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): October 31, 2013
Piedmont Office Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
Commission File Number: 001-34626
Maryland | 58-2328421 | |
(State or other jurisdiction of | (IRS Employer | |
incorporation) | Identification No.) | |
11695 Johns Creek Parkway
Suite 350
Johns Creek, GA 30097-1523
(Address of principal executive offices, including zip code)
770-418-8800
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
On October 31, 2013, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the third quarter 2013, and published supplemental information for the third quarter 2013 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 | Press release dated October 31, 2013. | |
99.2 | Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Third Quarter 2013. | |
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) | ||||
Date: October 31, 2013 | By: | /s/ Robert E. Bowers | ||
Robert E. Bowers | ||||
Chief Financial Officer and Executive Vice President | ||||
EXHIBIT INDEX
Exhibit No. | Description | |
99.1 | Press release dated October 31, 2013. | |
99.2 | Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Third Quarter 2013. | |
EXHIBIT 99.1
Piedmont Office Realty Trust Reports Third Quarter Results and Renewal of Stock Repurchase Plan
ATLANTA, October 31, 2013 --Piedmont Office Realty Trust, Inc. ("Piedmont" or the "Company") (NYSE:PDM), an owner of primarily Class A properties located predominantly in the ten largest U.S. office markets, today announced its results for the quarter ended September 30, 2013.
Highlights for the three months ended September 30, 2013:
• | Completed 1.5 million square feet of leasing, which represents the largest single leasing quarter in Piedmont's fifteen-year operating history; |
• | Achieved Core Funds From Operations ("CFFO") of $0.37 per diluted share; |
• | Purchased the remaining interest in three assets previously held through joint ventures and a strategic land parcel adjacent to our Connection Drive assets in the Las Colinas sub-market of Dallas, TX; |
• | Placed its last wholly-owned, Colorado asset under contract to sell; |
• | Repurchased approximately 5.4 million shares of its common stock during the quarter, bringing the total shares repurchased since inception of the program to 11.9 million shares at an average price of $17.16. |
Donald A. Miller, CFA, President and Chief Executive Officer said, "We delivered record leasing results this quarter, including a key renewal at our 1901 Market Street asset in Philadelphia. We are pleased with these results but remain focused on finding solutions for the larger leasing opportunities within our portfolio, principally in downtown Chicago and Washington, D.C.”
Results for the three months ended September 30, 2013
Piedmont's net income available to common stockholders for the third quarter of 2013 was $19.1 million, or $0.12 per diluted share, as compared with $10.8 million, or $0.06 per diluted share, for the third quarter of 2012. The current quarter includes $3.9 million, or approximately $0.02 per diluted share, in net insurance recoveries related to casualty losses incurred in prior periods, whereas the third quarter of the prior year included $7.5 million, or approximately $0.04 per diluted share, of litigation settlement expense. In addition, the current quarter reflects increased interest expense primarily associated with higher outstanding debt balances during the current quarter as a result of property acquisitions made by the Company earlier this year.
Revenues for the quarter ended September 30, 2013 were $145.1 million, as compared with $132.6 million for the same period a year ago, primarily reflecting increased revenue associated with the acquisition of two additional properties during the first quarter of 2013 as well as the commencement of several significant leases over the previous twelve months, offset by the loss of revenue associated with the expiration of a 330,000 square foot lease in the Company's Washington, D.C. portfolio in March.
Property operating costs were $58.8 million for the quarter ended September 30, 2013, as compared to the prior period of $50.5 million, primarily as a result of additional expenses associated with properties acquired during the first quarter of 2013 and higher recoverable property tax expense recognized at certain
properties during the current quarter. General and administrative expenses were $5.8 million for the current quarter, comparable to $5.5 million for the quarter ended September 30, 2012.
Funds From Operations ("FFO") for the current quarter totaled $65.0 million, or $0.39 per diluted share, as compared with $55.2 million, or $0.33 per diluted share, for the quarter ended September 30, 2012. The current quarter includes $3.9 million, or approximately $0.02 per diluted share, in net insurance recoveries related to casualty losses incurred in prior periods, whereas the third quarter of the prior year included $7.5 million, or approximately $0.04 per diluted share, of litigation settlement expense. In addition, the current quarter reflects increased interest expense primarily associated with higher outstanding debt balances during the current quarter as a result of property acquisitions made by the Company earlier this year.
Core FFO, which excludes the insurance recoveries and litigation settlement expense mentioned above, as well as acquisition costs, totaled $61.1 million, or $0.37 per diluted share, for the current quarter, as compared to $62.7 million, or $0.37 per diluted share, for the quarter ended September 30, 2012, with the per share results reflecting a 4.1 million reduction in weighted average shares outstanding as a result of shares repurchased over the previous twelve months pursuant to the Company's stock repurchase plan.
Adjusted FFO (“AFFO”) for the third quarter of 2013 totaled $34.0 million, or $0.21 per diluted share, as compared to $20.4 million, or $0.12 per diluted share, in the third quarter of 2012, primarily reflecting lower capital expenditures in the current period than in the prior period.
Leasing Update
During the third quarter of 2013, the Company executed approximately 1.5 million square feet of leasing throughout its markets. Of the leases signed during the quarter, approximately 1.0 million square feet, or 68%, was renewal-related and 488,000 square feet, or 32%, was with new tenants.
Same store net operating income (on a cash basis) for the quarter was $72.8 million, a 5.8% decrease from the third quarter of the prior year, primarily as a result of the loss of revenue associated with the expiration of a 330,000 square foot lease in the Company's Washington, D.C. portfolio during the first quarter of 2013 as well as $2.7 million of one-time property tax recoveries recorded in third quarter of 2012. As of September 30, 2013, the Company had approximately 1.5 million square feet of commenced leases that were in some form of abatement, as well as approximately 0.5 million square feet of executed leases for currently vacant space yet to commence.
The Company's overall portfolio was 86.7% leased as of September 30, 2013, with a weighted average lease term remaining of approximately 7.3 years. The stabilized portfolio was 89.5% leased as of September 30, 2013 as compared to 90.1% leased as of September 30, 2012. Details outlining Piedmont's significant upcoming lease expirations and the status of current leasing activity can be found in the Company's quarterly supplemental information package available at www.piedmontreit.com.
Capital Markets, Financing and Other Activities
During the three months ended September 30, 2013, the Company purchased the remaining interest in three assets that it had previously held through two joint venture arrangements. As a result of now owning 100% of these assets, Piedmont converted from accounting for the three assets as equity method investments to accounting for them as consolidated assets and recognized a loss on consolidation of $0.9 million, which is included in the accompanying consolidated statement of operations. Piedmont
anticipates that obtaining sole control of these assets will facilitate its leasing and subsequent disposition strategies for the assets.
Also during the quarter, Piedmont purchased a 10.6 acre land parcel strategically located adjacent to its Connection Drive properties in the Las Colinas sub-market of Dallas, TX. The land, which is zoned for future office development, could also be utilized for additional parking requirements at the Company's Connection Drive assets.
Additionally, during the quarter ended September 30, 2013, Piedmont entered into a binding agreement to sell the 350 Spectrum Loop Building located in Colorado Springs, CO for approximately $30.1 million, or $193 per square foot. The 156,000 square foot building is currently 100% leased to a single corporate tenant. The sale is expected to close in November 2013 and is Piedmont's last wholly-owned asset in the Colorado market.
Finally, during the quarter, the Company purchased 5.4 million shares of its common stock, bringing the total stock repurchased through September 30, 2013 under the Company's $300 million stock repurchase plan to 11.9 million shares at an average purchase price of $17.16 per share.
Piedmont's gross assets amounted to $5.6 billion as of September 30, 2013. Total debt was approximately $1.8 billion as of September 30, 2013 as compared to $1.4 billion as of December 31, 2012 primarily as a result of two property acquisitions totaling $248.0 million which were completed during the first quarter of 2013. The Company's total debt-to-gross assets ratio was 32.5% as of September 30, 2013 as compared with 27.2% as of December 31, 2012. Net debt to annualized core EBITDA ratio was 5.6 x and the Company`s fixed charge coverage ratio was 4.2 x. As of September 30, 2013, Piedmont had cash and capacity on its unsecured line of credit of approximately $311.9 million.
Subsequent to Quarter End
Dividend
On October 30, 2013, the Board of Directors of Piedmont declared a dividend for the fourth quarter of 2013 in the amount of $0.20 per common share outstanding to stockholders of record as of the close of business on November 29, 2013. Such dividends are to be paid on December 20, 2013.
Amendment and Restatement of Stock Repurchase Program
Our current stock repurchase plan expires in November of 2013. On October 30, 2013, the Board of Directors of Piedmont amended and restated the plan to authorize the purchase of up to $150 million of the Company's Common Stock over the next two years. The Company may repurchase the shares from time to time, in accordance with applicable securities laws, in the open market or in privately negotiated transactions. Repurchases will depend upon market conditions and other factors, and repurchases may be commenced or suspended from time to time in the Company's discretion, without prior notice.
Guidance for 2013
Based on management's expectations, the Company is increasing and narrowing its guidance for full-year 2013 to the following range:
Low | High | |||
Net Income | $98 | - | 104 Million | |
Add: Depreciation and Amortization | $168 | - | 172 Million | |
Add: Impairment Loss and Loss on Consolidation | $7 | - | 7 Million | |
Deduct: Net Gain on Property Dispositions | $24 | - | 29 Million | |
Deduct: Estimated Net Insurance Recoveries | $9 | - | 11 Million | |
Core FFO | $240 | - | 243 Million | |
Core FFO per diluted share | $1.45 | - | $1.47 | |
These estimates reflect management's view of current market conditions and incorporate certain economic and operational assumptions and projections. Actual results could differ from these estimates. Note that individual quarters may fluctuate on both a cash basis and an accrual basis due to lease commencements and expirations, the timing of repairs and maintenance, capital expenditures, capital markets activities and one-time revenue or expense events. In addition, the Company's guidance is based on information available to management as of the date of this release.
Non-GAAP Financial Measures
This release contains certain supplemental non-GAAP financial measures such as FFO, AFFO, Core FFO, Same store net operating income, and Core EBITDA. See below for definitions and reconciliations of these metrics to their most comparable GAAP metric.
Conference Call Information
Piedmont has scheduled a conference call and an audio web cast for Friday, November 1, 2013 at 10:00 A.M. Eastern daylight time ("EDT"). The live audio web cast of the call may be accessed on the Company's website at www.piedmontreit.com in the Investor Relations section. Dial-in numbers are (888) 287-5563 for participants in the United States and Canada and (719)325-2452 for international participants. The pass code is 5728721. A replay of the conference call will be available from 1:00 pm EDT on November 1, 2013 until 1:00 pm EDT on November 15, 2013, and can be accessed by dialing (888)203-1112 for participants in the United States and Canada and (719)457-0820 for international participants, followed by pass code 5728721. 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 third quarter 2013 performance, discuss recent events and conduct a question-and-answer period.
Supplemental Information
Quarterly Supplemental Information as of and for the period ended September 30, 2013 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 a fully-integrated and self-managed real estate investment trust (REIT) specializing in high-quality, Class A office properties located primarily in the ten largest U.S. office markets, including Chicago, Washington, D.C., New York, Los Angeles, Boston, and Dallas. As of September 30, 2013, Piedmont's 77 wholly-owned office buildings were comprised of over 21 million rentable square feet. The Company is headquartered in Atlanta, GA, with local management
offices in each of its major markets. Piedmont is investment-grade rated by Standard & Poor's and Moody's and has maintained a low-leverage strategy while acquiring and disposing of properties during its fifteen year operating history. For more information, see www.piedmontreit.com.
Forward Looking Statements
Certain statements contained in this press release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company intends for all such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such information is subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of the Company`s performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "believe," "continue" or similar words or phrases that are predictions of future events or trends and which do not relate solely to historical matters. Examples of such statements in this press release include the Company's estimated range of Net Income, Depreciation and Amortization, Insurance Recoveries, Core FFO and Core FFO per diluted share for the year ending December 31, 2013.
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: market and economic conditions remain challenging and the demand for office space, rental rates and property values may continue to lag the general economic recovery causing the Company's business, results of operations, cash flows, financial condition and access to capital to be adversely affected or otherwise impact performance, including the potential recognition of impairment charges; the success of the Company's real estate strategies and investment objectives, including the Company's ability to identify and consummate suitable acquisitions; lease terminations or lease defaults, particularly by one of the Company's large lead tenants; the impact of competition on the Company's efforts to renew existing leases or re-let space on terms similar to existing leases; changes in the economies and other conditions of the office market in general and of the specific markets in which the Company operates, particularly in Chicago, Washington, D.C., and the New York metropolitan area; economic and regulatory changes, including accounting standards, that impact the real estate market generally; additional risks and costs associated with directly managing properties occupied by government tenants; adverse market and economic conditions may continue to adversely affect the Company and could cause the Company to recognize impairment charges or otherwise impact the Company's performance; availability of financing and the Company's lending banks' ability to honor existing line of credit commitments; costs of complying with governmental laws and regulations; uncertainties associated with environmental and other regulatory matters; potential changes in political environment and reduction in federal and/or state funding of the Company's governmental tenants; the Company may be subject to litigation, which could have a material adverse effect on the Company's financial condition; the Company's ability to continue to qualify as a real estate investment trust under the Internal Revenue Code; and other factors detailed in the Company`s most recent Annual Report on Form 10-K for the period ended December 31, 2012, and other documents the Company files 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 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) | ||||||||
September 30, 2013 | December 31, 2012 | |||||||
(unaudited) | ||||||||
Assets: | ||||||||
Real estate assets, at cost: | ||||||||
Land | $ | 675,281 | $ | 627,351 | ||||
Buildings and improvements | 4,005,385 | 3,768,967 | ||||||
Buildings and improvements, accumulated depreciation | (955,480 | ) | (877,644 | ) | ||||
Intangible lease asset | 137,614 | 122,684 | ||||||
Intangible lease asset, accumulated amortization | (70,744 | ) | (67,940 | ) | ||||
Construction in progress | 61,162 | 20,373 | ||||||
Real estate assets held for sale, gross | 26,471 | 25,254 | ||||||
Real estate assets held for sale, accumulated depreciation and amortization | (6,737 | ) | (6,313 | ) | ||||
Total real estate assets | 3,872,952 | 3,612,732 | ||||||
Investments in unconsolidated joint ventures | 18,668 | 37,226 | ||||||
Cash and cash equivalents | 15,972 | 12,957 | ||||||
Tenant receivables, net of allowance for doubtful accounts | 31,006 | 25,038 | ||||||
Straight line rent receivable | 135,487 | 121,506 | ||||||
Due from unconsolidated joint ventures | — | 463 | ||||||
Restricted cash and escrows | 385 | 334 | ||||||
Prepaid expenses and other assets | 17,610 | 13,022 | ||||||
Goodwill | 180,097 | 180,097 | ||||||
Interest rate swaps | 19,192 | 1,075 | ||||||
Deferred financing costs, less accumulated amortization | 7,990 | 6,454 | ||||||
Deferred lease costs, less accumulated amortization | 275,234 | 243,178 | ||||||
Other assets held for sale, net | 1,960 | 793 | ||||||
Total assets | $ | 4,576,553 | $ | 4,254,875 | ||||
Liabilities: | ||||||||
Unsecured debt | $ | 835,650 | $ | 429,000 | ||||
Secured debt | 987,525 | 987,525 | ||||||
Accounts payable, accrued expenses, and accrued capital expenditures | 159,675 | 127,263 | ||||||
Deferred income | 26,575 | 21,552 | ||||||
Intangible lease liabilities, less accumulated amortization | 41,435 | 40,805 | ||||||
Interest rate swaps | 5,010 | 8,235 | ||||||
Total liabilities | 2,055,870 | 1,614,380 | ||||||
Stockholders' equity : | ||||||||
Common stock | 1,613 | 1,676 | ||||||
Additional paid in capital | 3,668,424 | 3,667,051 | ||||||
Cumulative distributions in excess of earnings | (1,165,794 | ) | (1,022,681 | ) | ||||
Other comprehensive income/(loss) | 14,827 | (7,160 | ) | |||||
Piedmont stockholders' equity | 2,519,070 | 2,638,886 | ||||||
Non-controlling interest | 1,613 | 1,609 | ||||||
Total stockholders' equity | 2,520,683 | 2,640,495 | ||||||
Total liabilities and stockholders' equity | $ | 4,576,553 | $ | 4,254,875 | ||||
Net Debt (Debt less cash and cash equivalents and restricted cash and escrows) | 1,806,818 | 1,403,234 | ||||||
Total Gross Assets (1) | 5,609,514 | 5,206,772 | ||||||
Number of shares of common stock outstanding at end of period | 161,271 | 167,556 | ||||||
(1) Total assets exclusive of accumulated depreciation and amortization related to real estate assets. | ||||||||
Piedmont Office Realty Trust, Inc. | |||||||||||||||
Consolidated Statements of Income | |||||||||||||||
Unaudited (in thousands) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
9/30/2013 | 9/30/2012 | 9/30/2013 | 9/30/2012 | ||||||||||||
Revenues: | |||||||||||||||
Rental income | $ | 116,810 | $ | 104,948 | $ | 333,855 | $ | 312,007 | |||||||
Tenant reimbursements | 27,418 | 27,132 | 77,168 | 80,290 | |||||||||||
Property management fee revenue | 890 | 520 | 2,034 | 1,720 | |||||||||||
Total revenues | 145,118 | 132,600 | 413,057 | 394,017 | |||||||||||
Expenses: | |||||||||||||||
Property operating costs | 58,767 | 50,483 | 164,420 | 154,568 | |||||||||||
Depreciation | 30,785 | 27,921 | 90,688 | 81,721 | |||||||||||
Amortization | 13,878 | 15,165 | 34,244 | 39,095 | |||||||||||
General and administrative | 5,841 | 5,508 | 16,678 | 15,629 | |||||||||||
Total operating expenses | 109,271 | 99,077 | 306,030 | 291,013 | |||||||||||
Real estate operating income | 35,847 | 33,523 | 107,027 | 103,004 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense | (19,331 | ) | (16,247 | ) | (53,932 | ) | (48,727 | ) | |||||||
Interest and other income/(expense) | (611 | ) | 383 | (1,960 | ) | 765 | |||||||||
Litigation settlement recovery/(expense) | — | (7,500 | ) | 1,250 | (7,500 | ) | |||||||||
Net recoveries of casualty loss | 3,919 | — | 6,061 | — | |||||||||||
Equity in income of unconsolidated joint ventures | 46 | 323 | 604 | 739 | |||||||||||
Loss on consolidation | (898 | ) | — | (898 | ) | — | |||||||||
Total other income (expense) | (16,875 | ) | (23,041 | ) | (48,875 | ) | (54,723 | ) | |||||||
Income from continuing operations | 18,972 | 10,482 | 58,152 | 48,281 | |||||||||||
Discontinued operations: | |||||||||||||||
Operating income | 128 | 607 | 1,109 | 2,914 | |||||||||||
Impairment loss | — | — | (6,402 | ) | — | ||||||||||
Gain/(loss) on sale of real estate assets | — | (254 | ) | 16,258 | 27,583 | ||||||||||
Income from discontinued operations | 128 | 353 | 10,965 | 30,497 | |||||||||||
Net income | 19,100 | 10,835 | 69,117 | 78,778 | |||||||||||
Less: Net income attributable to noncontrolling interest | (4 | ) | (4 | ) | (12 | ) | (12 | ) | |||||||
Net income attributable to Piedmont | $ | 19,096 | $ | 10,831 | $ | 69,105 | $ | 78,766 | |||||||
Weighted average common shares outstanding - diluted | 164,796 | 168,929 | 166,734 | 171,295 | |||||||||||
Per Share Information -- diluted: | |||||||||||||||
Income from continuing operations | $ | 0.12 | $ | 0.06 | $ | 0.35 | $ | 0.28 | |||||||
Income from discontinued operations | $ | — | $ | — | $ | 0.06 | $ | 0.18 | |||||||
Net income available to common stockholders | $ | 0.12 | $ | 0.06 | $ | 0.41 | $ | 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 | Nine Months Ended | ||||||||||||||
9/30/2013 | 9/30/2012 | 9/30/2013 | 9/30/2012 | ||||||||||||
Net income attributable to Piedmont | $ | 19,096 | $ | 10,831 | $ | 69,105 | $ | 78,766 | |||||||
Depreciation (1) (2) | 31,050 | 28,763 | 91,905 | 84,605 | |||||||||||
Amortization (1) | 13,939 | 15,366 | 34,509 | 39,744 | |||||||||||
Impairment loss on real estate assets | — | — | 6,402 | — | |||||||||||
Loss on consolidation | 898 | — | 898 | — | |||||||||||
Loss/(gain) on sale of real estate assets (1) | — | 254 | (16,258 | ) | (27,583 | ) | |||||||||
Funds from operations* | 64,983 | 55,214 | 186,561 | 175,532 | |||||||||||
Acquisition costs | 60 | 7 | 1,374 | 88 | |||||||||||
Litigation settlement expense/(recovery) | — | 7,500 | (1,250 | ) | 7,500 | ||||||||||
Net recoveries of casualty loss (1) | (3,919 | ) | — | (6,078 | ) | — | |||||||||
Core funds from operations* | 61,124 | 62,721 | 180,607 | 183,120 | |||||||||||
Deferred financing cost amortization | 674 | 663 | 1,911 | 2,056 | |||||||||||
Amortization of discount on Senior Notes and swap settlements | 13 | — | 20 | — | |||||||||||
Depreciation of non real estate assets | 97 | 196 | 300 | 397 | |||||||||||
Straight-line effects of lease revenue (1) | (5,076 | ) | (4,193 | ) | (14,655 | ) | (11,236 | ) | |||||||
Stock-based and other non-cash compensation expense | 719 | 869 | 1,489 | 1,492 | |||||||||||
Net effect of amortization of below-market in-place lease intangibles(1) | (1,757 | ) | (1,315 | ) | (4,067 | ) | (4,631 | ) | |||||||
Acquisition costs | (60 | ) | (7 | ) | (1,374 | ) | (88 | ) | |||||||
Non-incremental capital expenditures (3) | (21,705 | ) | (38,583 | ) | (59,992 | ) | (64,430 | ) | |||||||
Adjusted funds from operations* | $ | 34,029 | $ | 20,351 | $ | 104,239 | $ | 106,680 | |||||||
Weighted average common shares outstanding - diluted | 164,796 | 168,929 | 166,734 | 171,295 | |||||||||||
Funds from operations per share (diluted) | $ | 0.39 | $ | 0.33 | $ | 1.12 | $ | 1.03 | |||||||
Core funds from operations per share (diluted) | $ | 0.37 | $ | 0.37 | $ | 1.08 | $ | 1.07 | |||||||
Adjusted funds from operations per share (diluted) | $ | 0.21 | $ | 0.12 | $ | 0.63 | $ | 0.62 | |||||||
(1) Includes adjustments for consolidated properties, including discontinued operations, and for our proportionate share of amounts attributable to unconsolidated joint ventures.
