8-K


 

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):  November 9, 2015
 
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 November 9, 2015, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the third quarter 2015, and published supplemental information for the third quarter 2015 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 November 9, 2015.
 
 
 
99.2
 
Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Third Quarter 2015.









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: November 9, 2015
 
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 November 9, 2015.
 
 
 
99.2
 
Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Third Quarter 2015.




Exhibit


EXHIBIT 99.1

Piedmont Office Realty Trust Reports Third Quarter 2015 Results
ATLANTA, November 9, 2015 --Piedmont Office Realty Trust, Inc. ("Piedmont" or the "Company") (NYSE:PDM), an owner of primarily Class A office properties located in select sub-markets of major U.S. cities, today announced its results for the quarter ended September 30, 2015.

Highlights for the Three Months Ended September 30, 2015:

Reported Core Funds From Operations ("Core FFO") of $0.41 per diluted share and Adjusted Funds from Operations ("AFFO") of $0.35 per diluted share;
Achieved 11% and 12% growth in cash-basis Property Net Operating Income ("NOI") and Same Store NOI, respectively, as compared to third quarter of the prior year;
Completed over 900,000 square feet of leasing, two-thirds of which related to new tenant leasing, including approximately 114,000 and 354,000 square feet in D.C. and Chicago, respectively;
Sold three non-core assets totaling approximately $66.5 million resulting in a $17.1 million gain and purchased one asset in metropolitan Boston;
Entered into binding contracts to sell its largest asset, Aon Center, in downtown Chicago for $712 million;
Repurchased 6.2 million shares of its common stock at an average price of $17.76 per share.
With the intent of utilizing some of the Aon sales proceeds, entered into a binding contract to purchase a two asset portfolio comprised of two Class A assets - Galleria 300 in Atlanta, GA and SunTrust Center in Orlando, FL; and
Achieved year-end target leased percentage of over 90%.

Commenting on third quarter and recent activity, Donald A. Miller, CFA, President and Chief Executive Officer, said, "The sale of Aon Center was a watershed event for us, and we are pleased with both the execution of the sale and the fact that we were able to redeploy a portion of the sales proceeds into two premier assets within two of our targeted Sunbelt markets in such short order. In addition, the displacement in the broader equity market during the third quarter was providential, as it allowed us to opportunistically repurchase a significant number of our shares in anticipation of the receipt of the Aon proceeds. The seamless execution of all of those transactions, combined with several other sales of non-core assets and solid leasing and financial results, made for a noteworthy quarter for Piedmont.”

Results for the Quarter ended September 30, 2015

Piedmont recognized a net loss available to common stockholders for the third quarter of 2015 of $1.9 million, or $0.01 per diluted share, as a result of recording a $34.8 million, or $0.23 per diluted share, loss on impairment associated with the decision to sell 2 Gatehall Drive in Parsippany, NJ. The current quarter's results also reflect approximately $17.1 million, or $0.11 per diluted share, in gain related to the





sales of three assets during the quarter and increased revenue due to properties acquired since the third quarter of the prior year. These increases were partially offset by increased general and administrative expense during the current quarter as a result of accruing for potential performance-based compensation driven by improved operating results and stock performance.

Revenues for the quarter ended September 30, 2015 were $148.8 million, as compared with $144.6 million for the same period a year ago, primarily attributable to new leases commencing since the third quarter of the prior year. Property operating costs were $61.7 million for the quarter ended September 30, 2015, comparable to $62.0 million in the third quarter of the prior year.

Both Funds From Operations ("FFO") and Core FFO, which exclude the loss on impairment and gain on sales mentioned above as well as depreciation and amortization expense, were $0.41 per diluted share for the current quarter, an increase of $0.03 per diluted share over the same metrics in the third quarter of the prior year. This increase was the result of the commencement of several significant leases and the expiration of various operating expense abatement periods since the third quarter of the prior year, partially offset by increased general and administrative expense during the current quarter as a result of accruing for potential performance-based compensation driven by improved operating results and stock performance.
 
AFFO for the third quarter of 2015 totaled $52.4 million, or $0.35 per diluted share, compared to $21.8 million, or $0.14 per diluted share, in the third quarter of 2014, primarily due to the same factors mentioned above, as well as decreased non-incremental capital expenditures as a result of the completion of certain large tenant build-outs and the effect of straight-line rent adjustments related to the expiration of rental abatement periods since the third quarter of 2014.

All per share results were favorably impacted by the repurchase of approximately 9 million shares since the third quarter of the prior year, including 6.2 million shares repurchased during the three months ended September 30, 2015.

Leasing Update

The Company's leasing volume for the three months ended September 30, 2015 totaled over 900,000 square feet, including approximately 600,000 square feet, or 67%, of new tenant leasing. Highlights of new leasing for the quarter included a previously announced, approximately 170,000 square foot, 12+ year lease with Kraft-Heinz Food Company at Aon Center in downtown Chicago; a 150,000 square foot, 12-year lease with Motorola Solutions, Inc. at 500 West Monroe, also in downtown Chicago; and a 100,000 square foot, 11+ year lease with the International Food Policy Research Institute at 1201 Eye Street in Washington, D.C.

The Company's overall portfolio was approximately 90.6% leased as of September 30, 2015, up over 300 basis points from 87.5% a year ago, and the weighted average lease term remaining was approximately 7.1 years as of September 30, 2015. Cash basis Property NOI for the quarter was $83.4 million, a 10.7% increase from $75.4 million in the third quarter of 2014, primarily reflecting continued improvement in the Company's economic occupancy as certain significant leases commenced and abatement periods continued to expire, as well as the contribution from acquisitions over the last twelve months. As of September 30, 2015, the Company had approximately 1.1 million square feet of commenced leases that were in some form of abatement, as well as approximately 0.7 million square feet of executed leases for currently vacant space yet to commence. Details outlining Piedmont's significant upcoming lease expirations, the status of current leasing activity, and a schedule of significant near-term abatement periods





can be found in the Company's quarterly supplemental information package available at www.piedmontreit.com.

Transactional Activity

During the three months ended September 30, 2015, Piedmont acquired 80 Central Street, an approximately 150,000 square foot, Class A, office building located in the Interstate 495/Route 2 sub-market of Boxborough, MA. 80 Central Street is adjacent to and shares certain infrastructure with the Company's existing 90 Central Street asset. The building, which is currently 93% leased to seven tenants, was acquired for $13.5 million ($90 per square foot).

Additionally, during the quarter ended September 30, 2015, the Company disposed of:

Eastpoint I & II, sister buildings totaling approximately 171,000 square feet, in Mayfield Heights, OH for $18.5 million ($108 per square foot). The sale of these two assets concludes the Company's exit from the Cleveland, OH market;
3750 Brookside Pkwy, an approximate 105,000 square foot, 92% leased building located in Alpharetta, GA, for approximately $14.1 million ($134 per square foot); and
Chandler Forum, a 150,000 square foot, single-tenant building located in Phoenix, AZ for $33.9 million ($226 per square foot).

The sales of the above assets resulted in a $17.1 million gain that is included in the Company's operational results for the three months ended September 30, 2015.

As previously announced, during the third quarter the Company entered into a binding contract to sell Aon Center, a 2.7 million square foot office tower located at 200 East Randolph Street in downtown Chicago and 87% leased to multiple tenants for a gross sales price of $712 million (approximately $260 per square foot). The transaction closed subsequent to quarter end and resulted in net sales proceeds of approximately $646.1 million after deducting closing costs, buyer-assumed lease abatements, and contractual tenant capital improvements and leasing commissions. During the third quarter, Piedmont used approximately $110 million of its $500 million credit facility in anticipation of receiving proceeds from the Aon transaction to repurchase approximately 6.2 million shares of its common stock at an average price of $17.76 per share. As of September 30, 2015, the Company had approximately $80 million of remaining authorized capacity available for future purchases under the stock repurchase program. Subsequent to quarter end, an additional $259.1 million of the anticipated Aon proceeds was used to acquire two assets located in the Company's target markets as follows:

Galleria 300, an approximately 430,000 square foot Class A office building prominently located within the master-planned "Galleria" development in Atlanta's Cumberland/Galleria office submarket. In addition to extraordinary visibility and accessibility, Galleria 300 is surrounded by extensive walkable amenities including, among others, Cobb Galleria Centre and SunTrust Park, the new Atlanta Braves stadium currently scheduled to be completed in 2017. Galleria 300 is currently 89% leased to 22 high-quality tenants, including anchor tenant Travelport.

SunTrust Center, a two-building, approximately 650,000 square foot Class A trophy office complex located at the epicenter of Orlando's central business district. Widely considered to be one of the premiere office assets in Florida, SunTrust Center is currently 89% leased to a host of tenants, including anchor tenant SunTrust Bank, as well as some of the nations most prestigious law firms. The purchase also includes an adjoining 1,292 space parking garage.






Additionally, subsequent to quarter end Piedmont entered into a binding contract to sell 2 Gatehall Drive, an approximately 400,000 square foot office building located in Parsippany, NJ and 100% leased to two tenants, for $51.0 million ($126 per square foot). As previously mentioned, Piedmont recorded a $34.8 million impairment loss related to this asset in the Company's statement of operations for the three months ended September 30, 2015.

Other Events

Fourth Quarter Dividend Declaration

On November 9, 2015, the board of directors of Piedmont declared dividends for the fourth quarter 2015 in the amount of $0.21 per share on its common stock to stockholders of record as of the close of business on November 27, 2015, payable on December 18, 2015.

Guidance for 2015

Based on management's expectations of operational results for the remainder of 2015 and including the effects of the capital transaction activity mentioned above, the Company affirms its previous guidance for full-year 2015 as follows:
(in millions, except per share data)
 
Low
 
High
Net Income
 
$171
-
$175
Add: Depreciation, Amortization, and Other
 
234

-
238
Less: Gain on Sale of Real Estate Assets
 
(165
)
-
(169)
Core FFO
 
$240
-
$244
Core FFO per diluted share
 
$1.59
-
$1.62

These estimates reflect management's view of current market conditions and incorporate certain economic and operational assumptions and projections. Actual results could differ materially from these estimates based on a variety of factors, including those discussed under "Forward Looking Statements" below. Note that individual quarters may fluctuate on both a cash basis and an accrual basis due to lease commencements and expirations, abatement periods, the timing of repairs and maintenance, capital expenditures, capital markets activities, seasonal general and administrative expenses, 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 NOI, Property NOI, 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 Tuesday, November 10, 2015 at 10:00 A.M. Eastern standard time. The live audio web cast of the call may be accessed on the Company's website at www.piedmontreit.com in the Investor Relations section. Dial-in numbers are (877) 407-0778





for participants in the United States and Canada and (201) 689-8565 for international participants. A replay of the conference call will be available through November 24, 2015, and may be accessed by dialing (877)660-6853 for participants in the United States and Canada and (201) 612-7415 for international participants, followed by conference identification code 13621873. 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 2015 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, 2015 can be accessed on the Company`s website under the Investor Relations section at www.piedmontreit.com.

About Piedmont Office Realty Trust

Piedmont Office Realty Trust, Inc. (NYSE: PDM) is an owner, manager, developer, and operator of high-quality, Class A office properties located in select sub-markets of major U.S. cities. Its geographically-diversified, over $5 billion portfolio is comprised of more than 19 million square feet. The Company is a fully-integrated, self-managed real estate investment trust (REIT) with local management offices in each of its major markets and is investment-grade rated by Standard & Poor’s (BBB) and Moody’s (Baa2). For more information, see www.piedmontreit.com.

Forward Looking Statements

Certain statements contained in this press release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company intends for all such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such information is subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of the Company`s performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "believe," "continue" or similar words or phrases that are predictions of future events or trends and which do not relate solely to historical matters. Examples of such statements in this press release include, but are not limited to the Company's estimated range of Net Income, Depreciation, Amortization and Other, Gain on Sale of Real Estate Assets, Core FFO and Core FFO per diluted share for the year ending December 31, 2015.

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 and divestitures; 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 affecting





the office market in general and 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, 2014, 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
 
 
 
Unaudited (in thousands)
 
 
 
 
September 30, 2015
 
December 31, 2014
 
(unaudited)
 
 
Assets:
 
 
 
Real estate assets, at cost:
 
 
 
Land
$
671,832

 
$
674,554

Buildings and improvements
3,589,298

 
3,631,580

Buildings and improvements, accumulated depreciation
(933,717
)
 
(889,997
)
Intangible lease assets
148,403

 
150,037

Intangible lease assets, accumulated amortization
(87,633
)
 
(79,860
)
Construction in progress
75,083

 
61,891

Real estate assets held for sale, gross
668,997

 
735,295

Real estate assets held for sale, accumulated depreciation and amortization
(198,150
)
 
(208,408
)
Total real estate assets
3,934,113

 
4,075,092

Investments in and amounts due from unconsolidated joint ventures
7,652

 
7,798

Cash and cash equivalents
7,702

 
12,306

Tenant receivables, net of allowance for doubtful accounts
26,748

 
27,711

Straight line rent receivables
149,060

 
146,836

Notes receivable
45,400

 

Restricted cash and escrows
37,705

 
5,679

Prepaid expenses and other assets
31,764

 
25,656

Goodwill
180,097

 
180,097

Interest rate swaps

 
430

Deferred financing costs, less accumulated amortization
7,220

 
7,667

Deferred lease costs, less accumulated amortization
231,379

 
228,953

Other assets held for sale, net
81,034

 
77,276

Total assets
$
4,739,874

 
$
4,795,501

Liabilities:
 
 
 
Unsecured debt, net of discount
$
1,925,863

 
$
1,828,544

Secured debt
502,456

 
449,045

Accounts payable, accrued expenses, and accrued capital expenditures
132,741

 
133,988

Deferred income
26,087

 
22,215

Intangible lease liabilities, less accumulated amortization
38,896

 
42,560

Interest rate swaps
20,526

 
6,417

Other liabilities held for sale, net
567

 
717

Total liabilities
2,647,136

 
2,483,486

Stockholders' equity :
 
 
 
Common stock
1,456

 
1,543

Additional paid in capital
3,669,154

 
3,666,182

Cumulative distributions in excess of earnings
(1,570,377
)
 
(1,365,620
)
Other comprehensive income
(8,524
)
 
8,301

Piedmont stockholders' equity
2,091,709

 
2,310,406

Non-controlling interest
1,029

 
1,609

Total stockholders' equity
2,092,738

 
2,312,015

Total liabilities and stockholders' equity
$
4,739,874

 
$
4,795,501

 
 
 
 
Number of shares of common stock outstanding at end of period
145,634

 
154,324







Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
Consolidated Statements of Income
 
 
 
 
 
 
 
Unaudited (in thousands, except for per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
9/30/2015
 
9/30/2014
 
9/30/2015
 
9/30/2014
Revenues:
 
 
 
 
 
 
 
Rental income
$
117,994

 
$
114,529

 
$
353,255

 
$
338,720

Tenant reimbursements
30,273

 
29,579

 
90,476

 
79,253

Property management fee revenue
548

 
533

 
1,577

 
1,568

Total revenues
148,815

 
144,641

 
445,308

 
419,541

Expenses:
 
 
 
 
 
 
 
Property operating costs
61,677

 
62,027

 
187,392

 
177,434

Depreciation
31,199

 
35,366

 
103,470

 
103,154

Amortization
14,021

 
14,235

 
43,646

 
42,407

Impairment loss on real estate assets
34,815

 

 
40,169

 

General and administrative
8,236

 
5,814

 
22,726

 
17,514

Total operating expenses
149,948

 
117,442

 
397,403

 
340,509

Real estate operating income/(loss)
(1,133
)
 
27,199

 
47,905

 
79,032

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(18,832
)
 
(18,654
)
 
(56,020
)
 
(55,592
)
Other income
803

 
524

 
1,218

 
68

Net recoveries/(loss) from casualty events and litigation settlements

 
(8
)
 

 
4,514

Equity in income/(loss) of unconsolidated joint ventures
135

 
89

 
418

 
(510
)
Total other expense
(17,894
)
 
(18,049
)
 
(54,384
)
 
(51,520
)
Income/Loss from continuing operations
(19,027
)
 
9,150

 
(6,479
)
 
27,512

Discontinued operations:
 
 
 
 
 
 
 
Operating income
16

 
16

 
13

 
996

Gain/(loss) on sale of real estate assets
(2
)
 

 
(2
)
 
1,198

Income from discontinued operations
14

 
16

 
11

 
2,194

Gain on sale of real estate
17,142

 

 
53,826

 
1,140

Net income/(loss)
(1,871
)
 
9,166

 
47,358

 
30,846

Less: Net income attributable to noncontrolling interest
(4
)
 
(4
)
 
(12
)
 
(12
)
Net income/(loss) attributable to Piedmont
$
(1,875
)
 
$
9,162

 
$
47,346

 
$
30,834

Weighted average common shares outstanding - diluted
149,176

 
154,561

 
152,499

 
154,665

Per Share Information -- diluted:
 
 
 
 
 
 
 
Income/(loss) from continuing operations and gain on sale of real estate assets
$
(0.01
)
 
$
0.06

 
$
0.31

 
$
0.19

Income from discontinued operations
$

 
$

 
$

 
$
0.01

Net income/(loss) available to common stockholders
$
(0.01
)
 
$
0.06

 
$
0.31

 
$
0.20






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
 
9/30/2015
 
9/30/2014
 
9/30/2015
 
9/30/2014
GAAP net income/(loss) applicable to common stock
$
(1,875
)
 
$
9,162

 
$
47,346

 
$
30,834

Depreciation (1) (2)
31,093

 
35,286

 
103,125

 
103,132

Amortization (1)
14,037

 
14,248

 
43,694

 
42,660

Impairment loss on real estate asset
34,815

 

 
40,169

 

Gain on sale of real estate assets (1)
(17,140
)
 

 
(53,824
)
 
(2,169
)
NAREIT funds from operations applicable to common stock*
60,930

 
58,696

 
180,510

 
174,457

Acquisition costs
128

 
110

 
275

 
539

Loss on extinguishment of swaps

 

 
132

 

Net recoveries/(loss) from casualty events

 
8

 

 
(4,514
)
Core funds from operations applicable to common stock*
61,058

 
58,814

 
180,917

 
170,482

Deferred financing cost amortization
718

 
598

 
2,122

 
2,076

Amortization of note payable step-up
(121
)
 
(120
)
 
(363
)
 
(126
)
Amortization of discount on Senior Notes
49

 
47

 
146

 
128

Depreciation of non real estate assets
168

 
141

 
529

 
370

Straight-line effects of lease revenue (1)
(2,519
)
 
(6,780
)
 
(10,774
)
 
(23,950
)
Stock-based and other non-cash compensation expense
2,622

 
1,139

 
5,039

 
3,046

Net effect of amortization of above or below-market in-place lease intangibles (1)
(1,145
)
 
(1,010
)
 
(3,369
)
 
(3,653
)
Acquisition costs
(128
)
 
(110
)
 
(275
)
 
(539
)
Non-incremental capital expenditures (3)
(8,269
)
 
(30,890
)
 
(30,197
)
 
(70,862
)
Adjusted funds from operations applicable to common stock*
$
52,433

 
$
21,829

 
$
143,775

 
$
76,972

Weighted average common shares outstanding - diluted
149,176

 
154,561

 
152,499

 
154,665

Funds from operations per share (diluted)
$
0.41

 
$
0.38

 
$
1.19

 
$
1.13

Core funds from operations per share (diluted)
$
0.41

 
$
0.38

 
$
1.19

 
$
1.10

Adjusted funds from operations per share (diluted)
$
0.35

 
$
0.14

 
$
0.94

 
$
0.50


(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 extinguishment of swaps, 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
 
9/30/2015
 
9/30/2014
 
 
 
 
Net income/(loss) attributable to Piedmont
$
(1,875
)
 
$
9,162

Net income attributable to noncontrolling interest
4

 
4

Interest expense
18,832

 
18,654

Depreciation (1)
31,261

 
35,427

Amortization (1)
14,037

 
14,248

Acquisition costs
128

 
110

Impairment loss on real estate asset
34,815

 

Net loss from casualty events and litigation settlements

 
8

Gain on sale of real estate assets (1)
(17,140
)
 

Core EBITDA*
80,062

 
77,613

General & administrative expenses (1)
8,246

 
5,808

Management fee revenue
(329
)
 
(299
)
Other income/(expense) (1)
(931
)
 
21

Straight line effects of lease revenue (1)
(2,519
)
 
(6,780
)
Amortization of lease-related intangibles (1)
(1,145
)
 
(1,010
)
Property Net Operating Income (cash basis)*
83,384

 
75,353

Acquisitions
(3,190
)
 
(1,387
)
Dispositions
(429
)
 
(2,885
)
Other investments
(276
)
 
(214
)
Same Store NOI (cash basis)*
$
79,489

 
$
70,867

Change period over period in Property NOI
10.7
%
 
N/A

Change period over period in Same Store NOI
12.2
%
 
N/A


(1) Includes amounts attributable to consolidated properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures.

