||||||||||||||||||
| Amazon | AA- / A2 | 3 | 2024 / 2025 | 13,618 | 2.5 | 337 | 2.2 | ||||||||||||||||||||||
| Transocean | CCC / Caa1 | 1 | 2036 | 10,075 | 1.9 | 301 | 2.0 | ||||||||||||||||||||||
| Harvard University | AAA / Aaa | 2 | 2032 / 2033 | 8,520 | 1.6 | 129 | 0.8 | ||||||||||||||||||||||
| Raytheon | A- / Baa1 | 2 | 2024 | 8,277 | 1.5 | 440 | 2.9 | ||||||||||||||||||||||
| Schlumberger Technology | A / A2 | 1 | 2028 | 7,857 | 1.5 | 254 | 1.7 | ||||||||||||||||||||||
| Gartner | BB / Ba2 | 2 | 2034 | 7,325 | 1.4 | 207 | 1.4 | ||||||||||||||||||||||
| Nuance Communications | BB- / Ba3 | 1 | 2030 | 6,750 | 1.2 | 201 | 1.3 | ||||||||||||||||||||||
| VMware, Inc. | BBB- / Baa2 | 1 | 2027 | 6,659 | 1.2 | 215 | 1.4 | ||||||||||||||||||||||
| First Data Corporation / subsidiary of Fiserv | BBB / Baa2 | 1 | 2027 | 6,496 | 1.2 | 195 | 1.3 | ||||||||||||||||||||||
| Epsilon Data Management / subsidiary of Publicis | BBB / Baa2 | 1 | 2026 | 6,376 | 1.2 | 222 | 1.4 | ||||||||||||||||||||||
| Ryan, Inc. | No Rating Available | 1 | 2023 | 6,236 | 1.2 | 170 | 1.1 | ||||||||||||||||||||||
| Applied Predictive Technologies / subsidiary of MasterCard | A+ / A1 | 1 | 2028 | 6,198 | 1.1 | 133 | 0.9 | ||||||||||||||||||||||
| CVS Caremark | BBB / Baa2 | 1 | 2022 | 6,100 | 1.1 | 208 | 1.4 | ||||||||||||||||||||||
| International Food Policy Research Institute | No Rating Available | 1 | 2029 | 6,015 | 1.1 | 102 | 0.7 | ||||||||||||||||||||||
| WeWork | CCC+ / NR | 3 | 2035 / 2036 | 6,008 | 1.1 | 173 | 1.1 | ||||||||||||||||||||||
| Bank of America | A- / A2 | 5 | 2020 - 2025 | 5,703 | 1.1 | 123 | 0.8 | ||||||||||||||||||||||
| Cargill | A / A2 | 1 | 2023 | 5,217 | 1.0 | 268 | 1.8 | ||||||||||||||||||||||
| Other | Various | 348,037 | 64.6 | 9,933 | 65.3 | ||||||||||||||||||||||||
| Total | $539,003 | 100.0 | 15,215 | 100.0 | |||||||||||||||||||||||||
| (1) | This schedule presents all tenants contributing 1.0% or more to Annualized Lease Revenue. | ||||
| (2) | Credit rating may reflect the credit rating of the parent or a guarantor. When available, both the Standard & Poor's credit rating and the Moody's credit rating are provided. The absence of a credit rating for a tenant is not an indication of the creditworthiness of the tenant; in most cases, the lack of a credit rating reflects that the tenant has not sought such a rating. | ||||
| (3) | Unless otherwise indicated, Lease Expiration represents the expiration year of the majority of the square footage leased by the tenant. | ||||
| (4) | For additional information on the current leasing status, please refer to page 7 in Financial Highlights. | ||||
24
Piedmont Office Realty Trust, Inc.
Tenant Diversification
As of June 30, 2020
Percentage of Annualized Leased Revenue (%)
June 30, 2020 as compared to December 31, 2019
| (1) | The growth in the tenant's contribution to Annualized Lease Revenue is related to the acquisition of the Dallas Galleria Office Towers in Dallas, TX and the tenant's expansion at those properties. | ||||
25
Piedmont Office Realty Trust, Inc.
Tenant Credit Rating & Lease Distribution Information
As of June 30, 2020
Tenant Credit Rating (1)
| Rating Level | Annualized Lease Revenue (in thousands) | Percentage of Annualized Lease Revenue (%) | ||||||
| AAA / Aaa | $18,459 | 3.4 | ||||||
| AA / Aa | 61,968 | 11.5 | ||||||
| A / A | 95,134 | 17.6 | ||||||
| BBB / Baa | 50,503 | 9.4 | ||||||
| BB / Ba | 34,665 | 6.4 | ||||||
| B / B | 13,362 | 2.5 | ||||||
| Below | 21,846 | 4.1 | ||||||
Not rated (2) | 243,066 | 45.1 | ||||||
| Total | $539,003 | 100.0 | ||||||
Lease Distribution
| Lease Size | Number of Leases | Percentage of Leases (%) | Annualized Lease Revenue (in thousands) | Percentage of Annualized Lease Revenue (%) | Leased Square Footage (in thousands) | Percentage of Leased Square Footage (%) | ||||||||||||||
| 2,500 or Less | 346 | 35.1 | $24,162 | 4.5 | 262 | 1.7 | ||||||||||||||
| 2,501 - 10,000 | 352 | 35.7 | 64,926 | 12.0 | 1,808 | 11.9 | ||||||||||||||
| 10,001 - 20,000 | 119 | 12.1 | 56,602 | 10.5 | 1,639 | 10.8 | ||||||||||||||
| 20,001 - 40,000 | 86 | 8.7 | 86,429 | 16.0 | 2,403 | 15.8 | ||||||||||||||
| 40,001 - 100,000 | 49 | 5.0 | 105,587 | 19.6 | 3,009 | 19.8 | ||||||||||||||
| Greater than 100,000 | 34 | 3.4 | 201,297 | 37.4 | 6,094 | 40.0 | ||||||||||||||
| Total | 986 | 100.0 | $539,003 | 100.0 | 15,215 | 100.0 | ||||||||||||||
| (1) | Credit rating may reflect the credit rating of the parent or a guarantor. Where differences exist between the Standard & Poor's credit rating for a tenant and the Moody's credit rating for a tenant, the higher credit rating is selected for this analysis. | ||||
| (2) | The classification of a tenant as "not rated" is not an indication of the creditworthiness of the tenant; in most cases, the lack of a credit rating reflects that the tenant has not sought such a rating. Included in this category are such tenants as Piper Sandler, Brother International, Ernst & Young, KPMG, PwC, and RaceTrac Petroleum. | ||||
26
Piedmont Office Realty Trust, Inc.