(2) Excludes depreciation of non real estate assets.
(3) Capital expenditures of a recurring nature related to tenant improvements and leasing commissions that do not incrementally enhance the underlying assets' income generating capacity. Tenant improvements, leasing commissions, building capital and deferred lease incentives incurred to lease space that was vacant at acquisition, leasing costs for spaces vacant for greater than one year, leasing costs for spaces at newly acquired properties for which in-place leases expire shortly after acquisition, improvements associated with the expansion of a building and renovations that change the underlying classification of a building are excluded from this measure.
*Definitions
Funds From Operations ("FFO"): FFO is calculated 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, impairment losses, and gains or losses on consolidation, 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 may provide valuable
comparisons of operating performance between periods and with other REITs. FFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income. We believe that FFO is a beneficial indicator of the performance of an equity REIT. However, other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than we do; therefore, our computation of FFO may not be comparable to that of such other REITs.
Core Funds From Operations ("Core FFO"): We calculate Core FFO by starting with FFO, as defined by NAREIT, and adjusting for certain non-recurring items such as gains or losses on the early extinguishment of debt, acquisition-related costs and other significant non-recurring items. Such items create significant earnings volatility. We believe Core FFO provides a meaningful measure of our operating performance and more predictability regarding future earnings potential. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income; therefore, it should not be compared to other REITs' equivalent to Core FFO.
Adjusted Funds From Operations ("AFFO"): AFFO is calculated by deducting from Core FFO non-incremental capital expenditures and acquisition-related costs and adding back non-cash items including non-real estate depreciation, straight lined rents and fair value lease revenue, non-cash components of interest expense and compensation expense, and by making similar adjustments for unconsolidated partnerships and joint ventures. Although AFFO may not be comparable to that of other REITs, we believe it provides a meaningful indicator of our ability to fund cash needs and to make cash distributions to equity owners. AFFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income, as an alternative to net cash flows from operating activities or as a measure of our liquidity.
Piedmont Office Realty Trust, Inc. | |||||||||||||||
Core EBITDA, Property Net Operating Income, Same Store Net Operating Income | |||||||||||||||
Unaudited (in thousands) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
9/30/2013 | 9/30/2012 | 9/30/2013 | 9/30/2012 | ||||||||||||
Net income attributable to Piedmont | $ | 19,096 | $ | 10,831 | $ | 69,105 | $ | 78,766 | |||||||
Net income attributable to noncontrolling interest | 4 | 4 | 12 | 12 | |||||||||||
Interest expense | 19,331 | 16,247 | 53,932 | 48,727 | |||||||||||
Depreciation (1) | 31,147 | 28,959 | 92,204 | 85,002 | |||||||||||
Amortization (1) | 13,939 | 15,366 | 34,509 | 39,744 | |||||||||||
Acquisition costs | 60 | 7 | 1,374 | 88 | |||||||||||
Impairment loss | — | — | 6,402 | — | |||||||||||
Litigation settlement expense/(recovery) | — | 7,500 | (1,250 | ) | 7,500 | ||||||||||
Net recoveries of casualty loss(1) | (3,919 | ) | — | (6,078 | ) | — | |||||||||
Loss/(gain) on sale of properties (1) | — | 254 | (16,258 | ) | (27,583 | ) | |||||||||
Loss on consolidation | 898 | — | 898 | — | |||||||||||
Core EBITDA* | 80,556 | 79,168 | 234,850 | 232,256 | |||||||||||
General & administrative expenses(1) | 5,921 | 5,576 | 16,940 | 15,761 | |||||||||||
Management fee revenue | (890 | ) | (520 | ) | (2,034 | ) | (1,720 | ) | |||||||
Interest and other expense/(income)(1) | 550 | (390 | ) | 561 | (873 | ) | |||||||||
Straight line rent adjustment(1) | (5,076 | ) | (4,193 | ) | (14,655 | ) | (11,236 | ) | |||||||
Net effect of amortization of below-market in-place lease intangibles(1) | (1,757 | ) | (1,315 | ) | (4,067 | ) | (4,631 | ) | |||||||
Property Net Operating Income (cash basis)* | 79,304 | 78,326 | 231,595 | 229,557 | |||||||||||
Acquisitions | (6,155 | ) | 7 | (10,672 | ) | 7 | |||||||||
Dispositions | 2 | (319 | ) | (49 | ) | (2,487 | ) | ||||||||
Unconsolidated joint ventures | (376 | ) | (735 | ) | (1,717 | ) | (1,923 | ) | |||||||
Same Store NOI (cash basis)* | $ | 72,775 | $ | 77,279 | $ | 219,157 | $ | 225,154 | |||||||
Change period over period in same store NOI | (5.8 | )% | N/A | (2.7 | )% | N/A | |||||||||
Fixed Charge Coverage Ratio (Core EBITDA/ Interest Expense)(2) | 4.2 | ||||||||||||||
Annualized Core EBITDA (Core EBITDA x 4) | $322,224 | ||||||||||||||
(1) Includes amounts attributable to consolidated properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures.
(2) Piedmont had no capitalized interest, principal amortization or preferred dividends for any of the periods presented.
*Definitions
Core EBITDA: Core EBITDA is defined as net income before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property, or other significant non-recurring items. We do not include impairment losses in this measure because we feel these types of losses create volatility in our earnings and make it difficult to determine the earnings generated by our ongoing business. We believe Core EBITDA is a reasonable measure of our liquidity. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative measurement of cash flows from operating activities or other GAAP basis
liquidity measures. Other REITs may calculate Core EBITDA differently and our calculation should not be compared to that of other REITs.
Property Net Operating Income ("Property NOI"): Property NOI is defined as real estate operating income with the add-back of corporate general and administrative expense, depreciation and amortization, and impairment losses and the deduction of income associated with property management performed by Piedmont for other organizations. We 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 eliminated. The Company uses this measure to assess its operating results and believes it is important in assessing operating performance. Property NOI is a non-GAAP measure which does not have any standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies.
Same Store Net Operating Income ("Same Store NOI"): Same Store NOI is calculated as the Property NOI attributable to the properties owned or placed in service during the entire span of the current and prior year reporting periods. Same Store NOI excludes amounts attributable to unconsolidated joint venture assets. We 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 eliminated. We believe Same Store NOI is an important measure of comparison of our properties' operating performance from one period to another. Other REITs may calculate Same Store NOI differently and our calculation should not be compared to that of other REITs.
EXHIBIT 99.2
Quarterly Supplemental Information
September 30, 2013
Corporate Headquarters | Institutional Analyst Contact | Investor Relations |
11695 Johns Creek Parkway, Suite 350 | Telephone: 770.418.8592 | Telephone: 866.354.3485 |
Johns Creek, GA 30097 | 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 | |||
Key Performance Indicators | Research Coverage | |||
Financials | Non-GAAP Reconciliations & Other Detail | |||
Balance Sheets | Property Detail | |||
Income Statements | Risks, Uncertainties and Limitations | |||
Funds From Operations / Adjusted Funds From Operations | ||||
Same Store Analysis | ||||
Capitalization Analysis | ||||
Debt Summary | ||||
Debt Detail | ||||
Debt Analysis | ||||
Operational & Portfolio Information - Office Investments | ||||
Tenant Diversification | ||||
Tenant Credit Rating & Lease Distribution Information | ||||
Leased Percentage Information | ||||
Rental Rate Roll Up / Roll Down Analysis | ||||
Lease Expiration Schedule | ||||
Quarterly Lease Expirations | ||||
Annual Lease Expirations | ||||
Capital Expenditures & Commitments | ||||
Contractual Tenant Improvements & Leasing Commissions | ||||
Geographic Diversification | ||||
Geographic Diversification by Location Type | ||||
Industry Diversification | ||||
Property Investment Activity | ||||
Value-Add Activity | ||||
Notice to Readers: |
Please refer to page 49 for a discussion of important risks related to the business of Piedmont Office Realty Trust, Inc., as well as an investment in its securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information. Considering these risks, uncertainties, assumptions, and limitations, the forward-looking statements about leasing, financial operations, leasing prospects, etc. contained in this quarterly supplemental information package might not occur. |
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. When the Company sells properties, it restates historical income statements with the financial results of the sold assets presented in discontinued operations. |
Piedmont Office Realty Trust, Inc.
Corporate Data
Piedmont Office Realty Trust, Inc. (also referred to herein as "Piedmont" or the "Company") (NYSE: PDM) is a fully-integrated and self-managed real estate investment trust (“REIT”) specializing in the acquisition, ownership, management, development and disposition of primarily high-quality Class A office buildings located predominantly in large U.S. office markets and leased principally to high-credit-quality tenants. Approximately 82% of our Annualized Lease Revenue ("ALR")(1) is derived from our office properties located within the ten largest U.S. office markets, including Chicago, Washington, D.C., the New York metropolitan area, Boston and greater Los Angeles. Rated as an investment-grade company by Standard & Poor’s and Moody’s, Piedmont has maintained a low-leverage strategy while acquiring its properties.
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 | ||||
September 30, 2013 | December 31, 2012 | ||||
Number of consolidated office properties (2) | 77 | 74 | |||
Rentable square footage (in thousands) (2) | 21,106 | 20,500 | |||
Percent leased (3) | 86.7 | % | 87.5 | % | |
Percent leased - stabilized portfolio (4) | 89.5 | % | 90.5 | % | |
Capitalization (in thousands): | |||||
Total debt - principal amount outstanding | $1,824,525 | $1,416,525 | |||
Equity market capitalization | $2,799,660 | $3,024,386 | |||
Total market capitalization | $4,624,185 | $4,440,911 | |||
Total debt / Total market capitalization | 39.5 | % | 31.9 | % | |
Total debt / Total gross assets | 32.5 | % | 27.2 | % | |
Common stock data | |||||
High closing price during quarter | $18.84 | $18.28 | |||
Low closing price during quarter | $16.94 | $17.22 | |||
Closing price of common stock at period end | $17.36 | $18.05 | |||
Weighted average fully diluted shares outstanding (in thousands) (5) | 166,734 | 170,441 | |||
Shares of common stock issued and outstanding (in thousands) | 161,271 | 167,556 | |||
Rating / outlook | |||||
Standard & Poor's | BBB / Stable | BBB / Stable | |||
Moody's | Baa2 / Stable | Baa2 / Stable | |||
Employees | 122 | 116 | |||
(1) | The definition for Annualized Lease Revenue can be found on page 40. |
(2) | As of September 30, 2013, our consolidated office portfolio consisted of 77 properties (exclusive of our equity interests in two properties owned through unconsolidated joint ventures). During the first quarter of 2013, we sold 1111 Durham Avenue, a 237,000 square foot office building located in South Plainfield, NJ, and acquired Arlington Gateway, a 334,000 square foot office building located in Arlington, VA and 5 & 15 Wayside Road, a 271,000 square foot office building complex located in Burlington, MA. During the second quarter of 2013, we sold 1200 Enclave Parkway, a 150,000 square foot office building located in Houston, TX. During the third quarter of 2013, we completed the buyout of our joint venture partners' interests in three properties which had previously been unconsolidated: 5301 Maryland Way in Brentwood, TN, 2020 West 89th Street in Leawood, KS, and 4685 Investment Drive in Troy, MI. For additional detail on asset transactions during 2013, please refer to page 37. |
(3) | Calculated as leased square footage plus square footage associated with executed new leases for currently vacant spaces divided by total rentable square footage, all as of the relevant date, expressed as a percentage. This measure is presented for our consolidated office properties and excludes unconsolidated joint venture properties. Please refer to page 26 for additional analyses regarding Piedmont's leased percentage. |
(4) | Please refer to page 38 for information regarding value-add properties, data for which is removed from stabilized portfolio totals. |
(5) | Weighted average fully diluted shares outstanding are presented on a year-to-date basis for each period. |
3
Piedmont Office Realty Trust, Inc.
Investor Information
Corporate |
11695 Johns Creek Parkway, Suite 350 |
Johns Creek, Georgia 30097 |
770.418.8800 |
www.piedmontreit.com |
Executive Management | ||
Donald A. Miller, CFA | Robert E. Bowers | Laura P. Moon |
Chief Executive Officer, President | Chief Financial Officer, Executive | Chief Accounting Officer and |
and Director | Vice President, and Treasurer | Senior Vice President |
Raymond L. Owens | Carroll A. Reddic, IV | Robert K. Wiberg |
Executive Vice President, | Executive Vice President, | Executive Vice President, |
Capital Markets | Real Estate Operations and Assistant | Mid-Atlantic Region and |
Secretary | Head of Development | |
Board of Directors | ||
W. Wayne Woody | Frank C. McDowell | Donald A. Miller, CFA |
Director, Chairman of the Board of | Director, Vice Chairman of the | Chief Executive Officer, President |
Directors and Chairman of | Board of Directors and Chairman | and Director |
Governance Committee | of Compensation Committee | |
Raymond G. Milnes, Jr. | Jeffery L. Swope | Michael R. Buchanan |
Director and Chairman of | Director and Chairman of | Director |
Audit Committee | Capital Committee | |
Wesley E. Cantrell | William H. Keogler, Jr. | Donald S. Moss |
Director | Director | Director |
Transfer Agent | Corporate Counsel |
Computershare | King & Spalding |
P.O. Box 358010 | 1180 Peachtree Street, NE |
Pittsburgh, PA 15252-8010 | Atlanta, GA 30309 |
Phone: 866.354.3485 | Phone: 404.572.4600 |
4
Piedmont Office Realty Trust, Inc.
Financial Highlights
As of September 30, 2013
Financial Results (1)
Funds from operations (FFO) for the quarter ended September 30, 2013 was $65.0 million, or $0.39 per share (diluted), compared to $55.2 million, or $0.33 per share (diluted), for the same quarter in 2012. FFO for the nine months ended September 30, 2013 was $186.6 million, or $1.12 per share (diluted), compared to $175.5 million, or $1.03 per share (diluted), for the same period in 2012. The increase in FFO for the three months and the nine months ended September 30, 2013 as compared to the same periods in 2012 was principally related to the following factors: 1) increased operating income attributable to newly acquired properties, 2) litigation settlement insurance reimbursements amounting to $1.2 million received thus far in 2013 as compared to litigation settlement expense of $7.5 million recognized in 2012, and 3) net casualty gains related to insurance reimbursements received in 2013 for damage caused by Hurricane Sandy.
Core funds from operations (Core FFO) for the quarter ended September 30, 2013 was $61.1 million, or $0.37 per share (diluted), compared to $62.7 million, or $0.37 per share (diluted), for the same quarter in 2012. Core FFO for the nine months ended September 30, 2013 was $180.6 million, or $1.08 per share (diluted), compared to $183.1 million, or $1.07 per share (diluted), for the same period in 2012. Differences in Core FFO for the three months and the nine months ended September 30, 2013 as compared to the same periods in 2012 were principally related to the deduction from FFO of the litigation settlement expense in 2012 and the insurance reimbursements in 2013 related to the litigation settlement and Hurricane Sandy expenses. These items were deducted from FFO in the calculation of Core FFO since they were items associated with specific events and are considered to be non-recurring in nature.
Adjusted funds from operations (AFFO) for the quarter ended September 30, 2013 was $34.0 million, or $0.21 per share (diluted), compared to $20.4 million, or $0.12 per share (diluted), for the same quarter in 2012. AFFO for the nine months ended September 30, 2013 was $104.2 million, or $0.63 per share (diluted), compared to $106.7 million, or $0.62 per share (diluted), for the same period in 2012. The increase in AFFO for the three months ended September 30, 2013 as compared to the same period in 2012 was primarily related to the items described above for changes in FFO and Core FFO, as well as decreased non-incremental capital expenditures in 2013; non-incremental capital expenditures were elevated in the third quarter of 2012 principally as a result of the recognition of costs associated with two significant lease transactions at Aon Center in Chicago, IL. The decrease in the dollar amount of AFFO for the nine months ended September 30, 2013 as compared to the same period in 2012 was primarily related to the items described above for changes in FFO and Core FFO; the increase in the AFFO per share results was attributable to Piedmont's share repurchase program.
Operations & Leasing
On October 29, 2012, Hurricane Sandy made landfall in the metropolitan New York City area. As previously disclosed, most of the Company's properties in the New York area were only minimally damaged from the high winds and rain. Substantially all repair work related to the storm is complete, except for some equipment replacement at 60 Broad Street, a majority of which is anticipated to be completed during the fourth quarter of 2013. Expenses incurred in relation to the damage caused by the storm, as well as insurance reimbursements, have been presented on Piedmont's income statement in a separate line entitled Net Casualty (Loss) / Recoveries. Due to the non-recurring nature of Hurricane Sandy-related expenses and insurance reimbursements, such items are excluded from the calculation of Core FFO and AFFO.
On a square footage leased basis, our total office portfolio was 86.7% leased as of September 30, 2013, as compared to 87.0% a year earlier. Please refer to page 26 for additional leased percentage information.
The weighted average remaining lease term of our portfolio was 7.3 years(2) as of September 30, 2013 as compared to 6.9 years at December 31, 2012.
(1) | |
(2) | Remaining lease term (after taking into account leases for vacant spaces which had been executed but not commenced as of September 30, 2013) is weighted based on Annualized Lease Revenue, as defined on page 40. |
5
During the three months ended September 30, 2013, the Company completed 1,517,000 square feet of total leasing. Of the total leasing activity during the quarter, we signed renewal leases for 1,029,000 square feet and new tenant leases for 488,000 square feet. During the first nine months of 2013, we completed 2,726,000 square feet of leasing for our consolidated office properties and 2,742,000 square feet of leasing inclusive of activity associated with our unconsolidated joint venture assets. The average committed capital cost for all leases signed during the nine months ended September 30, 2013 at our consolidated office properties was $3.47 per square foot per year of lease term. Average committed capital cost per square foot per year of lease term for renewal leases signed during the nine months ended September 30, 2013 was $2.38 and average committed capital cost per square foot per year of lease term for new leases signed during the same time period was $5.66 (see page 33).
During the three months ended September 30, 2013, we executed ten long-term leases greater than 20,000 square feet at our consolidated office properties. Please see information on those leases listed below.
Tenant | Property | Property Location | Square Feet Leased | Expiration Year | Lease Type | ||
Independence Blue Cross | 1901 Market Street | Philadelphia, PA | 800,695 | 2033 | Renewal | ||
Epsilon Data Management | 6021 Connection Drive | Irving, TX | 221,898 | 2026 | New | ||
Continental Automotive Systems | 4685 Investment Drive | Troy, MI | 77,054 | 2023 | Renewal | ||
Qwest Communications (also known as CenturyLink) | 4250 North Fairfax Drive | Arlington, VA | 62,941 | 2021 | Renewal / Contraction | ||
Union Bank | 800 North Brand Boulevard | Glendale, CA | 51,706 | 2024 | New | ||
Neovia Logistics | Las Colinas Corporate Center II | Irving, TX | 45,583 | 2023 | New | ||
The Travelers Indemnity Company | 1441 West Long Lake Road | Troy, MI | 28,077 | 2019 | Renewal / Contraction | ||
Nokia | Las Colinas Corporate Center II | Irving, TX | 27,300 | 2021 | New | ||
Academy Mortgage Corporation | Glenridge Highlands II | Atlanta, GA | 21,846 | 2017 | Renewal / Expansion | ||
Branch Banking and Trust Company | 3750 Brookside Parkway | Alpharetta, GA | 21,508 | 2019 | New | ||
In July, Piedmont signed a lease restructuring amendment with Independence Blue Cross for approximately 801,000 square feet of space at 1901 Market Street in Philadelphia, PA. The lease amendment: a) restructured the rental payment schedule to remove the irregular, "sawtooth" structure of payments, b) immediately increased the rent to market-competitive levels, as well as added annual rental rate escalations, c) extended the term of the lease through 2033, and d) increased the square footage leased. In return for the benefits described above, the tenant will be provided with an improvement allowance, which it intends to use to make improvements to the building, including improvements to the lobby, building systems and facade, as well as to renovate its office space. Under the structure of the lease, the tenant is responsible for maintaining the physical structure and mechanical systems of the building at institutional ownership standards.
In August, Piedmont completed a meaningful, multi-party leasing transaction in the Dallas market. The Company leased the entire 6021 Connection Drive property, consisting of approximately 222,000 square feet, to Epsilon Data Management. The full-building lease reflects a headquarters relocation for Epsilon to Piedmont's Las Colinas property. Epsilon also occupies approximately 28,000 square feet in an adjacent Piedmont property. In order to accommodate Epsilon's expansion and headquarters relocation, Piedmont negotiated a relocation and contraction of long-time tenant, Nokia. Nokia will move its Dallas operations to Piedmont's Las Colinas Corporate Center II. As part of the transaction, Piedmont negotiated the purchase from Nokia of a land parcel adjacent to its Connection Drive properties (please see additional information below). The Dallas market is now 98.3% leased as of September 30, 2013, as compared to 93.7% leased as of June 30, 2013 (see page 47).
6
As of September 30, 2013, there was one tenant whose lease was in holdover and there were two tenants whose leases were scheduled to expire during the eighteen month period following the end of the third quarter of 2013, each of which contributed greater than 1% in net Annualized Lease Revenue (ALR) expiring over the next eighteen months. Information regarding the leasing status of the spaces associated with those tenants' leases is presented below.