*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 net operating 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



EXHIBIT 99.2







Quarterly Supplemental Information
September 30, 2015










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
 
Company Metrics after Aon Center Sale
Funds From Operations / Adjusted Funds From Operations
 
Risks, Uncertainties and Limitations
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
 
 
 
 
 
 
 
 



Notice to Readers:
Please refer to page 50 for a discussion of important risks related to the business of Piedmont Office Realty Trust, Inc., as well as an investment in its securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information. Considering these risks, uncertainties, assumptions, and limitations, the forward-looking statements about leasing, financial operations, leasing prospects, etc. contained in this quarterly supplemental information report 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. Prior to the second quarter of 2014, when the Company sold properties or was under a binding contract to sell properties, it restated historical income statements with the financial results of the sold or under contract 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 an owner, manager, developer and operator of high-quality, Class A office properties located in select sub-markets of major U.S. cities. Its geographically-diversified, over $5 billion portfolio is comprised of 19 million square feet (as of the date of release of this report). The Company is a fully-integrated, self-managed real estate investment trust ("REIT") with local management offices in each of its major markets and is investment-grade rated by Standard & Poor’s and Moody’s. Piedmont is headquartered in Atlanta, GA.


This data supplements the information provided in our reports filed with the Securities and Exchange Commission and should be reviewed in conjunction with such filings.
 
As of
 
As of
 
September 30, 2015
 
December 31, 2014
Number of consolidated office properties (1)
68
 
74
Rentable square footage (in thousands) (1)
20,697
 
21,471
Percent leased (2)
90.6
%
 
87.7
%
Capitalization (in thousands):
 
 
 
Total debt - principal amount outstanding
$2,433,247
 
$2,279,787
Equity market capitalization (3)
$2,605,390
 
$2,907,466
Total market capitalization (3)
$5,038,637
 
$5,187,253
Total debt / Total market capitalization (3)
48.3
%
 
43.9
%
Total debt / Total gross assets
40.8
%
 
38.2
%
Common stock data:
 
 
 
High closing price during quarter
$18.86
 
$20.00
Low closing price during quarter
$16.74
 
$17.61
Closing price of common stock at period end
$17.89
 
$18.84
Weighted average fully diluted shares outstanding during quarter (in thousands)
149,176
 
154,420
Shares of common stock issued and outstanding (in thousands) at period end
145,634
 
154,324
Annual dividend per share (4)
$0.84
 
$0.81
Rating / outlook
 
 
 
Standard & Poor's
BBB / Stable

 
BBB / Stable

Moody's
Baa2 / Stable

 
Baa2 / Stable

Employees
136
 
130


(1)
As of September 30, 2015, our consolidated office portfolio consisted of 68 properties (exclusive of our equity interest in one property owned through an unconsolidated joint venture, two properties under development, and one property that was taken out of service for redevelopment on January 1, 2014, 3100 Clarendon Boulevard in Arlington, VA). During the first quarter of 2015, we sold 3900 Dallas Parkway, a 120,000 square foot office building located in Plano, TX, and acquired Park Place on Turtle Creek, a 178,000 square foot office building located in Dallas, TX. During the second quarter of 2015, we sold 5601 Headquarters Drive, a 166,000 square foot office building located in Plano, TX, River Corporate Center, a 133,000 square foot office building located in Tempe, AZ, and Copper Ridge Center, a 268,000 square foot office building located in Lyndhurst, NJ. During the third quarter of 2015, we sold Eastpoint I and II, two office buildings consisting of 170,000 square feet located in Mayfield Heights, OH, 3750 Brookside Parkway, a 105,000 square foot office building located in Alpharetta, GA, and Chandler Forum, a 150,000 square foot office building located in Chandler, AZ, and acquired 80 Central Street, a 150,000 square foot office building located in Boxborough, MA. For additional detail on asset transactions, please refer to page 37.
(2)
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, two development properties, and one out of service property. Please refer to page 27 for additional analyses regarding Piedmont's leased percentage.
(3)
Reflects common stock closing price as of the end of the reporting period.
(4)
Total of the per share dividends paid over the prior four quarters.

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
Raymond L. Owens
Chief Executive Officer, President
Chief Financial Officer and Executive
Chief Accounting Officer and
Executive Vice President,
and Director
Vice President
Senior Vice President
Capital Markets
 
 
 
 
Joseph H. Pangburn
Thomas R. Prescott
Carroll A. Reddic, IV
C. Brent Smith
Executive Vice President,
Executive Vice President,
Executive Vice President,
Executive Vice President,
Southwest Region
Midwest Region
Real Estate Operations and Assistant
New York Region and Strategic
 
 
Secretary
Investments
 
 
 
 
George Wells
Robert K. Wiberg
 
 
Executive Vice President,
Executive Vice President,
 
 
Southeast Region
Mid-Atlantic Region and
 
 
 
Head of Development
 
 
 
 
 
 
Board of Directors
 
 
 
 
Michael R. Buchanan
Wesley E. Cantrell
Barbara B. Lang
Frank C. McDowell
Director and Chairman of the
Director and Chairman of
Director
Director, Vice Chairman of the
Board of Directors
Governance Committee
 
Board of Directors and Chairman
 
 
 
of Compensation Committee
 
 
 
 
Donald A. Miller, CFA
Raymond G. Milnes, Jr.
Jeffery L. Swope
Dale H. Taysom
Chief Executive Officer, President
Director and Chairman of
Director and Chairman of
Director
and Director
Audit Committee
Capital Committee
 
 
 
 
 
 
 
 
 
 
 
 
 

Transfer Agent
Corporate Counsel
 
 
Computershare
King & Spalding
P.O. Box 30170
1180 Peachtree Street, NE
College Station, TX 77842-3170
Atlanta, GA 30309
Phone: 866.354.3485
Phone: 404.572.4600


4



Piedmont Office Realty Trust, Inc.
Financial Highlights
As of September 30, 2015


Financial Results (1) 

Funds from operations (FFO) for the quarter ended September 30, 2015 was $60.9 million, or $0.41 per share (diluted), compared to $58.7 million, or $0.38 per share (diluted), for the same quarter in 2014. FFO for the nine months ended September 30, 2015 was $180.5 million, or $1.19 per share (diluted), compared to $174.5 million, or $1.13 per share (diluted), for the same period in 2014. The increase in FFO for the three months and the nine months ended September 30, 2015 as compared to the same periods in 2014 was primarily attributable to operating income contributions from 1) the commencement of leases representing net absorption of available space in the portfolio, and 2) new or renewal leases under which operating expense recovery abatements have expired, both of which were partially offset by 3) increased general and administrative expense in 2015 primarily related to higher accrued potential performance-based compensation expense as a result of the Company's stock performance relative to peers. The increase in FFO for the nine months ended September 30, 2015 as compared to the same period in 2014 was also partially offset by non-recurring insurance recoveries included in 2014 results.

Core funds from operations (Core FFO) for the quarter ended September 30, 2015 was $61.1 million, or $0.41 per share (diluted), compared to $58.8 million, or $0.38 per share (diluted), for the same quarter in 2014. Core FFO for the nine months ended September 30, 2015 was $180.9 million, or $1.19 per share (diluted), compared to $170.5 million, or $1.10 per share (diluted), for the same period in 2014. Core FFO is defined as FFO with incremental adjustments for certain non-recurring items such as net insurance recoveries or losses, acquisition-related costs and other significant non-recurring items. The change in Core FFO for the three months and the nine months ended September 30, 2015 as compared to the same periods in 2014 was primarily attributable to the items described above for changes in FFO, with the exception of non-recurring insurance recoveries, which are excluded from Core FFO.

Adjusted funds from operations (AFFO) for the quarter ended September 30, 2015 was $52.4 million, or $0.35 per share (diluted), compared to $21.8 million, or $0.14 per share (diluted), for the same quarter in 2014. AFFO for the nine months ended September 30, 2015 was $143.8 million, or $0.94 per share (diluted), compared to $77.0 million, or $0.50 per share (diluted), for the same period in 2014. The increase in AFFO for the three months and the nine months ended September 30, 2015 as compared to the same periods in 2014 was primarily related to the items described above for changes in FFO and Core FFO, as well as lesser amounts of straight line rent adjustments and non-incremental capital expenditures in 2015 when compared to 2014. Piedmont experienced a period of high lease expirations from 2011 to 2013. Given the competitive leasing environment over the last several years, many of the leases that the Company entered into during that period included rental abatements, which typically occur at the beginning of a new lease's term. Most of the new or renewal leases with rental abatements are in the early stages of the new leases' terms, resulting in temporarily higher straight line rent adjustments for Piedmont. As the rental abatement periods continue to expire, the straight line rent adjustments will continue to decrease. The higher non-incremental capital expenditures in 2014 when compared to 2015 were also related to the high volume of lease transactions completed during the period from 2011 to 2013.

The changes in per share amounts of FFO, Core FFO and AFFO for the three months and the nine months ended September 30, 2015 as compared to the same periods in 2014 were also impacted by the reduced weighted average shares outstanding in 2015 as a result of the Company's stock repurchase program. Since the beginning of 2014, Piedmont has repurchased 12.0 million shares at an average price of $17.37 per share.

Operations & Leasing

On a square footage leased basis, our total office portfolio was 90.6% leased as of September 30, 2015, as compared to 88.8% in the prior quarter and 87.5% a year earlier. Please refer to page 27 for additional leased percentage information.

The weighted average remaining lease term of our portfolio was 7.1 years(2) as of September 30, 2015 as compared to 7.1 years at December 31, 2014.


(1)
FFO, Core FFO and AFFO are supplemental non-GAAP financial measures. See page 39 for definitions of non-GAAP financial measures. See pages 15 and 41 for reconciliations of FFO, Core FFO and AFFO to Net Income.
(2)
Remaining lease term (after taking into account leases for vacant spaces which had been executed but not commenced as of September 30, 2015) is weighted based on Annualized Lease Revenue, as defined on page 39.

5




As previously disclosed, Piedmont commenced the redevelopment of its 3100 Clarendon Boulevard property, a 262,000 square foot office and retail property located in Arlington, VA, during the first quarter of 2014. The building's retail tenants have remained in occupancy during the redevelopment. Therefore, from an accounting standpoint, the office component of the building was taken out of service and the retail portion of the building, comprised of approximately 28,000 square feet, remained in service during the redevelopment. However, for the purposes of statistical reporting throughout this supplemental report, the entire building has been removed from Piedmont's operating portfolio. For additional information regarding the redevelopment of 3100 Clarendon Boulevard, please refer to the Financing and Capital Activity section within the Financial Highlights of this report.

During the three months ended September 30, 2015, the Company completed 901,000 square feet of total leasing. Of the total leasing activity during the quarter, we signed renewal leases for approximately 303,000 square feet and new tenant leases for approximately 598,000 square feet. During the nine months ended September 30, 2015, we completed 2,290,000 square feet of leasing for our consolidated office properties, consisting of 992,000 square feet of renewal leases and 1,298,000 square feet of new tenant leases. The average committed tenant improvement cost per square foot per year of lease term for renewal leases signed at our consolidated office properties during the nine months ended September 30, 2015 was $2.58 and the same measure for new leases was $5.53 (see page 33).

During the three months ended September 30, 2015, we executed seven leases greater than 20,000 square feet with lengths of term of more than one year at our consolidated office properties. Information on those leases is set forth below.
Tenant
Property
Property Location
Square Feet
Leased
Expiration
Year
Lease Type
Kraft Heinz Foods Company
Aon Center
Chicago, IL
169,717
2029
New
Motorola Solutions, Inc.
500 West Monroe Street
Chicago, IL
150,345
2028
New
International Food Policy Research Institute
1201 Eye Street
Washington, DC
101,937
2029
New
Greensky Trade Credit, LLC
Glenridge Highlands Two
Atlanta, GA
36,347
2021
New
NCH Management Systems, Inc.
Fairway Center II
Brea, CA
34,574
2022
Renewal / Expansion
KPMG, LLP
Aon Center
Chicago, IL
31,611
2027
Expansion
PlainsCapital Bank
Park Place on Turtle Creek
Dallas, TX
31,550
2025
Renewal

As of September 30, 2015, there were two tenants whose leases were scheduled to expire during the eighteen month period following the end of the third quarter of 2015 which individually contributed greater than 1% in net Annualized Lease Revenue ("ALR"). Information regarding the leasing status of the spaces associated with these tenants' leases is presented below.
Tenant
Property
Property Location
Net
Square
Footage
Expiring
Net Percentage of
Current Quarter
Annualized Lease
Revenue Expiring
(%)
Expiration
Current Leasing Status
KeyBank
2 Gatehall Drive
Parsippany, NJ
200,000
1.0%
Q1 2016
The tenant is not expected to renew its lease. The space is actively being marketed, and discussions are underway with prospective tenants to lease portions of the space.
Harcourt
Braker Pointe III
Austin, TX
195,230
1.1%
Q2 2016
The primary tenant will vacate upon lease expiration. Discussions with current subtenants for direct leases are ongoing. The Company is actively marketing the remainder of the space for lease.

Future Lease Commencements and Abatements

As of September 30, 2015, our overall leased percentage was 90.6% and our economic leased percentage was 83.0%. The difference between overall leased percentage and economic leased percentage is attributable to two factors:

1.
leases which have been contractually entered into for currently vacant spaces but have not yet commenced (amounting to approximately 674,000 square feet of leases as of September 30, 2015, or 3.2% 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 1.1 million square feet of leases as of September 30, 2015, or a 4.4% impact to leased percentage on an economic basis).

6




Piedmont has leases with many large corporate office space users. The average size of lease in the Company's portfolio is approximately 27,000 square feet. Due to the large size and length of term of new leases, Piedmont typically signs leases several months in advance of their anticipated lease commencement dates. Presented below is a schedule of uncommenced leases greater than 50,000 square feet and their anticipated commencement dates. Lease renewals are excluded from this schedule.
Tenant
Property
Property Location
Square Feet
Leased
Space Status
Estimated
Commencement
Date
New /
Expansion
United States of America
(Corporation for National and Community Service)
One Independence Square
Washington, DC
84,606
Vacant
Q4 2015
New
Motorola Solutions, Inc.
500 West Monroe Street
Chicago, IL
150,345
Vacant
Q3 2016
New
Norris, McLaughlin & Marcus, P.A.
400 Bridgewater Crossing
Bridgewater, NJ
61,642
Not Vacant
Q4 2016
New
Kraft Heinz Foods Company
Aon Center
Chicago, IL
169,717
Vacant
Q1 2017
New
Continental Casualty Company
500 TownPark
Lake Mary, FL
108,000
Under Development
Q1 2017
New
International Food Policy Research Institute (1)
1201 Eye Street
Washington, DC
101,937
Partially Vacant
Q2 2017 / Q2 2018
New


Due to the current economic environment, many recently negotiated leases provide for rental abatement concessions to tenants. Rental abatements typically occur at the beginning of a new lease's term. Since the Company's IPO in 2010, Piedmont has signed approximately 16.8 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 temporarily impacted the Company's current cash net operating income and AFFO.

Presented below is a schedule of leases with abatements of greater than 50,000 square feet that are either currently under abatement or will be so within the next twelve months.
Tenant
Property
Property Location
Square Feet
Remaining Abatement Schedule
Lease Expiration
Advanced Micro Devices
90 Central Street
Boxborough, MA
107,244
March through November 2015
Q4 2020
Catamaran
Windy Point II
Schaumburg, IL
50,686
March 2015 through April 2016
Q1 2025
Integrys
Aon Center
Chicago, IL
160,423
May through September 2015 and 2016
Q2 2029
AT&T Illinois
Aon Center
Chicago, IL
75,113
July through December 2015;
August 2017 through January 2018
Q3 2029
Liberty Mutual Insurance Company
Suwanee Gateway One
Suwanee, GA
59,579
July through October 2015
Q4 2020
Lockton Companies
500 West Monroe Street
Chicago, IL
52,201
August 2015 through July 2016
Q3 2026
Comcast
Windy Point I
Schaumburg, IL
72,513
October 2015 through February 2016
Q1 2023
Nestle
800 North Brand Boulevard
Glendale, CA
400,892
December 2015 through March 2016
Q1 2021
Aon
Aon Center
Chicago, IL
382,076
January through May 2016

Q4 2028
DDB Needham
Aon Center
Chicago, IL
187,000
January 2016 through June 2018
Q2 2018
United States of America
(Corporation for National and Community Service)
One Independence Square
Washington, DC
84,606
January 2016 through June 2017
Q4 2030
Miller Canfield
150 West Jefferson
Detroit, MI
69,974
January 2016
Q2 2026
Thoughtworks
Aon Center
Chicago, IL
52,529
January through March 2016 and 2017
Q4 2023
Mitsubishi Hitachi Power Systems
400 TownPark
Lake Mary, FL
75,321
February and March 2016, 2017 and 2018
Q1 2026
Motorola Solutions, Inc.
500 West Monroe Street
Chicago, IL
150,345
July 2016 through June 2017
Q2 2028




(1)
Approximately 45,000 square feet of space associated with the lease is vacant; the tenant will take the currently vacant space in Q2 2017.



7




Financing and Capital Activity

Among Piedmont's strategic objectives is to harvest capital through the disposition of non-core assets, assets where returns have been maximized, and assets located in non-strategic submarkets and to use the sale proceeds to:
invest in real estate assets with higher overall return prospects in selected markets in which we have, or plan to have, a significant operating presence and that otherwise meet our strategic criteria;
reduce leverage levels by repaying outstanding debt; and/or
repurchase Company stock.
During the third quarter of 2015, the Company continued to execute on its strategic plan, the details of which are provided below.