Leased Percentage Information
(in thousands)
| Three Months Ended | Three Months Ended | ||||||||||||||||||||||||||||
| June 30, 2020 | June 30, 2019 | ||||||||||||||||||||||||||||
Leased Square Footage | Rentable Square Footage | Percent Leased (1) | Leased Square Footage | Rentable Square Footage | Percent Leased (1) | ||||||||||||||||||||||||
| As of March 31, 20xx | 16,101 | 17,965 | 89.6 | % | 14,817 | 15,876 | 93.3 | % | |||||||||||||||||||||
| Properties placed in service | — | — | — | — | |||||||||||||||||||||||||
| Restated As of March 31, 20xx | 16,101 | 17,965 | 89.6 | % | 14,817 | 15,876 | 93.3 | % | |||||||||||||||||||||
| Leases signed during the period | 271 | 517 | |||||||||||||||||||||||||||
Less: | |||||||||||||||||||||||||||||
| Lease renewals signed during period | (259) | (282) | |||||||||||||||||||||||||||
| New leases signed during period for currently occupied space | (4) | (148) | |||||||||||||||||||||||||||
| Leases expired during period and other | (93) | — | (201) | (2) | |||||||||||||||||||||||||
| Subtotal | 16,016 | 17,965 | 89.2 | % | 14,703 | 15,874 | 92.6 | % | |||||||||||||||||||||
Acquisitions during period (2) | — | — | 378 | 414 | |||||||||||||||||||||||||
Dispositions during period (2) | (801) | (801) | — | — | |||||||||||||||||||||||||
| As of June 30, 20xx | 15,215 | 17,164 | 88.6 | % | 15,081 | 16,288 | 92.6 | % | |||||||||||||||||||||
| Six Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
| June 30, 2020 | June 30, 2019 | ||||||||||||||||||||||||||||
Leased Square Footage | Rentable Square Footage | Percent Leased (1) | Leased Square Footage | Rentable Square Footage | Percent Leased (1) | ||||||||||||||||||||||||
| As of December 31, 20xx | 14,633 | 16,046 | 91.2 | % | 15,128 | 16,208 | 93.3 | % | |||||||||||||||||||||
| Properties placed in service | 204 | 487 | — | — | |||||||||||||||||||||||||
Restated As of December 31, 20xx | 14,837 | 16,533 | 89.7 | % | 15,128 | 16,208 | 93.3 | % | |||||||||||||||||||||
| Leases signed during the period | 688 | 1,316 | |||||||||||||||||||||||||||
Less: | |||||||||||||||||||||||||||||
| Lease renewals signed during period | (556) | (924) | |||||||||||||||||||||||||||
| New leases signed during period for currently occupied space | (37) | (212) | |||||||||||||||||||||||||||
| Leases expired during period and other | (283) | (3) | (292) | — | |||||||||||||||||||||||||
| Subtotal | 14,649 | 16,530 | 88.6 | % | 15,016 | 16,208 | 92.6 | % | |||||||||||||||||||||
Acquisitions and properties placed in service during period (2) | 1,367 | 1,435 | 378 | 414 | |||||||||||||||||||||||||
Dispositions and properties taken out of service during period (2) | (801) | (801) | (313) | (334) | |||||||||||||||||||||||||
| As of June 30, 20xx | 15,215 | 17,164 | 88.6 | % | 15,081 | 16,288 | 92.6 | % | |||||||||||||||||||||
| Same Store Analysis | |||||||||||||||||||||||||||||
Less acquisitions / dispositions after June 30, 2019 and developments / out-of-service redevelopments (2) (3) | (2,264) | (2,783) | 81.4 | % | (1,813) | (1,906) | 95.1 | % | |||||||||||||||||||||
| Same Store Leased Percentage | 12,951 | 14,381 | 90.1 | % | 13,268 | 14,382 | 92.3 | % | |||||||||||||||||||||
| (1) | Calculated as square footage associated with commenced leases as of period end with the addition of square footage associated with uncommenced leases for spaces vacant as of period end, divided by total rentable square footage as of period end, expressed as a percentage. | ||||
| (2) | |||||
| (3) | Dispositions completed during the previous twelve months are deducted from the previous period data and acquisitions completed during the previous twelve months are deducted from the current period data. Redevelopments that commenced during the previous twelve months that were taken out of service are deducted from the previous period data and developments and redevelopments placed in service during the previous twelve months are deducted from the current period data. | ||||
27
Piedmont Office Realty Trust, Inc.
Rental Rate Roll Up / Roll Down Analysis (1)
(in thousands)
| Three Months Ended | ||||||||||||||||||||
| June 30, 2020 | ||||||||||||||||||||
| Square Feet | % of Total Signed During Period | % of Rentable Square Footage | % Change Cash Rents (2) | % Change Accrual Rents (3) (4) | ||||||||||||||||
| Leases executed for spaces vacant one year or less | 187 | 69.1% | 1.1% | 3.7% | 6.4% | |||||||||||||||
Leases executed for spaces excluded from analysis (5) | 84 | 30.9% | ||||||||||||||||||
| Six Months Ended | ||||||||||||||||||||
| June 30, 2020 | ||||||||||||||||||||
| Square Feet | % of Total Signed During Period | % of Rentable Square Footage | % Change Cash Rents (2) | % Change Accrual Rents (3) (4) | ||||||||||||||||
| Leases executed for spaces vacant one year or less | 453 | 65.9% | 2.6% | 4.5% | 11.7% | |||||||||||||||
Leases executed for spaces excluded from analysis (5) | 235 | 34.1% | ||||||||||||||||||
| (1) | The populations analyzed for this analysis consist of consolidated leases executed during the relevant period with lease terms of greater than one year. Leases associated with storage spaces, management offices, and newly acquired assets for which there is less than one year of operating history are excluded from this analysis. | ||||
| (2) | For the purposes of this analysis, the last twelve months of cash paying rents of the previous leases are compared to the first twelve months of cash paying rents of the new leases in order to calculate the percentage change. | ||||
| (3) | For the purposes of this analysis, the accrual basis rents of the previous leases are compared to the accrual basis rents of the new leases in order to calculate the percentage change. For newly signed leases which have variations in accrual basis rents, whether because of known future expansions, contractions, lease expense recovery structure changes, or other similar reasons, the weighted average of such varying accrual basis rents is used for the purposes of this analysis. | ||||
| (4) | For leases under which a tenant may use, at its discretion, a portion of its tenant improvement allowance for expenses other than those related to improvements to its space, an assumption is made that the tenant elects to use any such portion of its tenant improvement allowance for improvements to its space prior to the commencement of its lease, unless the Company is notified otherwise by the tenant. This assumption is made based upon historical usage patterns of tenant improvement allowances by the Company's tenants. | ||||
| (5) | Represents leases signed at our consolidated office assets that do not qualify for inclusion in the analysis, primarily because the spaces for which the new leases were signed had been vacant for more than one year. | ||||
28
Piedmont Office Realty Trust, Inc.
Lease Expiration Schedule
As of June 30, 2020
(in thousands)
| Expiration Year | Annualized Lease Revenue (1) | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | |||||||||||||
| Vacant | $— | — | 1,949 | 11.4 | |||||||||||||
2020 (2) | 17,855 | 3.3 | 627 | 3.7 | |||||||||||||
2021 (3) | 45,655 | 8.5 | 1,223 | 7.1 | |||||||||||||
| 2022 | 39,963 | 7.4 | 1,295 | 7.5 | |||||||||||||
| 2023 | 53,192 | 9.9 | 1,653 | 9.6 | |||||||||||||
| 2024 | 65,026 | 12.1 | 2,223 | 12.9 | |||||||||||||
| 2025 | 58,599 | 10.9 | 1,603 | 9.3 | |||||||||||||
| 2026 | 35,462 | 6.6 | 1,069 | 6.2 | |||||||||||||
| 2027 | 44,032 | 8.2 | 1,197 | 7.0 | |||||||||||||
| 2028 | 49,318 | 9.1 | 1,385 | 8.1 | |||||||||||||
| 2029 | 32,728 | 6.1 | 863 | 5.0 | |||||||||||||
| 2030 | 16,492 | 3.0 | 457 | 2.7 | |||||||||||||
| 2031 | 5,949 | 1.1 | 153 | 0.9 | |||||||||||||
| 2032 | 8,641 | 1.6 | 200 | 1.2 | |||||||||||||
| Thereafter | 66,091 | 12.2 | 1,267 | 7.4 | |||||||||||||
| Total / Weighted Average | $539,003 | 100.0 | 17,164 | 100.0 | |||||||||||||
| Average Lease Term Remaining | |||||
| 6/30/2020 | 6.3 years | ||||
| 12/31/2019 | 7.0 years | ||||
| (1) | Annualized rental income associated with each newly executed lease for currently occupied space is incorporated herein only at the expiration date for the current lease. Annualized rental income associated with each such new lease is removed from the expiry year of the current lease and added to the expiry year of the new lease. These adjustments effectively incorporate known roll ups and roll downs into the expiration schedule. | ||||
| (2) | Includes leases with an expiration date of June 30, 2020, comprised of approximately 149,000 square feet and Annualized Lease Revenue of $3.3 million. | ||||
| (3) | Leases and other revenue-producing agreements on a month-to-month basis, comprised of approximately 327,000 square feet and Annualized Lease Revenue of $15.8 million, are assigned a lease expiration date of a year and a day beyond the period end date. The 313,000 square foot City of New York lease that is in holdover status at 60 Broad Street in New York, NY is included in this classification. | ||||
29
Piedmont Office Realty Trust, Inc.