Tenant | Property | Property Location | Net Square Footage Expiring | Net Percentage of Current Quarter Annualized Lease Revenue Expiring (%) | Expiration (1) | Current Leasing Status | |
United States of America (National Park Service) | 1201 Eye Street | Washington, D.C. | 219,750 | 1.8% | Holdover | National Park Service is in holdover status. The Company is in discussions with the National Park Service for a lease renewal. | |
United States of America (Defense Intelligence Agency) | 3100 Clarendon Boulevard | Arlington, VA | 221,084 | 1.7% | Q4 2013 | In December 2012, the Defense Intelligence Agency exercised a termination option pursuant to its lease. The lease will now expire December 31, 2013. The Company is actively marketing the space for lease. | |
BP | Aon Center | Chicago, IL | 67,117 | 1.4% (2) | Q4 2013 | Approximately 96% of the square footage leased by BP has been leased on a long-term basis to: Aon Corporation, Thoughtworks, Integrys Energy Group, and Federal Home Loan Bank. Three of these future tenants are current subtenants. The remaining 67,000 square feet of available space is actively being marketed for lease. | |
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 |
GE Capital | 500 West Monroe Street | Chicago, IL | 79,162 | Vacant | Q4 2013 - Q4 2014 | Expansion |
Aon Corporation | Aon Center | Chicago, IL | 428,108 | Not Vacant | Q4 2013 | New |
Federal Home Loan Bank of Chicago | Aon Center | Chicago, IL | 95,105 | Not Vacant | Q4 2013 | New |
Thoughtworks, Inc. | Aon Center | Chicago, IL | 52,529 | Not Vacant | Q4 2013 | New |
TMW Systems, Inc. | Eastpoint I | Mayfield Heights, OH | 57,911 | Vacant | Q1 2014 | New |
Union Bank | 800 North Brand Boulevard | Glendale, CA | 51,706 | Vacant | Q1 2014 | New |
Integrys Business Support, LLC | Aon Center | Chicago, IL | 167,321 | Not Vacant | Q2 2014 | New |
Piper Jaffray & Co. | US Bancorp Center | Minneapolis, MN | 123,882 | Not Vacant | Q2 2014 | New |
Epsilon Data Management | 6021 Connection Drive | Irving, TX | 221,898 | Not Vacant | Q3 2014 | New |
Catamaran, Inc. | Windy Point II | Schaumburg, IL | 50,686 | Vacant | Q2 2015 | New |
(1) | The lease expiration date presented is that of the majority of the space leased to the tenant at the building. |
(2) | The Net Percentage of Annualized Lease Revenue Expiring for the BP lease includes the rent roll downs associated with the replacement leases, which total approximately 96% of the square footage currently leased by BP. |
7
Occupancy versus NOI Analysis
Piedmont has been in a period of high lease rollover since 2010. This rollover has resulted in a decrease in leased percentage, some rental rate rolldowns, and an even larger decrease in economic leased percentage due to the rental abatement concessions provided under many of the newly negotiated leases. In turn, these abatements and lower rental rates have resulted in a lower Same Store NOI than might otherwise be anticipated given the overall leased percentage and the historical relationship between leased percentage and Same Store NOI. As of September 30, 2013, our overall leased percentage was 86.7% and our economic leased percentage was 78.6%. 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 space which have not commenced (amounting to approximately 462,000 square feet of leases as of September 30, 2013, or 2.2% of the office portfolio); and |
2. | leases which have commenced but the tenants have not commenced paying full rent due to rental abatements (amounting to 1.5 million square feet of leases as of September 30, 2013, or a 5.9% impact to leased percentage on an economic basis). Please see the chart below for a listing of major contributors to this factor. |
As the executed but not commenced leases begin and the rental abatement periods expire, there will be greater Same Store NOI growth than might otherwise be expected based on changes in overall leased percentage alone during that time period.
Due to the current economic environment, many recently negotiated leases provide for rental abatement concessions to tenants. Those rental abatements typically occur at the beginning of a new lease's term. Since 2010, Piedmont has signed approximately 11.6 million square feet of leases within its consolidated office portfolio. Due to the large number of new leases in the Company's portfolio, abatements provided under those new leases have impacted the Company's current cash net operating income and AFFO. Presented below is a schedule of leases greater than 50,000 square feet that are currently under some form of rent abatement.
Tenant | Property | Property Location | Square Feet Leased | Abatement Structure | Abatement Expiration |
Catamaran, Inc. | Windy Point II | Schaumburg, IL | 250,000 | Gross Rent | Q4 2013 |
Brother International Corporation | 200 Bridgewater Crossing | Bridgewater, NJ | 101,724 | Base Rent | Q4 2013 |
Continental Automotive Systems | 4685 Investment Drive | Troy, MI | 77,054 | Base Rent | Q4 2013 |
United HealthCare | Aon Center | Chicago, IL | 55,059 | Gross Rent | Q4 2013 |
Guidance Software | 1055 East Colorado Boulevard | Pasadena, CA | 86,790 | Base Rent | Q1 2014 |
GE Capital | 500 West Monroe Street | Chicago, IL | 291,935 | Gross Rent | Q2 2014 |
General Electric Company | 500 West Monroe Street | Chicago, IL | 53,972 | Gross Rent | Q2 2014 |
DDB Needham Chicago | Aon Center | Chicago, IL | 187,000 | Base Rent ($4.00 PSF) | Q2 2015 |
Financing and Capital Activity
As of September 30, 2013, our ratio of debt to total gross assets was 32.5%, our ratio of debt to gross real estate assets was 37.2%, and our ratio of debt to total market capitalization was 39.5%. These debt ratios are based on total principal amount outstanding for our various loans at September 30, 2013.
On September 30, 2013, Piedmont entered into a binding agreement to sell 350 Spectrum Loop, a 156,000 square foot, 100% leased property located in Colorado Springs, CO. The sale will allow Piedmont to exit a non-strategic property and the last wholly-owned property in a non-core office market, furthering one of the Company's strategic objectives of narrowing the markets within which it operates. The property has been reclassified from real estate assets held-for-sale to real estate assets held-for-use; the operating income for the asset is presented in discontinued operations. Piedmont will record a gain on the sale of the asset during the fourth quarter of 2013.
On August 1, 2013, Piedmont completed the purchase of approximately 10.6 acres of land adjacent to its Connection Drive assets in the Las Colinas submarket of Dallas, TX. Commonly referred to as Royal Lane Land, the site is well located near the intersection of Highways 114 and 161. The land is zoned for office development and will allow the Company to either accommodate the future expansion needs of its existing tenants or provide additional parking for a future tenant desiring a denser space usage at one of Piedmont's Connection Drive properties.
On August 12, 2013, Piedmont completed the buyout of its joint venture partners' equity interests in three properties: 5301 Maryland Way located in Brentwood, TN, 4685 Investment Drive located in Troy, MI, and 2020 West 89th Street located in Leawood, KS. The buildings are comprised of approximately 347,000 square feet. The total additional equity investment amounted
8
to $14.7 million, reflecting an incremental property basis of approximately $94 per square foot. The properties are now wholly owned by Piedmont and the results of operations for the properties are now presented on the same basis as Piedmont's other wholly-owned properties. The Company recorded a $0.9 million loss on consolidation attributable to the transaction; the amount of the loss reflected the difference in the fair value of the assets at the time of the buyout and the previously recorded book value of the investments in the unconsolidated joint ventures. The incremental investments in the properties will provide Piedmont with control over leasing and disposition decisions, which the Company believes will provide investors increased value through the ultimate sale of the assets.
During the third quarter of 2013, the Company repurchased approximately 5.4 million shares of common stock under its share repurchase program. Since the stock repurchase program began in December 2011, the Company has repurchased a total of 11.9 million shares at an average price of $17.16 per share, or approximately $204.0 million in aggregate (before consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases totaled approximately $96 million under the stock repurchase plan.
In 2014, three of the Company's secured debt instruments totaling $575 million will mature. During the fourth quarter of 2012, considering the historically low interest rate environment and its plans to issue unsecured bonds to replace maturing debt, Piedmont entered into a forward starting swap hedging program to partially protect the Company against rising interest rates and to lock a portion of the interest rate of the future bond issuance. Specifically, under this hedging program and through the hedge instruments, the Company will be effectively locking the treasury component of the all-in interest rate for a future ten-year tenored unsecured bond offering. As of the end of the third quarter of 2013, the Company had entered into four forward starting swaps with a blended rate of 2.19% and a notional amount of $280 million. At current swap spread levels, the Company effectively locked the treasury component for a possible 2014 bond issuance at approximately 2.04%. The Company may enter into additional forward starting swaps in advance of $575 million of secured debt maturing in early 2014.
On July 31, 2013, the Board of Directors of Piedmont declared dividends for the third quarter of 2013 in the amount of $0.20 per common share outstanding to stockholders of record as of the close of business on August 30, 2013. The dividends were paid on September 20, 2013. The Company's dividend payout percentage for the nine months ended September 30, 2013 was 55.3% of Core FFO and 95.9% of AFFO.
Subsequent Events
On October 9, 2013, Piedmont signed an approximate 401,000 square foot lease renewal with Nestle at 800 North Brand Boulevard in Glendale, CA. The 64-month lease renewal will expire in 2021 and will reduce 2015's 6.7% lease expiration percentage by approximately 2.0% to approximately 4.7%.
On October 30, 2013, the Board of Directors of Piedmont declared dividends for the fourth quarter of 2013 in the amount of $0.20 per common share outstanding to stockholders of record as of the close of business on November 29, 2013. The dividends are to be paid on December 20, 2013.
On October 30, 2013, the Board of Directors of Piedmont approved the amendment and restatement of Piedmont's stock repurchase program to authorize up to $150 million in total additional share repurchases over the next two years. Repurchases of stock under the program will be made at the Company's discretion and will depend on market conditions, other investment opportunities and any other factors that management deems relevant.
Guidance for 2013
The Company is adjusting its financial guidance for calendar year 2013 by increasing and narrowing the guidance range. This guidance is based upon management's expectations at this time. The revised financial guidance is as follows:
Low | High | ||
Core Funds from Operations | $240 million | $243 million | |
Core Funds from Operations per diluted share | $1.45 | $1.47 | |
These estimates reflect management’s view of current market conditions and incorporate certain economic and operational assumptions and projections. Actual results could differ from these estimates. Note that individual quarters may fluctuate on both a cash and an accrual basis due to the timing of lease commencements and expirations, repairs and maintenance, capital expenditures, capital markets activities and one-time revenue or expense events. In addition, the Company’s guidance is based on information available to management as of the date of this supplemental report.
9
Piedmont Office Realty Trust, Inc.
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, 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 40 and reconciliations are provided beginning on page 42. |
Three Months Ended | ||||||||||||||
9/30/2013 | 6/30/2013 | 3/31/2013 | 12/31/2012 | 9/30/2012 | ||||||||||
Selected Operating Data | ||||||||||||||
Percent leased (1) | 86.7 | % | 86.4 | % | 86.0 | % | 87.5 | % | 87.0 | % | ||||
Percent leased - stabilized portfolio (1) (2) | 89.5 | % | 89.3 | % | 88.9 | % | 90.5 | % | 90.1 | % | ||||
Rental income | $116,810 | $109,489 | $107,556 | $105,692 | $104,948 | |||||||||
Total revenues | $145,118 | $134,191 | $133,748 | $132,832 | $132,600 | |||||||||
Total operating expenses | $109,271 | $101,055 | $95,704 | $98,726 | $99,077 | |||||||||
Real estate operating income | $35,847 | $33,136 | $38,044 | $34,106 | $33,523 | |||||||||
Core EBITDA | $80,556 | $76,256 | $78,039 | $76,472 | $79,168 | |||||||||
Core FFO | $61,124 | $57,919 | $61,564 | $60,068 | $62,721 | |||||||||
Core FFO per share - diluted | $0.37 | $0.35 | $0.37 | $0.36 | $0.37 | |||||||||
AFFO | $34,029 | $33,621 | $36,589 | $31,275 | $20,351 | |||||||||
AFFO per share - diluted | $0.21 | $0.20 | $0.22 | $0.19 | $0.12 | |||||||||
Gross dividends | $32,880 | $33,540 | $33,511 | $33,549 | $33,675 | |||||||||
Dividends per share | $0.200 | $0.200 | $0.200 | $0.200 | $0.200 | |||||||||
Selected Balance Sheet Data | ||||||||||||||
Total real estate assets | $3,872,952 | $3,821,727 | $3,850,989 | $3,612,732 | $3,612,550 | |||||||||
Total gross real estate assets | $4,905,913 | $4,823,983 | $4,822,454 | $4,564,629 | $4,550,182 | |||||||||
Total assets | $4,576,553 | $4,523,302 | $4,538,661 | $4,254,875 | $4,285,831 | |||||||||
Net debt (3) | $1,808,168 | $1,699,633 | $1,681,267 | $1,403,234 | $1,392,261 | |||||||||
Total liabilities | $2,055,870 | $1,893,342 | $1,916,041 | $1,614,380 | $1,620,551 | |||||||||
Ratios | ||||||||||||||
Core EBITDA margin (4) | 55.3 | % | 56.4 | % | 57.6 | % | 56.2 | % | 58.5 | % | ||||
Fixed charge coverage ratio (5) | 4.2 x | 4.2 x | 4.8 x | 4.7 x | 4.9 x | |||||||||
Net debt to Core EBITDA (6) | 5.6 x | 5.6 x | 5.2 x | 4.6 x | 4.4 x | |||||||||
(1) | Please refer to page 26 for additional leased percentage information. |
(2) | Please refer to page 38 for additional information on value-add properties, data for which is removed from stabilized portfolio totals. |
(3) | Net debt is calculated as the total principal amount of debt outstanding minus cash and cash equivalents and escrow deposits and restricted cash. The increase in net debt is primarily attributable to two property acquisitions completed during the first quarter of 2013, as well as capital expenditures and stock repurchases, all of which were largely funded with debt. |
(4) | Core EBITDA margin is calculated as Core EBITDA divided by total revenues (including revenues associated with discontinued operations). |
(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 capitalized interest, principal amortization or preferred dividends during any of the periods presented. The fixed charge coverage ratios for the second quarter and the third quarter of 2013 are lower than our historical performance on this measure primarily as a result of increased interest expense related to two debt-funded property acquisitions completed during the first quarter of 2013 and the expiration of the Office of the Comptroller of the Currency lease during the first quarter of 2013 at One Independence Square in Washington, D.C. |
(6) | Core EBITDA is annualized for the purposes of this calculation. The net debt to Core EBITDA ratios for the second quarter and the third quarter of 2013 are higher than our historic performance on this measure primarily as a result of increased net debt attributable to two property acquisitions and the expiration of the Office of the Comptroller of the Currency lease at One Independence Square in Washington, D.C., both of which occurred during the first quarter of 2013. Had the lease with the Office of the Comptroller of the Currency not expired, the net debt to Core EBITDA ratios would have been 5.3 x for both periods. During the first quarter of 2013, we acquired two properties in the last month of the quarter; the borrowings to complete the acquisitions are reflected in the numerator and full quarter contributions to Core EBITDA by the properties acquired have been included on a pro forma basis in the denominator as if the properties had been owned as of the beginning of the quarter. If the actual, partial-quarter Core EBITDA contributions by the properties acquired were to be reflected, the net debt to Core EBITDA ratio would be 5.4 x. |
10
Piedmont Office Realty Trust, Inc.
Consolidated Balance Sheets
Unaudited (in thousands)
September 30, 2013 | June 30, 2013 | March 31, 2013 | December 31, 2012 | September 30, 2012 | |||||||||||||||
Assets: | |||||||||||||||||||
Real estate, at cost: | |||||||||||||||||||
Land assets | $ | 675,281 | $ | 664,283 | $ | 667,753 | $ | 627,351 | $ | 625,626 | |||||||||
Buildings and improvements | 4,005,385 | 3,978,753 | 3,961,516 | 3,768,967 | 3,737,778 | ||||||||||||||
Buildings and improvements, accumulated depreciation | (955,480 | ) | (926,572 | ) | (897,678 | ) | (877,644 | ) | (851,820 | ) | |||||||||
Intangible lease asset | 137,614 | 135,748 | 138,085 | 122,684 | 138,716 | ||||||||||||||
Intangible lease asset, accumulated amortization | (70,744 | ) | (69,089 | ) | (67,333 | ) | (67,940 | ) | (79,640 | ) | |||||||||
Construction in progress | 61,162 | 19,942 | 29,843 | 20,373 | 22,808 | ||||||||||||||
Real estate assets held for sale, gross | 26,471 | 25,257 | 25,257 | 25,254 | 25,254 | ||||||||||||||
Real estate assets held for sale, accumulated depreciation & amortization | (6,737 | ) | (6,595 | ) | (6,454 | ) | (6,313 | ) | (6,172 | ) | |||||||||
Total real estate assets | 3,872,952 | 3,821,727 | 3,850,989 | 3,612,732 | 3,612,550 | ||||||||||||||
Investment in unconsolidated joint ventures | 18,668 | 37,631 | 37,835 | 37,226 | 37,369 | ||||||||||||||
Cash and cash equivalents | 15,972 | 10,500 | 17,575 | 12,957 | 20,763 | ||||||||||||||
Tenant receivables, net of allowance for doubtful accounts | 31,006 | 28,618 | 29,237 | 25,038 | 24,768 | ||||||||||||||
Straight line rent receivable | 135,487 | 129,625 | 126,215 | 121,506 | 115,603 | ||||||||||||||
Notes receivable | — | — | — | — | 19,000 | ||||||||||||||
Due from unconsolidated joint ventures | — | 472 | 458 | 463 | 533 | ||||||||||||||
Escrow deposits and restricted cash | 385 | 392 | 683 | 334 | 23,001 | ||||||||||||||
Prepaid expenses and other assets | 17,610 | 17,404 | 12,724 | 13,022 | 13,552 | ||||||||||||||
Goodwill | 180,097 | 180,097 | 180,097 | 180,097 | 180,097 | ||||||||||||||
Interest rate swap | 19,192 | 19,600 | 1,712 | 1,075 | — | ||||||||||||||
Deferred financing costs, less accumulated amortization | 7,990 | 8,624 | 5,908 | 6,454 | 7,022 | ||||||||||||||
Deferred lease costs, less accumulated amortization | 275,234 | 266,683 | 273,330 | 243,178 | 230,729 | ||||||||||||||
Other assets held for sale | 1,960 | 1,929 | 1,898 | 793 | 844 | ||||||||||||||
Total assets | $ | 4,576,553 | $ | 4,523,302 | $ | 4,538,661 | $ | 4,254,875 | $ | 4,285,831 | |||||||||
Liabilities: | |||||||||||||||||||
Unsecured debt | $ | 835,650 | $ | 721,621 | $ | 712,000 | $ | 429,000 | $ | 448,500 | |||||||||
Secured debt | 987,525 | 987,525 | 987,525 | 987,525 | 987,525 | ||||||||||||||
Accounts payable, accrued expenses, and accrued capital expenditures | 159,675 | 118,076 | 139,273 | 127,263 | 109,125 | ||||||||||||||
Deferred income | 26,575 | 18,693 | 23,585 | 21,552 | 24,110 | ||||||||||||||
Intangible lease liabilities, less accumulated amortization | 41,435 | 43,410 | 45,215 | 40,805 | 42,375 | ||||||||||||||
Interest rate swaps | 5,010 | 4,017 | 8,443 | 8,235 | 8,916 | ||||||||||||||
Total liabilities | 2,055,870 | 1,893,342 | 1,916,041 | 1,614,380 | 1,620,551 | ||||||||||||||
Stockholders' equity: | |||||||||||||||||||
Common stock | 1,613 | 1,667 | 1,676 | 1,676 | 1,680 | ||||||||||||||
Additional paid in capital | 3,668,424 | 3,667,973 | 3,667,614 | 3,667,051 | 3,665,870 | ||||||||||||||
Cumulative distributions in excess of earnings | (1,165,794 | ) | (1,057,534 | ) | (1,041,552 | ) | (1,022,681 | ) | (994,967 | ) | |||||||||
Other comprehensive loss | 14,827 | 16,245 | (6,731 | ) | (7,160 | ) | (8,916 | ) | |||||||||||
Piedmont stockholders' equity | 2,519,070 | 2,628,351 | 2,621,007 | 2,638,886 | 2,663,667 | ||||||||||||||
Non-controlling interest | 1,613 | 1,609 | 1,613 | 1,609 | 1,613 | ||||||||||||||
Total stockholders' equity | 2,520,683 | 2,629,960 | 2,622,620 | 2,640,495 | 2,665,280 | ||||||||||||||
Total liabilities, redeemable common stock and stockholders' equity | $ | 4,576,553 | $ | 4,523,302 | $ | 4,538,661 | $ | 4,254,875 | $ | 4,285,831 | |||||||||
Common stock outstanding at end of period | 161,271 | 166,681 | 167,555 | 167,556 | 168,044 | ||||||||||||||
11
Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)
Three Months Ended | ||||||||||||||||||||
9/30/2013 | 6/30/2013 | 3/31/2013 | 12/31/2012 | 9/30/2012 | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Rental income | $ | 116,810 | $ | 109,489 | $ | 107,556 | $ | 105,692 | $ | 104,948 | ||||||||||
Tenant reimbursements | 27,418 | 24,189 | 25,561 | 26,541 | 27,132 | |||||||||||||||
Property management fee revenue | 890 | 513 | 631 | 599 | 520 | |||||||||||||||
145,118 | 134,191 | 133,748 | 132,832 | 132,600 | ||||||||||||||||
Expenses: | ||||||||||||||||||||
Property operating costs | 58,767 | 52,859 | 52,794 | 54,122 | 50,483 | |||||||||||||||
Depreciation | 30,785 | 30,624 | 29,279 | 28,963 | 27,921 | |||||||||||||||
Amortization | 13,878 | 11,284 | 9,082 | 10,505 | 15,165 | |||||||||||||||
General and administrative | 5,841 | 6,288 | 4,549 | 5,136 | 5,508 | |||||||||||||||
109,271 | 101,055 | 95,704 | 98,726 | 99,077 | ||||||||||||||||
Real estate operating income | 35,847 | 33,136 | 38,044 | 34,106 | 33,523 | |||||||||||||||
Other income / (expense): | ||||||||||||||||||||
Interest expense | (19,331 | ) | (18,228 | ) | (16,373 | ) | (16,296 | ) | (16,247 | ) | ||||||||||
Interest and other income / (expense) | (611 | ) | (72 | ) | (1,277 | ) | 68 | 383 | ||||||||||||
Litigation settlement recovery / (expense) (1) | — | 1,250 | — | — | (7,500 | ) | ||||||||||||||
Net casualty recoveries / (loss) (2) | 3,919 | 2,303 | (161 | ) | (5,170 | ) | — | |||||||||||||
Equity in income of unconsolidated joint ventures | 46 | 163 | 395 | 185 | 323 | |||||||||||||||
Gain / (loss) on consolidation | (898 | ) | — | — | — | — | ||||||||||||||
(16,875 | ) | (14,584 | ) | (17,416 | ) | (21,213 | ) | (23,041 | ) | |||||||||||
Income from continuing operations | 18,972 | 18,552 | 20,628 | 12,893 | 10,482 | |||||||||||||||
Discontinued operations: | ||||||||||||||||||||
Operating income, excluding impairment loss | 128 | 552 | 429 | 1,555 | 607 | |||||||||||||||
Impairment loss | — | — | (6,402 | ) | — | — | ||||||||||||||
Gain / (loss) on sale of properties | — | 16,258 | — | (6 | ) | (254 | ) | |||||||||||||
Income / (loss) from discontinued operations (3) | 128 | 16,810 | (5,973 | ) | 1,549 | 353 | ||||||||||||||
Net income | 19,100 | 35,362 | 14,655 | 14,442 | 10,835 | |||||||||||||||
Less: Net income attributable to noncontrolling interest | (4 | ) | (4 | ) | (4 | ) | (4 | ) | (4 | ) | ||||||||||
Net income attributable to Piedmont | $ | 19,096 | $ | 35,358 | $ | 14,651 | $ | 14,438 | $ | 10,831 | ||||||||||
Weighted average common shares outstanding - diluted | 164,796 | 167,714 | 167,810 | 167,951 | 168,929 | |||||||||||||||
Net income per share available to common stockholders - diluted | $ | 0.12 | $ | 0.21 | $ | 0.09 | $ | 0.09 | $ | 0.06 | ||||||||||