Dispositions (1)    
On July 28, 2015, Piedmont completed the sale of Eastpoint I and II, the 91% leased, 170,000 square foot sister buildings located in Mayfield Heights, OH, for $18.5 million, or $108 per square foot. The sale of the properties marks Piedmont’s exit from the Cleveland, OH market. Piedmont recorded an impairment loss on the assets of approximately $5.4 million during the second quarter of 2015 as a result of changing the holding period assumptions for the properties and a $0.2 million loss on the sale of the assets.
On August 10, 2015, Piedmont completed the sale of 3750 Brookside Parkway, a 105,000 square foot, 91% leased office building located in Alpharetta, GA, for $14.1 million, or $134 per square foot. Piedmont recorded a $1.4 million gain on the sale of the asset.
On September 1, 2015, Piedmont completed the sale of Chandler Forum, a 150,000 square foot, single-tenant, 100% leased office building located in Chandler, AZ, for $33.9 million, or $226 per square foot. Piedmont recorded a $15.5 million gain on the sale of the asset. The sale leaves the Company with one remaining asset in the Phoenix market.

Acquisitions
On July 24, 2015, Piedmont completed the purchase of 80 Central Street, a three-story, 93% leased, 150,000 square foot office building located in the Boston submarket of Boxborough, MA. The property is located adjacent to the Company's 90 Central Street property, with which it shares certain building systems and amenities, and its acquisition allows Piedmont to realize marketing and operational synergies. The purchase price was $13.5 million, or $90 per square foot, which is significantly below the estimated replacement cost of $275 per square foot.

For additional information on acquisitions and dispositions, please refer to page 37.

Development
During the first quarter of 2014, Piedmont commenced the redevelopment of its 3100 Clarendon Boulevard property, a 262,000 square foot office and retail property located adjacent to the Clarendon Metrorail Station in Arlington, VA. Until the end of 2013, the property had been predominantly leased to the United States of America (Defense Intelligence Agency) for the previous 15+ years. The expiration of the U.S. Government's lease afforded Piedmont the opportunity to upgrade and reposition the property in order to attract private sector tenants and to capture the incremental value potential for the location (attributable primarily to nearby amenities desirable to tenants, including housing, retail, and Metrorail transportation). The project remains on schedule; a majority of the redevelopment relates to the office tower and is complete. The retail facade portion of the redevelopment is underway and should be completed in 2015. From an accounting standpoint, during the redevelopment, the office component of the building has been out of service and the retail portion of the building, comprised of approximately 28,000 square feet, has remained in service. However, for the purposes of statistical reporting on the Company's assets in this supplemental report, the entire building has been removed from Piedmont's operating portfolio. It is anticipated that the total costs to redevelop the building (exclusive of capitalized implied financing costs) will be approximately $33 million, approximately $27.2 million of which had been recorded in work in progress as of September 30, 2015. Following the completion of the redevelopment, the Company anticipates incurring additional re-leasing costs.

During the fourth quarter of 2013, Piedmont announced the development of Enclave Place, a 301,000 square foot office building located in Houston, TX. The eleven-story building is being constructed on Piedmont's 4.7 acre development site adjacent to its 1430 Enclave Parkway property and located within a deed-restricted and architecturally-controlled office park in Houston's Energy Corridor. Ground was broken in April 2014, and physical construction was completed during the third quarter of 2015. The development costs are anticipated to be approximately $85 million to $90 million, inclusive of leasing costs. Approximately $58.8 million had been recorded in work in progress as of September 30, 2015.

(1)
On April 1, 2014, Piedmont early-adopted the provisions of Financial Accounting Standards Board ASU 2014-08. As such, Piedmont will no longer reclassify to discontinued operations the operating income associated with newly-sold single assets or small portfolios which do not represent a strategic shift or significant impact on Piedmont's future operations. There will be no restatement for prior periods and all operating income associated with assets either sold or under binding contract to sell as of the end of the first quarter of 2014 will continue to be reflected in discontinued operations. Assuming future sales do not meet the new criteria for reclassification as discontinued operations, such future sales will not be presented in discontinued operations.



8



During the second quarter of 2015, Piedmont executed a 108,000 square foot, thirteen-year anchor-tenant lease with Continental Casualty Company at 500 TownPark in Lake Mary, FL. 500 TownPark will be a ground-up development comprised of a 135,000 square foot, four-story office building to be built on a portion of the Company's 25.2 acres of developable land in Lake Mary. With the signing of the Continental Casualty lease, the building is 80% pre-leased. Currently in the design and permitting phase, the Company plans to begin physical construction in late fourth quarter 2015. The development costs are anticipated to be $28 million to $30 million, inclusive of leasing costs. The site is situated at the intersection of Interstate 4 and Highway 417 and is well located within a development consisting of office, retail, residential and hotel uses. After the completion of 500 TownPark, the Company's remaining land holdings in the urban development could accommodate up to 1,200,000 square feet of additional, multi-use development.

For additional information on Piedmont's development projects, please refer to page 38.

Finance
As of September 30, 2015, our ratio of debt to total gross assets was 40.8%. This debt ratio is based on total principal amount outstanding for our various loans at September 30, 2015. Refer to page 48 for additional information on the sale of Aon Center and its impact on the Company.
In anticipation of paying off two maturing mortgages and considering the historically-low interest rate environment, Piedmont entered into several ten-year forward-starting swaps during the first quarter of 2015 for a total notional amount of $250 million for a planned 2016 financing. Through the swaps, the Company has effectively locked the treasury interest rate component of the targeted future financing. At current swap spread levels, the treasury component for a possible future ten-year debt issuance was effectively locked at approximately 2.2% to 2.3%.

Stock Repurchase Program
During the third quarter of 2015, the Company repurchased approximately 6.2 million shares of common stock under its share repurchase program at an average price of $17.76 per share, or approximately $110.2 million (before consideration of transaction costs). Since the stock repurchase program began in December 2011, the Company has repurchased a total of 27.7 million shares at an average price of $17.16 per share, or approximately $476.0 million in aggregate (before consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases totaled approximately $80.6 million under the stock repurchase plan. Repurchases of stock under the program will be made at the Company's discretion and will depend on market conditions, other investment opportunities and other factors that the Company deems relevant.

Dividend
On July 29, 2015, the Board of Directors of Piedmont declared a dividend for the third quarter of 2015 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on August 28, 2015. The dividend was paid on September 18, 2015. The Company's dividend payout percentage for the nine months ended September 30, 2015 was 53% of Core FFO and 68% of AFFO.


Subsequent Events

On October 2, 2015, Piedmont entered into a binding contract to sell 2 Gatehall Drive, a 405,000 square foot, 100% leased office building located in Parsippany, NJ. The sale price is $51 million, or $126 per square foot, with an anticipated closing date in December 2015. As part of the transaction, Piedmont will provide 60% loan-to-value short-term seller financing at an interest rate of 7.0%. The interest-only loan will mature on June 30, 2016; however, there is one six-month extension option available to the borrower, the exercise of which requires the payment of an extension fee and the giving of proper notice. In connection with the receipt of the unsolicited offer to purchase the building, the Company reassessed its holding period assumptions and recorded an impairment loss of $34.8 million during the third quarter of 2015.

On October 29, 2015, Piedmont completed the sale of Aon Center, a 2.7 million square foot office building located in the East Loop of downtown Chicago, IL, for $712 million, or approximately $260 per square foot. Since purchasing the office tower in 2003 for $465.2 million, Piedmont implemented best-in-class management operations, helping it to secure Energy Star ratings, LEED accreditation, and the BOMA 360 designation for the property. The appeal of the asset and its amenity base is evidenced in its high-quality tenant roster, which includes the addition of a 170,000 square foot lease with Kraft Heinz Foods Company commencing in January 2017, bringing the building's leased percentage to approximately 87%. During its ownership, Piedmont was able to attract to the building other well-known companies, such as KPMG, Microsoft, United Health Group, Integrys, and Federal Home Loan Bank of Chicago, in addition to securing the renewals of Aon, JLL and Edelman. The Company successfully positioned the property as one of Chicago's most distinguished business addresses, helping it to realize significant value for its shareholders. Net sales proceeds from the transaction were approximately $646 million after deducting closing costs, buyer-assumed lease abatements and contractual tenant capital improvements and leasing commissions. The sale of the asset, which was the largest individual property in the portfolio, allowed the Company to accomplish the following subsequent to quarter end:
Decrease the concentration of its revenues and NOI in one asset, which represented 14% of ALR and 10% of cash NOI at September 30, 2015;
Enhance its balance sheet through the payoff of the balance outstanding under its revolving line of credit;
Increase shareholder value through $110.2 million in stock repurchases completed during the third quarter of 2015 (the funds for which had been drawn on the Company's revolving line of credit during the third quarter of 2015); and

9



Redeploy $259.1 million of proceeds into two real assets that are consistent with the Company’s target market strategy and accretive to earnings (see below for additional information).
Please see page 48 for a presentation of key metrics at September 30, 2015 for Piedmont, with and without the sale of Aon Center and the related use of proceeds.

On November 4, 2015, utilizing proceeds from the disposition of Aon Center, Piedmont completed the strategic acquisition of a two-property portfolio for a combined purchase price of $259.1 million: SunTrust Center in downtown Orlando, FL, for $170.8 million, or $261 per square foot, and Galleria 300 in Atlanta, GA, for $88.3 million, or $204 per square foot.
SunTrust Center is 89% leased and consists of a 30-story, 571,000 square foot, trophy office tower, an adjacent seven-story, 84,000 square foot, Class A office building, and a five-level, 1,292 space parking structure. Located in the heart of Orlando's central business district and the tallest office tower in the city, SunTrust Center offers its tenants an excellent amenity base, including abundant nearby hotel, retail, housing, and transportation options, in addition to several entertainment venues. The purchase was completed at an estimated discount to replacement cost of approximately 30%.
Galleria 300 consists of a 20-story, 433,000 square foot, Class A office building with an attached, seven-story, 1,152 space parking structure. The building is part of the master-planned Galleria development, considered the best Class A office park in the Northwest submarket of Atlanta, with superior accessibility and visibility to two of Atlanta's major thoroughfares, Interstates 285 and 75. There are numerous retail, housing and hotel options proximate to the property, affording the tenancy a compelling amenity base. Additionally, the building is located across Interstate 285 from the new Atlanta Braves ballpark, SunTrust Park, which is bringing additional retail, hotel and residential infill development. At 89% leased, the building offers earnings growth and value accretion potential through leasing up existing vacancies as the area benefits from additional growth and urbanization. The purchase was completed at an estimated discount to replacement cost of approximately 37%.
The acquisition of both projects is consistent with Piedmont’s strategy to invest in high-quality assets at attractive bases within select submarkets of its strategic operating footprint.

On November 9, 2015, the Board of Directors of Piedmont declared a dividend for the fourth quarter of 2015 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on November 27, 2015. The dividend is to be paid on December 18, 2015.

Guidance for 2015

The Company is slightly raising the midpoint and narrowing its financial guidance for calendar year 2015 to reflect the revised outlook for the year based upon current operational circumstances, including the disposition of Aon Center in Chicago, IL and the acquisitions of SunTrust Center in Orlando, FL and Galleria 300 in Atlanta, GA. This guidance is based upon management's expectations at this time.
 
Low
 
High
Core Funds from Operations
$240 million
 
$244 million
Core Funds from Operations per diluted share
$1.59
 
$1.62

These estimates reflect management’s view of current market conditions and incorporate certain economic and operational assumptions and projections. Actual results could differ from these estimates. Note that individual quarters may fluctuate on both a cash basis and an accrual basis due to the timing of lease commencements and expirations, repairs and maintenance, capital expenditures, capital markets activities, seasonal general and administrative expenses, accrued potential performance-based compensation expenses, and one-time revenue or expense events. In addition, the Company’s guidance is based on information available to management as of the date of this supplemental report.

10



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 39 and reconciliations are provided beginning on page 41.
 
Three Months Ended
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Selected Operating Data
 
 
 
 
 
 
 
 
 
Percent leased (1)
90.6
%
 
88.8
%
 
88.8
%
 
87.7
%
 
87.5
%
Percent leased - economic (1) (2)
83.0
%
 
82.4
%
 
80.6
%
 
81.3
%
 
78.7
%
Rental income
$117,994
 
$117,454
 
$117,807
 
$115,915
 
$114,529
Total revenues
$148,815
 
$146,734
 
$149,759
 
$146,711
 
$144,641
Total operating expenses
$149,948
(3) 
$125,910

$121,545

$117,922

$117,442
Core EBITDA
$80,062

$77,969

$79,314

$78,613

$77,613
Core FFO applicable to common stock
$61,058

$59,760

$60,099

$59,618

$58,814
Core FFO per share - diluted
$0.41

$0.39

$0.39

$0.39

$0.38
AFFO applicable to common stock
$52,433

$45,734

$45,608

$41,205

$21,829
AFFO per share - diluted
$0.35

$0.30

$0.30

$0.27

$0.14
Gross dividends
$31,036
 
$32,268
 
$32,411
 
$32,408
 
$30,865
Dividends per share
$0.210
 
$0.210
 
$0.210
 
$0.210
 
$0.200
Selected Balance Sheet Data
 
 
 
 
 
 
 
 
 
Total real estate assets
$3,934,113

$4,005,824

$4,094,942

$4,075,092

$4,058,414
Total gross real estate assets
$5,153,613
 
$5,215,938
 
$5,297,481
 
$5,253,356
 
$5,197,338
Total assets
$4,739,874

$4,781,302

$4,819,862

$4,795,501

$4,778,302
Net debt (4)
$2,387,840
 
$2,315,934
 
$2,320,504
 
$2,261,802
 
$2,226,326
Total liabilities
$2,647,136

$2,525,451

$2,533,939

$2,483,486

$2,439,456
Ratios
 
 
 
 
 
 
 
 
 
Core EBITDA margin (5)
53.8
%
 
53.1
%
 
53.0
%
 
53.6
%
 
53.7
%
Fixed charge coverage ratio (6)
4.0 x

 
4.0 x

 
4.0 x

 
4.0 x

 
4.0 x

Average net debt to Core EBITDA (7)
7.3 x

 
7.4 x

 
7.2 x

 
7.1 x

 
6.9 x

(1)
Please refer to page 27 for additional leased percentage information.
(2)
Economic leased percentage excludes the square footage associated with executed but not commenced leases for currently vacant spaces and the square footage associated with tenants receiving rental abatements (after proportional adjustments for tenants receiving only partial rental abatements). Due to variations in rental abatement structures whereby some abatements are provided for the first few months of each lease year as opposed to being provided entirely at the beginning of the lease, there will be variability to the economic leased percentage over time as abatements commence and expire. Please see the Future Lease Commencements and Abatements section of Financial Highlights for details on near-term abatements for large leases.
(3)
Amount includes a $34.8 million impairment loss associated with 2 Gatehall Drive located in Parsippany, NJ. Please refer to the Subsequent Events section of Financial Highlights for additional information.
(4)
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 over the last year is primarily attributable to capital expenditures and stock repurchases in excess of net dispositions during that time period, the shortfall of which was largely funded with debt.
(5)
Core EBITDA margin is calculated as Core EBITDA divided by total revenues (including revenues associated with discontinued operations).
(6)
The fixed charge coverage ratio is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. The Company had no preferred dividends during any of the periods presented; the Company had capitalized interest of $954,086 for the quarter ended September 30, 2015, $885,576 for the quarter ended June 30, 2015, $823,770 for the quarter ended March 31, 2015, $688,177 for the quarter ended December 31, 2014, and $541,349 for the quarter ended September 30, 2014; the Company had principal amortization of $204,580 for the quarter ended September 30, 2015, $201,768 for the quarter ended June 30, 2015, $132,969 for the quarter ended March 31, 2015, $262,284 for the quarter ended December 31, 2014, and $193,560 for the quarter ended September 30, 2014.
(7)
Core EBITDA is annualized for the purposes of this calculation. The average net debt to Core EBITDA ratios presented are higher than our historical performance on this measure primarily as a result of capital expenditures and stock repurchases in excess of net dispositions, the shortfall of which was largely funded with debt. This measure has also been impacted by downtime associated with recent re-tenanting efforts, as well as rent roll downs. For the purposes of this calculation, we use the average daily balance of debt outstanding during the period, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the period.

11



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

 
September 30, 2015

June 30, 2015

March 31, 2015

December 31, 2014

September 30, 2014
Assets:

 
 
 
 
 
 
 
 
Real estate, at cost:

 
 
 
 
 
 
 
 
Land assets
$
671,832

 
$
672,747

 
$
679,094

 
$
674,554

 
$
666,666

Buildings and improvements
3,589,298

 
3,620,647

 
3,671,925

 
3,631,580

 
3,608,540

Buildings and improvements, accumulated depreciation
(933,717
)
 
(911,168
)
 
(914,551
)
 
(889,997
)
 
(861,347
)
Intangible lease asset
148,403

 
153,106

 
153,465

 
150,037

 
150,336

Intangible lease asset, accumulated amortization
(87,633
)
 
(88,954
)
 
(84,212
)
 
(79,860
)
 
(75,409
)
Construction in progress
75,083

 
63,211

 
82,246

 
61,891

 
42,479

Real estate assets held for sale, gross
668,997

 
706,227

 
710,751

 
735,295

 
729,318

Real estate assets held for sale, accumulated depreciation & amortization
(198,150
)
 
(209,992
)
 
(203,776
)
 
(208,408
)
 
(202,169
)
Total real estate assets
3,934,113

 
4,005,824

 
4,094,942

 
4,075,092

 
4,058,414

Investments in and amounts due from unconsolidated joint ventures
7,652

 
7,714

 
7,820

 
7,798

 
7,638

Cash and cash equivalents
7,702

 
8,997

 
7,479

 
12,306

 
8,815

Tenant receivables, net of allowance for doubtful accounts
26,748

 
25,474

 
30,132

 
27,711

 
28,403

Straight line rent receivable
149,060

 
146,632

 
150,511

 
146,836

 
141,219

Notes receivable
45,400

 
45,400

 

 

 

Escrow deposits and restricted cash
37,705

 
521

 
671

 
5,679

 
908

Prepaid expenses and other assets
31,764

 
31,070

 
24,941

 
25,656

 
34,626

Goodwill
180,097

 
180,097

 
180,097

 
180,097

 
180,097

Interest rate swap

 
8,290

 
520

 
430

 
434

Deferred financing costs, less accumulated amortization
7,220

 
7,491

 
7,391

 
7,667

 
7,969

Deferred lease costs, less accumulated amortization
231,379

 
234,127

 
238,085

 
228,953

 
232,236

Other assets held for sale
81,034

 
79,665

 
77,273

 
77,276

 
77,543

Total assets
$
4,739,874

 
$
4,781,302

 
$
4,819,862

 
$
4,795,501

 
$
4,778,302

Liabilities:
 
 
 
 
 
 
 
 
 
Unsecured debt, net of discount
$
1,925,863

 
$
1,817,538

 
$
1,877,318

 
$
1,828,544

 
$
1,784,412

Secured debt
502,456

 
502,757

 
448,791

 
449,045

 
449,427

Accounts payable, accrued expenses, and accrued capital expenditures
132,741

 
128,898

 
119,466

 
133,988

 
135,320

Deferred income
26,087

 
26,633

 
25,970

 
22,215

 
21,958

Intangible lease liabilities, less accumulated amortization
38,896

 
40,597

 
42,311

 
42,560

 
44,214

Interest rate swaps
20,526

 
8,411

 
19,416

 
6,417

 
3,358

Notes Payable and other liabilities held for sale
567

 
617

 
667

 
717

 
767

Total liabilities
$
2,647,136

 
$
2,525,451

 
$
2,533,939

 
$
2,483,486

 
$
2,439,456

Stockholders' equity:
 
 
 
 
 
 
 
 
 