Lease Expirations by Quarter
As of June 30, 2020
(in thousands)
Q3 2020 (1) | Q4 2020 | Q1 2021 | Q2 2021 | |||||||||||||||||||||||||||||||||||
| Location | Expiring Square Footage | Expiring Lease Revenue (2) | Expiring Square Footage | Expiring Lease Revenue (2) | Expiring Square Footage | Expiring Lease Revenue (2) | Expiring Square Footage | Expiring Lease Revenue (2) | ||||||||||||||||||||||||||||||
| Atlanta | 68 | $2,024 | 81 | $2,074 | 21 | $625 | 71 | $2,193 | ||||||||||||||||||||||||||||||
| Boston | 8 | 363 | 7 | 303 | 64 | 1,429 | 4 | 164 | ||||||||||||||||||||||||||||||
| Dallas | 98 | 2,714 | 56 | 1,325 | 29 | 856 | 42 | 1,392 | ||||||||||||||||||||||||||||||
| Minneapolis | 20 | 768 | 27 | 1,010 | 3 | 167 | 30 | 979 | ||||||||||||||||||||||||||||||
| New York | 171 | 4,389 | 13 | 564 | 2 | 106 | 14 | 954 | ||||||||||||||||||||||||||||||
| Orlando | 2 | 78 | 23 | 557 | 9 | 278 | — | — | ||||||||||||||||||||||||||||||
| Washington, D.C. | 12 | 525 | 9 | 479 | 3 | 136 | 95 | 4,719 | ||||||||||||||||||||||||||||||
| Other | 15 | 413 | 17 | 440 | — | — | — | — | ||||||||||||||||||||||||||||||
Total / Weighted Average (3) | 394 | $11,274 | 233 | $6,752 | 131 | $3,597 | 256 | $10,401 | ||||||||||||||||||||||||||||||
| (1) | Includes leases with an expiration date of June 30, 2020, comprised of approximately 149,000 square feet and expiring lease revenue of $3.3 million. No such adjustments are made to other periods presented. | ||||
| (2) | Expiring Lease Revenue is calculated as expiring square footage multiplied by the gross rent per square foot of the tenant currently leasing the space. | ||||
| (3) | Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule on the previous page as the Lease Expiration Schedule accounts for the revenue effects of newly signed leases. Reflected herein are expiring revenues based on in-place rental rates. | ||||
30
Piedmont Office Realty Trust, Inc.
Lease Expirations by Year
As of June 30, 2020
(in thousands)
12/31/2020 (1) | 12/31/2021 | 12/31/2022 | 12/31/2023 | 12/31/2024 | ||||||||||||||||||||||||||||||||||||||||
| Location | Expiring Square Footage | Expiring Lease Revenue (2) | Expiring Square Footage | Expiring Lease Revenue (2) | Expiring Square Footage | Expiring Lease Revenue (2) | Expiring Square Footage | Expiring Lease Revenue (2) | Expiring Square Footage | Expiring Lease Revenue (2) | ||||||||||||||||||||||||||||||||||
| Atlanta | 149 | $4,098 | 289 | $8,519 | 379 | $11,641 | 188 | $6,216 | 253 | $8,018 | ||||||||||||||||||||||||||||||||||
| Boston | 14 | 666 | 117 | 3,026 | 116 | 5,325 | 114 | 4,665 | 481 | 11,229 | ||||||||||||||||||||||||||||||||||
| Dallas | 155 | 4,039 | 229 | 7,346 | 532 | 16,115 | 448 | 15,556 | 214 | 7,546 | ||||||||||||||||||||||||||||||||||
| Minneapolis | 47 | 1,778 | 85 | 3,103 | 59 | 1,966 | 702 | 19,605 | 529 | 18,617 | ||||||||||||||||||||||||||||||||||
| New York | 184 | 4,953 | 343 | 17,023 | (3) | 96 | 2,788 | 21 | 1,172 | 187 | 7,210 | |||||||||||||||||||||||||||||||||
| Orlando | 25 | 635 | 39 | 1,207 | 88 | 3,038 | 107 | 3,294 | 372 | 8,057 | ||||||||||||||||||||||||||||||||||
| Washington, D.C. | 21 | 1,003 | 112 | 5,515 | 23 | 1,219 | 69 | 3,364 | 174 | 8,584 | ||||||||||||||||||||||||||||||||||
| Other | 32 | 853 | 9 | 249 | 2 | 36 | 4 | 134 | 13 | 398 | ||||||||||||||||||||||||||||||||||
Total / Weighted Average (4) | 627 | $18,025 | 1,223 | $45,988 | 1,295 | $42,128 | 1,653 | $54,006 | 2,223 | $69,659 | ||||||||||||||||||||||||||||||||||
| (1) | Includes leases with an expiration date of June 30, 2020, comprised of approximately 149,000 square feet and expiring lease revenue of $3.3 million. No such adjustments are made to other periods presented. | ||||
| (2) | Expiring Lease Revenue is calculated as expiring square footage multiplied by the gross rent per square foot of the tenant currently leasing the space. | ||||
| (3) | For presentation purposes in this schedule, the City of New York lease, which is currently in holdover, is assigned a lease expiration date of a year and a day beyond the period end date. | ||||
| (4) | Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule on page 29 as the Lease Expiration Schedule accounts for the revenue effects of newly signed leases. Reflected herein are expiring revenues based on in-place rental rates. | ||||
31
Piedmont Office Realty Trust, Inc.
Capital Expenditures
For the quarter ended June 30, 2020
Unaudited (in thousands)
| For the Three Months Ended | |||||||||||||||||||||||||||||
| 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | 6/30/2019 | |||||||||||||||||||||||||
| Non-incremental | |||||||||||||||||||||||||||||
| Building / construction / development | $ | 3,244 | $ | 7,697 | $ | 6,726 | $ | 3,452 | $ | 1,004 | |||||||||||||||||||
| Tenant improvements | 2,601 | 8,530 | 10,327 | 5,692 | 6,869 | ||||||||||||||||||||||||
| Leasing costs | 1,844 | 18,535 | 5,190 | 5,208 | 1,818 | ||||||||||||||||||||||||
| Total non-incremental | 7,689 | 34,762 | 22,243 | 14,352 | 9,691 | ||||||||||||||||||||||||
| Incremental | |||||||||||||||||||||||||||||
| Building / construction / development | 12,639 | 13,833 | 7,722 | 10,147 | 7,453 | ||||||||||||||||||||||||
| Tenant improvements | 2,088 | 1,789 | 27,952 | 5,096 | 1,625 | ||||||||||||||||||||||||
| Leasing costs | 1,467 | 1,032 | 2,644 | 5,634 | 907 | ||||||||||||||||||||||||
| Total incremental | 16,194 | 16,654 | 38,318 | 20,877 | 9,985 | ||||||||||||||||||||||||
| Total capital expenditures | $ | 23,883 | $ | 51,416 | $ | 60,561 | $ | 35,229 | $ | 19,676 | |||||||||||||||||||
| NOTE: | The information presented on this page is for all consolidated assets. | ||||
32
Piedmont Office Realty Trust, Inc.