(1) | Costs incurred to settle two class action lawsuits filed in 2007 net of insurance recoveries received. The settlements were granted final approval by the court in April 2013. |
(2) | Expenses related to damage caused by Hurricane Sandy net of insurance recoveries received. |
(3) | Reflects operating results for 110 and 112 Hidden Lake Circle in Duncan, SC, which were sold on September 21, 2012; 1111 Durham Avenue in South Plainfield, NJ, which was sold on March 28, 2013; 1200 Enclave Parkway in Houston, TX, which was sold on May 1, 2013; and 350 Spectrum Loop in Colorado Springs, CO, which is anticipated to be sold in November 2013. |
12
Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
9/30/2013 | 9/30/2012 | Change ($) | Change (%) | 9/30/2013 | 9/30/2012 | Change ($) | Change (%) | ||||||||||||||||||
Revenues: | |||||||||||||||||||||||||
Rental income | $ | 116,810 | $ | 104,948 | $ | 11,862 | 11.3 | % | $ | 333,855 | $ | 312,007 | $ | 21,848 | 7.0 | % | |||||||||
Tenant reimbursements | 27,418 | 27,132 | 286 | 1.1 | % | 77,168 | 80,290 | (3,122 | ) | (3.9 | )% | ||||||||||||||
Property management fee revenue | 890 | 520 | 370 | 71.2 | % | 2,034 | 1,720 | 314 | 18.3 | % | |||||||||||||||
145,118 | 132,600 | 12,518 | 9.4 | % | 413,057 | 394,017 | 19,040 | 4.8 | % | ||||||||||||||||
Expenses: | |||||||||||||||||||||||||
Property operating costs | 58,767 | 50,483 | (8,284 | ) | (16.4 | )% | 164,420 | 154,568 | (9,852 | ) | (6.4 | )% | |||||||||||||
Depreciation | 30,785 | 27,921 | (2,864 | ) | (10.3 | )% | 90,688 | 81,721 | (8,967 | ) | (11.0 | )% | |||||||||||||
Amortization | 13,878 | 15,165 | 1,287 | 8.5 | % | 34,244 | 39,095 | 4,851 | 12.4 | % | |||||||||||||||
General and administrative | 5,841 | 5,508 | (333 | ) | (6.0 | )% | 16,678 | 15,629 | (1,049 | ) | (6.7 | )% | |||||||||||||
109,271 | 99,077 | (10,194 | ) | (10.3 | )% | 306,030 | 291,013 | (15,017 | ) | (5.2 | )% | ||||||||||||||
Real estate operating income | 35,847 | 33,523 | 2,324 | 6.9 | % | 107,027 | 103,004 | 4,023 | 3.9 | % | |||||||||||||||
Other income / (expense): | |||||||||||||||||||||||||
Interest expense | (19,331 | ) | (16,247 | ) | (3,084 | ) | (19.0 | )% | (53,932 | ) | (48,727 | ) | (5,205 | ) | (10.7 | )% | |||||||||
Interest and other income / (expense) | (611 | ) | 383 | (994 | ) | (259.5 | )% | (1,960 | ) | 765 | (2,725 | ) | (356.2 | )% | |||||||||||
Litigation settlement recovery / (expense) (1) | — | (7,500 | ) | 7,500 | 100.0 | % | 1,250 | (7,500 | ) | 8,750 | 116.7 | % | |||||||||||||
Net casualty recoveries / (loss) (2) | 3,919 | — | 3,919 | — | % | 6,061 | — | 6,061 | — | % | |||||||||||||||
Equity in income of unconsolidated joint ventures | 46 | 323 | (277 | ) | (85.8 | )% | 604 | 739 | (135 | ) | (18.3 | )% | |||||||||||||
Gain / (loss) on consolidation | (898 | ) | — | (898 | ) | — | % | (898 | ) | — | (898 | ) | — | % | |||||||||||
(16,875 | ) | (23,041 | ) | 6,166 | 26.8 | % | (48,875 | ) | (54,723 | ) | 5,848 | 10.7 | % | ||||||||||||
Income from continuing operations | 18,972 | 10,482 | 8,490 | 81.0 | % | 58,152 | 48,281 | 9,871 | 20.4 | % | |||||||||||||||
Discontinued operations: | |||||||||||||||||||||||||
Operating income, excluding impairment loss | 128 | 607 | (479 | ) | (78.9 | )% | 1,109 | 2,914 | (1,805 | ) | (61.9 | )% | |||||||||||||
Impairment loss | — | — | — | — | % | (6,402 | ) | — | (6,402 | ) | — | % | |||||||||||||
Gain / (loss) on sale of properties | — | (254 | ) | 254 | 100.0 | % | 16,258 | 27,583 | (11,325 | ) | (41.1 | )% | |||||||||||||
Income / (loss) from discontinued operations (3) | 128 | 353 | (225 | ) | (63.7 | )% | 10,965 | 30,497 | (19,532 | ) | (64.0 | )% | |||||||||||||
Net income | 19,100 | 10,835 | 8,265 | 76.3 | % | 69,117 | 78,778 | (9,661 | ) | (12.3 | )% | ||||||||||||||
Less: Net income attributable to noncontrolling interest | (4 | ) | (4 | ) | — | — | % | (12 | ) | (12 | ) | — | — | % | |||||||||||
Net income attributable to Piedmont | $ | 19,096 | $ | 10,831 | $ | 8,265 | 76.3 | % | $ | 69,105 | $ | 78,766 | $ | (9,661 | ) | (12.3 | )% | ||||||||
Weighted average common shares outstanding - diluted | 164,796 | 168,929 | 166,734 | 171,295 | |||||||||||||||||||||
Net income per share available to common stockholders - diluted | $ | 0.12 | $ | 0.06 | $ | 0.41 | $ | 0.46 | |||||||||||||||||
(1) | Costs incurred to settle two class action lawsuits filed in 2007 net of insurance recoveries received. The settlements were granted final approval by the court in April 2013. |
(2) | Expenses related to damage caused by Hurricane Sandy net of insurance recoveries received. |
(3) | Reflects operating results for Deschutes, Rhein, Rogue, Willamette, and Portland Land Parcels in Beaverton, OR, which were all sold on March 19, 2012; 26200 Enterprise Way in Lake Forest, CA, which was sold on May 31, 2012; 110 and 112 Hidden Lake Circle in Duncan, SC, which were sold on September 21, 2012; 1111 Durham Avenue in South Plainfield, NJ, which was sold on March 28, 2013; 1200 Enclave Parkway in Houston, TX, which was sold on May 1, 2013; and 350 Spectrum Loop in Colorado Springs, CO, which is anticipated to be sold in November 2013. |
13
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 | Nine Months Ended | |||||||||||||||
9/30/2013 | 9/30/2012 | 9/30/2013 | 9/30/2012 | |||||||||||||
Net income attributable to Piedmont | $ | 19,096 | $ | 10,831 | $ | 69,105 | $ | 78,766 | ||||||||
Depreciation (1) (2) | 31,050 | 28,763 | 91,905 | 84,605 | ||||||||||||
Amortization (1) | 13,939 | 15,366 | 34,509 | 39,744 | ||||||||||||
Impairment loss (1) | — | — | 6,402 | — | ||||||||||||
Loss / (gain) on sale of properties (1) | — | 254 | (16,258 | ) | (27,583 | ) | ||||||||||
Loss / (gain) on consolidation | 898 | — | 898 | — | ||||||||||||
Funds from operations | 64,983 | 55,214 | 186,561 | 175,532 | ||||||||||||
Adjustments: | ||||||||||||||||
Acquisition costs | 60 | 7 | 1,374 | 88 | ||||||||||||
Litigation settlement expense / (recovery) | — | 7,500 | (1,250 | ) | 7,500 | |||||||||||
Net casualty loss / (recoveries) (1) | (3,919 | ) | — | (6,078 | ) | — | ||||||||||
Core funds from operations | 61,124 | 62,721 | 180,607 | 183,120 | ||||||||||||
Adjustments: | ||||||||||||||||
Deferred financing cost amortization | 674 | 663 | 1,911 | 2,056 | ||||||||||||
Amortization of discount on senior notes and swap settlements | 13 | — | 20 | — | ||||||||||||
Depreciation of non real estate assets | 97 | 196 | 300 | 397 | ||||||||||||
Straight-line effects of lease revenue (1) | (5,076 | ) | (4,193 | ) | (14,655 | ) | (11,236 | ) | ||||||||
Stock-based and other non-cash compensation expense | 719 | 869 | 1,489 | 1,492 | ||||||||||||
Amortization of lease-related intangibles (1) | (1,757 | ) | (1,315 | ) | (4,067 | ) | (4,631 | ) | ||||||||
Acquisition costs | (60 | ) | (7 | ) | (1,374 | ) | (88 | ) | ||||||||
Non-incremental capital expenditures (3) | (21,705 | ) | (38,583 | ) | (59,992 | ) | (64,430 | ) | ||||||||
Adjusted funds from operations | $ | 34,029 | $ | 20,351 | $ | 104,239 | $ | 106,680 | ||||||||
Weighted average common shares outstanding - diluted | 164,796 | 168,929 | 166,734 | 171,295 | ||||||||||||
Funds from operations per share (diluted) | $ | 0.39 | $ | 0.33 | $ | 1.12 | $ | 1.03 | ||||||||
Core funds from operations per share (diluted) | $ | 0.37 | $ | 0.37 | $ | 1.08 | $ | 1.07 | ||||||||
Adjusted funds from operations per share (diluted) | $ | 0.21 | $ | 0.12 | $ | 0.63 | $ | 0.62 | ||||||||
(1) | Includes adjustments for consolidated properties, including discontinued operations, and for our proportionate share of amounts attributable to unconsolidated joint ventures. |
(2) | Excludes depreciation of non real estate assets. |
(3) | Non-incremental capital expenditures are defined on page 40. |
14
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||
9/30/2013 | 9/30/2012 | 9/30/2013 | 9/30/2012 | ||||||||||||
Net income attributable to Piedmont | $ | 19,096 | $ | 10,831 | $ | 69,105 | $ | 78,766 | |||||||
Net income attributable to noncontrolling interest | 4 | 4 | 12 | 12 | |||||||||||
Interest expense (1) | 19,331 | 16,247 | 53,932 | 48,727 | |||||||||||
Depreciation (1) | 31,147 | 28,959 | 92,204 | 85,002 | |||||||||||
Amortization (1) | 13,939 | 15,366 | 34,509 | 39,744 | |||||||||||
Acquisition costs | 60 | 7 | 1,374 | 88 | |||||||||||
Impairment loss (1) | — | — | 6,402 | — | |||||||||||
Litigation settlement expense / (recovery) | — | 7,500 | (1,250 | ) | 7,500 | ||||||||||
Net casualty loss / (recoveries) (1) | (3,919 | ) | — | (6,078 | ) | — | |||||||||
Loss / (gain) on sale of properties (1) | — | 254 | (16,258 | ) | (27,583 | ) | |||||||||
Loss / (gain) on consolidation | 898 | — | 898 | — | |||||||||||
Core EBITDA | 80,556 | 79,168 | 234,850 | 232,256 | |||||||||||
General & administrative expenses (1) | 5,921 | 5,576 | 16,940 | 15,761 | |||||||||||
Management fee revenue | (890 | ) | (520 | ) | (2,034 | ) | (1,720 | ) | |||||||
Interest and other income (1) | 550 | (390 | ) | 561 | (873 | ) | |||||||||
Straight-line effects of lease revenue (1) | (5,076 | ) | (4,193 | ) | (14,655 | ) | (11,236 | ) | |||||||
Net effect of amortization of above/(below) market in-place lease intangibles (1) | (1,757 | ) | (1,315 | ) | (4,067 | ) | (4,631 | ) | |||||||
Property net operating income - cash basis | 79,304 | 78,326 | 231,595 | 229,557 | |||||||||||
Net operating income from: | |||||||||||||||
Acquisitions (2) | (6,155 | ) | 7 | (10,672 | ) | 7 | |||||||||
Dispositions (3) | 2 | (319 | ) | (49 | ) | (2,487 | ) | ||||||||
Unconsolidated joint ventures | (376 | ) | (735 | ) | (1,717 | ) | (1,923 | ) | |||||||
Same store net operating income - cash basis | $ | 72,775 | $ | 77,279 | $ | 219,157 | $ | 225,154 | |||||||
Change period over period | (5.8 | )% | (4) | N/A | (2.7 | )% | (4) | N/A | |||||||
Same Store Net Operating Income | |||||||||||||||||||||
Top Seven Markets | Three Months Ended | Nine Months Ended | |||||||||||||||||||
9/30/2013 | 9/30/2012 | 9/30/2013 | 9/30/2012 | ||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | ||||||||||||||
Washington, D.C. (5) | $ | 15,480 | 21.3 | $ | 20,231 | 26.2 | 49,972 | 22.8 | 57,288 | 25.4 | |||||||||||
New York (6) | 11,491 | 15.8 | 10,921 | 14.1 | 35,936 | 16.4 | 33,859 | 15.0 | |||||||||||||
Chicago (7) (8) | 9,673 | 13.3 | 13,180 | 17.1 | 27,342 | 12.5 | 36,495 | 16.2 | |||||||||||||
Minneapolis | 5,548 | 7.6 | 5,439 | 7.0 | 16,421 | 7.5 | 15,710 | 7.0 | |||||||||||||
Boston (9) | 4,880 | 6.7 | 4,439 | 5.7 | 14,509 | 6.6 | 12,394 | 5.5 | |||||||||||||
Dallas (10) | 6,199 | 8.5 | 3,379 | 4.4 | 13,842 | 6.3 | 10,710 | 4.8 | |||||||||||||
Los Angeles (11) | 3,151 | 4.3 | 3,776 | 4.9 | 9,772 | 4.5 | 10,234 | 4.6 | |||||||||||||
Other (12) | 16,353 | 22.5 | 15,914 | 20.6 | 51,363 | 23.4 | 48,464 | 21.5 | |||||||||||||
Total | $ | 72,775 | 100.0 | $ | 77,279 | 100.0 | 219,157 | 100.0 | 225,154 | 100.0 | |||||||||||
15
(1) | Includes amounts attributable to consolidated properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures. |
(2) | Acquisitions consist of Gavitello Land in Atlanta, GA, purchased on June 28, 2012; Glenridge Highlands III Land in Atlanta, GA, purchased on October 15, 2012; Arlington Gateway in Arlington, VA, purchased on March 4, 2013; 5 & 15 Wayside Road in Burlington, MA, purchased on March 22, 2013; Royal Lane Land in Irving, TX, purchased on August 1, 2013; and 5301 Maryland Way in Brentwood, TN, 4685 Investment Drive in Troy, MI, and 2020 West 89th Street in Leawood, KS, the remaining equity interests in which were purchased on August 12, 2013. |
(3) | Dispositions consist of Deschutes, Rhein, Rogue, Willamette, and Portland Land Parcels in Beaverton, OR, sold on March 19, 2012; 26200 Enterprise Way in Lake Forest, CA, sold on May 31, 2012; 110 and 112 Hidden Lake Circle in Duncan, SC, sold on September 21, 2012; 1111 Durham Avenue in South Plainfield, NJ, sold on March 28, 2013; and 1200 Enclave Parkway in Houston, TX, sold on May 1, 2013. |
(4) | The primary reasons for the negative Same Store Net Operating Income performance for the three months and the nine months ended September 30, 2013 were: A) the expiration of the Office of the Comptroller of the Currency lease at One Independence Square in Washington, D.C. on March 1, 2013, and B) successful property tax appeals amounting to a one-time favorable adjustment to operating expenses during the third quarter of 2012 of $2.7 million. Had these two events not occurred, the growth in Same Store Net Operating Income for the three months and the nine months ended September 30, 2013 would have been 3.5% and 2.4%, respectively. |
(5) | The decrease in Washington, D.C. Same Store Net Operating Income for the three months and the nine months ended September 30, 2013 as compared to the same periods in 2012 was primarily attributable to the expiration of the Office of the Comptroller of the Currency lease at One Independence Square in Washington, D.C., offset partially by increased rental revenue as a result of the expirations of the rental abatement periods for several leases at Piedmont Pointe I & II in Bethesda, MD. |
(6) | The increase in New York Same Store Net Operating Income for the three months and the nine months ended September 30, 2013 as compared to the same periods in 2012 was primarily related to the commencement of rental payments under several new leases at 200 & 400 Bridgewater Crossing in Bridgewater, NJ. The increase in New York Same Store Net Operating Income for the nine months ended September 30, 2013 was also related to one-time expense recovery adjustments at 60 Broad Street in New York, NY which are not expected to recur. |
(7) | The decrease in Chicago Same Store Net Operating Income for the three months and the nine months ended September 30, 2013 as compared to the same periods in 2012 was primarily related to gross rental abatements associated with several new leases, most notably that of GE Capital at 500 West Monroe Street in Chicago, IL, and Catamaran at Windy Point II in Schaumburg, IL. |
(8) | The percentage contribution from Chicago to our total Same Store Net Operating Income is smaller than our geographic concentration percentage in Chicago, which is presented on an ALR basis (see page 34), primarily because of the large number of leases with gross rent abatements and a number of leases yet to commence for currently vacant spaces (the projected gross rent for which is included in our ALR calculation). As the gross rent abatements burn off and as executed but not commenced leases begin, the Same Store Net Operating Income percentage contribution from Chicago should increase and should be more closely aligned with our Chicago concentration percentage as presented on page 34. |
(9) | The increase in Boston Same Store Net Operating Income for the three months and the nine months ended September 30, 2013 as compared to the same periods in 2012 was primarily related to the expiration of the rental abatement period for the State Street Bank lease at 1200 Crown Colony Drive in Quincy, MA. |
(10) | The increase in Dallas Same Store Net Operating Income for the three months and the nine months ended September 30, 2013 as compared to the same periods in 2012 was primarily related to termination income from Nokia at 6021 Connection Drive in Irving, TX. The entire building has been re-leased to Epsilon Data Management; please see additional details in the Financial Highlights section. |
(11) | The decrease in Los Angeles Same Store Net Operating Income for the three months ended September 30, 2013 as compared to the same period in 2012 was primarily related to the expiration of a lease and the abatement of rent under the replacement lease at 1901 Main Street in Irvine, CA. |
(12) | The increase in Other Same Store Net Operating Income for the three months ended September 30, 2013 as compared to the same period in 2012 was primarily related to the expiration of the rental abatement period associated with the new lease with US Foods at River Corporate Center in Tempe, AZ, and increased rental income under the restructured Independence Blue Cross lease at 1901 Market Street in Philadelphia, PA. The increase in Other Same Store Net Operating Income for the nine months ended September 30, 2013 as compared to the same period in 2012 was primarily related to the expirations of rental abatement periods associated with new leases with US Foods at River Corporate Center in Tempe, AZ, Grand Canyon Education at Desert Canyon 300 in Phoenix, AZ and Chrysler Group, LLC at 1075 West Entrance Drive in Auburn Hills, MI. |
16
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Accrual Basis)
Unaudited (in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||
9/30/2013 | 9/30/2012 | 9/30/2013 | 9/30/2012 | ||||||||||||
Net income attributable to Piedmont | $ | 19,096 | $ | 10,831 | $ | 69,105 | $ | 78,766 | |||||||
Net income attributable to noncontrolling interest | 4 | 4 | 12 | 12 | |||||||||||
Interest expense (1) | 19,331 | 16,247 | 53,932 | 48,727 | |||||||||||
Depreciation (1) | 31,147 | 28,959 | 92,204 | 85,002 | |||||||||||
Amortization (1) | 13,939 | 15,366 | 34,509 | 39,744 | |||||||||||
Acquisition costs | 60 | 7 | 1,374 | 88 | |||||||||||
Impairment loss (1) | — | — | 6,402 | — | |||||||||||
Litigation settlement expense / (recovery) | — | 7,500 | (1,250 | ) | 7,500 | ||||||||||
Net casualty loss / (recoveries) (1) | (3,919 | ) | — | (6,078 | ) | — | |||||||||
Loss / (gain) on sale of properties (1) | — | 254 | (16,258 | ) | (27,583 | ) | |||||||||
Loss / (gain) on consolidation | 898 | — | 898 | — | |||||||||||
Core EBITDA | 80,556 | 79,168 | 234,850 | 232,256 | |||||||||||
General & administrative expenses (1) | 5,921 | 5,576 | 16,940 | 15,761 | |||||||||||
Management fee revenue | (890 | ) | (520 | ) | (2,034 | ) | (1,720 | ) | |||||||
Interest and other income (1) | 550 | (390 | ) | 561 | (873 | ) | |||||||||
Property net operating income - accrual basis | 86,137 | 83,834 | 250,317 | 245,424 | |||||||||||
Net operating income from: | |||||||||||||||
Acquisitions (2) | (7,056 | ) | 7 | (12,006 | ) | 7 | |||||||||
Dispositions (3) | 2 | (900 | ) | (647 | ) | (3,966 | ) | ||||||||
Unconsolidated joint ventures | (385 | ) | (701 | ) | (1,818 | ) | (1,827 | ) | |||||||
Same store net operating income - accrual basis | $ | 78,698 | $ | 82,240 | $ | 235,846 | $ | 239,638 | |||||||
Change period over period | (4.3 | )% | (4) | N/A | (1.6 | )% | (4) | N/A | |||||||
Same Store Net Operating Income | |||||||||||||||||||||||
Top Seven Markets | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
9/30/2013 | 9/30/2012 | 9/30/2013 | 9/30/2012 | ||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||
Washington, D.C. (5) | $ | 15,288 | 19.4 | $ | 21,126 | 25.7 | $ | 50,193 | 21.3 | $ | 60,789 | 25.4 | |||||||||||
New York (6) | 12,412 | 15.8 | 11,337 | 13.8 | 38,555 | 16.3 | 35,655 | 14.9 | |||||||||||||||
Chicago (7) (8) | 12,351 | 15.7 | 13,455 | 16.4 | 37,020 | 15.7 | 36,114 | 15.1 | |||||||||||||||
Minneapolis | 5,882 | 7.5 | 5,640 | 6.9 | 17,452 | 7.4 | 16,529 | 6.9 | |||||||||||||||
Boston | 4,883 | 6.2 | 5,224 | 6.3 | 14,790 | 6.3 | 14,804 | 6.2 | |||||||||||||||
Dallas (9) | 5,979 | 7.6 | 3,854 | 4.7 | 13,639 | 5.8 | 11,663 | 4.8 | |||||||||||||||
Los Angeles | 3,206 | 4.1 | 3,394 | 4.1 | 9,684 | 4.1 | 9,879 | 4.1 | |||||||||||||||
Other (10) | 18,697 | 23.7 | 18,210 | 22.1 | 54,513 | 23.1 | 54,205 | 22.6 | |||||||||||||||
Total | $ | 78,698 | 100.0 | $ | 82,240 | 100.0 | $ | 235,846 | 100.0 | $ | 239,638 | 100.0 | |||||||||||
17
(1) | Includes amounts attributable to consolidated properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures. |
(2) | Acquisitions consist of Gavitello Land in Atlanta, GA, purchased on June 28, 2012; Glenridge Highlands III Land in Atlanta, GA, purchased on October 15, 2012; Arlington Gateway in Arlington, VA, purchased on March 4, 2013; 5 & 15 Wayside Road in Burlington, MA, purchased on March 22, 2013; Royal Lane Land in Irving, TX, purchased on August 1, 2013; and 5301 Maryland Way in Brentwood, TN, 4685 Investment Drive in Troy, MI, and 2020 West 89th Street in Leawood, KS, the remaining equity interests in which were purchased on August 12, 2013. |
(3) | Dispositions consist of Deschutes, Rhein, Rogue, Willamette, and Portland Land Parcels in Beaverton, OR, sold on March 19, 2012; 26200 Enterprise Way in Lake Forest, CA, sold on May 31, 2012; 110 and 112 Hidden Lake Circle in Duncan, SC, sold on September 21, 2012; 1111 Durham Avenue in South Plainfield, NJ, sold on March 28, 2013; and 1200 Enclave Parkway in Houston, TX, sold on May 1, 2013. |
(4) | The primary reasons for the negative Same Store Net Operating Income performance for the three months and the nine months ended September 30, 2013 were: A) the expiration of the Office of the Comptroller of the Currency lease at One Independence Square in Washington, D.C. on March 1, 2013, and B) successful property tax appeals amounting to a one-time favorable adjustment to operating expenses during the third quarter of 2012 of $2.7 million. Had these two events not occurred, the growth in Same Store Net Operating Income for the three months and the nine months ended September 30, 2013 would have been 4.4% and 3.1%, respectively. |
(5) | The decrease in Washington, D.C. Same Store Net Operating Income for the three months and the nine months ended September 30, 2013 as compared to the same periods in 2012 was primarily attributable to the expiration of the Office of the Comptroller of the Currency lease at One Independence Square in Washington, D.C. |
(6) | The increase in New York Same Store Net Operating Income for the three months and the nine months ended September 30, 2013 as compared to the same periods in 2012 was primarily related to the commencement of several new leases at 200 Bridgewater Crossing in Bridgewater, NJ. The increase in New York Same Store Net Operating Income for the nine months ended September 30, 2013 was also related to one-time expense recovery adjustments at 60 Broad Street in New York, NY which are not expected to recur. |
(7) | The decrease in Chicago Same Store Net Operating Income for the three months ended September 30, 2013 as compared to the same period in 2012 was primarily related to lower property taxes in the third quarter of 2012 at Aon Center in Chicago, IL, and Windy Point II in Schaumburg, IL, attributable to a one-time recognition of successful property tax appeals amounting to approximately $1.5 million. |
(8) | The percentage contribution from Chicago to our total Same Store Net Operating Income is smaller than our geographic concentration percentage in Chicago, which is presented on an ALR basis (see page 34), primarily because of the large number of leases with operating expense recovery abatements (which abatements are not included in straight line rent adjustments) and a number of leases yet to commence for currently vacant spaces (the projected gross rent for which is included in our ALR calculation). As operating expense recovery abatements burn off and as executed but not commenced leases begin, the Same Store Net Operating Income percentage contribution from Chicago should increase and should be more closely aligned with our Chicago concentration percentage as presented on page 34. |
(9) | The increase in Dallas Same Store Net Operating Income for the three months and the nine months ended September 30, 2013 as compared to the same periods in 2012 was primarily related to termination income from Nokia at 6021 Connection Drive in Irving, TX. The entire building has been re-leased to Epsilon Data Management; please see additional details in the Financial Highlights section. |
(10) | The increase in Other Same Store Net Operating Income for the three months and the nine months ended September 30, 2013 as compared to the same periods in 2012 was primarily related to increased rental income under the restructured Independence Blue Cross lease at 1901 Market Street in Philadelphia, PA. |
18
Piedmont Office Realty Trust, Inc.