Common stock
1,456

 
1,518

 
1,543

 
1,543

 
1,543

Additional paid in capital
3,669,154

 
3,668,378

 
3,667,574

 
3,666,182

 
3,669,541

Cumulative distributions in excess of earnings
(1,570,377
)
 
(1,427,312
)
 
(1,378,786
)
 
(1,365,620
)
 
(1,345,609
)
Other comprehensive loss
(8,524
)
 
12,242

 
(5,437
)
 
8,301

 
11,758

Piedmont stockholders' equity
2,091,709

 
2,254,826

 
2,284,894

 
2,310,406

 
2,337,233

Non-controlling interest
1,029

 
1,025

 
1,029

 
1,609

 
1,613

Total stockholders' equity
2,092,738

 
2,255,851

 
2,285,923

 
2,312,015

 
2,338,846

Total liabilities, redeemable common stock and stockholders' equity
$
4,739,874

 
$
4,781,302

 
$
4,819,862

 
$
4,795,501

 
$
4,778,302

Common stock outstanding at end of period
145,634

 
151,833

 
154,340

 
154,324

 
154,325


12



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

 
 
Three Months Ended
 
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Revenues:
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
117,994

 
$
117,454

 
$
117,807

 
$
115,915

 
$
114,529

Tenant reimbursements
 
30,273

 
28,813

 
31,390

 
30,295

 
29,579

Property management fee revenue
 
548

 
467

 
562

 
501

 
533

 
 
148,815

 
146,734

 
149,759

 
146,711

 
144,641

Expenses:
 
 
 
 
 
 
 
 
 
 
Property operating costs
 
61,677

 
61,479

 
64,236

 
62,002

 
62,027

Depreciation
 
31,199

 
36,039

 
36,232

 
35,442

 
35,366

Amortization
 
14,021

 
14,955

 
14,670

 
14,172

 
14,235

Impairment losses on real estate assets
 
34,815

 
5,354

 

 

 

General and administrative
 
8,236

 
8,083

 
6,407

 
6,306

 
5,814

 
 
149,948

 
125,910

 
121,545

 
117,922

 
117,442

Real estate operating income
 
(1,133
)
 
20,824

 
28,214

 
28,789

 
27,199

Other income / (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(18,832
)
 
(18,172
)
 
(19,016
)
 
(18,854
)
 
(18,654
)
Other income / (expense)
 
803

 
596

 
(181
)
 
(6
)
 
524

Net recoveries / (loss) from casualty events and litigation settlements (1)
 

 

 

 
2,478

 
(8
)
Equity in income / (loss) of unconsolidated joint ventures
 
135

 
124

 
159

 
160

 
89

 
 
(17,894
)
 
(17,452
)
 
(19,038
)
 
(16,222
)
 
(18,049
)
Income from continuing operations
 
(19,027
)
 
3,372

 
9,176

 
12,567

 
9,150

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss
 
16

 
(3
)
 

 
(42
)
 
16

Gain / (loss) on sale of properties
 
(2
)
 

 

 

 

Income / (loss) from discontinued operations
 
14

 
(3
)
 

 
(42
)
 
16

Gain on sale of real estate (2)
 
17,142

 
26,611

 
10,073

 
(8
)
 

Net income
 
(1,871
)
 
29,980

 
19,249

 
12,517

 
9,166

Less: Net income attributable to noncontrolling interest
 
(4
)
 
(4
)
 
(4
)
 
(3
)
 
(4
)
Net income attributable to Piedmont
 
$
(1,875
)
 
$
29,976

 
$
19,245

 
$
12,514

 
$
9,162

Weighted average common shares outstanding - diluted
 
149,176

 
153,757

 
154,580

 
154,520

 
154,561

Net income per share available to common stockholders - diluted
 
$
(0.01
)
 
$
0.20

 
$
0.12

 
$
0.08

 
$
0.06



(1)
Presented on this line are net expenses and insurance reimbursements related to 1) lawsuits settled in 2013 and 2) damage caused by Hurricane Sandy in October 2012.
(2)
The gain on sale of real estate reflected in the third quarter of 2015 was primarily related to the sale of Chandler Forum in Chandler, AZ, on which we recorded a $15.5 million gain, that in the second quarter of 2015 was primarily related to the sale of Copper Ridge Center in Lyndhurst, NJ, on which we recorded a $13.3 million gain, and 5601 Headquarters Drive in Plano, TX, on which we recorded an $8.0 million gain, and that in the first quarter of 2015 was primarily related to the sale of 3900 Dallas Parkway in Plano, TX, on which we recorded a $10.1 million gain.

13



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

 
Three Months Ended
 
Nine Months Ended
 
9/30/2015
9/30/2014
 
Change ($)
Change (%)
 
9/30/2015
9/30/2014
 
Change ($)
Change (%)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
117,994

$
114,529

 
$
3,465

3.0
 %
 
$
353,255

$
338,720

 
$
14,535

4.3
 %
Tenant reimbursements
30,273

29,579

 
694

2.3
 %
 
90,476

79,253

 
11,223

14.2
 %
Property management fee revenue
548

533

 
15

2.8
 %
 
1,577

1,568

 
9

0.6
 %
 
148,815

144,641

 
4,174

2.9
 %
 
445,308

419,541

 
25,767

6.1
 %
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
61,677

62,027

 
350

0.6
 %
 
187,392

177,434

 
(9,958
)
(5.6
)%
Depreciation
31,199

35,366

 
4,167

11.8
 %
 
103,470

103,154

 
(316
)
(0.3
)%
Amortization
14,021

14,235

 
214

1.5
 %
 
43,646

42,407

 
(1,239
)
(2.9
)%
Impairment losses on real estate assets
34,815


 
(34,815
)
 %
 
40,169


 
(40,169
)
 %
General and administrative
8,236

5,814

 
(2,422
)
(41.7
)%
 
22,726

17,514

 
(5,212
)
(29.8
)%
 
149,948

117,442

 
(32,506
)
(27.7
)%
 
397,403

340,509

 
(56,894
)
(16.7
)%
Real estate operating income
(1,133
)
27,199

 
(28,332
)
(104.2
)%
 
47,905

79,032

 
(31,127
)
(39.4
)%
Other income / (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(18,832
)
(18,654
)
 
(178
)
(1.0
)%
 
(56,020
)
(55,592
)
 
(428
)
(0.8
)%
Other income / (expense)
803

524

 
279

53.2
 %
 
1,218

68

 
1,150

1,691.2
 %
Net recoveries / (loss) from casualty events and litigation settlements (1)

(8
)
 
8

100.0
 %
 

4,514

 
(4,514
)
(100.0
)%
Equity in income / (loss) of unconsolidated joint ventures
135

89

 
46

51.7
 %
 
418

(510
)
 
928

182.0
 %
 
(17,894
)
(18,049
)
 
155

0.9
 %
 
(54,384
)
(51,520
)
 
(2,864
)
(5.6
)%
Income from continuing operations
(19,027
)
9,150

 
(28,177
)
(307.9
)%
 
(6,479
)
27,512

 
(33,991
)
(123.5
)%
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss
16

16

 

 %
 
13

996

 
(983
)
(98.7
)%
Gain / (loss) on sale of properties
(2
)

 
(2
)
 %
 
(2
)
1,198

 
(1,200
)
(100.2
)%
Income / (loss) from discontinued operations (2)
14

16

 
(2
)
(12.5
)%
 
11

2,194

 
(2,183
)
(99.5
)%
Gain on sale of real estate (3)
17,142


 
17,142

 %
 
53,826

1,140

 
52,686

4,621.6
 %
Net income
(1,871
)
9,166

 
(11,037
)
(120.4
)%
 
47,358

30,846

 
16,512

53.5
 %
Less: Net income attributable to noncontrolling interest
(4
)
(4
)
 

 %
 
(12
)
(12
)
 

 %
Net income attributable to Piedmont
$
(1,875
)
$
9,162

 
$
(11,037
)
(120.5
)%
 
$
47,346

$
30,834

 
$
16,512

53.6
 %
Weighted average common shares outstanding - diluted
149,176

154,561

 
 
 
 
152,499

154,665

 
 
 
Net income per share available to common stockholders - diluted
$
(0.01
)
$
0.06

 
 
 
 
$
0.31

$
0.20

 
 
 

(1)
Presented on this line are net expenses and insurance reimbursements related to 1) lawsuits settled in 2013 and 2) damage caused by Hurricane Sandy in October 2012.
(2)
Reflects operating results for 11107 and 11109 Sunset Hills Road in Reston, VA, which were sold on March 19, 2014; and 1441 West Long Lake Road and 4685 Investment Drive in Troy, MI, which were sold on April 30, 2014. In the future, it is less likely that single-asset or small portfolio dispositions will be reclassed to discontinued operations; please find additional information on this change in the Financing and Capital Activity section of Financial Highlights.
(3)
The gain on sale of real estate for the nine months ended September 30, 2015 was primarily related to a $15.5 million gain recorded on the sale of Chandler Forum in Chandler, AZ, in the third quarter of 2015, a $13.8 million gain recorded on the sale of Copper Ridge Center in Lyndhurst, NJ, in the second and third quarters of 2015, an $8.0 million gain recorded on the sale of 5601 Headquarters Drive in Plano, TX, in the second quarter of 2015, and a $10.1 million gain recorded on the sale of 3900 Dallas Parkway in Plano, TX, in the first quarter of 2015.

14



Piedmont Office Realty Trust, Inc.
Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations
Unaudited (in thousands except for per share data)


 
 
Three Months Ended
 
Nine Months Ended
 
 
9/30/2015

9/30/2014
 
9/30/2015
 
9/30/2014
 
 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
 
$
(1,875
)
 
$
9,162

 
$
47,346

 
$
30,834

Depreciation (1) (2)
 
31,093

 
35,286

 
103,125

 
103,132

Amortization (1)
 
14,037

 
14,248

 
43,694

 
42,660

Impairment loss (1)
 
34,815

 

 
40,169

 

Loss / (gain) on sale of properties (1)
 
(17,140
)
 

 
(53,824
)
 
(2,169
)
NAREIT funds from operations applicable to common stock
 
60,930

 
58,696

 
180,510

 
174,457

Adjustments:
 
 
 
 
 
 
 
 
Acquisition costs
 
128

 
110

 
275

 
539

Loss / (gain) on extinguishment of swaps
 

 

 
132

 

Net (recoveries) / loss from casualty events and litigation settlements (1)
 

 
8

 

 
(4,514
)
Core funds from operations applicable to common stock
 
61,058

 
58,814

 
180,917

 
170,482

Adjustments:
 
 
 
 
 
 
 
 
Deferred financing cost amortization
 
718

 
598

 
2,122

 
2,076

Amortization of note payable step-up
 
(121
)
 
(120
)
 
(363
)
 
(126
)
Amortization of discount on senior notes
 
49

 
47

 
146

 
128

Depreciation of non real estate assets
 
168

 
141

 
529

 
370

Straight-line effects of lease revenue (1)
 
(2,519
)
 
(6,780
)
 
(10,774
)
 
(23,950
)
Stock-based and other non-cash compensation expense
 
2,622

 
1,139

 
5,039

 
3,046

Amortization of lease-related intangibles (1)
 
(1,145
)
 
(1,010
)
 
(3,369
)
 
(3,653
)
Acquisition costs
 
(128
)
 
(110
)
 
(275
)
 
(539
)
Non-incremental capital expenditures (3)
 
(8,269
)
 
(30,890
)
 
(30,197
)
 
(70,862
)
Adjusted funds from operations applicable to common stock
 
$
52,433

 
$
21,829

 
$
143,775

 
$
76,972

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
 
149,176

 
154,561

 
152,499

 
154,665

 
 
 
 
 
 
 
 
 
Funds from operations per share (diluted)
 
$
0.41

 
$
0.38

 
$
1.19

 
$
1.13

Core funds from operations per share (diluted)
 
$
0.41

 
$
0.38

 
$
1.19

 
$
1.10

Adjusted funds from operations per share (diluted)
 
$
0.35

 
$
0.14

 
$
0.94

 
$
0.50




(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 39.

15



Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)

 
Three Months Ended
 
Nine Months Ended
 
9/30/2015
 
9/30/2014
 
9/30/2015
 
9/30/2014
Net income attributable to Piedmont
$
(1,875
)
 
$
9,162

 
$
47,346

 
$
30,834

Net income attributable to noncontrolling interest
4

 
4

 
12

 
12

Interest expense (1)
18,832

 
18,654

 
56,020

 
55,592

Depreciation (1)
31,261

 
35,427

 
103,654

 
103,502

Amortization (1)
14,037

 
14,248

 
43,694

 
42,660

Acquisition costs
128

 
110

 
275

 
539

Impairment loss (1)
34,815

 

 
40,169

 

Net (recoveries) / loss from casualty events and litigation settlements (1)

 
8

 

 
(4,514
)
Loss / (gain) on sale of properties (1)
(17,140
)
 

 
(53,824
)
 
(2,169
)
Core EBITDA
80,062

 
77,613

 
237,346

 
226,456

General & administrative expenses (1)
8,246

 
5,808

 
22,764

 
17,550

Management fee revenue (2)
(329
)
 
(299
)
 
(891
)
 
(839
)
Other (income) / expense (1) (3)
(931
)
 
21

 
(1,493
)
 
54

Straight-line effects of lease revenue (1)
(2,519
)
 
(6,780
)
 
(10,774
)
 
(23,950
)
Amortization of lease-related intangibles (1)
(1,145
)
 
(1,010
)
 
(3,369
)
 
(3,653
)
Property net operating income (cash basis)
83,384

 
75,353

 
243,583

 
215,618

Change period over period
10.7
%
 
N/A

 
13.0
%
 
N/A

 
 
 
 
 
 
 
 
Deduct net operating (income) / loss from:
 
 
 
 
 
 
 
Acquisitions (4)
(3,190
)
 
(1,387
)
 
(8,698
)
 
(1,442
)
Dispositions (5)
(429
)
 
(2,885
)
 
(5,153
)
 
(10,366
)
Other investments (6)
(276
)
 
(214
)
 
(822
)
 
258

Same store net operating income (cash basis)
$
79,489

 
$
70,867

 
$
228,910

 
$
204,068

Change period over period
12.2
%
 
N/A

 
12.2
%
 
N/A









(1)
Includes amounts attributable to consolidated properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures.
(2)
Presented net of related operating expenses incurred to earn the revenue; therefore, the information presented on this line will not tie to the data presented on the income statements.
(3)
Figures presented on this line may not tie back to the relevant sources as some activity is attributable to property operations and is, therefore, presented in property net operating income.
(4)
Acquisitions consist of 5 Wall Street in Burlington, MA, purchased on June 27, 2014; 1155 Perimeter Center West in Atlanta, GA, purchased on August 28, 2014; TownPark Land in Lake Mary, FL, purchased on November 21, 2014; Park Place on Turtle Creek in Dallas, TX, purchased on January 16, 2015; and 80 Central Street in Boxborough, MA, purchased on July 24, 2015.
(5)
Dispositions consist of 11107 and 11109 Sunset Hills Road in Reston, VA, sold on March 19, 2014; 1441 West Long Lake Road and 4685 Investment Drive in Troy, MI, sold on April 30, 2014; 2020 West 89th Street in Leawood, KS, sold on May 19, 2014; 3900 Dallas Parkway in Plano, TX, sold on January 30, 2015; 5601 Headquarters Drive in Plano, TX, sold on April 28, 2015; River Corporate Center in Tempe, AZ, sold on April 29, 2015; Copper Ridge Center in Lyndhurst, NJ, sold on May 1, 2015; Eastpoint I and II in Mayfield Heights, OH, sold on July 28, 2015; 3750 Brookside Parkway in Alpharetta, GA, sold on August 10, 2015; and Chandler Forum in Chandler, AZ, sold on September 1, 2015.
(6)
Other investments consist of operating results from our investments in unconsolidated joint ventures and redevelopment and development projects. Additional information on our unconsolidated joint ventures and redevelopment and development projects can be found on page 38. The operating results from both the office and retail portions of 3100 Clarendon Boulevard in Arlington, VA, are included in this line item.


16




Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)



Same Store Net Operating Income (Cash Basis)
 
 
 
 
 
 
 
 
 
 
 
Contributions from Seven of the Largest Markets
Three Months Ended
 
Nine Months Ended
 
9/30/2015
 
9/30/2014
 
9/30/2015
 
9/30/2014
 
$
%
 
$
%
 
$
%
 
$
%
Washington, D.C. (1)
$
13,163

16.6

 
$
12,907

18.2

 
$
38,485

16.8

 
$
41,508

20.3

Chicago (2) (3)
13,687

17.2

 
10,261

14.5

 
35,382

15.4

 
21,223

10.4

New York
11,219

14.1

 
11,605

16.4

 
33,404

14.6

 
32,770

16.1

Dallas (4)
5,875

7.4

 
3,505

4.9

 
17,250

7.5

 
11,067

5.4

Boston
5,524

6.9

 
5,979

8.4

 
16,874

7.4

 
17,727

8.7

Minneapolis
5,161

6.5

 
4,507

6.4

 
14,586

6.4

 
15,204

7.5

Los Angeles (5)
4,152

5.2

 
2,697

3.8

 
12,493

5.5

 
9,573

4.7

Other (6)
20,708

26.1

 
19,406

27.4

 
60,436

26.4

 
54,996

26.9

Total
$
79,489

100.0

 
$
70,867

100.0

 
$
228,910

100.0

 
$
204,068

100.0

 
 
 
 
 
 
 
 
 
 
 
 











(1)
The decrease in Washington, D.C. Same Store Net Operating Income for the nine months ended September 30, 2015 as compared to the same period in 2014 was primarily attributable to a lease expiration at 9200 Corporate Boulevard in Rockville, MD, and a one-time, $1.1 million rental income true-up in 2014 associated with the increased rental rate under the renewed National Park Service lease along with a 45,000 square foot contraction under that lease in 2015 at 1201 Eye Street in Washington, D.C. Partially offsetting the decrease in Washington, D.C. Same Store Net Operating Income was $1.5 million in lease termination income from Lockheed Martin related to the exercise of its early termination option, the termination payment for which is being amortized for 13 months beginning in April 2015 and concluding at the termination of the lease in the second quarter of 2016, at 9221 Corporate Boulevard in Rockville, MD.
(2)
The increase in Chicago Same Store Net Operating Income for the three months and the nine months ended September 30, 2015 as compared to the same periods in 2014 was primarily related to the expiration of rental abatement periods associated with several leases at 500 West Monroe Street in Chicago, IL, Aon Center in Chicago, IL, and Windy Point II in Schaumburg, IL.
(3)
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 #SectionPage#), 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 rents for which are included in our ALR calculation). As the gross rent abatements burn off and as the 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 #SectionPage#.
(4)
The increase in Dallas Same Store Net Operating Income for the three months and the nine months ended September 30, 2015 as compared to the same periods in 2014 was primarily related to: 1) the expiration of the rental abatement period for a new lease with Epsilon Data Management at 6021 Connection Drive in Irving, TX, 2) the expirations of the rental abatement periods associated with several new-tenant leases at Las Colinas Corporate Center II in Irving, TX, and 3) increased economic occupancy associated with recent leasing activity at One Lincoln Park in Dallas, TX.
(5)
The increase in Los Angeles Same Store Net Operating Income for the three months and the nine months ended September 30, 2015 as compared to the same periods in 2014 was primarily related to the expiration of rental abatement periods associated with several new leases as well as the expansion of an existing tenant's lease at 800 North Brand Boulevard in Glendale, CA, in addition to the expiration of a rental abatement period associated with a lease at 1055 East Colorado Boulevard in Pasadena, CA.
(6)
The increase in Other Same Store Net Operating Income for the three months and the nine months ended September 30, 2015 as compared to the same periods in 2014 was primarily attributable to increased rental income as a result of: 1) increased economic occupancy associated with new-tenant leasing activity at 400 TownPark in Lake Mary, FL, The Medici in Atlanta, GA, and Glenridge Highlands II in Atlanta, GA, and 2) the restructured lease with Independence Blue Cross at 1901 Market Street in Philadelphia, PA.