Contractual Tenant Improvements and Leasing Commission
| Six Months Ended June 30, 2020 | Three Months Ended June 30, 2020 | For the Year Ended | 2016 to 2020 (Weighted Average Total) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Renewal Leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Square feet | 555,650 | 259,086 | 2,032,452 | 735,969 | 1,198,603 | 880,289 | 5,402,963 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tenant improvements per square foot per year of lease term (1) | $3.24 | $2.50 | $4.28 | $4.15 | $1.84 | $1.35 | $3.33 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leasing commissions per square foot per year of lease term | $1.82 | $1.83 | $1.63 | $1.69 | $1.12 | $1.05 | $1.48 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total per square foot per year of lease term | $5.06 | $4.33 | $5.91 | (2) | $5.84 | (3) | $2.96 | $2.40 | $4.81 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| New Leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Square feet | 132,311 | 11,986 | 697,880 | 864,113 | 855,069 | 1,065,630 | 3,615,003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tenant improvements per square foot per year of lease term (1) | $5.06 | $2.98 | $4.07 | $4.58 | $4.73 | $5.01 | $4.64 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leasing commissions per square foot per year of lease term | $2.27 | $1.90 | $1.85 | $1.73 | $1.83 | $1.86 | $1.82 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total per square foot per year of lease term | $7.33 | (4) | $4.88 | $5.92 | $6.31 | (3) | $6.56 | $6.87 | $6.46 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Square feet | 687,961 | 271,072 | 2,730,332 | 1,600,082 | 2,053,672 | 1,945,919 | 9,017,966 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tenant improvements per square foot per year of lease term (1) | $3.77 | $2.55 | $4.21 | $4.46 | $3.55 | $3.70 | $4.00 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leasing commissions per square foot per year of lease term | $1.95 | $1.84 | $1.70 | $1.72 | $1.54 | $1.57 | $1.66 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total per square foot per year of lease term | $5.72 | (4) | $4.39 | $5.91 | (2) | $6.18 | (3) | $5.09 | $5.27 | $5.66 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Less Adjustment for Commitment Expirations (5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expired tenant improvements (not paid out) per square foot per year of lease term | -$0.44 | -$0.47 | -$0.05 | -$0.54 | -$0.44 | -$0.16 | -$0.27 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted total per square foot per year of lease term | $5.28 | $3.92 | $5.86 | $5.64 | $4.65 | $5.11 | $5.39 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NOTE: | This information is presented for our consolidated office assets only and excludes activity associated with storage and license spaces. | ||||
| (1) | For leases under which a tenant may use, at its discretion, a portion of its tenant improvement allowance for expenses other than those related to improvements to its space, an assumption is made that the tenant elects to use any such portion of its tenant improvement allowance for improvements to its space prior to the commencement of its lease, unless the Company is notified otherwise by the tenant. This assumption is made based upon historical usage patterns of tenant improvement allowances by the Company's tenants. | ||||
| (2) | During 2019, we completed three large lease renewals with significant capital commitments: VMware at 1155 Perimeter Center West in Atlanta, GA, Siemens at Crescent Ridge II in Minnetonka, MN, and the State of New York at 60 Broad Street in New York, NY. If the costs associated with these leases were to be removed from the average committed capital cost calculation, the average committed capital cost per square foot per year of lease term for renewal leases and total leases completed during the twelve months ended December 31, 2019 would be $3.41 and $5.04, respectively. | ||||
| (3) | During 2018, we completed two large leasing transactions in the Houston, TX market with large capital commitments: a 254,000 square foot lease renewal and expansion with Schlumberger Technology Corporation at 1430 Enclave Parkway and a 301,000 square foot, full-building lease with Transocean Offshore Deepwater Drilling at Enclave Place. If the costs associated with those leases were to be removed from the average committed capital cost calculation, the average committed capital cost per square foot per year of lease term for renewal leases, new leases and total leases completed during the twelve months ended December 31, 2018 would be $5.27, $6.02, and $5.70, respectively. | ||||
| (4) | During 2020, we completed four new leasing transactions (amounting to 41,000 square feet in total) in the Washington, DC market with large capital commitments. If the costs associated with those leases were to be removed from the average committed capital cost calculation, the average committed capital cost per square foot per year of lease term for new leases and total leases completed during the six months ended June 30, 2020 would be $5.72 and $5.19, respectively. | ||||
| (5) | The Company has historically reported the maximum amount of capital to which it committed in leasing transactions as of the signing of the leases with no subsequent updates for variations and/or changes in tenants' uses of tenant improvement allowances. Many times, tenants do not fully use the allowances provided in their leases or let portions of their tenant improvement allowances expire. In an effort to provide additional clarity on the actual costs of completed leasing transactions, tenant improvement allowances that expired or became no longer available to tenants are disclosed in this section and are deducted from the capital commitments per square foot of leased space in the periods in which they expired in an effort to provide a better estimation of leasing transaction costs over time. | ||||
33
Piedmont Office Realty Trust, Inc.
Geographic Diversification
As of June 30, 2020
($ and square footage in thousands)
| Location | Number of Properties | Annualized Lease Revenue | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | Leased Square Footage | Percent Leased (%) | |||||||||||||||||||
| Dallas | 13 | $104,221 | 19.3 | 3,550 | 20.7 | 3,141 | 88.5 | |||||||||||||||||||
| Atlanta | 9 | 91,586 | 17.0 | 3,387 | 19.7 | 2,972 | 87.7 | |||||||||||||||||||
| New York | 4 | 71,659 | 13.3 | 1,770 | 10.3 | 1,690 | 95.5 | |||||||||||||||||||
| Washington, D.C. | 6 | 68,275 | 12.7 | 1,619 | 9.4 | 1,286 | 79.4 | |||||||||||||||||||
| Minneapolis | 6 | 66,362 | 12.3 | 2,104 | 12.3 | 1,978 | 94.0 | |||||||||||||||||||
| Boston | 10 | 59,413 | 11.0 | 1,882 | 11.0 | 1,755 | 93.3 | |||||||||||||||||||
| Orlando | 6 | 53,898 | 10.0 | 1,754 | 10.2 | 1,635 | 93.2 | |||||||||||||||||||
| Other | 3 | 23,589 | 4.4 | 1,098 | 6.4 | 758 | 69.0 | |||||||||||||||||||
| Total / Weighted Average | 57 | $539,003 | 100.0 | 17,164 | 100.0 | 15,215 | 88.6 | |||||||||||||||||||
34
Piedmont Office Realty Trust, Inc.
Geographic Diversification by Location Type
As of June 30, 2020
(square footage in thousands)
| CBD | URBAN INFILL / SUBURBAN | TOTAL | ||||||||||||||||||||||||||||||||||||||||||||||||
| Location | State | Number of Properties | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | Number of Properties | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | Number of Properties | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | |||||||||||||||||||||||||||||||||||||
| Dallas | TX | — | — | — | — | 13 | 19.3 | 3,550 | 20.7 | 13 | 19.3 | 3,550 | 20.7 | |||||||||||||||||||||||||||||||||||||
| Atlanta | GA | — | — | — | — | 9 | 17.0 | 3,387 | 19.7 | 9 | 17.0 | 3,387 | 19.7 | |||||||||||||||||||||||||||||||||||||
| New York | NY, NJ | 1 | 9.4 | 1,031 | 6.0 | 3 | 3.9 | 739 | 4.3 | 4 | 13.3 | 1,770 | 10.3 | |||||||||||||||||||||||||||||||||||||
| Washington, D.C. | DC, VA | 3 | 5.1 | 721 | 4.2 | 3 | 7.6 | 898 | 5.2 | 6 | 12.7 | 1,619 | 9.4 | |||||||||||||||||||||||||||||||||||||
| Minneapolis | MN | 1 | 6.5 | 937 | 5.5 | 5 | 5.8 | 1,167 | 6.8 | 6 | 12.3 | 2,104 | 12.3 | |||||||||||||||||||||||||||||||||||||
| Boston | MA | — | — | — | — | 10 | 11.0 | 1,882 | 11.0 | 10 | 11.0 | 1,882 | 11.0 | |||||||||||||||||||||||||||||||||||||
| Orlando | FL | 4 | 8.3 | 1,445 | 8.4 | 2 | 1.7 | 309 | 1.8 | 6 | 10.0 | 1,754 | 10.2 | |||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | 3 | 4.4 | 1,098 | 6.4 | 3 | 4.4 | 1,098 | 6.4 | ||||||||||||||||||||||||||||||||||||||
| Total / Weighted Average | 9 | 29.3 | 4,134 | 24.1 | 48 | 70.7 | 13,030 | 75.9 | 57 | 100.0 | 17,164 | 100.0 | ||||||||||||||||||||||||||||||||||||||
35
Piedmont Office Realty Trust, Inc.
Industry Diversification
As of June 30, 2020
($ and square footage in thousands)
| Percentage of | |||||||||||||||||||||||
| Number of | Percentage of Total | Annualized Lease | Annualized Lease | Leased Square | Percentage of Leased | ||||||||||||||||||
| Industry | Tenants | Tenants (%) | Revenue | Revenue (%) | Footage | Square Footage (%) | |||||||||||||||||
| Business Services | 100 | 13.3 | $84,188 | 15.6 | 2,458 | 16.2 | |||||||||||||||||
| Engineering, Accounting, Research, Management & Related Services | 111 | 14.7 | 65,975 | 12.2 | 1,798 | 11.8 | |||||||||||||||||
| Governmental Entity | 6 | 0.8 | 46,004 | 8.5 | 929 | 6.1 | |||||||||||||||||
| Depository Institutions | 17 | 2.3 | 37,259 | 6.9 | 1,036 | 6.8 | |||||||||||||||||
| Legal Services | 71 | 9.4 | 29,382 | 5.5 | 859 | 5.6 | |||||||||||||||||
| Real Estate | 41 | 5.4 | 25,504 | 4.7 | 757 | 5.0 | |||||||||||||||||
| Security & Commodity Brokers, Dealers, Exchanges & Services | 51 | 6.8 | 21,746 | 4.0 | 639 | 4.2 | |||||||||||||||||
| Miscellaneous Retail | 11 | 1.5 | 21,452 | 4.0 | 592 | 3.9 | |||||||||||||||||
| Oil and Gas Extraction | 5 | 0.7 | 18,291 | 3.4 | 564 | 3.7 | |||||||||||||||||
| Holding and Other Investment Offices | 28 | 3.7 | 14,668 | 2.7 | 419 | 2.8 | |||||||||||||||||
| Health Services | 22 | 2.9 | 13,931 | 2.6 | 378 | 2.5 | |||||||||||||||||
| Communications | 48 | 6.4 | 13,721 | 2.5 | 358 | 2.4 | |||||||||||||||||
| Measuring, Analyzing, And Controlling Instruments; Medical and Other Goods | 7 | 0.9 | 13,181 | 2.4 | 607 | 4.0 | |||||||||||||||||
| Automotive Repair, Services & Parking | 6 | 0.8 | 11,724 | 2.2 | 4 | — | |||||||||||||||||
| Educational Services | 6 | 0.8 | 11,200 | 2.1 | 205 | 1.3 | |||||||||||||||||
| Other | 223 | 29.6 | 110,777 | 20.7 | 3,612 | 23.7 | |||||||||||||||||
| Total | 753 | 100.0 | $539,003 | 100.0 | 15,215 | 100.0 | |||||||||||||||||
| NOTE: | The Company's coworking sector exposure is presented within the Real Estate industry line above. As of June 30, 2020, coworking contributes approximately 2.5% to Annualized Lease Revenue. | ||||
36
Piedmont Office Realty Trust, Inc.