Capitalization Analysis
Unaudited (in thousands except for per share data)
As of | As of | |||||||
September 30, 2013 | December 31, 2012 | |||||||
Common stock price (1) | $ | 17.36 | $ | 18.05 | ||||
Total shares outstanding | 161,271 | 167,556 | ||||||
Equity market capitalization (1) | $ | 2,799,660 | $ | 3,024,386 | ||||
Total debt - principal amount outstanding | $ | 1,824,525 | $ | 1,416,525 | ||||
Total market capitalization (1) | $ | 4,624,185 | $ | 4,440,911 | ||||
Total debt / Total market capitalization | 39.5 | % | 31.9 | % | ||||
Total gross real estate assets | $ | 4,905,913 | $ | 4,564,629 | ||||
Total debt / Total gross real estate assets (2) | 37.2 | % | 31.0 | % | ||||
Total debt / Total gross assets (3) | 32.5 | % | 27.2 | % | ||||
(1) | Reflects common stock closing price as of the end of the reporting period. |
(2) | 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. |
(3) | Gross assets is defined as total assets with the add back of accumulated depreciation and accumulated amortization related to real estate assets. |
19
Piedmont Office Realty Trust, Inc.
Debt Summary
As of September 30, 2013
Unaudited ($ in thousands)
Floating Rate & Fixed Rate Debt
Debt (1) | Principal Amount Outstanding | Weighted Average Stated Interest Rate | Weighted Average Maturity | ||
Floating Rate | $187,000 | (2) | 1.36% | 46.7 months | |
Fixed Rate | 1,637,525 | 4.34% | 43.1 months | ||
Total | $1,824,525 | 4.03% | 43.5 months | ||
Unsecured & Secured Debt
Debt (1) | Principal Amount Outstanding | Weighted Average Stated Interest Rate | Weighted Average Maturity | |||
Unsecured | $837,000 | 2.69% | (3) | 72.5 months | ||
Secured | 987,525 | 5.17% | 18.9 months | |||
Total | $1,824,525 | 4.03% | 43.5 months | |||
Debt Maturities
Maturity Year | Secured Debt - Principal Amount Outstanding (1) | Unsecured Debt - Principal Amount Outstanding (1) | Weighted Average Stated Interest Rate | Percentage of Total | |
2013 | $— | $— | N/A | —% | |
2014 | 575,000 | — | 4.89% | 31.5% | |
2015 | 105,000 | — | 5.29% | 5.8% | |
2016 | 167,525 | 300,000 | 3.71% | 25.6% | |
2017 | 140,000 | 187,000 | (4) | 3.24% | 17.9% |
2018 + | — | 350,000 | 3.40% | 19.2% | |
Total | $987,525 | $837,000 | 4.03% | 100% | |
(1) | All of Piedmont's outstanding debt as of September 30, 2013 was interest-only debt. |
(2) | Amount represents the outstanding balance as of September 30, 2013, on the $500 million unsecured revolving credit facility. The $300 million unsecured term loan has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix the interest rate on this loan at 2.69% through its maturity date of November 22, 2016, assuming no credit rating change for the Company. This unsecured term loan, therefore, is reflected as fixed rate debt. |
(3) | The weighted average interest rate is a weighted average rate for amounts outstanding under our $500 million unsecured revolving credit facility, our $350 million unsecured senior notes and our $300 million unsecured term loan. As presented herein, the weighted average stated interest rate is calculated based upon the principal amounts outstanding; however, in our Form 10-Q filing for September 30, 2013, the comparable metric is calculated based upon the principal amounts outstanding net of the unamortized original issue discount for our unsecured senior notes. The difference in calculation methodology results in a different weighted average stated interest rate for unsecured debt between this document and our Form 10-Q filing. |
(4) | The initial maturity date of the $500 million unsecured revolving credit facility is August 19, 2016; however, there are two, six-month extension options available under the facility providing for a final extended maturity date of August 21, 2017. For the purposes of this schedule, we reflect the maturity date of the facility as the final extended maturity date of August 2017. |
20
Piedmont Office Realty Trust, Inc.
Debt Detail
Unaudited ($ in thousands)
Facility | Property | Rate (1) | Maturity | Principal Amount Outstanding as of September 30, 2013 | |||
Secured | |||||||
$200.0 Million Fixed-Rate Loan | Aon Center | 4.87 | % | 5/1/2014 | $200,000 | ||
$25.0 Million Fixed-Rate Loan | Aon Center | 5.70 | % | 5/1/2014 | 25,000 | ||
$350.0 Million Secured Pooled Facility | Nine Property Collateralized Pool (2) | 4.84 | % | 6/7/2014 | 350,000 | ||
$105.0 Million Fixed-Rate Loan | US Bancorp Center | 5.29 | % | 5/11/2015 | 105,000 | ||
$125.0 Million Fixed-Rate Loan | Four Property Collateralized Pool (3) | 5.50 | % | 4/1/2016 | 125,000 | ||
$42.5 Million Fixed-Rate Loan | Las Colinas Corporate Center I & II | 5.70 | % | 10/11/2016 | 42,525 | ||
$140.0 Million WDC Fixed-Rate Loans | 1201 & 1225 Eye Street | 5.76 | % | 11/1/2017 | 140,000 | ||
Subtotal / Weighted Average (4) | 5.17 | % | $987,525 | ||||
Unsecured | |||||||
$500.0 Million Unsecured Facility (5) | N/A | 1.36 | % | (6) | 8/21/2017 | $187,000 | |
$350.0 Million Unsecured Senior Notes (7) | N/A | 3.40 | % | 6/1/2023 | 350,000 | ||
$300.0 Million Unsecured Term Loan | N/A | 2.69 | % | (8) | 11/22/2016 | 300,000 | |
Subtotal / Weighted Average (4) | 2.69 | % | $837,000 | ||||
Total Debt - Principal Amount Outstanding / Weighted Average Stated Rate (4) | 4.03 | % | $1,824,525 | ||||
GAAP Accounting Adjustments (9) | (1,350 | ) | |||||
Total Debt - GAAP Amount Outstanding / Weighted Average Effective Rate (10) | 4.04 | % | $1,823,175 | ||||
(1) | All of Piedmont’s outstanding debt as of September 30, 2013, was interest-only debt. |
(2) | The nine property collateralized pool includes 1200 Crown Colony Drive, Braker Pointe III, 2 Gatehall Drive, One and Two Independence Square, 2120 West End Avenue, 200 and 400 Bridgewater Crossing, and Fairway Center II. |
(3) | The four property collateralized pool includes 1430 Enclave Parkway, Windy Point I and II, and 1055 East Colorado Boulevard. |
(4) | Weighted average is based on the total balance outstanding and interest rate at September 30, 2013. |
(5) | All of Piedmont’s outstanding debt as of September 30, 2013, was term debt with the exception of $187 million outstanding on our unsecured revolving credit facility. The $500 million unsecured revolving credit facility has an initial maturity date of August 19, 2016; however, there are two, six-month extension options available under the facility providing for a total extension of up to one year to August 21, 2017. The final extended maturity date is presented on this schedule. |
(6) | The interest rate presented for the $500 million unsecured revolving credit facility is the weighted average interest rate for all outstanding draws as of September 30, 2013. Piedmont may select from multiple interest rate options with each draw under this facility, including the prime rate and various length LIBOR locks. All LIBOR selections are subject to an additional spread (1.175% as of September 30, 2013) over the selected rate based on Piedmont’s current credit rating. |
(7) | 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. |
(8) | The $300 million unsecured term loan has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix the interest rate on this loan at 2.69% through its maturity date of November 22, 2016, assuming no credit rating change for the Company. |
(9) | The GAAP accounting adjustments relate to the original issue discount for the $350 million unsecured senior notes. The discount will be amortized to interest expense over the contractual term of the debt. |
(10) | Weighted average effective rate reflects the higher effective rate under the $350 million unsecured senior notes as a result of the issuance of the notes at a discount, partially offset by the benefit received from the settlements of the forward starting interest rate swaps. |
21
Piedmont Office Realty Trust, Inc.
Debt Analysis
As of September 30, 2013
Unaudited
Bank Debt Covenant Compliance (1) | Required | Actual |
Maximum Leverage Ratio | 0.60 | 0.33 |
Minimum Fixed Charge Coverage Ratio (2) | 1.50 | 4.15 |
Maximum Secured Indebtedness Ratio | 0.40 | 0.18 |
Minimum Unencumbered Leverage Ratio | 1.60 | 3.90 |
Minimum Unencumbered Interest Coverage Ratio (3) | 1.75 | 9.78 |
Bond Covenant Compliance (4) | Required | Actual |
Total Debt to Total Assets | 60% or less | 37.0% |
Secured Debt to Total Assets | 40% or less | 20.1% |
Ratio of Consolidated EBITDA to Interest Expense | 1.50 or greater | 4.56 |
Unencumbered Assets to Unsecured Debt | 150% or greater | 432% |
Three Months Ended | Nine Months Ended | Year Ended | |
Other Debt Coverage Ratios | September 30, 2013 | September 30, 2013 | December 31, 2012 |
Net debt to core EBITDA | 5.6 x | 5.8 x | 4.5 x |
Fixed charge coverage ratio (5) | 4.2 x | 4.3 x | 4.7 x |
Interest coverage ratio (6) | 4.2 x | 4.3 x | 4.7 x |
(1) | 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), less 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) | Please refer to the Indenture dated May 9, 2013, for additional information on the relevant calculations. |
(5) | Fixed charge coverage is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. The Company had no capitalized interest, principal amortization or preferred dividends during the periods ended September 30, 2013 and December 31, 2012. |
(6) | Interest coverage ratio is calculated as Core EBITDA divided by the sum of interest expense and capitalized interest. The Company had no capitalized interest during the periods ended September 30, 2013 and December 31, 2012. |
22
Piedmont Office Realty Trust, Inc.
Tenant Diversification (1)
As of September 30, 2013
(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 (%) | |
U.S. Government | AA+ / Aaa | 8 | (4) | $54,121 | 9.6 | 1,234 | 6.7 | |
BP (5) | A / A2 | 1 | 2013 | 32,464 | 5.7 | 776 | 4.2 | |
US Bancorp | A+ / A1 | 3 | 2014 / 2023 / 2024 | (6) | 28,397 | 5.0 | 973 | 5.3 |
State of New York | AA / Aa2 | 1 | 2019 | 20,574 | 3.6 | 481 | 2.6 | |
Independence Blue Cross | No rating available | 1 | 2033 | 17,526 | 3.1 | 801 | 4.4 | |
GE | AA+ / Aa3 | 2 | 2027 | 15,070 | 2.7 | 453 | 2.5 | |
Nestle | AA / Aa2 | 1 | 2015 | 15,007 | 2.7 | 392 | 2.1 | |
Shaw | BBB+ | 1 | 2018 | 10,014 | 1.8 | 313 | 1.7 | |
City of New York | AA / Aa2 | 1 | 2020 | 9,776 | 1.7 | 313 | 1.7 | |
Nokia | B+ / B1 | 3 | 2013 / 2020 / 2021 | (7) | 9,008 | 1.6 | 353 | 1.9 |
Lockheed Martin | A- / Baa1 | 3 | 2014 / 2019 / 2020 | (8) | 9,008 | 1.6 | 283 | 1.6 |
KPMG | No rating available | 2 | 2027 | 8,958 | 1.6 | 279 | 1.5 | |
Gallagher | No rating available | 1 | 2018 | 8,167 | 1.4 | 307 | 1.7 | |
DDB Needham | BBB+ / Baa1 | 1 | 2018 | 7,629 | 1.3 | 213 | 1.2 | |
Caterpillar Financial | A / A2 | 1 | 2022 | 7,461 | 1.3 | 312 | 1.7 | |
Gemini | A / A2 | 1 | 2021 | 7,349 | 1.3 | 205 | 1.1 | |
Harvard University | AAA / Aaa | 2 | 2017 | 6,730 | 1.2 | 105 | 0.6 | |
KeyBank | A- / A3 | 2 | 2016 | 6,433 | 1.1 | 210 | 1.2 | |
Harcourt | BBB+ | 1 | 2016 | 6,406 | 1.1 | 195 | 1.1 | |
Edelman | No rating available | 1 | 2024 | 6,362 | 1.1 | 184 | 1.0 | |
Raytheon | A- / A3 | 2 | 2019 | 6,290 | 1.1 | 440 | 2.4 | |
Catamaran | BB / Ba2 | 1 | 2025 | 5,975 | 1.1 | 301 | 1.6 | |
Jones Lang LaSalle | BBB- / Baa2 | 1 | 2017 | 5,936 | 1.1 | 165 | 0.9 | |
First Data Corporation | B / B3 | 1 | 2020 | 5,894 | 1.0 | 195 | 1.1 | |
Archon Group | A- / A3 | 2 | 2018 | 5,687 | 1.0 | 235 | 1.3 | |
Various | 250,429 | 44.2 | 8,590 | 46.9 | ||||
Total | $566,671 | 100.0 | 18,308 | 100.0 | ||||
23
Tenant Diversification
September 30, 2013 as compared to December 31, 2012
(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. |
(3) | Unless otherwise indicated, Lease Expiration represents the expiration year of the majority of the square footage leased by the tenant. |
(4) | There are several leases with several different agencies of the U.S. Government with expiration years ranging from 2013 to 2027. |
(5) | The majority of the space is subleased to Aon Corporation. Approximately 96% of the space currently leased by BP has been re-leased under long-term leases for the period following the BP lease expiration. |
(6) | US Bank's lease at One & Two Meridian Crossings, representing approximately 337,000 square feet and $9.3 million of Annualized Lease Revenue, expires in 2023. Of the space leased at US Bancorp Center, US Bancorp renewed on 395,000 square feet, representing $11.0 million of Annualized Lease Revenue, through 2024 and Piper Jaffray, a current subtenant, leased 124,000 square feet, representing $3.7 million of Annualized Lease Revenue, through 2025. Approximately 120,000 square feet and $4.3 million of Annualized Lease Revenue will expire in 2014. |
(7) | There are three leases with Nokia. Nokia's lease at: A) 6021 Connection Drive, representing $4.5 million of Annualized Lease Revenue and 196,000 square feet, expires in 2013, B) 5 & 15 Wayside Road, representing $3.8 million and 129,000 square feet, expires in 2020, and C) Las Colinas Corporate Center II, representing $0.6 million and 27,000 square feet, expires in 2021. |
(8) | There are three leases with Lockheed Martin. Lockheed Martin's lease at: A) 9221 Corporate Boulevard, representing $3.4 million of Annualized Lease Revenue and 115,000 square feet, expires in 2019, B) 9211 Corporate Boulevard, representing $3.3 million of Annualized Lease Revenue and 115,000 square feet, expires in 2014, and C) 400 Virginia Avenue, representing $2.3 million of Annualized Lease Revenue and 52,000 square feet, expires in 2020. |
24
Piedmont Office Realty Trust, Inc.
Tenant Credit Rating & Lease Distribution Information
As of September 30, 2013
Tenant Credit Rating (1)
Annualized Lease Revenue (in thousands) | Percentage of Annualized Lease Revenue (%) | |||
AAA / Aaa | $60,873 | 10.7 | ||
AA / Aa | 80,802 | 14.3 | ||
A / A | 138,615 | 24.5 | ||
BBB / Baa | 57,512 | 10.1 | ||
BB / Ba | 19,747 | 3.5 | ||
B / B | 31,760 | 5.6 | ||
Below | — | 0.0 | ||
Not rated (2) | 177,362 | 31.3 | ||
Total | $566,671 | 100.0 | ||
Lease Distribution
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 | 203 | 34.1 | $21,082 | 3.7 | 174 | 1.0 | |||
2,501 - 10,000 | 162 | 27.2 | 29,073 | 5.1 | 887 | 4.8 | |||
10,001 - 20,000 | 67 | 11.2 | 29,068 | 5.1 | 971 | 5.3 | |||
20,001 - 40,000 | 67 | 11.2 | 59,019 | 10.4 | 1,927 | 10.5 | |||
40,001 - 100,000 | 45 | 7.6 | 78,020 | 13.8 | 2,593 | 14.2 | |||
Greater than 100,000 | 52 | 8.7 | 350,409 | 61.9 | 11,756 | 64.2 | |||
Total | 596 | 100.0 | $566,671 | 100.0 | 18,308 | 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" does not indicate that the tenant is of poor credit quality, but can indicate that the tenant or the tenant's debt, if any, has not been rated. Included in this category are such tenants as Independence Blue Cross, McKinsey & Company and KPMG. |
25
Piedmont Office Realty Trust, Inc.