17



Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Accrual Basis)
Unaudited (in thousands)

 
Three Months Ended
 
Nine Months Ended
 
9/30/2015
 
9/30/2014
 
9/30/2015
 
9/30/2014
Net income attributable to Piedmont
$
(1,875
)
 
$
9,162

 
$
47,346

 
$
30,834

Net income attributable to noncontrolling interest
4

 
4

 
12

 
12

Interest expense (1)
18,832

 
18,654

 
56,020

 
55,592

Depreciation (1)
31,261

 
35,427

 
103,654

 
103,502

Amortization (1)
14,037

 
14,248

 
43,694

 
42,660

Acquisition costs
128

 
110

 
275

 
539

Impairment loss (1)
34,815

 

 
40,169

 

Net (recoveries) / loss from casualty events and litigation settlements (1)

 
8

 

 
(4,514
)
Loss / (gain) on sale of properties (1)
(17,140
)
 

 
(53,824
)
 
(2,169
)
Core EBITDA
80,062

 
77,613

 
237,346

 
226,456

General & administrative expenses (1)
8,246

 
5,808

 
22,764

 
17,550

Management fee revenue (2)
(329
)
 
(299
)
 
(891
)
 
(839
)
Other (income) / expense (1) (3)
(931
)
 
21

 
(1,493
)
 
54

Property net operating income (accrual basis)
87,048

 
83,143

 
257,726

 
243,221

Change period over period
4.7
%
 
N/A

 
6.0
%
 
N/A

 
 
 
 
 
 
 
 
Deduct net operating (income) / loss from:
 
 
 
 
 
 
 
Acquisitions (4)
(3,341
)
 
(1,429
)
 
(9,283
)
 
(1,490
)
Dispositions (5)
(442
)
 
(3,017
)
 
(5,065
)
 
(10,713
)
Other investments (6)
(279
)
 
(222
)
 
(878
)
 
230

Same store net operating income (accrual basis)
$
82,986

 
$
78,475

 
$
242,500

 
$
231,248

Change period over period
5.7
%
 
N/A

 
4.9
%
 
N/A










(1)
Includes amounts attributable to consolidated properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures.
(2)
Presented net of related operating expenses incurred to earn the revenue; therefore, the information presented on this line will not tie to the data presented on the income statements.
(3)
Figures presented on this line may not tie back to the relevant sources as some activity is attributable to property operations and is, therefore, presented in property net operating income.
(4)
Acquisitions consist of 5 Wall Street in Burlington, MA, purchased on June 27, 2014; 1155 Perimeter Center West in Atlanta, GA, purchased on August 28, 2014; TownPark Land in Lake Mary, FL, purchased on November 21, 2014; Park Place on Turtle Creek in Dallas, TX, purchased on January 16, 2015; and 80 Central Street in Boxborough, MA, purchased on July 24, 2015.
(5)
Dispositions consist of 11107 and 11109 Sunset Hills Road in Reston, VA, sold on March 19, 2014; 1441 West Long Lake Road and 4685 Investment Drive in Troy, MI, sold on April 30, 2014; 2020 West 89th Street in Leawood, KS, sold on May 19, 2014; 3900 Dallas Parkway in Plano, TX, sold on January 30, 2015; 5601 Headquarters Drive in Plano, TX, sold on April 28, 2015; River Corporate Center in Tempe, AZ, sold on April 29, 2015; Copper Ridge Center in Lyndhurst, NJ, sold on May 1, 2015; Eastpoint I and II in Mayfield Heights, OH, sold on July 28, 2015; 3750 Brookside Parkway in Alpharetta, GA, sold on August 10, 2015; and Chandler Forum in Chandler, AZ, sold on September 1, 2015.
(6)
Other investments consist of operating results from our investments in unconsolidated joint ventures and redevelopment and development projects. Additional information on our unconsolidated joint ventures and redevelopment and development projects can be found on page 38. The operating results from both the office and retail portions of 3100 Clarendon Boulevard in Arlington, VA, are included in this line item.


18



Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Accrual Basis)
Unaudited (in thousands)


Same Store Net Operating Income (Accrual Basis)
 
 
 
 
 
 
 
 
 
 
 
Contributions from Seven of the Largest Markets
Three Months Ended
 
Nine Months Ended
 
9/30/2015
 
9/30/2014
 
9/30/2015
 
9/30/2014
 
$
%
 
$
%
 
$
%
 
$
%
Chicago (1) (2)
$
15,646

18.9

 
$
12,768

16.3

 
$
42,080

17.3

 
$
33,289

14.4

Washington, D.C. (3)
13,493

16.3

 
13,544

17.3

 
40,192

16.6

 
43,455

18.8

New York (4)
10,858

13.1

 
11,076

14.1

 
31,948

13.2

 
34,490

14.9

Boston
5,924

7.1

 
6,157

7.8

 
17,912

7.4

 
18,445

8.0

Dallas (5)
5,962

7.2

 
5,698

7.3

 
17,728

7.3

 
14,101

6.1

Minneapolis (6)
5,134

6.2

 
4,970

6.3

 
15,268

6.3

 
16,467

7.1

Los Angeles
3,942

4.7

 
3,650

4.6

 
12,446

5.1

 
11,729

5.1

Other (7)
22,027

26.5

 
20,612

26.3

 
64,926

26.8

 
59,272

25.6

Total
$
82,986

100.0

 
$
78,475

100.0

 
$
242,500

100.0

 
$
231,248

100.0

 
 
 
 
 
 
 
 
 
 
 
 












(1)
The increase in Chicago Same Store Net Operating Income for the three months and the nine months ended September 30, 2015 as compared to the same periods in 2014 was primarily related to increased rental income due to the commencement of several leases and/or the expiration of operating expense recovery abatement periods associated with several leases at 500 West Monroe Street in Chicago, IL, Aon Center in Chicago, IL, and Windy Point II in Schaumburg, IL.
(2)
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 rents for which are included in our ALR calculation). As the operating expense recovery abatements burn off and as the 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.
(3)
The decrease in Washington, D.C. Same Store Net Operating Income for the nine months ended September 30, 2015 as compared to the same period in 2014 was primarily attributable to a lease expiration at 9200 Corporate Boulevard in Rockville, MD, and a one-time, $1.1 million rental income true-up in 2014 associated with the increased rental rate under the renewed National Park Service lease along with a 45,000 square foot contraction under that lease in 2015 at 1201 Eye Street in Washington, D.C. Partially offsetting the decrease in Washington, D.C. Same Store Net Operating Income was $1.5 million in lease termination income from Lockheed Martin related to the exercise of its early termination option, the termination payment for which is being amortized for 13 months beginning in April 2015 and concluding at the termination of the lease in the second quarter of 2016, at 9221 Corporate Boulevard in Rockville, MD.
(4)
The decrease in New York Same Store Net Operating Income for the nine months ended September 30, 2015 as compared to the same period in 2014 was primarily attributable to the downtime between the expiration of several leases and the commencement of replacement leases at 60 Broad Street in New York, NY, along with lease termination income received in 2014 at 400 Bridgewater Crossing in Bridgewater, NJ.
(5)
The increase in Dallas Same Store Net Operating Income for the nine months ended September 30, 2015 as compared to the same period in 2014 was primarily related to the commencement of a new lease with Epsilon Data Management at 6021 Connection Drive in Irving, TX, in addition to increased rental income associated with new leasing activity at One Lincoln Park in Dallas, TX.
(6)
The decrease in Minneapolis Same Store Net Operating Income for the nine months ended September 30, 2015 as compared to the same period in 2014 was primarily due to a renewal-related contraction by US Bancorp and downtime associated with several replacement leases for spaces formerly occupied by US Bancorp at US Bancorp Center in Minneapolis, MN.
(7)
The increase in Other Same Store Net Operating Income for the three months and the nine months ended September 30, 2015 as compared to the same periods in 2014 was primarily attributable to increased rental income as a result of: 1) recent new-tenant leasing activity at The Medici in Atlanta, GA, Glenridge Highlands II in Atlanta, GA, 400 TownPark in Lake Mary, FL, and 150 West Jefferson in Detroit, MI, and 2) the restructured lease with Independence Blue Cross at 1901 Market Street in Philadelphia, PA.

19



Piedmont Office Realty Trust, Inc.
Capitalization Analysis
Unaudited (in thousands except for per share data)


 
 
As of
 
As of
 
 
September 30, 2015
 
December 31, 2014
 
 
 
 
 
Common stock price (1)
 
$
17.89

 
$
18.84

Total shares outstanding
 
145,634

 
154,324

Equity market capitalization (1)
 
$
2,605,390

 
$
2,907,466

Total debt - principal amount outstanding
 
$
2,433,247

 
$
2,279,787

Total market capitalization (1)
 
$
5,038,637

 
$
5,187,253

Total debt / Total market capitalization (1)
 
48.3
%
 
43.9
%
Total gross real estate assets
 
$
5,153,613

 
$
5,253,356

Total debt / Total gross real estate assets (2)
 
47.2
%
 
43.4
%
Total debt / Total gross assets (3)
 
40.8
%
 
38.2
%










(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.

20



Piedmont Office Realty Trust, Inc.
Debt Summary
As of September 30, 2015
Unaudited ($ in thousands)

Floating Rate & Fixed Rate Debt
 
 
 
Debt (1)
Principal Amount
Outstanding
Weighted Average Stated
Interest Rate (2)
Weighted Average
Maturity
 
 
 
 
 
Floating Rate
$583,000
(3) 
1.25%
49.3 months
 
 
 
 
 
Fixed Rate
1,850,247

 
3.78%
65.1 months
 
 
 
 
 
Total
$2,433,247
 
3.17%
61.3 months
 
Unsecured & Secured Debt
Debt (1)
Principal Amount
Outstanding
Weighted Average Stated
Interest Rate (2)
Weighted Average
Maturity
 
 
 
 
 
 
Unsecured
$1,933,000
 
2.71%
(4) 
66.8 months
 
 
 
 
 
 
Secured
500,247

 
4.95%
 
40.2 months
 
 
 
 
 
 
Total
$2,433,247
 
3.17%
 
61.3 months
 
Debt Maturities
Maturity Year
Secured Debt - Principal
Amount Outstanding (1)
Unsecured Debt - Principal
Amount Outstanding (1)
 Weighted Average
Stated Interest
Rate (2)
 Percentage of Total
 
 
 
 
 
 
2015
$—
$—
 
—%
—%
2016
167,525
 
5.55%
6.9%
2017
140,000
 
5.76%
5.8%
2018
170,000
 
1.34%
7.0%
2019
300,000
 
2.78%
12.3%
2020 +
192,722
1,463,000
(5) 
2.97%
68.0%
 
 
 
 
 
 
Total
$500,247
$1,933,000
 
3.17%
100.0%

(1)
All of Piedmont's outstanding debt as of September 30, 2015, was interest-only debt with the exception of the $32.7 million of debt associated with 5 Wall Street located in Burlington, MA.
(2)
Weighted average stated interest rate is calculated based upon the principal amounts outstanding.
(3)
Amount represents the outstanding balance as of September 30, 2015, on the $500 million unsecured revolving credit facility and the $170 million unsecured term loan. Two other loans, the $300 million unsecured term loan that closed in 2011 and the $300 million unsecured term loan that closed in 2013, have stated variable rates. However, Piedmont entered into $300 million in notional amount of interest rate swap agreements which effectively fix the interest rate on the 2011 unsecured term loan at 2.39% through November 22, 2016 (please see page 22 for information on additional swap agreements for this loan that will become effective after November 22, 2016), assuming no credit rating change for the Company, and $300 million in notional amount of interest rate swap agreements which effectively fix the interest rate on the 2013 unsecured term loan at 2.78% through its maturity date of January 31, 2019, assuming no credit rating change for the Company. The 2011 unsecured term loan and the 2013 unsecured term loan, therefore, are reflected as fixed rate debt.
(4)
The weighted average interest rate is a weighted average rate for amounts outstanding under our $500 million unsecured revolving credit facility, our unsecured senior notes and our unsecured term loans.
(5)
The initial maturity date of the $500 million unsecured revolving credit facility is June 18, 2019; however, there are two, six-month extension options available under the facility providing for a final extended maturity date of June 18, 2020. For the purposes of this schedule, we reflect the maturity date of the facility as the final extended maturity date of June 2020.

21



Piedmont Office Realty Trust, Inc.
Debt Detail
Unaudited ($ in thousands)

Facility (1)
Property
Stated Rate
Maturity
Principal Amount Outstanding as of September 30, 2015
 
 
 
 
 
 
Secured
 
 
 
 
 
$125.0 Million Fixed-Rate Loan
Four Property Collateralized Pool (2)
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

$35.0 Million Fixed-Rate Loan (3)
5 Wall Street
5.55
%
 
9/1/2021
32,722

$160.0 Million Fixed-Rate Loan
1901 Market Street
3.48
%
(4) 
7/5/2022
160,000

Subtotal / Weighted Average (5)
 
4.95
%
 
 
$
500,247

 
 
 
 
 
 
Unsecured
 
 
 
 
 
$170.0 Million Unsecured 2015 Term Loan
N/A
1.34
%
(6) 
5/15/2018
$
170,000

$300.0 Million Unsecured 2013 Term Loan
N/A
2.78
%
(7) 
1/31/2019
300,000

$300.0 Million Unsecured 2011 Term Loan
N/A
2.39
%
(8) 
1/15/2020
300,000

$500.0 Million Unsecured Line of Credit (9)
N/A
1.21
%
(10) 
6/18/2020
413,000

$350.0 Million Unsecured Senior Notes
N/A
3.40
%
(11) 
6/1/2023
350,000

$400.0 Million Unsecured Senior Notes
N/A
4.45
%
(12) 
3/15/2024
400,000

Subtotal / Weighted Average (5)
 
2.71
%
 
 
$
1,933,000

 
 
 
 
 
 
Total Debt - Principal Amount Outstanding / Weighted Average Stated Rate (5)
3.17
%
 
 
$
2,433,247

GAAP Accounting Adjustments (13)
 
 
 
 
(4,928
)
Total Debt - GAAP Amount Outstanding
 
 
 
$
2,428,319

(1)
All of Piedmont’s outstanding debt as of September 30, 2015, was interest-only debt with the exception of the $32.7 million of debt associated with 5 Wall Street located in Burlington, MA.
(2)
The four property collateralized pool includes 1430 Enclave Parkway, Windy Point I and II, and 1055 East Colorado Boulevard.
(3)
The loan is amortizing based on a 25-year amortization schedule.
(4)
The stated interest rate on the $160 million fixed-rate loan is 3.48%. After the application of interest rate hedges, the effective cost of the financing is approximately 3.58%.
(5)
Weighted average is based on the principal amount outstanding and interest rate at September 30, 2015.
(6)
The $170 million unsecured term loan has a variable interest rate. Piedmont may select from multiple interest rate options under the facility, including the prime rate and various length LIBOR locks. All LIBOR selections are subject to an additional spread (1.125% as of September 30, 2015) over the selected rate based on Piedmont’s current credit rating.
(7)
The $300 million unsecured term loan that closed in 2013 has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix the interest rate on this loan at 2.78% through its maturity date of January 31, 2019, assuming no credit rating change for the Company.
(8)
The $300 million unsecured term loan that closed in 2011 has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix the interest rate on this loan at 2.39% until November 22, 2016, assuming no credit rating change for the Company. Additionally, for the period from November 22, 2016 to January 15, 2020, Piedmont has entered into interest rate swap agreements which effectively fix the interest rate on this loan at 3.35%, assuming no credit rating change for the Company.
(9)
All of Piedmont’s outstanding debt as of September 30, 2015, was term debt with the exception of $413 million outstanding on our unsecured revolving credit facility. The $500 million unsecured revolving credit facility has an initial maturity date of June 18, 2019; however, there are two, six-month extension options available under the facility providing for a total extension of up to one year to June 18, 2020. The final extended maturity date is presented on this schedule.
(10)
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, 2015. Piedmont may select from multiple interest rate options with each draw under the facility, including the prime rate and various length LIBOR locks. All LIBOR selections are subject to an additional spread (1.00% as of September 30, 2015) over the selected rate based on Piedmont’s current credit rating.
(11)
The $350 million unsecured senior notes were offered for sale at 99.601% of the principal amount. The resulting effective cost of the financing is approximately 3.45% before the consideration of transaction costs and proceeds from interest rate hedges. After the application of proceeds from interest rate hedges, the effective cost of the financing is approximately 3.43%.
(12)
The $400 million unsecured senior notes were offered for sale at 99.791% of the principal amount. The resulting effective cost of the financing is approximately 4.48% before the consideration of transaction costs and proceeds from interest rate hedges. After the application of proceeds from interest rate hedges, the effective cost of the financing is approximately 4.10%.
(13)
The GAAP accounting adjustments relate to the original issue discounts and fees associated with the $350 million unsecured senior notes, the $400 million unsecured senior notes, the $300 million unsecured 2011 term loan, the $170 million unsecured 2015 term loan, the $500 million unsecured line of credit and the $160 million fixed-rate loan, along with debt fair value adjustments associated with the assumed 5 Wall Street debt. The original issue discounts and fees, along with the debt fair value adjustments, are amortized as a net offset to interest expense over the contractual term of the related debt.

22



Piedmont Office Realty Trust, Inc.
Debt Analysis
As of September 30, 2015
Unaudited


Bank Debt Covenant Compliance (1)
Required
Actual



Maximum Leverage Ratio
0.60
0.46
Minimum Fixed Charge Coverage Ratio (2)
1.50
3.79
Maximum Secured Indebtedness Ratio
0.40
0.10
Minimum Unencumbered Leverage Ratio
1.60
2.22
Minimum Unencumbered Interest Coverage Ratio (3)
1.75
4.53

Bond Covenant Compliance (4)
Required
Actual
 
 
 
Total Debt to Total Assets
60% or less
46.5%
Secured Debt to Total Assets
40% or less
9.6%
Ratio of Consolidated EBITDA to Interest Expense
1.50 or greater
4.37
Unencumbered Assets to Unsecured Debt
150% or greater
233%


Three Months Ended
Nine Months Ended
Year Ended
Other Debt Coverage Ratios
September 30, 2015
September 30, 2015
December 31, 2014

 
 
 
Average net debt to core EBITDA (5)
7.3 x
7.3 x
6.9 x
Fixed charge coverage ratio (6)
4.0 x
4.0 x
4.0 x
Interest coverage ratio (7)
4.0 x
4.0 x
4.0 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, and the Indenture and the Supplemental Indenture dated March 6, 2014, for additional information on the relevant calculations.
(5)
For the purposes of this calculation, we use the average daily balance of debt outstanding during the period, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the period.
(6)
Fixed charge coverage ratio is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. The Company had no preferred dividends during the periods ended September 30, 2015 and December 31, 2014. The Company had capitalized interest of $954,086 for the three months ended September 30, 2015, $2,663,432 for the nine months ended September 30, 2015, and $2,074,620 for the twelve months ended December 31, 2014. The Company had principal amortization of $204,580 for the three months ended September 30, 2015, $539,317 for the nine months ended September 30, 2015, and $520,067 for the twelve months ended December 31, 2014.
(7)
Interest coverage ratio is calculated as Core EBITDA divided by the sum of interest expense and capitalized interest. The Company had capitalized interest of $954,086 for the three months ended September 30, 2015, $2,663,432 for the nine months ended September 30, 2015, and $2,074,620 for the twelve months ended December 31, 2014.