Property Investment Activity
As of June 30, 2020
($ and square footage in thousands)
Acquisitions Over Previous Eighteen Months
| Property | Market / Submarket | Acquisition Date | Percent Ownership (%) | Year Built | Purchase Price | Rentable Square Footage | Percent Leased at Acquisition (%) | |||||||||||||||||||
| Galleria 100 | Atlanta / Northwest | 5/6/2019 | 100 | 1982 | $91,624 | 414 | 91 | |||||||||||||||||||
| Galleria Atlanta Land | Atlanta / Northwest | 5/6/2019 | 100 | NA | 3,500 | NA | NA | |||||||||||||||||||
| Galleria 400 | Atlanta / Northwest | 8/23/2019 | 100 | 1999 | 116,633 | 430 | 94 | |||||||||||||||||||
| Galleria 600 | Atlanta / Northwest | 8/23/2019 | 100 | 2002 | 95,769 | 434 | 73 | |||||||||||||||||||
| Galleria Atlanta Land | Atlanta / Northwest | 8/23/2019 | 100 | NA | 18,800 | NA | NA | |||||||||||||||||||
| One Galleria Tower | Dallas / Lower North Tollway | 2/12/2020 | 100 | 1982 | 123,223 | 470 | 92 | |||||||||||||||||||
| Two Galleria Tower | Dallas / Lower North Tollway | 2/12/2020 | 100 | 1985 | 124,592 | 434 | 99 | |||||||||||||||||||
| Three Galleria Tower | Dallas / Lower North Tollway | 2/12/2020 | 100 | 1991 | 144,343 | 531 | 95 | |||||||||||||||||||
| Galleria Dallas Land | Dallas / Lower North Tollway | 2/12/2020 | 100 | NA | 4,000 | NA | NA | |||||||||||||||||||
| Total / Weighted Average | $722,484 | 2,713 | 91 | |||||||||||||||||||||||
Dispositions Over Previous Eighteen Months
| Property | Market / Submarket | Disposition Date | Percent Ownership (%) | Year Built | Sale Price | Rentable Square Footage | Percent Leased at Disposition (%) | |||||||||||||||||||
| One Independence Square | Washington, DC / Southwest | 2/28/2019 | 100 | 1991 | $170,000 | 334 | 94 | |||||||||||||||||||
| The Dupree | Atlanta / Northwest | 9/4/2019 | 100 | 1997 | 12,650 | 138 | 35 | |||||||||||||||||||
| 500 West Monroe Street | Chicago / West Loop | 10/28/2019 | 100 | 1991 | 412,000 | 967 | 100 | |||||||||||||||||||
| 1901 Market Street | Philadelphia / Market Street West | 6/25/2020 | 100 | 1987 | 360,000 | 801 | 100 | |||||||||||||||||||
| Total / Weighted Average | $954,650 | 2,240 | 95 | |||||||||||||||||||||||
37
Piedmont Office Realty Trust, Inc.
Other Investments
As of June 30, 2020
($ and square footage in thousands)
Developable Land Parcels
| Property | Market / Submarket | Adjacent Piedmont Property | Acres | Real Estate Book Value | ||||||||||
| Gavitello | Atlanta / Buckhead | The Medici | 2.0 | $2,647 | ||||||||||
| Glenridge Highlands Three | Atlanta / Central Perimeter | Glenridge Highlands One and Two | 3.0 | 2,015 | ||||||||||
| Galleria Atlanta | Atlanta / Northwest | Galleria 100, 200, 300, 400 and 600 | 11.7 | 21,700 | ||||||||||
| State Highway 161 | Dallas / Las Colinas | Las Colinas Corporate Center I and II, 161 Corporate Center | 4.5 | 3,320 | ||||||||||
| Royal Lane | Dallas / Las Colinas | 6011, 6021 and 6031 Connection Drive | 10.6 | 2,834 | ||||||||||
| John Carpenter Freeway | Dallas / Las Colinas | 750 West John Carpenter Freeway | 3.5 | 1,000 | ||||||||||
| Galleria Dallas | Dallas / Lower North Tollway | One Galleria Tower, Two Galleria Tower, Three Galleria Tower | 1.9 | 4,006 | ||||||||||
| TownPark | Orlando / Lake Mary | 400 and 500 TownPark | 18.9 | 7,454 | ||||||||||
| Total | 56.1 | $44,976 | ||||||||||||
38
Piedmont Office Realty Trust, Inc.
Supplemental Definitions
Included below are definitions of various terms used throughout this supplemental report, including definitions of certain non-GAAP financial measures and the reasons why the Company’s management believes these measures provide useful information to investors about the Company’s financial condition and results of operations. Reconciliations of any non-GAAP financial measures defined below are included beginning on page 41. | ||
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. | ||
Annualized Lease Revenue ("ALR"): ALR 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 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 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 properties and properties taken out of service for redevelopment, if any. | ||
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. | ||
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. | ||
EBITDA: EBITDA is defined as net income before interest, taxes, depreciation and amortization. | ||
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. | ||
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. | ||
Gross Assets: Gross Assets is defined as total assets with the add-back of accumulated depreciation and accumulated amortization related to real estate assets and accumulated amortization related to deferred lease costs. | ||
Gross Real Estate Assets: Gross Real Estate Assets is defined as total real estate assets with the add-back of accumulated depreciation and accumulated amortization related to real estate assets. | ||
Incremental Capital Expenditures: Incremental Capital Expenditures are defined as capital expenditures of a non-recurring nature that incrementally enhance the underlying assets' income generating capacity. Tenant improvements, leasing commissions, building capital and deferred lease incentives ("Leasing Costs") 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, renovations that change the underlying classification of a building, and deferred building maintenance capital identified at and completed shortly after acquisition are included in this measure. | ||
Non-Incremental Capital Expenditures: Non-Incremental Capital Expenditures are defined as capital expenditures of a recurring nature related to tenant improvements and leasing commissions that do not incrementally enhance the underlying assets' income generating capacity. We exclude first generation tenant improvements and leasing commissions from this measure, in addition to other capital expenditures that qualify as Incremental Capital Expenditures, as defined above. | ||
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 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. | ||
Same Store Properties: Same Store Properties is defined as those 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 Properties excludes land assets. | ||
39
Piedmont Office Realty Trust, Inc.
Research Coverage
Equity Research Coverage
| Daniel Ismail | Anthony Paolone, CFA | David Rodgers, CFA | Michael Lewis, CFA | ||||||||
| Green Street Advisors | JP Morgan | Robert W. Baird & Co. | SunTrust Robinson Humphrey | ||||||||
| 100 Bayview Circle, Suite 400 | 383 Madison Avenue | 200 Public Square | 711 Fifth Avenue, 4th Floor | ||||||||
| Newport Beach, CA 92660 | 32nd Floor | Suite 1650 | New York, NY 10022 | ||||||||
| Phone: (949) 640-8780 | New York, NY 10179 | Cleveland, OH 44139 | Phone: (212) 319-5659 | ||||||||
| Phone: (212) 622-6682 | Phone: (216) 737-7341 | ||||||||||
Fixed Income Research Coverage
| Mark S. Streeter, CFA | ||||||||
| JP Morgan | ||||||||
| 383 Madison Avenue | ||||||||
| 3rd Floor | ||||||||
| New York, NY 10179 | ||||||||
| Phone: (212) 834-5086 | ||||||||
40
Piedmont Office Realty Trust, Inc.