Leased Percentage Information
(in thousands)
Impact of Strategic Transactions on Leased Percentage
The Company’s stated long-term growth strategy includes the recycling of capital from certain stabilized or non-core assets into office properties located in focused concentration and opportunistic markets. Some of the recently acquired properties are value-add properties which are defined as low-occupancy properties acquired at attractive bases with earnings growth and value appreciation potential achievable through leasing up such assets to a stabilized occupancy. Because the value-add properties have large vacancies, they negatively affect Piedmont’s overall leased percentage. In order to identify the effect they have on Piedmont’s overall leased percentage, the following information is being provided. The analysis below: 1) removes the impact of the value-add properties from Piedmont’s overall office portfolio total under the heading “Stabilized Portfolio Analysis”; 2) provides a year-over-year comparison of leased percentage on the same subset of properties under the heading “Same Store Analysis”; and 3) provides a year-over-year comparison of leased percentage on the same subset of stabilized properties under the heading "Same Store Stabilized Analysis".
Three Months Ended | Three Months Ended | ||||||||||||||
September 30, 2013 | September 30, 2012 | ||||||||||||||
Leased Square Footage | Rentable Square Footage | Percent Leased (1) | Leased Square Footage | Rentable Square Footage | Percent Leased (1) | ||||||||||
As of June 30, 20xx | 17,878 | 20,704 | 86.4 | % | 17,418 | 20,482 | 85.0 | % | |||||||
New leases | 1,342 | 806 | |||||||||||||
Expired leases | (1,248 | ) | (400 | ) | |||||||||||
Other | — | 56 | 6 | 6 | |||||||||||
Subtotal | 17,972 | 20,760 | 86.6 | % | 17,830 | 20,488 | 87.0 | % | |||||||
Acquisitions during period | 336 | 346 | — | — | |||||||||||
Dispositions during period | — | — | — | — | |||||||||||
As of September 30, 20xx (2) (3) | 18,308 | 21,106 | 86.7 | % | 17,830 | 20,488 | 87.0 | % | |||||||
Nine Months Ended | Nine Months Ended | ||||||||||||||
September 30, 2013 | September 30, 2012 | ||||||||||||||
Leased Square Footage | Rentable Square Footage | Percent Leased (1) | Leased Square Footage | Rentable Square Footage | Percent Leased (1) | ||||||||||
As of December 31, 20xx | 17,935 | 20,500 | 87.5 | % | 18,124 | 20,942 | 86.5 | % | |||||||
New leases | 2,526 | 1,790 | |||||||||||||
Expired leases | (2,775 | ) | (1,623 | ) | |||||||||||
Other | 3 | 53 | 9 | 16 | |||||||||||
Subtotal | 17,689 | 20,553 | 86.1 | % | 18,300 | 20,958 | 87.3 | % | |||||||
Acquisitions during period | 914 | 940 | — | — | |||||||||||
Dispositions during period | (295 | ) | (387 | ) | (470 | ) | (470 | ) | |||||||
As of September 30, 20xx (2) (3) | 18,308 | 21,106 | 86.7 | % | 17,830 | 20,488 | 87.0 | % | |||||||
Stabilized Portfolio Analysis | |||||||||||||||
Less value-add properties (4) | (877 | ) | (1,637 | ) | 53.6 | % | (665 | ) | (1,433 | ) | 46.4 | % | |||
Stabilized Total (2) (3) | 17,431 | 19,469 | 89.5 | % | 17,165 | 19,055 | 90.1 | % | |||||||
Same Store Analysis | |||||||||||||||
Less acquisitions / dispositions after September 30, 2012 (4) (5) | (865 | ) | (940 | ) | 92.0 | % | (293 | ) | (387 | ) | 75.7 | % | |||
Same Store Total (2) (3) (6) | 17,443 | 20,166 | 86.5 | % | 17,537 | 20,101 | 87.2 | % | |||||||
Same Store Stabilized Analysis | |||||||||||||||
Less value-add same store properties (4) | (676 | ) | (1,436 | ) | 47.1 | % | (665 | ) | (1,433 | ) | 46.4 | % | |||
Same Store Stabilized Total (2) (3) | 16,767 | 18,730 | 89.5 | % | 16,872 | 18,668 | 90.4 | % | |||||||
26
(1) | Calculated as leased square footage 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) | The square footage associated with leases with end of period expiration dates is included in the end of the period leased square footage. |
(3) | End of period leased square footage for 2012 and 2013 includes short-term space leased on behalf of NASA in accordance with requirements stipulated under its lease to allow it to restructure its space at Two Independence Square in Washington, D.C. As of September 30, 2013, the total short-term space amounts to approximately 63,000 square feet and it will be occupied until an estimated date of July 31, 2014. |
(4) | |
(5) | 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. |
(6) | Excluding executed but not commenced leases for currently vacant spaces, comprising approximately 462,000 square feet for the current period and 706,000 square feet for the prior period, Piedmont's same store commenced leased percentage was 84.2% and 83.7% for the current and prior periods, respectively. |
27
Piedmont Office Realty Trust, Inc.
Rental Rate Roll Up / Roll Down Analysis (1)
(in thousands)
Three Months Ended | ||||||
September 30, 2013 | ||||||
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 | 1,309 | 86.3% | 6.2% | 2.9% | 17.3% | |
Leases executed for spaces excluded from analysis (5) | 208 | 13.7% | ||||
Nine Months Ended | ||||||
September 30, 2013 | ||||||
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 | 2,118 | 77.7% | 10.0% | (3.3)% | 8.4% | |
Leases executed for spaces excluded from analysis (5) | 608 | 22.3% | ||||
(1) | The population analyzed consists of consolidated office leases executed during the period with lease terms greater than one year. Retail leases, as well as leases associated with storage spaces, management offices, and unconsolidated joint venture assets, were excluded from this analysis. |
(2) | For the purposes of this analysis, the cash rents last in effect for the previous leases were compared to the initial cash rents of the new leases in order to calculate the percentage change. |
(3) | For the purposes of this analysis, the accrual basis rents for the previous leases were 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 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 the historical tenant improvement allowance usage patterns of 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 greater than one year. |
28
Piedmont Office Realty Trust, Inc.
Lease Expiration Schedule
As of September 30, 2013
(in thousands)
OFFICE PORTFOLIO | GOVERNMENTAL ENTITIES | ||||||||
Annualized Lease Revenue (1) | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | Annualized Lease Revenue (1) | Percentage of Annualized Lease Revenue (%) | Percentage of Current Year Total Annualized Lease Revenue Expiring (%) | |||
Vacant | $— | — | 2,798 | 13.3 | $— | — | N/A | ||
2013 (2) | 36,853 | 6.5 | 699 | 3.3 | 19,818 | 3.5 | 53.8 | ||
2014 | 28,373 | 5.0 | 772 | 3.7 | 3,596 | 0.7 | 12.7 | ||
2015 | 37,811 | 6.7 | 1,184 | 5.6 | 177 | — | 0.5 | ||
2016 | 31,359 | 5.5 | 1,113 | 5.3 | 1,448 | 0.3 | 4.6 | ||
2017 | 54,662 | 9.6 | 1,366 | 6.5 | 1,808 | 0.3 | 3.3 | ||
2018 | 52,617 | 9.3 | 1,841 | 8.7 | — | — | — | ||
2019 | 58,198 | 10.3 | 2,173 | 10.3 | 20,574 | 3.6 | 35.4 | ||
2020 | 35,223 | 6.2 | 1,282 | 6.1 | 9,776 | 1.7 | 27.8 | ||
2021 | 19,440 | 3.5 | 639 | 3.0 | — | — | — | ||
2022 | 23,481 | 4.2 | 785 | 3.7 | — | — | — | ||
2023 | 24,888 | 4.4 | 939 | 4.4 | — | — | — | ||
2024 | 47,199 | 8.3 | 1,710 | 8.1 | — | — | — | ||
2025 | 14,969 | 2.6 | 638 | 3.0 | — | — | — | ||
2026 | 12,140 | 2.1 | 496 | 2.4 | — | — | — | ||
Thereafter | 89,458 | 15.8 | 2,671 | 12.6 | 27,626 | 4.9 | 30.9 | ||
Total / Weighted Average | $566,671 | 100.0 | 21,106 | 100.0 | $84,823 | 15.0 | |||
Average Lease Term Remaining | |
9/30/2013 | 7.3 years |
12/31/2012 | 6.9 years |
(1) | Annualized rental income associated with newly executed leases for currently occupied space is incorporated herein only at the expiration date for the current lease. Annualized rental income associated with such new leases 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) | Leases and other revenue-producing agreements on a month-to-month basis, aggregating 6,328 square feet and Annualized Lease Revenue of $1,002,555, are assigned a lease expiration date of a year and a day beyond the period end date. Includes leases with an expiration date of September 30, 2013 aggregating 3,476 square feet and Annualized Lease Revenue of $176,742, as well as the National Park Service lease, which is comprised of 219,750 square feet and $10.4 million in Annualized Lease Revenue, or 1.8% of the Company's total Annualized Lease Revenue. |
29
Piedmont Office Realty Trust, Inc.
Lease Expirations by Quarter
As of September 30, 2013
(in thousands)
Q4 2013 (1) | Q1 2014 | Q2 2014 | Q3 2014 | |||||||||
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 | — | $— | 12 | $260 | — | $57 | — | $— | ||||
Austin | — | — | — | — | — | — | — | — | ||||
Boston | — | — | — | — | — | — | — | — | ||||
Central & South Florida | 8 | 228 | — | — | — | — | — | — | ||||
Chicago | 68 | 2,408 | — | 3 | 26 | 732 | — | — | ||||
Dallas | — | 1 | — | 2 | 11 | 302 | 2 | 4 | ||||
Detroit | — | — | 1 | 3 | 2 | 24 | 4 | 110 | ||||
Houston | — | — | — | — | — | — | — | — | ||||
Los Angeles | 3 | 150 | — | — | — | 840 | — | — | ||||
Minneapolis | 3 | 172 | — | 1 | 122 | 4,260 | — | 11 | ||||
Nashville | — | — | — | — | — | — | — | — | ||||
New York | 27 | 1,397 | 37 | 1,217 | 21 | 1,018 | — | 26 | ||||
Philadelphia | — | — | — | — | — | — | — | — | ||||
Phoenix | — | — | — | — | — | — | — | — | ||||
Washington, D.C. (3) | 584 | 25,941 | 156 | 5,745 | 58 | 3,457 | 193 | 4,428 | ||||
Other | 6 | 118 | 8 | 150 | 3 | 41 | — | — | ||||
Total / Weighted Average (4) | 699 | $30,415 | 214 | $7,381 | 243 | $10,731 | 199 | $4,579 | ||||
(1) | Includes leases with an expiration date of September 30, 2013 aggregating 3,476 square feet and expiring lease revenue of $113,768. 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) | Approximately 220,000 square feet and $10.4 million of expiring lease revenue in the fourth quarter of 2013 is related to the lease with the National Park Service, which is currently in holdover status. |
(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 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 September 30, 2013
(in thousands)
12/31/2013 (1) | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 | ||||||||||
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 | — | $— | 14 | $376 | 29 | $535 | 18 | $362 | 37 | $907 | ||||
Austin | — | — | — | — | — | — | 196 | 6,412 | — | — | ||||
Boston | — | — | — | 48 | 128 | 2,650 | 3 | 190 | 106 | 6,023 | ||||
Central & South Florida | 8 | 228 | — | 3 | 30 | 708 | 71 | 1,804 | 141 | 3,406 | ||||
Chicago | 68 | 2,408 | 40 | 1,882 | 188 | 5,308 | 79 | 2,440 | 296 | 15,898 | ||||
Dallas | — | 1 | 13 | 309 | 26 | 629 | 20 | 485 | 198 | 4,830 | ||||
Detroit | — | — | 8 | 167 | 61 | 392 | 31 | 711 | 78 | 1,529 | ||||
Houston | — | — | — | — | — | — | — | — | — | 2 | ||||
Los Angeles | 3 | 150 | 5 | 1,062 | 435 | 16,415 | 92 | 2,802 | 43 | 1,526 | ||||
Minneapolis | 3 | 172 | 153 | 5,125 | 107 | 3,888 | 33 | 1,070 | 41 | 1,315 | ||||
Nashville | — | — | — | — | — | — | 202 | 2,579 | — | — | ||||
New York | 27 | 1,397 | 96 | 4,123 | 68 | 2,499 | 282 | 9,084 | 69 | 2,193 | ||||
Philadelphia | — | — | — | — | — | — | — | — | — | — | ||||
Phoenix | — | — | — | — | — | — | — | — | — | — | ||||
Washington, D.C. (3) | 584 | 25,941 | 433 | 15,028 | 102 | 4,569 | 73 | 3,124 | 343 | 16,804 | ||||
Other | 6 | 118 | 10 | 191 | 10 | 208 | 13 | 296 | 14 | 333 | ||||
Total / Weighted Average (4) | 699 | $30,415 | 772 | $28,314 | 1,184 | $37,801 | 1,113 | $31,359 | 1,366 | $54,766 | ||||
(1) | Includes leases with an expiration date of September 30, 2013 aggregating 3,476 square feet and expiring lease revenue of $113,768. 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) | Approximately 220,000 square feet and $10.4 million of expiring lease revenue in 2013 is related to the lease with the National Park Service, which is currently in holdover status. |
(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 & Commitments
For the quarter ended September 30, 2013
Unaudited (in thousands)
For the Three Months Ended | |||||||||||||||||||
9/30/2013 | 6/30/2013 | 3/31/2013 | 12/31/2012 | 9/30/2012 | |||||||||||||||
Non-incremental | |||||||||||||||||||
Building / construction / development | $ | 1,465 | $ | 2,056 | $ | 930 | $ | 1,994 | $ | 5,257 | |||||||||
Tenant improvements | 11,854 | 11,292 | 13,744 | 20,944 | 17,347 | ||||||||||||||
Leasing costs | 8,386 | 5,019 | 5,246 | 289 | 15,979 | ||||||||||||||
Total non-incremental | 21,705 | 18,367 | 19,920 | 23,227 | 38,583 | ||||||||||||||
Incremental | |||||||||||||||||||
Building / construction / development | 4,826 | 8,291 | 6,712 | 5,680 | 7,338 | ||||||||||||||
Tenant improvements | 9,780 | 29,262 | 14,068 | 5,731 | 5,904 | ||||||||||||||
Leasing costs | 2,043 | 1,119 | 1,642 | 3,315 | 8,768 | ||||||||||||||
Total incremental | 16,649 | 38,672 | 22,422 | 14,726 | 22,010 | ||||||||||||||
Total capital expenditures | $ | 38,354 | $ | 57,039 | $ | 42,342 | $ | 37,953 | $ | 60,593 | |||||||||
Non-incremental tenant improvement commitments (1) | ||||||
Non-incremental tenant improvement commitments outstanding as of June 30, 2013 | $99,453 | |||||
New non-incremental tenant improvement commitments related to leases executed during period | 32,288 | |||||
Non-incremental tenant improvement expenditures | (11,854 | ) | ||||
Less: Tenant improvement expenditures fulfilled through accrued liabilities already presented on Piedmont's balance sheet, expired commitments or other adjustments | (26,217 | ) | ||||
Non-incremental tenant improvement commitments fulfilled, expired or other adjustments | (38,071 | ) | ||||
Total as of September 30, 2013 | $93,670 | |||||
NOTE: | The information presented on this page is for all consolidated assets, inclusive of our industrial properties. |
(1) | Commitments are unexpired contractual non-incremental tenant improvement obligations for leases executed in current and prior periods that have not yet been incurred and have not otherwise been presented on Piedmont's financial statements. The four largest commitments total approximately $46.6 million, or 50% of the total outstanding commitments. |
32
Piedmont Office Realty Trust, Inc.
Contractual Tenant Improvements and Leasing Commissions
For the Three Months Ended September 30, 2013 | For the Nine Months Ended September 30, 2013 | For the Year Ended | ||||
2012 | 2011 | 2010 | ||||
Renewal Leases | ||||||
Number of leases | 15 | 46 | 45 | 48 | 37 | |
Square feet | 1,029,040 | 1,871,123 | 1,150,934 | 2,280,329 | 1,241,481 | |
Tenant improvements per square foot (1) | $18.94 | $15.38 | $19.12 | $33.29 | $14.40 | |
Leasing commissions per square foot | $2.84 | $4.11 | $6.64 | $9.97 | $8.40 | |
Total per square foot | $21.78 | $19.49 | $25.76 | $43.26 | $22.80 | |
Tenant improvements per square foot per year of lease term | $1.97 | $1.88 | $2.90 | $3.93 | $1.74 | |
Leasing commissions per square foot per year of lease term | $0.30 | $0.50 | $1.01 | $1.18 | $1.02 | |
Total per square foot per year of lease term (2) | $2.27 | $2.38 | $3.91 | $5.11 | $2.76 | |
New Leases (3) | ||||||
Number of leases | 23 | 60 | 92 | 76 | 56 | |
Square feet | 484,857 | 826,285 | 1,765,510 | 1,588,271 | 866,212 | |
Tenant improvements per square foot (1) | $41.34 | $37.91 | $47.64 | $41.21 | $32.65 | |
Leasing commissions per square foot | $15.46 | $13.78 | $18.49 | $15.38 | $11.28 | |
Total per square foot | $56.80 | $51.69 | $66.13 | $56.59 | $43.93 | |
Tenant improvements per square foot per year of lease term | $4.17 | $4.15 | $4.30 | $4.19 | $4.16 | |
Leasing commissions per square foot per year of lease term | $1.56 | $1.51 | $1.67 | $1.57 | $1.44 | |
Total per square foot per year of lease term | $5.73 | $5.66 | $5.97 | $5.76 | $5.60 | |
Total | ||||||
Number of leases | 38 | 106 | 137 | 124 | 93 | |
Square feet | 1,513,897 | 2,697,408 | 2,916,444 | 3,868,600 | 2,107,693 | |
Tenant improvements per square foot (1) | $26.12 | $22.28 | $36.39 | $36.54 | $21.90 | |
Leasing commissions per square foot | $6.88 | $7.08 | $13.81 | $12.19 | $9.59 | |
Total per square foot | $33.00 | $29.36 | $50.20 | $48.73 | $31.49 | |
Tenant improvements per square foot per year of lease term | $2.69 | $2.63 | $3.91 | $4.05 | $2.70 | |
Leasing commissions per square foot per year of lease term | $0.71 | $0.84 | $1.48 | $1.35 | $1.18 | |
Total per square foot per year of lease term | $3.40 | $3.47 | $5.39 | $5.40 | $3.88 | |
NOTE: This information is presented for our consolidated office assets only and excludes activity associated with storage and licensed 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 the historical tenant improvement allowance usage patterns of the Company's tenants. |
(2) | During 2011, we completed two large, 15-year lease renewals with significant capital commitments: NASA at Two Independence Square in Washington, D.C. and GE at 500 West Monroe Street in Chicago, IL. If the costs associated with these renewals 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 in 2011 would be $2.80. During 2012, we completed one large, long-term lease renewal with an above-average capital commitment with US Bancorp at US Bancorp Center in Minneapolis, MN. If the costs associated with this renewal 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 in 2012 would be $2.73. |
(3) | Since 2010, Piedmont has selectively employed a value-add strategy for new property acquisitions. Piedmont defines value-add properties as those acquired with low occupancies at attractive bases with earnings growth and value appreciation potential achievable through leasing up such assets to stabilized occupancies. Because the value-add properties have large vacancies, many of which have not previously been leased (first generation spaces), the leasing of those vacancies negatively affects Piedmont’s contractual tenant improvements on a per foot and a per foot per year basis for new leases. |
33
Piedmont Office Realty Trust, Inc.
Geographic Diversification
As of September 30, 2013
($ 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 (%) |
Chicago | 6 | $129,219 | 22.8 | 4,781 | 22.7 | 3,735 | 78.1 |
Washington, D.C. | 15 | 116,593 | 20.6 | 3,381 | 16.0 | 2,737 | 81.0 |
New York | 6 | 80,789 | 14.3 | 2,432 | 11.5 | 2,381 | 97.9 |
Minneapolis | 4 | 44,837 | 7.9 | 1,613 | 7.6 | 1,473 | 91.3 |
Boston | 7 | 32,467 | 5.7 | 1,294 | 6.1 | 1,235 | 95.4 |
Los Angeles | 4 | 31,479 | 5.5 | 1,001 | 4.8 | 932 | 93.1 |
Dallas | 7 | 27,849 | 4.9 | 1,279 | 6.1 | 1,257 | 98.3 |
Detroit | 5 | 18,621 | 3.3 | 1,008 | 4.8 | 843 | 83.6 |
Philadelphia | 1 | 17,526 | 3.1 | 801 | 3.8 | 801 | 100.0 |
Atlanta | 6 | 17,148 | 3.0 | 1,063 | 5.0 | 696 | 65.5 |
Nashville | 2 | 10,040 | 1.8 | 513 | 2.4 | 513 | 100.0 |
Houston | 1 | 10,034 | 1.8 | 313 | 1.5 | 313 | 100.0 |
Phoenix | 4 | 8,994 | 1.6 | 564 | 2.7 | 477 | 84.6 |
Central & South Florida | 4 | 8,551 | 1.5 | 476 | 2.3 | 364 | 76.5 |
Austin | 1 | 6,411 | 1.1 | 195 | 0.9 | 195 | 100.0 |
Other | 4 | 6,113 | 1.1 | 392 | 1.8 | 356 | 90.8 |
Total / Weighted Average | 77 | $566,671 | 100.0 | 21,106 | 100.0 | 18,308 | 86.7 |
34
Piedmont Office Realty Trust, Inc.