23



Piedmont Office Realty Trust, Inc.
Tenant Diversification (1) 
As of September 30, 2015
(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
7
(4) 

$46,765
7.7
937
5.0
State of New York
AA+ / Aa1
1
2019

24,689
4.1
481
2.6
US Bancorp
A+ / A1
3
2023 / 2024

21,760
3.6
733
3.9
Independence Blue Cross
No rating available
1
2033

18,016
3.0
801
4.3
GE
AA+ / A1
2
2027

16,699
2.7
480
2.6
Aon
A- / Baa2
2
2028

15,037
2.5
455
2.4
Nestle
AA / Aa2
1
2021

12,117
2.0
401
2.1
City of New York
AA / Aa2
1
2020

10,723
1.8
313
1.7
KPMG
No rating available
2
2020 / 2027

10,534
1.7
313
1.7
Gallagher
No rating available
1
2018

8,923
1.5
307
1.6
Catamaran
A+ / A3
1
2025

8,252
1.3
301
1.6
Caterpillar Financial
A / A2
1
2022

7,968
1.3
312
1.7
DDB Needham
BBB+ / Baa1
1
2018

7,805
1.3
212
1.1
Harvard University
AAA / Aaa
2
2017 / 2018

7,267
1.2
110
0.6
Jones Lang LaSalle
BBB+ / Baa2
1
2032

7,212
1.2
199
1.1
Raytheon
A / A3
2
2019

6,870
1.1
440
2.3
Gemini
BBB+ / A3
1
2021

6,767
1.1
205
1.1
Kraft Heinz
BBB-
1
2029

6,664
1.1
170
0.9
Edelman
No rating available
1
2024

6,660
1.1
184
1.0
Harcourt
BBB+
1
2016

6,654
1.1
195
1.0
Technip
BBB+
1
2018

6,591
1.1
150
0.8
Key Bank
A- / A3
1
2016

6,302
1.0
200
1.1
Epsilon Data Management
No rating available
2
2026

6,232
1.0
250
1.3
First Data Corporation
B / B3
1
2020

6,132
1.0
195
1.0
Archon Group
A- / A3
2
2018

5,996
1.0
235
1.2
Towers Watson
No rating available
1
2017
 
5,856
1.0
123
0.7
Henry M. Jackson Foundation
No rating available
2
2022
 
5,817
1.0
145
0.8
Integrys
A- / A3
1
2029
 
5,780
1.0
174
0.9
Other


Various
 
301,527
49.5
9,731
51.9
Total



 
$607,615
100.0
18,752
100.0


24



Tenant Diversification
Percentage of Annualized Leased Revenue (%)
September 30, 2015 as compared to December 31, 2014


    
        









(1)
This schedule presents all tenants contributing 1.0% or more to Annualized Lease Revenue.
(2)
Credit rating may reflect the credit rating of the parent or a guarantor. When available, both the Standard & Poor's credit rating and the Moody's credit rating are provided. The absence of a credit rating for a tenant is no indication of the credit worthiness of the tenant; in most cases, the lack of a credit rating reflects that a tenant has not sought such a rating.
(3)
Unless otherwise indicated, Lease Expiration represents the expiration year of the majority of the square footage leased by the tenant.
(4)
There are several leases with several different agencies of the U.S. Government with expiration years ranging from 2016 to 2030.







25



Piedmont Office Realty Trust, Inc.
Tenant Credit Rating & Lease Distribution Information
As of September 30, 2015


Tenant Credit Rating (1) 
Rating Level
Annualized
Lease Revenue
(in thousands)
Percentage of
Annualized Lease
Revenue (%)
 
 
 
AAA / Aaa
$58,058
9.6
AA / Aa
93,056
15.3
A / A
123,555
20.3
BBB / Baa
59,339
9.8
BB / Ba
26,384
4.3
B / B
21,880
3.6
Below

Not rated (2)
225,343
37.1
Total
$607,615
100.0
 
 
 



Lease Distribution
Lease Size
Number of Leases
Percentage of
Leases (%)
 Annualized
Lease Revenue
(in thousands)
 Percentage of
Annualized Lease
Revenue (%)
 Leased
Square Footage
(in thousands)
Percentage of
Leased
Square Footage (%)
 
 
 
 
 
 
 
2,500 or Less
219
31.6
$21,667
3.6
210

1.1
2,501 - 10,000
212
30.6
37,903
6.2
1,125

6.0
10,001 - 20,000
85
12.3
36,346
6.0
1,188

6.3
20,001 - 40,000
68
9.8
62,970
10.3
1,987

10.6
40,001 - 100,000
60
8.6
112,889
18.6
3,535

18.9
Greater than 100,000
49
7.1
335,840
55.3
10,707

57.1
Total
693
100.0
$607,615
100.0
18,752

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.

26



Piedmont Office Realty Trust, Inc.
Leased Percentage Information
(in thousands)


 
 
Three Months Ended
 
Three Months Ended
 
 
 
September 30, 2015
 
September 30, 2014
 
 
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 
As of June 30, 20xx
18,612

20,966

88.8
%
 
18,352

21,086

87.0
%
 
 
New leases
844



 
1,110



 
 
Expired leases
(445
)


 
(1,060
)


 
 
Other
3

6


 

9


 
 
Subtotal
19,014

20,972

90.7
%
 
18,402

21,095

87.2
%
 
 
Acquisitions during period
139

150


 
377

377


 
 
Dispositions during period
(401
)
(425
)

 



 
 
As of September 30, 20xx (2)
18,752

20,697

90.6
%
 
18,779

21,472

87.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Nine Months Ended
 
 
 
September 30, 2015
 
September 30, 2014
 
 
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 
As of December 31, 20xx
18,828

21,471

87.7
%
 
18,737

21,490

87.2
%
 
 
New leases
1,899



 
3,377



 
 
Expired leases
(1,222
)


 
(3,313
)


 
 
Other (3)
5

10


 
(247
)
(182
)

 
 
Subtotal
19,510

21,481

90.8
%
 
18,554

21,308

87.1
%
 
 
Acquisitions during period
295

328


 
559

559


 
 
Dispositions during period
(1,053
)
(1,112
)

 
(334
)
(395
)

 
 
As of September 30, 20xx (2)
18,752

20,697

90.6
%
 
18,779

21,472

87.5
%
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Analysis
 
 
 
 
 
 
 
 
 
Less acquisitions / dispositions after September 30, 2014
and redevelopments (4) (5)
(301
)
(328
)
91.8
%
 
(1,001
)
(1,112
)
90.0
%
 
 
Same Store Leased Percentage (2)
18,451

20,369

90.6
%
 
17,778

20,360

87.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



 
 
(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)
Effective January 1, 2014, 3100 Clarendon Boulevard was taken out of service due to the redevelopment of the property. The adjustments to square footage presented on this line in 2014 primarily relate to the removal of 3100 Clarendon Boulevard from our operating portfolio. For additional information regarding the redevelopment of 3100 Clarendon Boulevard, please refer to the Financing and Capital Activity section of Financial Highlights.
(4)
For additional information on acquisitions and dispositions completed during the last year and redevelopments, please refer to pages 37 and 38, respectively.
(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. Redevelopments commenced during the previous twelve months are deducted from the previous period data.

27



Piedmont Office Realty Trust, Inc.
Rental Rate Roll Up / Roll Down Analysis (1) 
(in thousands)


 
Three Months Ended
 
 
September 30, 2015
 
 
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
204
22.6%
1.0%
4.3%
9.7%
 
Leases executed for spaces excluded from analysis (5) (6)
697
77.4%
 
 
 
 

 
 
 
 
 
 
 
 
Nine Months Ended
 
 
September 30, 2015
 
 
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
894
39.0%
4.3%
1.8%
10.8%
 
Leases executed for spaces excluded from analysis (5) (6)
1,396
61.0%
 
 
 
 
 
 
 
 
 
 
 









(1)
The population analyzed consists of consolidated office leases executed during the period with lease terms of one year or greater. Retail leases, as well as leases associated with storage spaces, management offices, and unconsolidated joint venture assets, are excluded from this analysis.
(2)
For the purposes of this analysis, the last twelve months of cash rents for the previous leases are compared to the first twelve months of cash rents for 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 are compared to the accrual basis rents of the new leases in order to calculate the percentage change. For newly signed leases which have variations in accrual basis rents, whether because of known future expansions, contractions, lease expense recovery structure changes, or other similar reasons, the weighted average of such accrual basis rents is used for the purposes of this analysis.
(4)
For leases under which a tenant may use, at its discretion, a portion of its tenant improvement allowance for expenses other than those related to improvements to its space, an assumption is made that the tenant elects to use any such portion of its tenant improvement allowance for improvements to its space prior to the commencement of its lease, unless the Company is notified otherwise by the tenant. This assumption is made based upon historical usage patterns of tenant improvement allowances by the Company's tenants.
(5)
Represents leases signed at our consolidated office assets that do not qualify for inclusion in the analysis primarily because the spaces for which the new leases were signed had been vacant for greater than one year.
(6)
Excluded from these analyses is a 201,000 square foot, one-year renewal with Comdata at 5301 Maryland Way in Brentwood, TN. The lease has been excluded from the analyses as the Company anticipates completing a longer-term extension with the tenant. The Company, in an effort to not misrepresent the results of its leasing activity, has elected to not report the one-year transaction. The rental rates (both cash and accrual) under the renewal lease are higher than those under the expiring lease. Had the Company elected to include the transaction in these analyses, the percent change in cash rents would have been 10.8% and 4.0% for the three months and the nine months ended September 30, 2015, respectively, and the percent change in accrual rents would have been 15.1% and 12.4% for the three months and the nine months ended September 30, 2015, respectively. The Company expects a similar effect on these analyses from the impending longer-term renewal transaction.

28



Piedmont Office Realty Trust, Inc.
Lease Expiration Schedule
As of September 30, 2015
(in thousands)

 
 
 
Expiration Year
 
Annualized Lease
Revenue (1)
Percentage of
Annualized Lease
Revenue (%)
 Rentable
Square Footage
 Percentage of
Rentable
Square Footage (%)
Vacant
 
$—
1,945
9.4
2015 (2)
 
3,055
0.5
112
0.5
2016 (3)
 
36,039
5.9
1,098
5.3
2017
 
51,371
8.5
1,324
6.4
2018
 
51,465
8.5
1,580
7.6
2019
 
66,129
10.9
2,161
10.4
2020
 
55,163
9.1
1,937
9.4
2021
 
39,695
6.5
1,268
6.1
2022
 
37,479
6.2
1,211
5.9
2023
 
34,792
5.7
1,182
5.7
2024
 
46,930
7.7
1,464
7.1
2025
 
23,996
3.9
793
3.8
2026
 
20,275
3.3
709
3.4
2027
 
33,742
5.6
934
4.5
Thereafter
 
107,484
17.7
2,979
14.5
Total / Weighted Average
 
$607,615
100.0
20,697
100.0
Average Lease Term Remaining
9/30/2015
7.1 years
12/31/2014
7.1 years
(1)
Annualized rental income associated with each newly executed lease for currently occupied space is incorporated herein only at the expiration date for the current lease. Annualized rental income associated with each such new lease is removed from the expiry year of the current lease and added to the expiry year of the new lease. These adjustments effectively incorporate known roll ups and roll downs into the expiration schedule.
(2)
Includes leases with an expiration date of September 30, 2015, comprised of 6,000 square feet and Annualized Lease Revenue of $0.3 million.
(3)
Leases and other revenue-producing agreements on a month-to-month basis, comprised of 8,000 square feet and Annualized Lease Revenue of $0.3 million, are assigned a lease expiration date of a year and a day beyond the period end date.
 
 

29



Piedmont Office Realty Trust, Inc.
Lease Expirations by Quarter
As of September 30, 2015
(in thousands)

 
 
Q4 2015 (1)
 
Q1 2016
 
Q2 2016
 
Q3 2016
Location
 
Expiring
Square
Footage
Expiring Lease
Revenue (2)
 
Expiring
Square
Footage
Expiring Lease
Revenue (2)
 
Expiring
Square
Footage
Expiring Lease
Revenue (2)
 
Expiring
Square
Footage
Expiring Lease
Revenue (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
Atlanta
 
1
$—
 
$—
 
$—
 
$—
Austin
 
 
 
195
6,655
 
4
Boston
 
 
 
2
32
 
26
471
Central & South Florida
 
 
 
17
462
 
Chicago
 
39
994
 
6
246
 
45
1,468
 
32
1,050
Dallas
 
27
744
 
17
452
 
35
902
 
11
346
Detroit
 
22
450
 
2
41
 
 
6
111
Houston
 
 
 
 
Los Angeles
 
6
 
30
860
 
5
951
 
16
508
Minneapolis
 
5
170
 
 
7
216
 
1
47
Nashville
 
 
 
 
New York
 
6
189
 
202
6,434
 
13
451
 
19
Philadelphia
 
 
 
 
Phoenix
 
 
 
46
1,138
 
Washington, D.C.
 
12
288
 
56
2,963
 
119
2,916
 
23
996
Total / Weighted Average (3)
 
112
$2,841
 
313
$10,996
 
484
$15,191
 
115
$3,552












(1)
Includes leases with an expiration date of September 30, 2015, comprised of 6,000 square feet and expiring lease revenue of $0.2 million. No such adjustments are made to other periods presented.
(2)
Expiring Lease Revenue is calculated as expiring square footage multiplied by the gross rent per square foot of the tenant currently leasing the space.
(3)
Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule on the previous page as the Lease Expiration Schedule accounts for the revenue effects of newly signed leases. Reflected herein are expiring revenues based on in-place rental rates.

30



Piedmont Office Realty Trust, Inc.
Lease Expirations by Year
As of September 30, 2015
(in thousands)

 
12/31/2015 (1)
 
12/31/2016
 
12/31/2017
 
12/31/2018
 
12/31/2019
Location
Expiring
Square
Footage
Expiring
Lease
Revenue (2)
 
Expiring
Square
Footage
Expiring
Lease
Revenue (2)
 
Expiring
Square
Footage
Expiring
Lease
Revenue (2)
 
Expiring
Square
Footage
Expiring
Lease
Revenue (2)
 
Expiring
Square
Footage
Expiring
Lease
Revenue (2)
Atlanta
1
$—
 
19
$381
 
41
$1,009
 
55
$1,133
 
380
$9,819
Austin
 
195
6,659
 
 
 
Boston
 
29
673
 
171
7,646
 
150
6,514
 
569
10,959
Central & South Florida
 
71
1,916
 
158
4,013
 
49
1,237
 
Chicago
39
994
 
101
3,338
 
33
8,598
(3) 
613
20,450
 
24
631
Dallas
27
744
 
84
2,261
 
175
4,821
 
384
9,885
 
193
5,238
Detroit
22
450
 
28
673
 
63
1,315
 
 
229
4,763
Houston
 
 
2
 
150
6,609
 
Los Angeles
6
 
72
3,226
 
54
1,976
 
23
647
 
75
2,061
Minneapolis
5
170
 
20
669
 
36
1,254
 
35
1,199
 
145
4,205
Nashville
 
 
201
2,579
 
 
New York
6
189
 
233
7,826
 
50
1,651
 
79
2,066
 
490
25,349
Philadelphia
 
 
 
 
Phoenix
 
46
1,138
 
 
 
Washington, D.C.
12
288
 
200
7,112
 
342
17,666
 
42
1,819
 
56
3,138
Total / Weighted Average (4)
112
$2,841
 
1,098
$35,872
 
1,324
$52,530
 
1,580
$51,559
 
2,161
$66,163












(1)
Includes leases with an expiration date of September 30, 2015, comprised of 6,000 square feet and expiring lease revenue of $0.2 million. No such adjustments are made to other periods presented.
(2)
Expiring Lease Revenue is calculated as expiring square footage multiplied by the gross rent per square foot of the tenant currently leasing the space.
(3)
Chicago expirations in 2017 include two parking garage agreements with annualized lease revenue of $7.3 million. The parking garage revenue will continue beyond 2017 despite the expiration of the current parking garage agreements at that time.
(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, 2015
Unaudited (in thousands)

 
For the Three Months Ended
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
Non-incremental
 
 
 
 
 
 
 
 
 
Building / construction / development
$
1,824

 
$
441

 
$
1,704

 
$
1,657

 
$
6,135

Tenant improvements
3,483

 
4,226

 
6,717

 
10,420

 
18,209

Leasing costs
2,962

 
6,974

 
1,866

 
1,691

 
6,546

Total non-incremental
8,269

 
11,641

 
10,287

 
13,768

 
30,890

Incremental
 
 
 
 
 
 
 
 
 
Building / construction / development
11,248

 
14,019

 
19,949

 
23,172

 
23,390

Tenant improvements
2,621

 
3,960

 
11,106

 
11,455

 
7,802

Leasing costs
10,449

 
3,296

 
2,593

 
4,596

 
2,400

Total incremental
24,318

 
21,275

 
33,648

 
39,223

 
33,592

Total capital expenditures
$
32,587

 
$
32,916

 
$
43,935

 
$
52,991

 
$
64,482


 
 
 
 
 
 
Non-incremental tenant improvement commitments (1)
 
 
 
 
Non-incremental tenant improvement commitments outstanding as of June 30, 2015
 
$
49,108

 
 
New non-incremental tenant improvement commitments related to leases executed during period
 
7,669

 
 
Non-incremental tenant improvement expenditures
(3,483
)
 
 
 
Less: Tenant improvement expenditures fulfilled through accrued liabilities already presented on Piedmont's balance sheet, expired commitments or other adjustments
(966
)
 
 
 
Non-incremental tenant improvement commitments fulfilled, expired or other adjustments
 
(4,449
)
 
 
Total as of September 30, 2015
 
$
52,328

 
 
 
 
 
 










NOTE:
The information presented on this page is for all consolidated assets.
(1)
Commitments are unexpired contractual non-incremental tenant improvement obligations for leases executed in current and prior periods that have not yet been incurred, are due over the next five years, and have not otherwise been presented on Piedmont's financial statements. The four largest commitments total approximately $31.4 million, or 60% of the total outstanding commitments.