Funds From Operations, Core Funds From Operations, and Adjusted Funds From Operations Reconciliations
Unaudited (in thousands)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||
| 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | 6/30/2019 | 6/30/2020 | 6/30/2019 | |||||||||||||||||||||||||||||||||||
| GAAP net income applicable to common stock | $ | 192,427 | $ | 8,709 | $ | 162,478 | $ | 8,422 | $ | 8,153 | $ | 201,136 | $ | 58,361 | |||||||||||||||||||||||||||
Depreciation (1) (2) | 26,873 | 27,551 | 25,765 | 26,909 | 26,128 | 54,424 | 52,437 | ||||||||||||||||||||||||||||||||||
Amortization (1) | 24,336 | 23,618 | 20,988 | 19,491 | 18,446 | 47,954 | 36,131 | ||||||||||||||||||||||||||||||||||
Impairment loss (1) | — | — | 7,000 | 1,953 | — | — | — | ||||||||||||||||||||||||||||||||||
Loss / (gain) on sale of properties (1) | (191,369) | (3) | (157,640) | (32) | (1,451) | (191,372) | (39,338) | ||||||||||||||||||||||||||||||||||
| NAREIT funds from operations applicable to common stock | 52,267 | 59,875 | 58,591 | 56,743 | 51,276 | 112,142 | 107,591 | ||||||||||||||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||||||||
| Retirement and separation expenses associated with senior management transition | — | — | — | — | 3,175 | — | 3,175 | ||||||||||||||||||||||||||||||||||
| Loss / (gain) on extinguishment of debt | 9,336 | — | — | — | — | 9,336 | — | ||||||||||||||||||||||||||||||||||
| Core funds from operations applicable to common stock | 61,603 | 59,875 | 58,591 | 56,743 | 54,451 | 121,478 | 110,766 | ||||||||||||||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||||||||
| Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on senior notes | 672 | 577 | 527 | 526 | 525 | 1,249 | 1,048 | ||||||||||||||||||||||||||||||||||
| Depreciation of non real estate assets | 319 | 325 | 238 | 214 | 212 | 644 | 420 | ||||||||||||||||||||||||||||||||||
Straight-line effects of lease revenue (1) | (7,278) | (6,785) | (2,974) | (1,531) | (3,223) | (14,063) | (5,906) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation adjustments | 645 | 2,300 | 3,081 | (3,015) | 2,184 | 2,945 | 4,964 | ||||||||||||||||||||||||||||||||||
Amortization of lease-related intangibles (1) | (3,304) | (2,973) | (2,314) | (1,923) | (2,088) | (6,277) | (4,086) | ||||||||||||||||||||||||||||||||||
| Non-incremental capital expenditures | (7,689) | (34,762) | (22,243) | (14,352) | (9,691) | (42,451) | (13,058) | ||||||||||||||||||||||||||||||||||
| Adjusted funds from operations applicable to common stock | $ | 44,968 | $ | 18,557 | $ | 34,906 | $ | 36,662 | $ | 42,370 | $ | 63,525 | $ | 94,148 | |||||||||||||||||||||||||||
| (1) | Includes our proportionate share of amounts attributable to consolidated properties. | ||||
| (2) | Excludes depreciation of non real estate assets. | ||||
41
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||
| 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | 6/30/2019 | 6/30/2020 | 6/30/2019 | |||||||||||||||||||||||||||||||||||
| Net income attributable to Piedmont | $ | 192,427 | $ | 8,709 | $ | 162,478 | $ | 8,422 | $ | 8,153 | $ | 201,136 | $ | 58,361 | |||||||||||||||||||||||||||
| Net income / (loss) attributable to noncontrolling interest | (1) | 2 | (2) | (3) | (1) | 1 | — | ||||||||||||||||||||||||||||||||||
| Interest expense | 13,953 | 15,264 | 14,844 | 16,145 | 15,112 | 29,217 | 30,605 | ||||||||||||||||||||||||||||||||||
| Depreciation | 27,192 | 27,877 | 26,003 | 27,124 | 26,340 | 55,069 | 52,858 | ||||||||||||||||||||||||||||||||||
| Amortization | 24,336 | 23,618 | 20,988 | 19,491 | 18,446 | 47,954 | 36,131 | ||||||||||||||||||||||||||||||||||
| Impairment loss | — | — | 7,000 | 1,953 | — | — | — | ||||||||||||||||||||||||||||||||||
| Loss / (gain) on sale of properties | (191,369) | (3) | (157,640) | (32) | (1,451) | (191,372) | (39,338) | ||||||||||||||||||||||||||||||||||
| EBITDAre | 66,538 | 75,467 | 73,671 | 73,100 | 66,599 | 142,005 | 138,617 | ||||||||||||||||||||||||||||||||||
| Retirement and separation expenses associated with senior management transition | — | — | — | — | 3,175 | — | 3,175 | ||||||||||||||||||||||||||||||||||
| (Gain) / loss on extinguishment of debt | 9,336 | — | — | — | — | 9,336 | — | ||||||||||||||||||||||||||||||||||
| Core EBITDA | 75,874 | 75,467 | 73,671 | 73,100 | 69,774 | 151,341 | 141,792 | ||||||||||||||||||||||||||||||||||
| General & administrative expenses | 5,937 | 8,643 | 8,159 | 7,950 | 9,244 | 14,580 | 18,611 | ||||||||||||||||||||||||||||||||||
| Non-cash general reserve for uncollectible accounts | 4,865 | — | — | — | — | 4,865 | — | ||||||||||||||||||||||||||||||||||
| Management fee revenue | (282) | (395) | (292) | (203) | (201) | (677) | (2,023) | ||||||||||||||||||||||||||||||||||
| Other (income) / expense | (134) | 67 | (64) | (47) | (56) | (67) | (118) | ||||||||||||||||||||||||||||||||||
| Straight-line effects of lease revenue | (7,278) | (6,785) | (2,974) | (1,531) | (3,223) | (14,063) | (5,906) | ||||||||||||||||||||||||||||||||||
| Amortization of lease-related intangibles | (3,304) | (2,973) | (2,314) | (1,923) | (2,088) | (6,277) | (4,086) | ||||||||||||||||||||||||||||||||||
| Property net operating income (cash basis) | 75,678 | 74,024 | 76,186 | 77,346 | 73,450 | 149,702 | 148,270 | ||||||||||||||||||||||||||||||||||
| Deduct net operating (income) / loss from: | |||||||||||||||||||||||||||||||||||||||||
| Acquisitions | (10,109) | (8,105) | (4,538) | (2,771) | (921) | (18,214) | (920) | ||||||||||||||||||||||||||||||||||
| Dispositions | (4,384) | (4,595) | (6,792) | (11,800) | (12,320) | (8,979) | (27,177) | ||||||||||||||||||||||||||||||||||
| Other investments | (224) | (82) | (23) | (896) | (246) | (306) | (285) | ||||||||||||||||||||||||||||||||||
| Same store net operating income (cash basis) | $ | 60,961 | $ | 61,242 | $ | 64,833 | $ | 61,879 | $ | 59,963 | $ | 122,203 | $ | 119,888 | |||||||||||||||||||||||||||
42
Piedmont Office Realty Trust, Inc.