Geographic Diversification by Location Type
As of September 30, 2013
(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 (%) | |||
Chicago | IL | 2 | 18.6 | 3,655 | 17.3 | 4 | 4.2 | 1,126 | 5.4 | 6 | 22.8 | 4,781 | 22.7 | |||
Washington, D.C. | DC, VA, MD | 10 | 18.3 | 2,900 | 13.7 | 5 | 2.3 | 481 | 2.3 | 15 | 20.6 | 3,381 | 16.0 | |||
New York | NY, NJ | 1 | 7.3 | 1,027 | 4.9 | 5 | 7.0 | 1,405 | 6.6 | 6 | 14.3 | 2,432 | 11.5 | |||
Minneapolis | MN | 1 | 5.0 | 928 | 4.4 | 3 | 2.9 | 685 | 3.2 | 4 | 7.9 | 1,613 | 7.6 | |||
Boston | MA | 2 | 2.1 | 173 | 0.8 | 5 | 3.6 | 1,121 | 5.3 | 7 | 5.7 | 1,294 | 6.1 | |||
Los Angeles | CA | 3 | 4.9 | 867 | 4.2 | 1 | 0.6 | 134 | 0.6 | 4 | 5.5 | 1,001 | 4.8 | |||
Dallas | TX | — | — | — | — | 7 | 4.9 | 1,279 | 6.1 | 7 | 4.9 | 1,279 | 6.1 | |||
Detroit | MI | 1 | 1.7 | 493 | 2.4 | 4 | 1.6 | 515 | 2.4 | 5 | 3.3 | 1,008 | 4.8 | |||
Philadelphia | PA | 1 | 3.1 | 801 | 3.8 | — | — | — | — | 1 | 3.1 | 801 | 3.8 | |||
Atlanta | GA | 2 | 1.9 | 578 | 2.7 | 4 | 1.1 | 485 | 2.3 | 6 | 3.0 | 1,063 | 5.0 | |||
Nashville | TN | 1 | 1.3 | 312 | 1.4 | 1 | 0.5 | 201 | 1.0 | 2 | 1.8 | 513 | 2.4 | |||
Houston | TX | — | — | — | — | 1 | 1.8 | 313 | 1.5 | 1 | 1.8 | 313 | 1.5 | |||
Phoenix | AZ | — | — | — | — | 4 | 1.6 | 564 | 2.7 | 4 | 1.6 | 564 | 2.7 | |||
Central & South Florida | FL | — | — | — | — | 4 | 1.5 | 476 | 2.3 | 4 | 1.5 | 476 | 2.3 | |||
Austin | TX | — | — | — | — | 1 | 1.1 | 195 | 0.9 | 1 | 1.1 | 195 | 0.9 | |||
Other | — | — | — | — | 4 | 1.1 | 392 | 1.8 | 4 | 1.1 | 392 | 1.8 | ||||
Total / Weighted Average | 24 | 64.2 | 11,734 | 55.6 | 53 | 35.8 | 9,372 | 44.4 | 77 | 100.0 | 21,106 | 100.0 | ||||
35
Piedmont Office Realty Trust, Inc.
Industry Diversification
As of September 30, 2013
($ 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 (%) |
Governmental Entity | 5 | 1.1 | $84,823 | 15.0 | 2,037 | 11.1 |
Depository Institutions | 17 | 3.7 | 53,493 | 9.4 | 1,842 | 10.1 |
Business Services | 71 | 15.3 | 51,023 | 9.0 | 1,910 | 10.4 |
Engineering, Accounting, Research, Management & Related Services | 39 | 8.4 | 42,409 | 7.5 | 1,214 | 6.6 |
Insurance Carriers | 25 | 5.4 | 32,993 | 5.8 | 1,351 | 7.4 |
Petroleum Refining & Related Industries | 1 | 0.2 | 32,464 | 5.7 | 776 | 4.2 |
Nondepository Credit Institutions | 15 | 3.2 | 32,309 | 5.7 | 1,132 | 6.2 |
Security & Commodity Brokers, Dealers, Exchanges & Services | 30 | 6.5 | 17,813 | 3.1 | 647 | 3.5 |
Communications | 27 | 5.8 | 16,542 | 2.9 | 537 | 2.9 |
Electronic & Other Electrical Equipment & Components, Except Computer | 9 | 2.0 | 16,233 | 2.9 | 615 | 3.4 |
Insurance Agents, Brokers & Services | 8 | 1.7 | 15,948 | 2.8 | 684 | 3.7 |
Educational Services | 9 | 2.0 | 15,558 | 2.8 | 406 | 2.2 |
Food & Kindred Products | 3 | 0.6 | 15,229 | 2.7 | 399 | 2.2 |
Transportation Equipment | 5 | 1.1 | 14,852 | 2.6 | 595 | 3.3 |
Automotive Repair, Services & Parking | 6 | 1.3 | 14,632 | 2.6 | 49 | 0.3 |
Other | 193 | 41.7 | 110,350 | 19.5 | 4,114 | 22.5 |
Total | 463 | 100.0 | $566,671 | 100.0 | 18,308 | 100.0 |
36
Piedmont Office Realty Trust, Inc.
Property Investment Activity
As of September 30, 2013
($ and square footage in thousands)
Acquisitions Over Previous Eighteen Months
Property | Location | Acquisition Date | Percent Ownership (%) | Year Built | Purchase Price | Rentable Square Footage | Percent Leased at Acquisition (%) | |
Gavitello Land | Atlanta, GA | 6/28/2012 | 100 | N/A | $2,500 | N/A | N/A | |
Glenridge Highlands III Land | Atlanta, GA | 10/15/2012 | 100 | N/A | 1,725 | N/A | N/A | |
Arlington Gateway | (1) | Arlington, VA | 3/4/2013 | 100 | 2005 | 175,552 | 334 | 99 |
5 & 15 Wayside Road | Burlington, MA | 3/22/2013 | 100 | 1999 / 2001 | 69,321 | 271 | 95 | |
Royal Lane Land | Irving, TX | 8/1/2013 | 100 | N/A | 2,600 | N/A | N/A | |
5301 Maryland Way | (2) | Brentwood, TN | 8/12/2013 | 100 | 1989 | 18,500 | 201 | 100 |
4685 Investment Drive | (2) | Troy, MI | 8/12/2013 | 100 | 2000 | 10,000 | 77 | 100 |
2020 West 89th Street | (2) | Leawood, KS | 8/12/2013 | 100 | 1992 | 4,250 | 68 | 85 |
$284,448 | 951 | 97 | ||||||
Dispositions Over Previous Eighteen Months
Property | Location | Disposition Date | Percent Ownership (%) | Year Built | Sale Price | Rentable Square Footage | Percent Leased at Disposition (%) | |
26200 Enterprise Way | Lake Forest, CA | 5/31/2012 | 100 | 2000 | $28,250 | 145 | 100 | |
110 Hidden Lake Circle | Duncan, SC | 9/21/2012 | 100 | 1987 | 16,058 | 474 | 100 | |
112 Hidden Lake Circle | Duncan, SC | 9/21/2012 | 100 | 1987 | 9,842 | 313 | 100 | |
1111 Durham Avenue | South Plainfield, NJ | 3/28/2013 | 100 | 1975 | 4,000 | 237 | — | |
1200 Enclave Parkway | Houston, TX | 5/1/2013 | 100 | 1999 | 48,750 | 150 | 100 | |
$106,900 | 1,319 | 82 | ||||||
(1) | The property consists of approximately 334,000 square feet; however, due to the square footages referenced in several leases, the rentable square footage is currently 323,000 square feet. As the existing leases expire, the affected spaces will be re-leased to the correct square footages. |
(2) | Piedmont purchased its joint venture partner's equity interest in the asset. The gross value of the asset agreed upon by the partners for the buyout is presented on this schedule as the purchase price. The additional capital invested across the three assets included in the buyout transaction amounted to $14.7 million. |
37
Piedmont Office Realty Trust, Inc.
Value-Add Activity
As of September 30, 2013
($ and square footage in thousands)
Presented below are properties that were acquired employing a value-add strategy. Once a property acquired under a value-add strategy reaches 80% leased, it is deemed stabilized for the purposes of supplemental reporting and will be removed from the value-add classification.
Value-Add Properties
Property | Location | Acquisition Date | Percent Ownership (%) | Year Built | Purchase Price | Rentable Square Footage | Current Percent Leased (%) | Percent Leased at Acquisition (%) | Real Estate Gross Book Value | Estimated Cost to Stabilize (per VACANT square foot) | |
Suwanee Gateway One | Suwanee, GA | 9/28/2010 | 100 | 2008 | $7,875 | 142 | — | — | $7,953 | $40 - 60 | |
500 West Monroe Street | (1) | Chicago, IL | 3/31/2011 | 100 | 1991 | 227,500 | 966 | 60 | 49 | 226,041 | $60 - 90 |
The Medici | (2) | Atlanta, GA | 6/7/2011 | 100 | 2008 | 13,210 | 152 | 27 | 12 | 13,939 | $35 - 60 |
400 TownPark | Lake Mary, FL | 11/10/2011 | 100 | 2008 | 23,865 | 176 | 34 | 19 | 23,705 | $35 - 50 | |
5301 Maryland Way | (3) | Brentwood, TN | 8/12/2013 | 100 | 1989 | 18,500 | 201 | 100 | 100 | 15,457 | $50 - 75 |
$290,950 | 1,637 | 54 | 44 | $287,095 | |||||||
(1) | The investment in this property was converted from a structured finance investment to an owned real estate asset through a UCC foreclosure of an equity ownership interest on March 31, 2011. The purchase price presented represents the estimated fair value of the real estate assets comprising the property as of the date of the transaction. The percent leased at acquisition reflects the space leased by Marsh USA as vacant, as the tenant had already announced plans to vacate prior to Piedmont's assumption of ownership of the asset. |
(2) | The percent leased at acquisition reflects the space leased by BV Card Assets as vacant, as the tenant had already announced plans to vacate prior to Piedmont's acquisition of the property. |
(3) | While the property was 100% leased at acquisition, it is anticipated that the single-tenant building will become vacant at the end of the current lease term and the building will have to be re-leased on a multi-tenant basis. For this reason, the building was acquired as a value-add property. Piedmont purchased its joint venture partner's equity interest in the asset. The gross value of the asset agreed upon by the partners for the buyout is presented on this schedule as the purchase price. |
38
Piedmont Office Realty Trust, Inc.
Other Investments
As of September 30, 2013
($ and square footage in thousands)
Unconsolidated Joint Venture Properties
Property | Location | Percent Ownership (%) | Year Built | Piedmont Share of Real Estate Net Book Value | Real Estate Net Book Value | Rentable Square Footage | Percent Leased (%) |
8560 Upland Drive | Parker, CO | 72 | 2001 | $7,471 | $10,392 | 148.2 | 74 |
Two Park Center | Hoffman Estates, IL | 72 | 1999 | 10,750 | 14,954 | 193.7 | 39 |
$18,221 | $25,346 | 341.9 | 54 | ||||
Land Parcels
Property | Location | Acres | Approximate Current Value |
Gavitello | Atlanta, GA | 2.0 | $2,500 |
Glenridge Highlands III | Atlanta, GA | 3.0 | 1,725 |
Enclave Parkway | Houston, TX | 4.7 | 2,600 |
State Highway 161 | Irving, TX | 4.5 | 1,200 |
Royal Lane | Irving, TX | 10.6 | 2,600 |
24.8 | $10,625 | ||
39
Piedmont Office Realty Trust, Inc.
Supplemental Definitions
Included in this section are management's statements regarding certain non-GAAP financial measures provided in this supplemental report and reasons why management believes that these measures provide useful information to investors about the Company's financial condition and results of operations. Reconciliations of these non-GAAP measures are included beginning on page 42. |
Adjusted Funds From Operations ("AFFO"): AFFO is calculated by deducting from Core FFO non-incremental capital expenditures and acquisition-related costs and adding back non-cash items including non-real estate depreciation, straight lined rents and fair value lease revenue, non-cash components of interest expense and compensation expense, and by making similar adjustments for unconsolidated partnerships and joint ventures. Although AFFO may not be comparable to that of other REITs, we believe it provides a meaningful indicator of our ability to fund cash needs and to make cash distributions to equity owners. AFFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income, as an alternative to net cash flows from operating activities or as a measure of our liquidity. |
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 our unconsolidated joint venture interests. |
Core EBITDA: Core EBITDA is defined as net income before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property, or other significant non-recurring items. We do not include impairment losses in this measure because we feel these types of losses create volatility in our earnings and make it difficult to determine the earnings generated by our ongoing business. We believe Core EBITDA is a reasonable measure of our liquidity. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative measurement of cash flows from operating activities or other GAAP basis liquidity measures. Other REITs may calculate Core EBITDA differently and our calculation should not be compared to that of other REITs. |
Core Funds From Operations ("Core FFO"): We calculate Core FFO by starting with FFO, as defined by NAREIT, and adjusting for certain non-recurring items such as gains or losses on the early extinguishment of debt, acquisition-related costs and other significant non-recurring items. Such items create significant earnings volatility. We believe Core FFO provides a meaningful measure of our operating performance and more predictability regarding future earnings potential. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income; therefore, it should not be compared to other REITs' equivalent to Core FFO. |
EBITDA: EBITDA is defined as net income before interest, taxes, depreciation and amortization. We believe EBITDA is an appropriate measure of our ability to incur and service debt. EBITDA should not be considered as an alternative to cash flows from operating activities, as a measure of our liquidity or as an alternative to net income as an indicator of our operating activities. Other REITs may calculate EBITDA differently and our calculation should not be compared to that of other REITs. |
Funds From Operations ("FFO"): FFO is calculated 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, impairment losses, and gains or losses on consolidation, 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 may provide valuable comparisons of operating performance between periods and with other REITs. FFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income. We believe that FFO is a beneficial indicator of the performance of an equity REIT. However, other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than we do; therefore, our 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. |
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 and renovations that change the underlying classification of a building are included in this measure. |
NOI from Unconsolidated Joint Ventures: NOI from Unconsolidated Joint Ventures is defined as Property NOI attributable to our interests in properties owned through unconsolidated partnerships. We present this measure on an accrual basis and a cash basis, which eliminates the effects of straight lined rents and fair value lease revenue. NOI from Unconsolidated Joint Ventures is a non-GAAP measure and therefore may not be comparable to similarly defined data provided by other REITs. |
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"): Property NOI is defined as real estate operating income with the add-back of corporate general and administrative expense, depreciation and amortization, and impairment losses and the deduction of income associated with property management performed by Piedmont for other organizations. We 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 eliminated. The Company uses this measure to assess its operating results and believes it is important in assessing operating performance. Property NOI is a non-GAAP measure which does not have any standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies. |
Same Store Net Operating Income ("Same Store NOI"): Same Store NOI is calculated as the Property NOI attributable to the properties owned or placed in service during the entire span of the current and prior year reporting periods. Same Store NOI excludes amounts attributable to unconsolidated joint venture assets. We 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 eliminated. We believe Same Store NOI is an important measure of comparison of our properties' operating performance from one period to another. Other REITs may calculate Same Store NOI differently and our calculation should not be compared to that of other REITs. |
Same Store Properties: Same Store Properties is defined as properties owned or placed in service during the entire span of the current and prior year reporting periods. Same Store Properties excludes unconsolidated joint venture assets. We believe Same Store Properties is an important measure of comparison of our stabilized portfolio performance. |
40
Piedmont Office Realty Trust, Inc.
Research Coverage
Equity Research Coverage
Paul E. Adornato, CFA | Michael Knott, CFA | Vance H. Edelson |
BMO Capital Markets | Jed Reagan | Morgan Stanley |
3 Times Square, 26th Floor | Green Street Advisors | 1585 Broadway, 38th Floor |
New York, NY 10036 | 660 Newport Center Drive, Suite 800 | New York, NY 10036 |
Phone: (212) 885-4170 | Newport Beach, CA 92660 | Phone: (212) 761-0078 |
Phone: (949) 640-8780 | ||
Brendan Maiorana | John W. Guinee, III | Michael J. Salinsky |
Wells Fargo | Erin Aslakson | RBC Capital Markets |
7 St. Paul Street | Stifel, Nicolaus & Company | Arbor Court |
MAC R1230-011 | One South Street | 30575 Bainbridge Road, Suite 250 |
Baltimore, MD 21202 | 16th Floor | Solon, OH 44139 |
Phone: (443) 263-6516 | Baltimore, MD 21202 | Phone: (440) 715-2648 |
Phone: (443) 224-1307 | ||
Anthony Paolone, CFA | David Rodgers, CFA | |
JP Morgan | Robert W. Baird & Co. | |
383 Madison Avenue | 200 Public Square | |
34th Floor | Suite 1650 | |
New York, NY 10179 | Cleveland, OH 44139 | |
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 | ||
41
Piedmont Office Realty Trust, Inc.
Funds From Operations, Core Funds From Operations, and Adjusted Funds From Operations Reconciliations
Unaudited (in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||
9/30/2013 | 6/30/2013 | 3/31/2013 | 12/31/2012 | 9/30/2012 | 9/30/2013 | 9/30/2012 | |||||||||||||||||||||
Net income attributable to Piedmont | $ | 19,096 | $ | 35,358 | $ | 14,651 | $ | 14,438 | $ | 10,831 | $ | 69,105 | $ | 78,766 | |||||||||||||
Depreciation | 31,050 | 30,969 | 29,886 | 29,735 | 28,763 | 91,905 | 84,605 | ||||||||||||||||||||
Amortization | 13,939 | 11,350 | 9,220 | 10,666 | 15,366 | 34,509 | 39,744 | ||||||||||||||||||||
Impairment loss | — | — | 6,402 | — | — | 6,402 | — | ||||||||||||||||||||
Loss / (gain) on sale of properties | — | (16,258 | ) | — | 6 | 254 | (16,258 | ) | (27,583 | ) | |||||||||||||||||
Loss / (gain) on consolidation | 898 | — | — | — | — | 898 | — | ||||||||||||||||||||
Funds from operations | 64,983 | 61,419 | 60,159 | 54,845 | 55,214 | 186,561 | 175,532 | ||||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||
Acquisition costs | 60 | 70 | 1,244 | 53 | 7 | 1,374 | 88 | ||||||||||||||||||||
Litigation settlement expense / (recovery) | — | (1,250 | ) | — | — | 7,500 | (1,250 | ) | 7,500 | ||||||||||||||||||
Net casualty loss / (recoveries) | (3,919 | ) | (2,320 | ) | 161 | 5,170 | — | (6,078 | ) | — | |||||||||||||||||
Core funds from operations | 61,124 | 57,919 | 61,564 | 60,068 | 62,721 | 180,607 | 183,120 | ||||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||
Deferred financing cost amortization | 674 | 643 | 594 | 592 | 663 | 1,911 | 2,056 | ||||||||||||||||||||
Amortization of discount on senior notes and swap settlements | 13 | 7 | — | — | — | 20 | — | ||||||||||||||||||||
Depreciation of non real estate assets | 97 | 105 | 98 | 104 | 196 | 300 | 397 | ||||||||||||||||||||
Straight-line effects of lease revenue | (5,076 | ) | (5,547 | ) | (4,032 | ) | (5,917 | ) | (4,193 | ) | (14,655 | ) | (11,236 | ) | |||||||||||||
Stock-based and other non-cash compensation expense | 719 | 176 | 594 | 754 | 869 | 1,489 | 1,492 | ||||||||||||||||||||
Amortization of lease-related intangibles | (1,757 | ) | (1,245 | ) | (1,065 | ) | (1,046 | ) | (1,315 | ) | (4,067 | ) | (4,631 | ) | |||||||||||||
Acquisition costs | (60 | ) | (70 | ) | (1,244 | ) | (53 | ) | (7 | ) | (1,374 | ) | (88 | ) | |||||||||||||
Non-incremental capital expenditures | (21,705 | ) | (18,367 | ) | (19,920 | ) | (23,227 | ) | (38,583 | ) | (59,992 | ) | (64,430 | ) | |||||||||||||
Adjusted funds from operations | $ | 34,029 | $ | 33,621 | $ | 36,589 | $ | 31,275 | $ | 20,351 | $ | 104,239 | $ | 106,680 | |||||||||||||
42
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||
9/30/2013 | 6/30/2013 | 3/31/2013 | 12/31/2012 | 9/30/2012 | 9/30/2013 | 9/30/2012 | |||||||||||||||||||||
Net income attributable to Piedmont | $ | 19,096 | $ | 35,358 | $ | 14,651 | $ | 14,438 | $ | 10,831 | 69,105 | 78,766 | |||||||||||||||
Net income attributable to noncontrolling interest | 4 | 4 | 4 | 4 | 4 | 12 | 12 | ||||||||||||||||||||
Interest expense | 19,331 | 18,228 | 16,373 | 16,296 | 16,247 | 53,932 | 48,727 | ||||||||||||||||||||
Depreciation | 31,147 | 31,074 | 29,984 | 29,839 | 28,959 | 92,204 | 85,002 | ||||||||||||||||||||
Amortization | 13,939 | 11,350 | 9,220 | 10,666 | 15,366 | 34,509 | 39,744 | ||||||||||||||||||||
Acquisition costs | 60 | 70 | 1,244 | 53 | 7 | 1,374 | 88 | ||||||||||||||||||||
Impairment loss | — | — | 6,402 | — | — | 6,402 | — | ||||||||||||||||||||
Litigation settlement expense / (recovery) | — | (1,250 | ) | — | — | 7,500 | (1,250 | ) | 7,500 | ||||||||||||||||||
Net casualty loss / (recoveries) | (3,919 | ) | (2,320 | ) | 161 | 5,170 | — | (6,078 | ) | — | |||||||||||||||||
Loss / (gain) on sale of properties | — | (16,258 | ) | — | 6 | 254 | (16,258 | ) | (27,583 | ) | |||||||||||||||||
Loss / (gain) on consolidation | 898 | — | — | — | — | 898 | — | ||||||||||||||||||||
Core EBITDA | 80,556 | 76,256 | 78,039 | 76,472 | 79,168 | 234,850 | 232,256 | ||||||||||||||||||||
General & administrative expenses | 5,921 | 6,410 | 4,609 | 5,179 | 5,576 | 16,940 | 15,761 | ||||||||||||||||||||
Management fee revenue | (890 | ) | (513 | ) | (631 | ) | (599 | ) | (520 | ) | (2,034 | ) | (1,720 | ) | |||||||||||||
Interest and other income | 550 | (12 | ) | 21 | (121 | ) | (390 | ) | 561 | (873 | ) | ||||||||||||||||
Straight-line effects of lease revenue | (5,076 | ) | (5,547 | ) | (4,032 | ) | (5,917 | ) | (4,193 | ) | (14,655 | ) | (11,236 | ) | |||||||||||||
Net effect of amortization of above/(below) market in-place lease intangibles | (1,757 | ) | (1,245 | ) | (1,065 | ) | (1,046 | ) | (1,315 | ) | (4,067 | ) | (4,631 | ) | |||||||||||||
Property net operating income - cash basis | 79,304 | 75,349 | 76,941 | 73,968 | 78,326 | 231,595 | 229,557 | ||||||||||||||||||||
Net operating income from: | |||||||||||||||||||||||||||
Acquisitions | (6,155 | ) | (3,680 | ) | (836 | ) | 17 | 7 | (10,672 | ) | 7 | ||||||||||||||||
Dispositions | 2 | (107 | ) | 57 | 11 | (319 | ) | (49 | ) | (2,487 | ) | ||||||||||||||||
Unconsolidated joint ventures | (376 | ) | (597 | ) | (744 | ) | (576 | ) | (735 | ) | (1,717 | ) | (1,923 | ) | |||||||||||||
Same store net operating income - cash basis | $ | 72,775 | $ | 70,965 | $ | 75,418 | $ | 73,420 | $ | 77,279 | $ | 219,157 | $ | 225,154 | |||||||||||||
43
Piedmont Office Realty Trust, Inc.