32



Piedmont Office Realty Trust, Inc.
Contractual Tenant Improvements and Leasing Commissions

 
 
For the Three Months
Ended September 30, 2015
For the Nine Months
Ended September 30, 2015
For the Year Ended
 
 
2014
2013
2012
Renewal Leases
 
 
 
 
 
 
 
 
 
 
 
Number of leases
18
 
58
 
56
 
56
 
45
 
 
Square feet 
302,761
 
990,937
 
959,424
 
2,376,177
 
1,150,934
 
 
Tenant improvements per square foot (1)
$5.15
 
$10.57
 
$19.02
 
$14.24
 
$19.12
 
 
Leasing commissions per square foot
$3.49
 
$7.10
 
$8.33
 
$4.66
 
$6.64
 
 
Total per square foot
$8.64
 
$17.67
 
$27.35
 
$18.90
 
$25.76
 
 
Tenant improvements per square foot per year of lease term
$2.02
 
$2.58
 
$2.97
 
$1.88
 
$2.90
 
 
Leasing commissions per square foot per year of lease term
$1.37
 
$1.73
 
$1.30
 
$0.62
 
$1.01
 
 
Total per square foot per year of lease term
$3.39
(2) 
$4.31
(2) 
$4.27
(3) 
$2.50
 
$3.91
(4) 
New Leases (5)
 
 
 
 
 
 
 
 
 
 
 
Number of leases
23
 
70
 
98
 
87
 
92
 
 
Square feet
597,750
 
1,296,268
 
1,142,743
 
1,050,428
 
1,765,510
 
 
Tenant improvements per square foot (1)
$74.70
 
$58.55
 
$34.46
 
$35.74
 
$47.64
 
 
Leasing commissions per square foot
$21.89
 
$19.82
 
$15.19
 
$12.94
 
$18.49
 
 
Total per square foot
$96.59
 
$78.37
 
$49.65
 
$48.68
 
$66.13
 
 
Tenant improvements per square foot per year of lease term
$6.99
 
$5.53
 
$3.78
 
$4.17
 
$4.30
 
 
Leasing commissions per square foot per year of lease term
$2.05
 
$1.87
 
$1.66
 
$1.51
 
$1.67
 
 
Total per square foot per year of lease term
$9.04
(6) 
$7.40
(6) 
$5.44
 
$5.68
 
$5.97
 
Total
 
 
 
 
 
 
 
 
 
 
 
Number of leases
41
 
128
 
154
 
143
 
137
 
 
Square feet
900,511
 
2,287,205
 
2,102,167
 
3,426,605
 
2,916,444
 
 
Tenant improvements per square foot (1)
$51.32
 
$37.76
 
$27.41
 
$20.83
 
$36.39
 
 
Leasing commissions per square foot
$15.71
 
$14.31
 
$12.06
 
$7.20
 
$13.81
 
 
Total per square foot
$67.03
 
$52.07
 
$39.47
 
$28.03
 
$50.20
 
 
Tenant improvements per square foot per year of lease term
$6.45
 
$4.86
 
$3.48
 
$2.64
 
$3.91
 
 
Leasing commissions per square foot per year of lease term
$1.98
 
$1.84
 
$1.53
 
$0.91
 
$1.48
 
 
Total per square foot per year of lease term
$8.43
(6) 
$6.70
(6) 
$5.01
(3) 
$3.55
 
$5.39
 
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 historical usage patterns of tenant improvement allowances by the Company's tenants.
(2)
The average committed capital cost per square foot per year of lease term for renewal leases completed during the third quarter of 2015 was higher than our historical performance on this measure primarily as a result of several lease renewals that involved relocating renewing tenants to new spaces; in addition to those relocations, the average committed capital cost per square foot per year of lease term for renewal leases completed during the nine months ended September 30, 2015, was higher than our historical performance on this measure primarily as a result of two long-term lease renewals completed in Washington, D.C. If the costs associated with these items 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 completed during the nine months ended September 30, 2015, would be $2.53.
(3)
During 2014, we completed one large, 15-year lease renewal and expansion with a significant capital commitment with Jones Lang LaSalle at Aon Center in Chicago, IL. If the costs associated with this lease were to be removed from the average committed capital cost calculation, the average committed capital cost per square foot per year of lease term for renewal leases and total leases completed during the twelve months ended December 31, 2014 would be $2.12 and $4.47, respectively.
(4)
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.
(5)
In prior years, Piedmont opportunistically 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 most of the value-add properties acquired by the Company had large vacancies, many of which had not previously been leased (first generation spaces), the leasing of those vacancies has negatively affected Piedmont’s contractual tenant improvements on a per square foot and a per square foot per year basis for new leases.
(6)
During 2015, we completed five new leases in Washington, D.C., and Chicago, IL, comprising 538,216 square feet with above-average capital commitments. If the costs associated with these new leases were to be removed from the average committed capital cost calculation, the average committed capital cost per square foot per year of lease term for new leases and total leases completed during the three months ended September 30, 2015, would be $5.19 and $4.38, respectively, and those for the nine months ended September 30, 2015, would be $5.41 and $5.01, respectively.

33




Piedmont Office Realty Trust, Inc.
Geographic Diversification
As of September 30, 2015
($ 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
$148,546
24.4
4,832
23.3
4,246
87.9
Washington, D.C.
12
101,642
16.7
3,039
14.7
2,165
71.2
New York
5
79,474
13.1
2,171
10.5
2,129
98.1
Minneapolis
4
45,958
7.6
1,618
7.8
1,459
90.2
Dallas
9
45,552
7.5
1,798
8.7
1,754
97.6
Boston
9
45,265
7.5
1,626
7.9
1,615
99.3
Atlanta
6
32,348
5.3
1,342
6.5
1,247
92.9
Los Angeles
4
31,106
5.1
1,010
4.9
1,008
99.8
Philadelphia
1
18,016
3.0
801
3.9
801
100.0
Detroit
3
17,007
2.8
817
3.9
724
88.6
Houston
1
11,231
1.8
313
1.5
313
100.0
Central & South Florida
4
10,715
1.8
473
2.3
434
91.8
Nashville
2
10,547
1.7
513
2.5
513
100.0
Austin
1
6,659
1.1
195
0.9
195
100.0
Phoenix
1
3,549
0.6
149
0.7
149
100.0
Total / Weighted Average
68
$607,615
100.0
20,697
100.0
18,752
90.6

34



Piedmont Office Realty Trust, Inc.
Geographic Diversification by Location Type
As of September 30, 2015
(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
19.9
3,705
17.9
 
4
4.5
1,127
5.4
 
6
24.4
4,832
23.3
Washington, D.C.
DC, VA, MD
 
9
16.1
2,699
13.1
 
3
0.6
340
1.6
 
12
16.7
3,039
14.7
New York
NY, NJ
 
1
7.8
1,033
5.0
 
4
5.3
1,138
5.5
 
5
13.1
2,171
10.5
Minneapolis
MN
 
1
4.5
933
4.5
 
3
3.1
685
3.3
 
4
7.6
1,618
7.8
Dallas
TX
 
2
2.0
440
2.1
 
7
5.5
1,358
6.6
 
9
7.5
1,798
8.7
Boston
MA
 
2
2.1
173
0.9
 
7
5.4
1,453
7.0
 
9
7.5
1,626
7.9
Atlanta
GA
 
3
4.2
960
4.6
 
3
1.1
382
1.9
 
6
5.3
1,342
6.5
Los Angeles
CA
 
3
4.5
876
4.2
 
1
0.6
134
0.7
 
4
5.1
1,010
4.9
Philadelphia
PA
 
1
3.0
801
3.9
 
 
1
3.0
801
3.9
Detroit
MI
 
1
1.7
487
2.3
 
2
1.1
330
1.6
 
3
2.8
817
3.9
Houston
TX
 
 
1
1.8
313
1.5
 
1
1.8
313
1.5
Central & South Florida
FL
 
 
4
1.8
473
2.3
 
4
1.8
473
2.3
Nashville
TN
 
1
1.3
312
1.5
 
1
0.4
201
1.0
 
2
1.7
513
2.5
Austin
TX
 
 
1
1.1
195
0.9
 
1
1.1
195
0.9
Phoenix
AZ
 
 
1
0.6
149
0.7
 
1
0.6
149
0.7
Total / Weighted Average
 
26
67.1
12,419
60.0
 
42
32.9
8,278
40.0
 
68
100.0
20,697
100.0


35



Piedmont Office Realty Trust, Inc.
Industry Diversification
As of September 30, 2015
($ 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
0.9
$82,526
13.6
1,674
8.9
Business Services
91
16.4
62,318
10.3
2,219
11.8
Engineering, Accounting, Research, Management & Related Services
52
9.3
50,567
8.3
1,332
7.1
Depository Institutions
19
3.4
47,836
7.9
1,629
8.7
Insurance Agents, Brokers & Services
19
3.4
40,297
6.6
1,338
7.1
Nondepository Credit Institutions
17
3.1
37,901
6.2
1,235
6.6
Insurance Carriers
19
3.4
32,520
5.4
1,278
6.8
Security & Commodity Brokers, Dealers, Exchanges & Services
32
5.8
23,307
3.8
780
4.2
Communications
37
6.6
22,038
3.6
683
3.7
Food & Kindred Products
4
0.7
19,011
3.1
577
3.1
Real Estate
22
4.0
18,696
3.1
548
2.9
Electronic & Other Electrical Equipment & Components, Except Computer
12
2.2
18,208
3.0
582
3.1
Educational Services
8
1.4
15,092
2.5
395
2.1
Automotive Repair, Services & Parking
6
1.1
13,605
2.2
45
0.2
Legal Services
27
4.9
10,957
1.8
350
1.9
Other
186
33.4
112,736
18.6
4,087
21.8
Total
556
100.0
$607,615
100.0
18,752
100.0

36



Piedmont Office Realty Trust, Inc.
Property Investment Activity
As of September 30, 2015
($ 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 (%)
5 Wall Street
 
Burlington, MA
6/27/2014
100
2008
$62,498
182
100
1155 Perimeter Center West
 
Atlanta, GA
8/28/2014
100
2000
80,750
377
100
TownPark Land
 
Lake Mary, FL
11/21/2014
100
N/A
7,700
N/A
N/A
Park Place on Turtle Creek
 
Dallas, TX
1/16/2015
100
1986
46,600
178
88
Two Pierce Place Land
 
Itasca, IL
6/2/2015
100
N/A
3,709
N/A
N/A
80 Central Street
 
Boxborough, MA
7/24/2015
100
1988
13,500
150
93
Total / Weighted Average
 
 
 
 
 
$214,757
887
96

Dispositions Over Previous Eighteen Months
Property
 
Location
Disposition Date
Percent
Ownership (%)
Year Built
Sale Price
 Rentable Square
Footage
 Percent Leased at
Disposition (%)
1441 West Long Lake Road
 
Troy, MI
4/30/2014
100
1999
$7,850
108
88
4685 Investment Drive
 
Troy, MI
4/30/2014
100
2000
11,500
77
100
2020 West 89th Street
 
Leawood, KS
5/19/2014
100
1992
5,800
68
90
Two Park Center
(1) 
Hoffman Estates, IL
5/29/2014
72
1999
8,825
194
0 (1)
3900 Dallas Parkway
Plano, TX
1/30/2015
100
1999
26,167
120
100
5601 Headquarters Drive
 
Plano, TX
4/28/2015
100
2001
33,700
166
100
River Corporate Center
 
Tempe, AZ
4/29/2015
100
1998
24,600
133
100
Copper Ridge Center
 
Lyndhurst, NJ
5/1/2015
100
1989
51,025
268
87
Eastpoint I & Eastpoint II
 
Mayfield Heights, OH
7/28/2015
100
2000
18,500
170
91
3750 Brookside Parkway
 
Alpharetta, GA
8/10/2015
100
2001
14,086
105
91
Chandler Forum
 
Chandler, AZ
9/1/2015
100
2003
33,900
150
100
Total / Weighted Average
 
 
 
 
 
$235,953
1,559
94

Acquisitions Subsequent to Quarter End
Property
 
Location
Acquisition Date
Percent
Ownership (%)
Year Built
Purchase Price
 Rentable Square
Footage
 Percent Leased at
Acquisition (%)
SunTrust Center
 
Orlando, FL
11/4/2015
100
1988
$170,804
655
89
Galleria 300
 
Atlanta, GA
11/4/2015
100
1987
88,317
433
89
Total / Weighted Average
 
 
 
 
 
$259,121
1,088
89

Dispositions Subsequent to Quarter End
Property
 
Location
Disposition Date
Percent
Ownership (%)
Year Built
Sale Price
 Rentable Square
Footage
 Percent Leased at
Disposition (%)
Aon Center
Chicago, IL
10/29/2015
100
1972
$712,000
2,738
87
(1)
The sale price and rentable square footage presented are gross figures and have not been adjusted for Piedmont's ownership percentage. Average Percent Leased at Disposition for dispositions completed during the previous eighteen months excludes this joint venture property, which was sold to an owner-occupant.
 
 

37



Piedmont Office Realty Trust, Inc.
Other Investments
As of September 30, 2015
($ 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
$6,982
$9,711
148.6
100


Land Parcels
Property
Location
Adjacent Piedmont Property
Acres
Real Estate Book Value
Gavitello
 Atlanta, GA
The Medici
2.0
$2,500
Glenridge Highlands Three
 Atlanta, GA
Glenridge Highlands Two
3.0
1,725
State Highway 161
 Irving, TX
Las Colinas Corporate Center II
4.5
3,320
Royal Lane
Irving, TX
6011, 6021 and 6031 Connection Drive
10.6
2,628
TownPark
Lake Mary, FL
400 and 500 TownPark
18.9
5,741
Total
 
 
39.0
$15,914


Development and Redevelopment
Property
Location
Adjacent Piedmont Property
Construction Type
Actual or Targeted Completion Date
Percent Leased (%)
Square Feet
Current Asset Basis
(Accrual)
Project Capital Expended
(Cash)
Estimated Additional Capital Required (1)
(Cash)
Enclave Place
 Houston, TX
1430 Enclave Parkway
Development
Q3 2015
N/A
300.9
$60,765
$52,373
$33 to $38 million
3100 Clarendon Boulevard (2)
Arlington, VA
Not Applicable
Redevelopment
Q4 2015 (3)
12
261.8
81,374
28,722
$25 to $27 million
500 TownPark
Lake Mary, FL
400 TownPark
Development
Q1 2017
80
135.0
3,912
1,005
$27 to $29 million
Total
 
 
 
 
 
697.7
$146,051
$82,100
$85 to $94 million





(1)
Amount includes anticipated development costs as well as estimated lease-up costs.
(2)
The Current Asset Basis presented is that of the office portion of the property only. The retail portion of the property remains in service and retail tenants will remain in occupancy during the redevelopment.
(3)
The redevelopment of the office tower is complete; the retail facade portion of the redevelopment will be completed during the fourth quarter of 2015.
 
 
 
 


38



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 41.
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 extinguishment of swaps, 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 net operating 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.

39



Piedmont Office Realty Trust, Inc.
Research Coverage

Equity Research Coverage
Barry Oxford
Jed Reagan
Anthony Paolone, CFA
Vance H. Edelson
D.A. Davidson & Company
Green Street Advisors
JP Morgan
Morgan Stanley
260 Madison Avenue, 8th Floor
660 Newport Center Drive, Suite 800
383 Madison Avenue
1585 Broadway, 38th Floor
New York, NY 10016
Newport Beach, CA 92660
34th Floor
New York, NY 10036
Phone: (212) 240-9871
Phone: (949) 640-8780
New York, NY 10179
Phone: (212) 761-0078
 
 
Phone: (212) 622-6682
 
 
 
 
 
 
 
 
 
Steve Manaker, CFA
David Rodgers, CFA
John W. Guinee, III
Michael Lewis, CFA
Oppenheimer & Co.
Robert W. Baird & Co.
Erin Aslakson
SunTrust Robinson Humphrey
85 Broad Street
200 Public Square
Stifel, Nicolaus & Company
711 Fifth Avenue, 14th Floor
New York, NY 10004
Suite 1650
One South Street
New York, NY 10022
Phone: (212) 667-5950
Cleveland, OH 44139
16th Floor
Phone: (212) 319-5659
 
Phone: (216) 737-7341
Baltimore, MD 21202
 
 
 
Phone: (443) 224-1307
 
 
 
 
 
 
 
 
 
Brendan Maiorana
 
 
 
Wells Fargo
 
 
 
7 St. Paul Street
 
 
 
MAC R1230-011
 
 
 
Baltimore, MD 21202
 
 
 
Phone: (443) 263-6516
 
 
 
 
 
 
 

Fixed Income Research Coverage
Mark S. Streeter, CFA
 
 
JP Morgan
 
 
383 Madison Avenue
 
 
3rd Floor
 
 
New York, NY 10179
 
 
Phone: (212) 834-5086
 
 
 
 
 
 
 
 
 
 
 


40



Piedmont Office Realty Trust, Inc.
Funds From Operations, Core Funds From Operations, and Adjusted Funds From Operations Reconciliations
Unaudited (in thousands)

 
Three Months Ended
 
Nine Months Ended
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
9/30/2015
 
9/30/2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
$
(1,875
)
 
$
29,976

 
$
19,245

 
$
12,514

 
$
9,162

 
$
47,346

 
$
30,834

Depreciation
31,093

 
35,935

 
36,097

 
35,365

 
35,286

 
103,125

 
103,132

Amortization
14,037

 
14,971

 
14,686

 
14,188

 
14,248

 
43,694

 
42,660

Impairment loss
34,815

 
5,354

 

 

 

 
40,169

 

Loss / (gain) on sale of properties
(17,140
)
 
(26,611
)
 
(10,073
)
 
8

 

 
(53,824
)
 
(2,169
)
NAREIT funds from operations applicable to common stock
60,930

 
59,625

 
59,955

 
62,075

 
58,696

 
180,510

 
174,457

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition costs
128

 
3

 
144

 
21

 
110

 
275

 
539

Loss / (gain) on extinguishment of swaps

 
132

 

 

 

 
132

 

Net (recoveries) / loss from casualty events and litigation settlements

 

 

 
(2,478
)
 
8

 

 
(4,514
)
Core funds from operations applicable to common stock
61,058

 
59,760

 
60,099

 
59,618

 
58,814

 
180,917

 
170,482

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred financing cost amortization
718

 
680

 
724

 
627

 
598

 
2,122

 
2,076

Amortization of note payable step-up
(121
)
 
(121
)
 
(121
)
 
(120
)
 
(120
)
 
(363
)
 
(126
)
Amortization of discount on senior notes
49

 
49

 
48

 
47

 
47

 
146

 
128

Depreciation of non real estate assets
168

 
165

 
196

 
138

 
141

 
529

 
370

Straight-line effects of lease revenue
(2,519
)
 
(3,745
)
 
(4,510
)
 
(5,171
)
 
(6,780
)
 
(10,774
)
 
(23,950
)
Stock-based and other non-cash compensation expense
2,622

 
1,692

 
725

 
929

 
1,139

 
5,039

 
3,046

Amortization of lease-related intangibles
(1,145
)
 
(1,102
)
 
(1,122
)
 
(1,074
)
 
(1,010
)
 
(3,369
)
 
(3,653
)
Acquisition costs
(128
)
 
(3
)
 
(144
)
 
(21
)
 
(110
)
 
(275
)
 
(539
)
Non-incremental capital expenditures
(8,269
)
 
(11,641
)
 
(10,287
)
 
(13,768
)
 
(30,890
)
 
(30,197
)
 
(70,862
)
Adjusted funds from operations applicable to common stock
$
52,433

 
$
45,734

 
$
45,608

 
$
41,205

 
$
21,829

 
$
143,775

 
$
76,972


41



Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)


 
Three Months Ended
 
Nine Months Ended
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
9/30/2015
 
9/30/2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Piedmont
$
(1,875
)
 
$
29,976

 
$
19,245

 
$
12,514

 
$
9,162

 
$
47,346

 
$
30,834

Net income attributable to noncontrolling interest
4

 
4

 
4

 
3

 
4

 
12

 
12

Interest expense
18,832

 
18,172

 
19,016

 
18,854

 
18,654

 
56,020

 
55,592

Depreciation
31,261

 
36,100

 
36,292

 
35,503

 
35,427

 
103,654

 
103,502

Amortization
14,037

 
14,971

 
14,686

 
14,188

 
14,248

 
43,694

 
42,660

Acquisition costs
128

 
3

 
144

 
21

 
110

 
275

 
539

Impairment loss
34,815

 
5,354

 