Property Detail - In-Service Portfolio (1)
As of June 30, 2020
(in thousands)
| Property | City | State | Percent Ownership | Year Built / Major Refurbishment | Rentable Square Footage Owned | Leased Percentage | Commenced Leased Percentage | Economic Leased Percentage (2) | ||||||||||||||||||
| Atlanta | ||||||||||||||||||||||||||
| Glenridge Highlands One | Atlanta | GA | 100.0% | 1998 | 288 | 93.4 | % | 93.4 | % | 85.8 | % | |||||||||||||||
| Glenridge Highlands Two | Atlanta | GA | 100.0% | 2000 | 424 | 97.9 | % | 97.9 | % | 97.9 | % | |||||||||||||||
| 1155 Perimeter Center West | Atlanta | GA | 100.0% | 2000 | 377 | 79.8 | % | 79.8 | % | 79.8 | % | |||||||||||||||
| Galleria 100 | Atlanta | GA | 100.0% | 1982 | 414 | 88.6 | % | 86.5 | % | 83.6 | % | |||||||||||||||
| Galleria 200 | Atlanta | GA | 100.0% | 1984 | 432 | 79.6 | % | 79.4 | % | 79.4 | % | |||||||||||||||
| Galleria 300 | Atlanta | GA | 100.0% | 1987 | 432 | 97.9 | % | 97.9 | % | 80.1 | % | |||||||||||||||
| Galleria 400 | Atlanta | GA | 100.0% | 1999 | 430 | 91.2 | % | 91.2 | % | 77.0 | % | |||||||||||||||
| Galleria 600 | Atlanta | GA | 100.0% | 2002 | 434 | 72.4 | % | 72.4 | % | 68.2 | % | |||||||||||||||
| The Medici | Atlanta | GA | 100.0% | 2008 | 156 | 94.2 | % | 92.9 | % | 92.9 | % | |||||||||||||||
| Metropolitan Area Subtotal / Weighted Average | 3,387 | 87.7 | % | 87.4 | % | 81.8 | % | |||||||||||||||||||
| Boston | ||||||||||||||||||||||||||
| 1414 Massachusetts Avenue | Cambridge | MA | 100.0% | 1873 / 1956 | 78 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| One Brattle Square | Cambridge | MA | 100.0% | 1991 | 96 | 99.0 | % | 99.0 | % | 97.9 | % | |||||||||||||||
| One Wayside Road | Burlington | MA | 100.0% | 1997 | 201 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| 5 & 15 Wayside Road | Burlington | MA | 100.0% | 1999 & 2001 | 272 | 86.4 | % | 86.4 | % | 86.4 | % | |||||||||||||||
| 5 Wall Street | Burlington | MA | 100.0% | 2008 | 182 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| 25 Burlington Mall Road | Burlington | MA | 100.0% | 1987 | 288 | 74.7 | % | 74.7 | % | 74.0 | % | |||||||||||||||
| 225 Presidential Way | Woburn | MA | 100.0% | 2001 | 202 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| 235 Presidential Way | Woburn | MA | 100.0% | 2000 | 238 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| 80 Central Street | Boxborough | MA | 100.0% | 1988 | 150 | 89.3 | % | 89.3 | % | 89.3 | % | |||||||||||||||
| 90 Central Street | Boxborough | MA | 100.0% | 2001 | 175 | 100.0 | % | 100.0 | % | 72.0 | % | |||||||||||||||
| Metropolitan Area Subtotal / Weighted Average | 1,882 | 93.3 | % | 93.3 | % | 90.5 | % | |||||||||||||||||||
| Dallas | ||||||||||||||||||||||||||
| 161 Corporate Center | Irving | TX | 100.0% | 1998 | 105 | 80.0 | % | 80.0 | % | 80.0 | % | |||||||||||||||
| 750 West John Carpenter Freeway | Irving | TX | 100.0% | 1999 | 316 | 91.5 | % | 87.7 | % | 87.7 | % | |||||||||||||||
| 6011 Connection Drive | Irving | TX | 100.0% | 1999 | 152 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| 6021 Connection Drive | Irving | TX | 100.0% | 2000 | 222 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| 6031 Connection Drive | Irving | TX | 100.0% | 1999 | 233 | 51.5 | % | 39.5 | % | 39.5 | % | |||||||||||||||
| 6565 North MacArthur Boulevard | Irving | TX | 100.0% | 1998 | 260 | 71.9 | % | 71.9 | % | 68.1 | % | |||||||||||||||
| Las Colinas Corporate Center I | Irving | TX | 100.0% | 1998 | 159 | 95.0 | % | 95.0 | % | 95.0 | % | |||||||||||||||
| Las Colinas Corporate Center II | Irving | TX | 100.0% | 1998 | 228 | 84.2 | % | 82.0 | % | 61.8 | % | |||||||||||||||
| One Lincoln Park | Dallas | TX | 100.0% | 1999 | 262 | 87.4 | % | 86.3 | % | 80.9 | % | |||||||||||||||
| Park Place on Turtle Creek | Dallas | TX | 100.0% | 1986 | 178 | 87.1 | % | 83.7 | % | 78.7 | % | |||||||||||||||
| One Galleria Tower | Dallas | TX | 100.0% | 1982 | 470 | 90.2 | % | 72.8 | % | 72.8 | % | |||||||||||||||
| Two Galleria Tower | Dallas | TX | 100.0% | 1985 | 434 | 99.5 | % | 94.9 | % | 91.2 | % | |||||||||||||||
| Three Galleria Tower | Dallas | TX | 100.0% | 1991 | 531 | 94.9 | % | 94.9 | % | 77.2 | % | |||||||||||||||
| Metropolitan Area Subtotal / Weighted Average | 3,550 | 88.5 | % | 84.1 | % | 78.8 | % | |||||||||||||||||||
43
| Property | City | State | Percent Ownership | Year Built / Major Refurbishment | Rentable Square Footage Owned | Leased Percentage | Commenced Leased Percentage | Economic Leased Percentage (2) | ||||||||||||||||||
| Minneapolis | ||||||||||||||||||||||||||
| US Bancorp Center | Minneapolis | MN | 100.0% | 2000 | 937 | 95.5 | % | 95.5 | % | 95.5 | % | |||||||||||||||
| Crescent Ridge II | Minnetonka | MN | 100.0% | 2000 | 301 | 83.4 | % | 82.4 | % | 81.1 | % | |||||||||||||||
| Norman Pointe I | Bloomington | MN | 100.0% | 2000 | 214 | 85.0 | % | 85.0 | % | 69.2 | % | |||||||||||||||
| 9320 Excelsior Boulevard | Hopkins | MN | 100.0% | 2010 | 268 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| One Meridian Crossings | Richfield | MN | 100.0% | 1997 | 195 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Two Meridian Crossings | Richfield | MN | 100.0% | 1998 | 189 | 98.9 | % | 98.9 | % | 96.8 | % | |||||||||||||||
| Metropolitan Area Subtotal / Weighted Average | 2,104 | 94.0 | % | 93.9 | % | 91.9 | % | |||||||||||||||||||
| New York | ||||||||||||||||||||||||||
| 60 Broad Street | New York | NY | 100.0% | 1962 | 1,031 | 95.0 | % | 91.1 | % | 81.3 | % | |||||||||||||||
| 200 Bridgewater Crossing | Bridgewater | NJ | 100.0% | 2002 | 309 | 90.9 | % | 90.9 | % | 90.9 | % | |||||||||||||||
| 400 Bridgewater Crossing | Bridgewater | NJ | 100.0% | 2002 | 305 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| 600 Corporate Drive | Lebanon | NJ | 100.0% | 2005 | 125 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Metropolitan Area Subtotal / Weighted Average | 1,770 | 95.5 | % | 93.2 | % | 87.5 | % | |||||||||||||||||||
| Orlando | ||||||||||||||||||||||||||
| 400 TownPark | Lake Mary | FL | 100.0% | 2008 | 175 | 94.3 | % | 94.3 | % | 94.3 | % | |||||||||||||||
| 500 TownPark | Lake Mary | FL | 100.0% | 2016 | 134 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| 200 South Orange Avenue | Orlando | FL | 100.0% | 1988 | 646 | 88.4 | % | 75.7 | % | 75.5 | % | |||||||||||||||
| 501 West Church Street | Orlando | FL | 100.0% | 2003 | 182 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| CNL Center I | Orlando | FL | 99.0% | 1999 | 347 | 90.8 | % | 90.8 | % | 89.3 | % | |||||||||||||||
| CNL Center II | Orlando | FL | 99.0% | 2006 | 270 | 99.3 | % | 99.3 | % | 99.3 | % | |||||||||||||||
| Metropolitan Area Subtotal / Weighted Average | 1,754 | 93.2 | % | 88.5 | % | 88.2 | % | |||||||||||||||||||
| Washington, D.C. | ||||||||||||||||||||||||||
| 400 Virginia Avenue | Washington | DC | 100.0% | 1985 | 225 | 68.9 | % | 64.4 | % | 61.8 | % | |||||||||||||||
| 1201 Eye Street | Washington | DC | 98.6% (3) | 2001 | 271 | 51.3 | % | 51.3 | % | 50.9 | % | |||||||||||||||
| 1225 Eye Street | Washington | DC | 98.1% (3) | 1986 | 225 | 89.3 | % | 89.3 | % | 88.4 | % | |||||||||||||||
| 3100 Clarendon Boulevard | Arlington | VA | 100.0% | 1987 / 2015 | 261 | 76.2 | % | 66.3 | % | 61.7 | % | |||||||||||||||
| 4250 North Fairfax Drive | Arlington | VA | 100.0% | 1998 | 308 | 98.1 | % | 98.1 | % | 85.7 | % | |||||||||||||||
| Arlington Gateway | Arlington | VA | 100.0% | 2005 | 329 | 88.1 | % | 86.3 | % | 83.6 | % | |||||||||||||||
| Metropolitan Area Subtotal / Weighted Average | 1,619 | 79.4 | % | 76.8 | % | 72.6 | % | |||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| 1430 Enclave Parkway | Houston | TX | 100.0% | 1994 | 313 | 82.7 | % | 82.7 | % | 82.7 | % | |||||||||||||||
| Enclave Place | Houston | TX | 100.0% | 2015 | 301 | 100.0 | % | 100.0 | % | — | % | |||||||||||||||
| Two Pierce Place | Itasca | IL | 100.0% | 1991 | 484 | 40.9 | % | 38.2 | % | 37.8 | % | |||||||||||||||
| Subtotal/Weighted Average | 1,098 | 69.0 | % | 67.9 | % | 40.3 | % | |||||||||||||||||||
| Grand Total | 17,164 | 88.6 | % | 86.6 | % | 81.1 | % | |||||||||||||||||||
| NOTE: | The Company has provided disaggregated financial and operational data for informational purposes for readers; however, regardless of the presentation approach used, we continue to evaluate and utilize our consolidated financial results in making operating decisions, allocating resources, and assessing our performance. | ||||
| (1) | This schedule includes information for Piedmont's in-service portfolio of properties only. Information on investments excluded from this schedule can be found on page 38. | ||||
| (2) | Economic leased percentage excludes the square footage associated with executed but not commenced leases for currently vacant spaces and the square footage associated with tenants receiving rental abatements (after proportional adjustments for tenants receiving only partial rental abatements). | ||||
| (3) | Although Piedmont owns 98.6% of 1201 Eye Street and 98.1% of 1225 Eye Street, it is entitled to 100% of the cash flows for each asset pursuant to the terms of each property ownership entity's joint venture agreement. | ||||
44
Piedmont Office Realty Trust, Inc.