Unconsolidated Joint Venture Net Operating Income Reconciliations
Pro rata and unaudited (in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||
9/30/2013 | 6/30/2013 | 3/31/2013 | 12/31/2012 | 9/30/2012 | 9/30/2013 | 9/30/2012 | |||||||||||||||||||||
Equity in income of unconsolidated joint ventures | $ | 46 | $ | 163 | $ | 395 | $ | 185 | $ | 323 | $ | 604 | $ | 739 | |||||||||||||
Interest expense | — | — | — | — | — | — | — | ||||||||||||||||||||
Depreciation | 220 | 309 | 300 | 290 | 306 | 829 | 902 | ||||||||||||||||||||
Amortization | 40 | 45 | 41 | 34 | 41 | 125 | 123 | ||||||||||||||||||||
Impairment loss | — | — | — | — | — | — | — | ||||||||||||||||||||
Loss / (gain) on sale of properties | — | — | — | — | — | — | — | ||||||||||||||||||||
Core EBITDA | 306 | 517 | 736 | 509 | 670 | 1,558 | 1,764 | ||||||||||||||||||||
General and administrative expenses | 79 | 120 | 60 | 45 | 31 | 260 | 84 | ||||||||||||||||||||
Interest and other income | — | — | — | — | — | — | (21 | ) | |||||||||||||||||||
Property net operating income (accrual basis) | 385 | 637 | 796 | 554 | 701 | 1,818 | 1,827 | ||||||||||||||||||||
Straight-line effects of lease revenue | (9 | ) | (40 | ) | (52 | ) | 22 | 34 | (101 | ) | 96 | ||||||||||||||||
Net effect of amortization of above/(below) market in-place lease intangibles | — | — | — | — | — | — | — | ||||||||||||||||||||
Property net operating income (cash basis) | $ | 376 | $ | 597 | $ | 744 | $ | 576 | $ | 735 | $ | 1,717 | $ | 1,923 | |||||||||||||
44
Piedmont Office Realty Trust, Inc.
Discontinued Operations
Unaudited (in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||
9/30/2013 | 6/30/2013 | 3/31/2013 | 12/31/2012 | 9/30/2012 | 9/30/2013 | 9/30/2012 | |||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||
Rental income | $ | 516 | $ | 750 | $ | 1,427 | $ | 3,085 | $ | 2,388 | $ | 2,693 | $ | 8,403 | |||||||||||||
Tenant reimbursements | 91 | 221 | 338 | 154 | 410 | 650 | 1,298 | ||||||||||||||||||||
Other rental income | — | — | — | — | — | — | — | ||||||||||||||||||||
607 | 971 | 1,765 | 3,239 | 2,798 | 3,343 | 9,701 | |||||||||||||||||||||
Expenses: | |||||||||||||||||||||||||||
Property operating costs | 316 | 285 | 847 | 973 | 1,262 | 1,448 | 3,834 | ||||||||||||||||||||
Depreciation | 141 | 141 | 405 | 587 | 732 | 687 | 2,379 | ||||||||||||||||||||
Amortization | 21 | 21 | 96 | 126 | 159 | 138 | 527 | ||||||||||||||||||||
General and administrative | — | 2 | — | (2 | ) | 38 | 2 | 47 | |||||||||||||||||||
478 | 449 | 1,348 | 1,684 | 2,191 | 2,275 | 6,787 | |||||||||||||||||||||
Other income / (expense): | |||||||||||||||||||||||||||
Interest expense | — | — | — | — | — | — | — | ||||||||||||||||||||
Interest and other income / (expense) | (1 | ) | 13 | 12 | — | — | 24 | — | |||||||||||||||||||
Net casualty recoveries / (loss) | — | 17 | — | — | — | 17 | — | ||||||||||||||||||||
Net income attributable to noncontrolling interest | — | — | — | — | — | — | — | ||||||||||||||||||||
(1 | ) | 30 | 12 | — | — | 41 | — | ||||||||||||||||||||
Operating income, excluding impairment loss and gain on sale | 128 | 552 | 429 | 1,555 | 607 | 1,109 | 2,914 | ||||||||||||||||||||
Impairment loss | — | — | (6,402 | ) | — | — | (6,402 | ) | — | ||||||||||||||||||
Gain / (loss) on sale of properties | — | 16,258 | — | (6 | ) | (254 | ) | 16,258 | 27,583 | ||||||||||||||||||
Income from discontinued operations | $ | 128 | $ | 16,810 | $ | (5,973 | ) | $ | 1,549 | $ | 353 | $ | 10,965 | $ | 30,497 | ||||||||||||
45
Piedmont Office Realty Trust, Inc.
Property Detail
As of September 30, 2013
(in thousands)
Property | City | State | Percent Ownership | Year Built | Rentable Square Footage Owned | Leased Percentage | Commenced Leased Percentage | Economic Leased Percentage (1) | |||
Atlanta | |||||||||||
11695 Johns Creek Parkway | Johns Creek | GA | 100.0% | 2001 | 101 | 85.1 | % | 78.2 | % | 78.2 | % |
3750 Brookside Parkway | Alpharetta | GA | 100.0% | 2001 | 104 | 77.9 | % | 56.7 | % | 56.7 | % |
Glenridge Highlands Two | Atlanta | GA | 100.0% | 2000 | 426 | 83.6 | % | 82.4 | % | 70.2 | % |
Suwanee Gateway One | Suwanee | GA | 100.0% | 2008 | 142 | 0.0% | 0.0% | 0.0% | |||
The Dupree | Atlanta | GA | 100.0% | 1997 | 138 | 95.7 | % | 82.6 | % | 79.0 | % |
The Medici | Atlanta | GA | 100.0% | 2008 | 152 | 27.0 | % | 27.0 | % | 17.8 | % |
Metropolitan Area Subtotal / Weighted Average | 1,063 | 65.5 | % | 60.6 | % | 53.9 | % | ||||
Austin | |||||||||||
Braker Pointe III | Austin | TX | 100.0% | 2001 | 195 | 100.0 | % | 100.0 | % | 100.0 | % |
Metropolitan Area Subtotal / Weighted Average | 195 | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Boston | |||||||||||
1200 Crown Colony Drive | Quincy | MA | 100.0% | 1990 | 235 | 100.0 | % | 100.0 | % | 100.0 | % |
90 Central Street | Boxborough | MA | 100.0% | 2001 | 175 | 95.4 | % | 95.4 | % | 95.4 | % |
1414 Massachusetts Avenue | Cambridge | MA | 100.0% | 1873 | 78 | 100.0 | % | 100.0 | % | 100.0 | % |
One Brattle Square | Cambridge | MA | 100.0% | 1991 | 95 | 94.7 | % | 94.7 | % | 94.7 | % |
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 | % |
5 & 15 Wayside Road | Burlington | MA | 100.0% | 1999 / 2001 | 271 | 83.0 | % | 83.0 | % | 83.0 | % |
Metropolitan Area Subtotal / Weighted Average | 1,294 | 95.4 | % | 95.4 | % | 95.4 | % | ||||
Chicago | |||||||||||
Windy Point I | Schaumburg | IL | 100.0% | 1999 | 187 | 100.0 | % | 100.0 | % | 100.0 | % |
Windy Point II | Schaumburg | IL | 100.0% | 2001 | 301 | 100.0 | % | 83.1 | % | 0.0% | |
Aon Center | Chicago | IL | 100.0% | 1972 | 2,689 | 80.6 | % | 78.8 | % | 75.8 | % |
Two Pierce Place | Itasca | IL | 100.0% | 1991 | 486 | 82.7 | % | 82.7 | % | 80.9 | % |
2300 Cabot Drive | Lisle | IL | 100.0% | 1998 | 152 | 72.4 | % | 69.7 | % | 59.2 | % |
500 West Monroe Street | Chicago | IL | 100.0% | 1991 | 966 | 58.9 | % | 50.7 | % | 12.2 | % |
Metropolitan Area Subtotal / Weighted Average | 4,781 | 78.1 | % | 74.4 | % | 59.1 | % | ||||
Cleveland | |||||||||||
Eastpoint I | Mayfield Heights | OH | 100.0% | 2000 | 83 | 69.9 | % | 0.0% | 0.0% | ||
Eastpoint II | Mayfield Heights | OH | 100.0% | 2000 | 85 | 95.3 | % | 95.3 | % | 95.3 | % |
Metropolitan Area Subtotal / Weighted Average | 168 | 82.7 | % | 48.2 | % | 48.2 | % | ||||
46
Property | City | State | Percent Ownership | Year Built | Rentable Square Footage Owned | Leased Percentage | Commenced Leased Percentage | Economic Leased Percentage (1) | |||
Dallas | |||||||||||
3900 Dallas Parkway | Plano | TX | 100.0% | 1999 | 120 | 100.0 | % | 100.0 | % | 100.0 | % |
5601 Headquarters Drive | Plano | TX | 100.0% | 2001 | 166 | 100.0 | % | 100.0 | % | 100.0 | % |
6031 Connection Drive | Irving | TX | 100.0% | 1999 | 232 | 100.0 | % | 95.3 | % | 84.1 | % |
6021 Connection Drive | Irving | TX | 100.0% | 2000 | 223 | 100.0 | % | 100.0 | % | 100.0 | % |
6011 Connection Drive | Irving | TX | 100.0% | 1999 | 152 | 100.0 | % | 100.0 | % | 100.0 | % |
Las Colinas Corporate Center I | Irving | TX | 100.0% | 1998 | 159 | 97.5 | % | 97.5 | % | 97.5 | % |
Las Colinas Corporate Center II | Irving | TX | 100.0% | 1998 | 227 | 92.1 | % | 68.7 | % | 67.4 | % |
Metropolitan Area Subtotal / Weighted Average | 1,279 | 98.3 | % | 93.3 | % | 91.0 | % | ||||
Denver | |||||||||||
350 Spectrum Loop | Colorado Springs | CO | 100.0% | 2001 | 156 | 100.0 | % | 100.0 | % | 100.0 | % |
Metropolitan Area Subtotal / Weighted Average | 156 | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Detroit | |||||||||||
1441 West Long Lake Road | Troy | MI | 100.0% | 1999 | 108 | 87.0 | % | 83.3 | % | 65.7 | % |
150 West Jefferson | Detroit | MI | 100.0% | 1989 | 493 | 69.4 | % | 69.4 | % | 65.9 | % |
Auburn Hills Corporate Center | Auburn Hills | MI | 100.0% | 2001 | 120 | 100.0 | % | 100.0 | % | 100.0 | % |
1075 West Entrance Drive | Auburn Hills | MI | 100.0% | 2001 | 210 | 100.0 | % | 100.0 | % | 100.0 | % |
4685 Investment Drive | Troy | MI | 100.0% | 2000 | 77 | 100.0 | % | 100.0 | % | 7.8 | % |
Metropolitan Area Subtotal / Weighted Average | 1,008 | 83.6 | % | 83.2 | % | 72.6 | % | ||||
Central & South Florida | |||||||||||
Sarasota Commerce Center II | Sarasota | FL | 100.0% | 1999 | 152 | 98.7 | % | 98.7 | % | 84.2 | % |
5601 Hiatus Road | Tamarac | FL | 100.0% | 2001 | 100 | 100.0 | % | 100.0 | % | 100.0 | % |
2001 NW 64th Street | Ft. Lauderdale | FL | 100.0% | 2001 | 48 | 100.0 | % | 100.0 | % | 100.0 | % |
400 TownPark | Lake Mary | FL | 100.0% | 2008 | 176 | 37.5 | % | 34.1 | % | 34.1 | % |
Metropolitan Area Subtotal / Weighted Average | 476 | 76.5 | % | 75.2 | % | 70.6 | % | ||||
Houston | |||||||||||
1430 Enclave Parkway | Houston | TX | 100.0% | 1994 | 313 | 100.0 | % | 100.0 | % | 100.0 | % |
Metropolitan Area Subtotal / Weighted Average | 313 | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Kansas City | |||||||||||
2020 West 89th Street | Leawood | KS | 100.0% | 1992 | 68 | 89.7 | % | 89.7 | % | 89.7 | % |
Metropolitan Area Subtotal / Weighted Average | 68 | 89.7 | % | 89.7 | % | 89.7 | % | ||||
Los Angeles | |||||||||||
800 North Brand Boulevard | Glendale | CA | 100.0% | 1990 | 518 | 90.3 | % | 80.3 | % | 80.3 | % |
1055 East Colorado Boulevard | Pasadena | CA | 100.0% | 2001 | 176 | 98.3 | % | 98.3 | % | 46.6 | % |
Fairway Center II | Brea | CA | 100.0% | 2002 | 134 | 97.8 | % | 97.8 | % | 97.8 | % |
1901 Main Street | Irvine | CA | 100.0% | 2001 | 173 | 92.5 | % | 78.6 | % | 52.6 | % |
Metropolitan Area Subtotal / Weighted Average | 1,001 | 93.1 | % | 85.5 | % | 71.9 | % | ||||
Minneapolis | |||||||||||
Crescent Ridge II | Minnetonka | MN | 100.0% | 2000 | 301 | 73.1 | % | 73.1 | % | 64.8 | % |
US Bancorp Center | Minneapolis | MN | 100.0% | 2000 | 928 | 95.4 | % | 93.6 | % | 93.1 | % |
One Meridian Crossings | Richfield | MN | 100.0% | 1997 | 195 | 100.0 | % | 100.0 | % | 100.0 | % |
Two Meridian Crossings | Richfield | MN | 100.0% | 1998 | 189 | 91.5 | % | 91.5 | % | 91.5 | % |
Metropolitan Area Subtotal / Weighted Average | 1,613 | 91.3 | % | 90.3 | % | 88.5 | % | ||||
47
Property | City | State | Percent Ownership | Year Built | Rentable Square Footage Owned | Leased Percentage | Commenced Leased Percentage | Economic Leased Percentage (1) | |||
Nashville | |||||||||||
2120 West End Avenue | Nashville | TN | 100.0% | 2000 | 312 | 100.0 | % | 100.0 | % | 100.0 | % |
5301 Maryland Way | Brentwood | TN | 100.0% | 1989 | 201 | 100.0 | % | 100.0 | % | 100.0 | % |
Metropolitan Area Subtotal / Weighted Average | 513 | 100.0 | % | 100.0 | % | 100.0 | % | ||||
New York | |||||||||||
2 Gatehall Drive | Parsippany | NJ | 100.0% | 1985 | 405 | 100.0 | % | 100.0 | % | 100.0 | % |
200 Bridgewater Crossing | Bridgewater | NJ | 100.0% | 2002 | 309 | 88.3 | % | 88.3 | % | 50.8 | % |
Copper Ridge Center | Lyndhurst | NJ | 100.0% | 1989 | 268 | 94.4 | % | 94.4 | % | 91.0 | % |
60 Broad Street | New York | NY | 100.0% | 1962 | 1,027 | 100.0 | % | 100.0 | % | 100.0 | % |
600 Corporate Drive | Lebanon | NJ | 100.0% | 2005 | 125 | 100.0 | % | 100.0 | % | 100.0 | % |
400 Bridgewater Crossing | Bridgewater | NJ | 100.0% | 2002 | 298 | 100.0 | % | 100.0 | % | 100.0 | % |
Metropolitan Area Subtotal / Weighted Average | 2,432 | 97.9 | % | 97.9 | % | 92.8 | % | ||||
Philadelphia | |||||||||||
1901 Market Street | Philadelphia | PA | 100.0% | 1987 | 801 | 100.0 | % | 100.0 | % | 100.0 | % |
Metropolitan Area Subtotal / Weighted Average | 801 | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Phoenix | |||||||||||
River Corporate Center | Tempe | AZ | 100.0% | 1998 | 133 | 100.0 | % | 100.0 | % | 100.0 | % |
8700 South Price Road | Tempe | AZ | 100.0% | 2000 | 132 | 100.0 | % | 100.0 | % | 100.0 | % |
Desert Canyon 300 | Phoenix | AZ | 100.0% | 2001 | 149 | 100.0 | % | 100.0 | % | 100.0 | % |
Chandler Forum | Chandler | AZ | 100.0% | 2003 | 150 | 42.0 | % | 42.0 | % | 42.0 | % |
Metropolitan Area Subtotal / Weighted Average | 564 | 84.6 | % | 84.6 | % | 84.6 | % | ||||
Washington, D.C. | |||||||||||
11107 Sunset Hills Road | Reston | VA | 100.0% | 1985 | 101 | 100.0 | % | 100.0 | % | 100.0 | % |
1201 Eye Street | Washington | DC | 49.5% (2) | 2001 | 269 | 100.0 | % | 100.0 | % | 100.0 | % |
1225 Eye Street | Washington | DC | 49.5% (2) | 1986 | 225 | 86.2 | % | 86.2 | % | 86.2 | % |
3100 Clarendon Boulevard | Arlington | VA | 100.0% | 1987 | 250 | 98.4 | % | 98.4 | % | 98.4 | % |
400 Virginia Avenue | Washington | DC | 100.0% | 1985 | 224 | 87.1 | % | 87.1 | % | 87.1 | % |
4250 North Fairfax Drive | Arlington | VA | 100.0% | 1998 | 305 | 91.8 | % | 91.8 | % | 91.8 | % |
9211 Corporate Boulevard | Rockville | MD | 100.0% | 1989 | 115 | 100.0 | % | 100.0 | % | 100.0 | % |
9221 Corporate Boulevard | Rockville | MD | 100.0% | 1989 | 115 | 100.0 | % | 100.0 | % | 100.0 | % |
One Independence Square | Washington | DC | 100.0% | 1991 | 334 | 0.3 | % | 0.3 | % | 0.3 | % |
9200 Corporate Boulevard | Rockville | MD | 100.0% | 1982 | 109 | 100.0 | % | 100.0 | % | 100.0 | % |
11109 Sunset Hills Road | Reston | VA | 100.0% | 1984 | 41 | 0.0% | 0.0% | 0.0% | |||
Two Independence Square | Washington | DC | 100.0% | 1991 | 561 | 100.0 | % | 100.0 | % | 100.0 | % |
Piedmont Pointe I | Bethesda | MD | 100.0% | 2007 | 186 | 68.8 | % | 68.8 | % | 68.8 | % |
Piedmont Pointe II | Bethesda | MD | 100.0% | 2008 | 223 | 54.7 | % | 51.6 | % | 50.7 | % |
Arlington Gateway (3) | Arlington | VA | 100.0% | 2005 | 323 | 93.2 | % | 93.2 | % | 93.2 | % |
Metropolitan Area Subtotal / Weighted Average | 3,381 | 81.0 | % | 80.7 | % | 80.7 | % | ||||
Grand Total | 21,106 | 86.7 | % | 84.5 | % | 78.6 | % | ||||
(1) | 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). |
(2) | Although Piedmont owns 49.5% of the asset, it is entitled to 100% of the cash flows under the terms of the property ownership entity's joint venture agreement. |
(3) | The property consists of approximately 334,000 square feet; however, due to the square footages referenced in several leases, the rentable square footage is currently 323,000 square feet. As the existing leases expire, the affected spaces will be re-leased to the correct square footages. |
48
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,” “believe,” “continue” or similar words or phrases that are predictions of future events or trends and which do not relate solely to historical matters.
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: market and economic conditions remain challenging and the demand for office space, rental rates and property values may continue to lag the general economic recovery causing our business, results of operations, cash flows, financial condition and access to capital to be adversely affected or otherwise impact performance, including the potential recognition of impairment charges; the success of our real estate strategies and investment objectives, including our ability to identify and consummate suitable acquisitions; acquisitions of properties may have unknown risks and other liabilities at the time of acquisition; lease terminations or lease defaults, particularly by one of our large lead tenants; 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 of the office market in general and of the specific markets in which we operate, particularly in Chicago, Washington, D.C., and the New York metropolitan area; economic and regulatory changes, including accounting standards, that impact the real estate market generally; additional risks and costs associated with directly managing properties occupied by government tenants; adverse market and economic conditions may continue to adversely affect us and could cause us to recognize impairment charges or otherwise impact our performance; availability of financing and our lending banks' ability to honor existing line of credit commitments; we have significant indebtedness and may not be able to meet our debt service obligations; costs of complying with governmental laws and regulations; 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; we may be subject to litigation, which could have a material adverse effect on our financial condition; our ability to continue to qualify as a real estate investment trust under the Internal Revenue Code; and other factors detailed in our 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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