 

 

 
40,169

 

Net (recoveries) / loss from casualty events and litigation settlements

 

 

 
(2,478
)
 
8

 

 
(4,514
)
Loss / (gain) on sale of properties
(17,140
)
 
(26,611
)
 
(10,073
)
 
8

 

 
(53,824
)
 
(2,169
)
Core EBITDA
80,062

 
77,969

 
79,314

 
78,613

 
77,613

 
237,346

 
226,456

General & administrative expenses
8,246

 
8,102

 
6,416

 
6,313

 
5,808

 
22,764

 
17,550

Management fee revenue
(329
)
 
(232
)
 
(330
)
 
(272
)
 
(299
)
 
(891
)
 
(839
)
Other (income) / expense
(931
)
 
(599
)
 
38

 
(15
)
 
21

 
(1,493
)
 
54

Straight-line effects of lease revenue
(2,519
)
 
(3,745
)
 
(4,510
)
 
(5,171
)
 
(6,780
)
 
(10,774
)
 
(23,950
)
Amortization of lease-related intangibles
(1,145
)
 
(1,102
)
 
(1,122
)
 
(1,074
)
 
(1,010
)
 
(3,369
)
 
(3,653
)
Property net operating income (cash basis)
83,384

 
80,393

 
79,806

 
78,394

 
75,353

 
243,583

 
215,618

Deduct net operating (income) / loss from:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions
(3,190
)
 
(2,842
)
 
(2,665
)
 
(2,314
)
 
(1,387
)
 
(8,698
)
 
(1,442
)
Dispositions
(429
)
 
(1,647
)
 
(3,077
)
 
(2,888
)
 
(2,885
)
 
(5,153
)
 
(10,366
)
Other investments
(276
)
 
(251
)
 
(296
)
 
(277
)
 
(214
)
 
(822
)
 
258

Same store net operating income (cash basis)
$
79,489

 
$
75,653

 
$
73,768

 
$
72,915

 
$
70,867

 
$
228,910

 
$
204,068


42



Piedmont Office Realty Trust, Inc.
Unconsolidated Joint Venture Net Operating Income Reconciliations
Pro rata and unaudited (in thousands)


 
Three Months Ended
 
Nine Months Ended
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
9/30/2015
 
9/30/2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of unconsolidated joint ventures
$
135

 
$
124

 
$
159

 
$
160

 
$
89

 
$
418

 
$
(510
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation
61

 
62

 
62

 
61

 
61

 
184

 
264

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization
16

 
16

 
16

 
16

 
13

 
49

 
30

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment loss

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss / (gain) on sale of properties

 

 

 

 

 

 
169

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Core EBITDA
212

 
202

 
237

 
237

 
163

 
651

 
(47
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
10

 
18

 
8

 
6

 
2

 
37

 
38

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other (income) / expense

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property net operating income (accrual basis)
222

 
220

 
245

 
243

 
165

 
688

 
(9
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Straight-line effects of lease revenue
(3
)
 
(5
)
 
(5
)
 
(8
)
 
(7
)
 
(14
)
 
(20
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of lease-related intangibles

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property net operating income (cash basis)
$
219

 
$
215

 
$
240

 
$
235

 
$
158

 
$
674

 
$
(29
)

43



Piedmont Office Realty Trust, Inc.
Discontinued Operations
Unaudited (in thousands)


 
Three Months Ended
 
Nine Months Ended
 
9/30/2015
 
6/30/2015
 
3/31/2015
 
12/31/2014
 
9/30/2014
 
9/30/2015
 
9/30/2014
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
19

 
$

 
$

 
$

 
$

 
$
19

 
$
1,365

Tenant reimbursements

 
(3
)
 

 
(1
)
 
12

 
(3
)
 
126

Property management fee revenue

 

 

 

 

 

 
1

Other rental income

 

 

 

 

 

 

 
19

 
(3
)
 

 
(1
)
 
12

 
16

 
1,492

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
3

 
(1
)
 

 
40

 
3

 
2

 
185

Depreciation

 

 

 

 

 

 
83

Amortization

 

 

 

 

 

 
223

General and administrative

 
1

 

 
1

 
(7
)
 
1

 
(1
)
 
3

 

 

 
41

 
(4
)
 
3

 
490

Other income / (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense

 

 

 

 

 

 

Other income / (expense)

 

 

 

 

 

 
(6
)
Net recoveries / (loss) from casualty events and litigation settlements

 

 

 

 

 

 

Net income attributable to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 
(6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss and gain / (loss) on sale
16

 
(3
)
 

 
(42
)
 
16

 
13

 
996

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment loss

 

 

 

 

 

 

Gain / (loss) on sale of properties
(2
)
 

 

 

 

 
(2
)
 
1,198

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations
$
14

 
$
(3
)
 
$

 
$
(42
)
 
$
16

 
$
11

 
$
2,194




44



Piedmont Office Realty Trust, Inc.
Property Detail
As of September 30, 2015
(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
92.1
%
92.1
%
92.1
%
Glenridge Highlands Two
 Atlanta
 GA
100.0%
2000
427
100.0
%
100.0
%
89.5
%
Suwanee Gateway One
 Suwanee
 GA
100.0%
2008
143
42.0
%
42.0
%
%
The Dupree
 Atlanta
 GA
100.0%
1997
138
100.0
%
100.0
%
97.8
%
The Medici
 Atlanta
 GA
100.0%
2008
156
97.4
%
86.5
%
80.8
%
1155 Perimeter Center West
 Atlanta
 GA
100.0%
2000
377
100.0
%
100.0
%
100.0
%
Metropolitan Area Subtotal / Weighted Average




1,342
92.9
%
91.7
%
82.9
%
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
%
80 Central Street
 Boxborough
 MA
100.0%
1988
150
92.7
%
92.7
%
92.7
%
90 Central Street
 Boxborough
 MA
100.0%
2001
175
100.0
%
100.0
%
38.9
%
1414 Massachusetts Avenue
 Cambridge
 MA
100.0%
1873
78
100.0
%
100.0
%
100.0
%
One Brattle Square
 Cambridge
 MA
100.0%
1991
95
100.0
%
100.0
%
100.0
%
225 Presidential Way
 Woburn
 MA
100.0%
2001
202
100.0
%
100.0
%
100.0
%
235 Presidential Way
 Woburn
 MA
100.0%
2000
238
100.0
%
100.0
%
100.0
%
5 & 15 Wayside Road
 Burlington
 MA
100.0%
1999 / 2001
271
100.0
%
100.0
%
100.0
%
5 Wall Street
 Burlington
 MA
100.0%
2008
182
100.0
%
100.0
%
100.0
%
Metropolitan Area Subtotal / Weighted Average




1,626
99.3
%
99.3
%
92.7
%
Chicago








Windy Point I
 Schaumburg
 IL
100.0%
1999
187
66.3
%
66.3
%
66.3
%
Windy Point II
 Schaumburg
 IL
100.0%
2001
301
100.0
%
100.0
%
83.1
%
Aon Center
 Chicago
 IL
100.0%
1972
2,738
87.3
%
78.6
%
70.3
%
Two Pierce Place
 Itasca
 IL
100.0%
1991
486
96.7
%
96.7
%
88.5
%
2300 Cabot Drive
 Lisle
 IL
100.0%
1998
153
77.1
%
77.1
%
77.1
%
500 West Monroe Street
 Chicago
 IL
100.0%
1991
967
87.3
%
71.8
%
60.1
%
Metropolitan Area Subtotal / Weighted Average




4,832
87.9
%
79.9
%
71.0
%

45






Property
City
State
Percent
Ownership
Year Built
Rentable
Square
Footage
Owned
Leased
Percentage
Commenced
Leased
Percentage
Economic
Leased
Percentage (1)
 
 
 
 
 
 
 
 
 
Dallas








6031 Connection Drive
 Irving
 TX
100.0%
1999
232
100.0
%
100.0
%
100.0
%
6021 Connection Drive
 Irving
 TX
100.0%
2000
222
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
100.0
%
100.0
%
100.0
%
Las Colinas Corporate Center II
 Irving
 TX
100.0%
1998
228
99.1
%
99.1
%
97.8
%
6565 North MacArthur Boulevard
 Irving
 TX
100.0%
1998
260
98.5
%
97.7
%
95.8
%
One Lincoln Park
 Dallas
 TX
100.0%
1999
262
91.6
%
91.6
%
88.9
%
161 Corporate Center
 Irving
 TX
100.0%
1998
105
100.0
%
100.0
%
100.0
%
Park Place on Turtle Creek
 Dallas
 TX
100.0%
1986
178
91.0
%
85.4
%
85.4
%
Metropolitan Area Subtotal / Weighted Average




1,798
97.6
%
96.9
%
96.1
%
Detroit








150 West Jefferson
 Detroit
 MI
100.0%
1989
487
80.9
%
77.0
%
68.0
%
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
%
Metropolitan Area Subtotal / Weighted Average




817
88.6
%
86.3
%
80.9
%
Central & South Florida








Sarasota Commerce Center II
Sarasota
FL
100.0%
1999
149
85.9
%
85.9
%
85.2
%
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
89.8
%
88.1
%
85.8
%
Metropolitan Area Subtotal / Weighted Average




473
91.8
%
91.1
%
90.1
%
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
%
Los Angeles








800 North Brand Boulevard
Glendale
CA
100.0%
1990
527
100.0
%
99.2
%
98.7
%
1055 East Colorado Boulevard
Pasadena
CA
100.0%
2001
176
98.9
%
94.9
%
94.9
%
Fairway Center II
Brea
CA
100.0%
2002
134
100.0
%
100.0
%
100.0
%
1901 Main Street
Irvine
CA
100.0%
2001
173
100.0
%
93.1
%
93.1
%
Metropolitan Area Subtotal / Weighted Average




1,010
99.8
%
97.5
%
97.2
%
Minneapolis








Crescent Ridge II
Minnetonka
MN
100.0%
2000
301
83.4
%
83.4
%
77.1
%
US Bancorp Center
Minneapolis
MN
100.0%
2000
933
88.5
%
87.1
%
85.7
%
One Meridian Crossings
Richfield
MN
100.0%
1997
195
100.0
%
100.0
%
100.0
%
Two Meridian Crossings
Richfield
MN
100.0%
1998
189
98.9
%
98.4
%
94.2
%
Metropolitan Area Subtotal / Weighted Average




1,618
90.2
%
89.3
%
86.8
%



46






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
93.9
%
93.9
%
91.9
%
60 Broad Street
New York
NY
100.0%
1962
1,033
100.0
%
99.1
%
94.0
%
600 Corporate Drive
Lebanon
NJ
100.0%
2005
125
100.0
%
100.0
%
100.0
%
400 Bridgewater Crossing
Bridgewater
NJ
100.0%
2002
299
92.3
%
92.3
%
92.3
%
Metropolitan Area Subtotal / Weighted Average




2,171
98.1
%
97.7
%
94.9
%
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








Desert Canyon 300
Phoenix
AZ
100.0%
2001
149
100.0
%
100.0
%
100.0
%
Metropolitan Area Subtotal / Weighted Average




149
100.0
%
100.0
%
100.0
%
Washington, D.C.








1201 Eye Street
Washington
DC
49.5% (2)
2001
269
82.2
%
65.4
%
65.4
%
1225 Eye Street
Washington
DC
49.5% (2)
1986
225
88.9
%
72.0
%
70.7
%
400 Virginia Avenue
Washington
DC
100.0%
1985
224
83.5
%
80.8
%
80.8
%
4250 North Fairfax Drive
Arlington
VA
100.0%
1998
306
46.7
%
44.1
%
32.7
%
9211 Corporate Boulevard
Rockville
MD
100.0%
1989
116
27.6
%
27.6
%
%
9221 Corporate Boulevard
Rockville
MD
100.0%
1989
115
100.0
%
100.0
%
100.0
%
One Independence Square
Washington
DC
100.0%
1991
334
25.4
%
%
%
9200 Corporate Boulevard
Rockville
MD
100.0%
1982
109
%
%
%
Two Independence Square
Washington
DC
100.0%
1991
606
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
60.5
%
60.5
%
55.6
%
Arlington Gateway
Arlington
VA
100.0%
2005
326
96.0
%
94.2
%
94.2
%
Metropolitan Area Subtotal / Weighted Average




3,039
71.2
%
65.1
%
62.4
%









Grand Total




20,697
90.6
%
87.4
%
83.0
%









(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.

47



Piedmont Office Realty Trust, Inc.
Company Metrics After Aon Center Sale
As of September 30, 2015
($ and square footage in thousands)


The below information on pages 48 and 49 presents certain financial information about the Company as of September 30, 2015 on an actual basis and a pro forma basis giving effect to the completion of the sale of Aon Center in Chicago, IL for $646 million in net proceeds and the use of the net proceeds from that sale to: (1) purchase SunTrust Center in Orlando, FL and Galleria 300 in Atlanta, GA for an aggregate approximately $219 million (exclusive of approximately $17 million in previously deposited earnest money and $20 million in 1031 exchange escrow funds, both of which were outstanding as of September 30, 2015, along with approximately $3 million in seller credits), and (2) repay the outstanding indebtedness under the Company’s revolving line of credit.  The information below has been presented to show the impact of these transactions on certain of the Company’s statistical measures; however, the information below is not intended to present the Company’s operating results on a pro forma basis giving effect to the actions listed above and does not contain all of the information required in connection with pro forma financial statements prepared pursuant to Article 11 of Regulation S-X. 

Additional information on the disposition and acquisition transactions can be found in the Subsequent Events section of Financial Highlights and on page 37.

 
 
 
As of September 30, 2015
 
 
As of September 30, 2015
 
with Pro Forma Adjustments for the Sale of Aon Center and the Acquisition of SunTrust Center & Galleria 300

 
Debt Metrics
 
 
 
 
Total debt / Total gross assets
40.8
%
 
approximately 37%

 
Average net debt to Core EBITDA (1) (2)
7.3 x
 
mid 6x's (estimated)
 
Fixed charge coverage ratio (3)
4.0 x
 
approximately 4x
 
Principal amount of debt - fixed rate
$1,850,247
76.0
%
$1,850,247
91.6
%
Principal amount of debt - floating rate
$583,000
24.0
%
$170,000
8.4
%
Principal amount of debt - unsecured
$1,933,000
79.4
%
$1,520,000
75.2
%
Principal amount of debt - secured
$500,247
20.6
%
$500,247
24.8
%
 
 
 
 
 
General Statistical Metrics
 
 
 
 
Number of consolidated office properties
68
 
69
 
Rentable square footage
20,697
 
19,047
 
Percent leased
90.6
%
 
91.0
%
 
Percent leased - commenced
87.4
%
 
88.6
%
 
Percent leased - economic
83.0
%
 
84.3
%
 
Non-incremental tenant improvement commitments
$52,328
 
$35,547
 
Weighted average lease term remaining
7.1

 
6.6

 


(1)
Average net debt as of September 30, 2015 on a pro forma basis is calculated as the Company’s average net debt for the quarter ended September 30, 2015 (i) adjusted for $110 million of stock repurchases occurring during the third quarter of 2015 which were intended to be funded through the expected net proceeds from the sale of Aon Center (rather than through the incurrence of additional long-term indebtedness), and (ii) reduced further for the repayment of the remaining balance under the Company’s revolving line of credit.

(2)
Core EBITDA as of September 30, 2015 on a pro forma basis is calculated as Core EBITDA for the quarter ended September 30, 2015, adjusted to (i) remove contributions from properties sold during the third quarter of 2015, including Eastpoint I & II, 3750 Brookside Parkway and Chandler Forum, (ii) remove the contribution from Aon Center, and (iii) add estimated contributions from SunTrust Center and Galleria 300. The resultant figure is then annualized for the purposes of this calculation.
(3)
Fixed charges as of September 30, 2015 on a pro forma basis are calculated as the Company’s fixed charges for the quarter ended September 30, 2015, adjusted to remove interest expense associated with the Company's unsecured line of credit.



48



Piedmont Office Realty Trust, Inc.
Company Metrics After Aon Center Sale
As of September 30, 2015
($ and square footage in thousands)



Lease Expiration Schedule                     Geographic Diversification
 
As Reported
 
Pro Forma for Sale of Aon Center and Acquisition of SunTrust Center & Galleria 300 (1)
Expiration Year
Annualized Lease
Revenue
Percentage of
Annualized Lease
Revenue (%)
 
Annualized Lease
Revenue
Percentage of
Annualized Lease
Revenue (%)
Vacant
$—
 
$—
2015
3,055
0.5
 
2,366
0.4
2016
36,039
5.9
 
35,664
6.5
2017
51,371
8.5
 
49,710
9.0
2018
51,465
8.5
 
45,269
8.2
2019
66,129
10.9
 
72,469
13.2
2020
55,163
9.1
 
56,329
10.3
2021
39,695
6.5
 
39,894
7.3
2022
37,479
6.2
 
36,133
6.6
2023
34,792
5.7
 
30,720
5.6
2024
46,930
7.7
 
39,843
7.2
2025
23,996
3.9
 
22,917
4.2
2026
20,275
3.3
 
20,040
3.6
2027
33,742
5.6
 
23,908
4.3
Thereafter
107,484
17.7
 
74,724
13.6
Total
$607,615
100.0
 
$549,986
100.0
 
As Reported
 
Pro Forma for Sale of Aon Center and Acquisition of SunTrust Center & Galleria 300 (1)
Location
 Annualized
Lease Revenue
 Percentage of
Annualized Lease
Revenue (%)
Percent Leased (%)
 
 Annualized
Lease Revenue
 Percentage of
Annualized Lease
Revenue (%)
Percent Leased (%)
Chicago
$148,546
24.4
87.9
 
$62,285
11.3
88.7
Washington, D.C.
101,642
16.7
71.2
 
101,642
18.5
71.2
New York
79,474
13.1
98.1
 
79,474
14.5
98.1
Minneapolis
45,958
7.6
90.2
 
45,958
8.4
90.2
Dallas
45,552
7.5
97.6
 
45,552
8.3
97.6
Boston
45,265
7.5
99.3
 
45,265
8.2
99.3
Atlanta
32,348
5.3
92.9
 
41,282
7.5
92.0
Los Angeles
31,106
5.1
99.8
 
31,106
5.7
99.8
Philadelphia
18,016
3.0
100.0
 
18,016
3.3
100.0
Detroit
17,007
2.8
88.6
 
17,007
3.1
88.6
Houston
11,231
1.8
100.0
 
11,231
2.0
100.0
Central & South Florida
10,715
1.8
91.8
 
30,413
5.5
90.2
Nashville
10,547
1.7
100.0
 
10,547
1.9
100.0
Austin
6,659
1.1
100.0
 
6,659
1.2
100.0
Phoenix
3,549
0.6
100.0
 
3,549
0.6
100.0
Total
$607,615
100.0
90.6
 
$549,986
100.0
91.0




















(1)
Pro forma Annualized Lease Revenue is calculated by starting with the Company's Annualized Lease Revenue as of September 30, 2015, and deducting therefrom the contribution provided by Aon Center and adding thereto the expected contributions from SunTrust Center and Galleria 300.



49



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. Examples of such statements in this supplemental package include our estimated Core FFO and Core FFO per diluted share for calendar year 2015 and our anticipated use of net sales proceeds of Aon Center.

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 in some markets we operate in 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 and divestitures; 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; 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.



50