COVID-19 Update
Early in 2020, the World Health Organization declared the novel coronavirus (COVID-19) outbreak a pandemic. Some degree of reopening of the economy has begun in each of the markets in which Piedmont's buildings are located. Presented below are key business updates and information for our constituents as relates to Piedmont's capitalization, the impact of COVID-19 on our business, and our response to issues related to the pandemic.
Corporate Update
Our Focus Our highest priority has been, and always will be, protecting the well-being of our tenants, contractors and employees. We are committed to promoting a safe and healthy environment. | Ongoing Tenant Construction We have only two redevelopment projects (less than $40 million in total) and one material tenant improvement obligation which we anticipate will experience some delays but will not significantly impact completion. | |||||||
Portfolio Status Each of our assets is open for business and serving the needs of our tenants. We are following all governmental guidelines and strictly adhering to all recommended Centers for Disease Control health and wellness protocols. | Liquidity Position We have ample liquidity and capital available to meet all corporate financial obligations, including the servicing of our debt, as well as meet all debt covenants with significant positive margins. We have full availability on our $500 million line of credit. | |||||||
Rental Revenues With a majority of our tenants being of investment grade quality, we have collected approximately 99% of the rents that were due for April, May and June, along with approximately 98% of rents that were due for July, based on contractual lease terms. All of our top 20 tenants are current on their rental payment obligations. We have low lease expirations in 2020 totaling approximately 3.3% (excluding the New York City lease expiration). Retail and co-working tenants total only approximately 3% of our budgeted 2020 revenues. | Strong Balance Sheet We have no planned or pending acquisitions and no ground-up development projects underway. As of June 30, 2020, our debt to gross assets ratio was 34% and our normalized debt to EBITDA margin was 5.6 x (1). We have only one encumbered property within our portfolio. We are rated BBB by Standard & Poor’s and Baa2 by Moody’s. | |||||||
Rental Relief We are partnering with certain tenants whose businesses have been impacted by COVID-19. We review each request carefully and have accommodated a limited number of requests. Out of approximately 1,000 leases, we have entered into approximately 50 rent relief agreements. | Debt Profile We have no debt maturities until late 2021. We have 56 unencumbered properties, representing approximately 99% of our Annualized Lease Revenue. | |||||||
| (1) | The average net debt to Core EBITDA ratio temporarily increased in early 2020 with the purchase of Dallas Galleria Office Towers using debt which was subsequently repaid with the sale of 1901 Market Street in Philadelphia, PA. The sale of 1901 Market Street did not close until late June 2020. Because our reported average net debt to Core EBITDA calculation is time-weighted, the positive effects of the sale of 1901 Market Street on this metric primarily due to the related reduction in outstanding debt are only marginally reflected in the measure for the period ended June 30, 2020. In order to disclose the anticipated effect of the sale of the asset on the metric for a full quarter, we calculated a normalized average net debt to Core EBITDA ratio. This normalized calculation starts with the Company's reported average net debt to Core EBITDA for the second quarter of 2020 and incorporates pro forma adjustments: 1) to remove the Core EBITDA contribution from 1901 Market Street to the Company's quarterly Core EBITDA and 2) to include the debt reductions related to the asset sale as if they occurred on April 1, 2020. The reduction to Core EBITDA for the second quarter of 2020 was $5,317,000 and the reduction to average net debt was $285,088,000. | ||||
45
Piedmont Office Realty Trust, Inc.
COVID-19 Update
Property Operations Update
As with most other businesses, our top priority is to protect our customers, vendors and employees. Piedmont is coordinating with tenants and contractors to continue the implementation and refinement of our new operational procedures, cleaning standards and health protocols at our buildings to protect the safety and well-being of those working onsite. We are committed to adapting our business and engineering solutions to meet our customers’ challenges in a reliable and safe manner.
| Communication and Collaboration | ||||||||
 | l | Published “Returning to Work Tenant Guide”, outlining building-specific information on operational changes such as elevator spacing, common area regulations, janitorial schedules and security protocols, among others | ||||||
| l | Implemented comprehensive signage program providing wayfinding assistance and emphasizing preventative measures as recommended by the Center for Disease Control (hand washing, distancing, no gathering, etc.) | |||||||
| l | Sharing best practices for workplace modifications and common area protections such as staggered working hours, assigned seating and conference room attendance levels | |||||||
| Health and Wellness | ||||||||
 | l | Hand sanitizing dispensers installed throughout our properties, parking garages and amenity areas | ||||||
| l | Janitorial staffs applying EPA-registered disinfectants to avoid the spread of pathogens; increase in cleaning for common areas and paths of travel to a level that is consistent with standards for a clinical waiting room/common area | |||||||
| l | All vendors and Piedmont personnel are required to wear masks throughout all common areas | |||||||
| l | We request that all tenants and guests wear masks throughout all common areas | |||||||
| l | Substantially all Piedmont restrooms utilize touchless features / equipment; those which do not are in the process of replacement | |||||||
| Monitoring the Environment | ||||||||
 | l | Elevated cleaning and security protocols to ensure a safe and healthy environment | ||||||
| l | Increased fresh air ventilation during operating hours along with extended HVAC run times, exceeding industry standards for air quality | |||||||
| l | Adjusted plumbing systems to conserve water usage | |||||||
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Piedmont Office Realty Trust, Inc.
Supplemental Operating & Financial Data
Risks, Uncertainties and Limitations
Certain statements contained in this supplemental package 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”). We intend 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 our 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,” "estimate," “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 supplemental package include the estimated financial impacts associated with the COVID-19 pandemic, expected future capital expenditures, and potential future acquisition and disposition activity.
The following are some of the factors that could cause our actual results and expectations to differ materially from those described in our forward-looking statements: 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, 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; 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 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 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 uncertainty surrounding the United Kingdom’s withdrawal 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 co-working tenants, 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 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 Piedmont’s most recent Annual Report on Form 10-K and other documents we file with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this supplemental report. We cannot guarantee the accuracy of any such forward-looking statements contained in this supplemental report, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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