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): May 2, 2016
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 May 2, 2016, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the first quarter 2016, and published supplemental information for the first quarter 2016 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 May 2, 2016. | |
99.2 | Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the First Quarter 2016. | |
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: May 2, 2016 | 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 May 2, 2016. | |
99.2 | Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the First Quarter 2016. | |
EXHIBIT 99.1
Piedmont Office Realty Trust Reports First Quarter 2016 Results
ATLANTA, May 2, 2016 --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 March 31, 2016.
Highlights for the Three Months Ended March 31, 2016:
• | Achieved Core Funds From Operations ("Core FFO") of $0.41 per diluted share as compared with $0.39 per diluted share for the three months ended March 31, 2015; |
• | Achieved Adjusted Funds from Operations ("AFFO") of $0.30 per diluted share; |
• | Completed over 350,000 square feet of leasing, approximately half of which related to new leases, improving the overall leased percentage of the portfolio to 91.7%; |
• | Paid off a $125.0 million maturing mortgage, reducing the amount of secured debt; |
• | Repurchased almost half a million shares of its common stock at an average price of $17.20 per share; and |
• | Marketed three assets for sale that closed subsequent to quarter end. |
Donald A. Miller, CFA, President and Chief Executive Officer, said, "During the first quarter, we maintained our focus on many of the same strategies we employed during 2015. We began marketing several non-core assets in the portfolio for sale and capitalized on the volatile equity market by opportunistically investing in our own stock. Improved occupancy levels and the attendant NOI increases, coupled with our repurchase activity, allowed us to deliver increased year over year FFO per share results, despite the sale of almost $1 billion of assets during 2015. Given that we have very few expirations in 2016 and 2017, our leasing activity during the first quarter concentrated on remaining vacancies.”
Results for the Quarter ended March 31, 2016
Piedmont recognized net income applicable to common stockholders for the three months ended March 31, 2016 of $10.4 million, or $0.07 per diluted share, as compared with $19.2 million, or $0.12 per diluted share, for the three months ended March 31, 2015. The first quarter of 2015 included a $10.1 million, or $0.07 per diluted share, gain on sale of real estate asset during the period associated with the sale of 3900 Dallas Parkway, located in Plano, TX.
Revenues for the three months ended March 31, 2016 were $138.0 million as compared to $149.8 million for the same period a year ago, primarily due to the sale of nine assets during 2015, including our largest asset, Aon Center. The decrease was partially offset by acquisitions subsequent to the first quarter of last year and new leases commencing over the last twelve months.
Property operating costs decreased approximately $10.0 million, from $64.2 million for the three months ended March 31, 2015 to $54.2 million for the three months ended March 31, 2016, primarily due to the sale of nine assets during 2015, including Aon Center.
Results for the three months ended March 31, 2016 also reflect a $2.6 million decrease in interest expense and a $1.5 million increase in general and administrative expense as compared to the three months ended March 31, 2015. The decrease in interest expense as compared to the same quarter of the prior year is attributable to the use of disposition proceeds to lower our average outstanding debt balance and lower interest rates due to refinancing activity. The increase in general and administrative expense is primarily a result of increased accruals for potential performance-based stock compensation during the quarter ended March 31, 2016 due to the Company's out performance relative to its peers with regard to total shareholder return during the first quarter of 2016.
Funds From Operations ("FFO") and Core FFO were both $0.41 per diluted share for the three months ended March 31, 2016 as compared to $0.39 for those same metrics for the three months ended March 31, 2015. The per share increase was primarily driven by the commencement of several new leases and increased occupancy over the past twelve months and an almost nine million share reduction in our weighted average shares outstanding as a result of shares repurchased using disposition proceeds over the last twelve months.
AFFO was $43.6 million, or $0.30 per diluted share for the three months ended March 31, 2016, compared to $45.6 million, or $0.30 per diluted share for the three months ended March 31, 2015. The approximately $2.1 million decrease was driven by an increase in the straight line effects of our lease revenue during the quarter ended March 31, 2016 as compared to the first quarter of the previous year due primarily to rental abatements on recently commenced leases. This decrease was offset on a per share basis by an almost nine million share reduction in our weighted average shares outstanding as a result of shares repurchased over the last twelve months.
Leasing Update
The Company's leasing volume for the three months ended March 31, 2016 totaled 353,000 square feet, of which approximately 182,000 related to new tenant leasing. Highlights of new leasing for the quarter included an approximately 29,000 square foot, 3-year lease with Telogis, Inc. at Braker Point III in Austin, TX and an approximately 28,000 square foot lease through June of 2019 with GKN Aerospace at 6031 Connection Drive in Irving, TX. Renewal highlights included Vertex's 5-year renewal of its approximately 26,000 square feet at Sarasota Commerce Center in Sarasota, FL; and McKinsey and Company, Inc.'s 5-year extension of it's approximately 20,000 square feet at 150 West Jefferson, in Detroit, MI. In addition, Bomgar renewed and expanded to 21,000 square feet for approximately 7 years at 11695 John's Creek Parkway, in John's Creek, GA.
The Company's overall portfolio was approximately 91.7% leased as of March 31, 2016, up 290 basis points from 88.8% a year ago. Weighted average lease term remaining was approximately 6.7 years as of March 31, 2016, consistent with December 31, 2015. Cash basis SSNOI was $69.3 million for the three months ended March 31, 2016, up approximately 1% over the same period in the prior year. As of March 31, 2016, the Company had approximately 1.4 million square feet of commenced leases that were in some form of abatement, as well as approximately 0.6 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.
Financing Activity
During the three months ended March 31, 2016, we repaid a maturing $125.0 million, 5.5% mortgage loan collateralized by four properties using property sales proceeds and capacity on our $500 million line of credit. Total debt decreased by approximately $27.0 million during the three months ended March 31, 2016.
Transactional Activity Subsequent to Quarter End
On April 21, 2016, Piedmont sold 1055 E. Colorado, an approximately 176,000 square foot 99% leased, office building located in Pasadena, CA, for $61.3 million ($348 per square foot).
On April 28, 2016, Piedmont sold Fairway Center II, an approximately 134,000 square foot, 97% leased, office building located in Brea, CA, for $33.8 million ($252 per square foot).
Additionally, on May 2, 2016, Piedmont sold 1901 Main Street, an approximately 173,000 square foot, 100% leased, office building located in Irvine, CA, for $66.0 million ($382 per square foot).
The above three transactions complete various reverse 1031 exchanges with three office properties acquired by the Company in the fourth quarter of 2015.
Other Events
Second Quarter Dividend Declaration
On April 27, 2016, the board of directors of Piedmont declared dividends for the second quarter of 2016 in the amount of $0.21 per share on its common stock to stockholders of record as of the close of business on May 27, 2016, payable on June 17, 2016.
Guidance for 2016
Based on management's expectations, the Company affirms its previous guidance for full-year 2016 as follows:
(in millions, except per share data) | Low | High | |||
Net Income | $137 | - | $156 | ||
Add: Depreciation, Amortization, and Other | 169 | - | 176 | ||
Less: Gain on Sale of Real Estate Assets | (75 | ) | - | (90) | |
Core FFO | $231 | - | $242 | ||
Core FFO per diluted share | $1.58 | - | $1.66 | ||
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, Core FFO, AFFO, 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, May 3, 2016 at 10:00 A.M. Eastern daylight 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 May 17, 2016, 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 13634256. 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 first quarter 2016 performance, discuss recent events, and conduct a question-and-answer period.
Supplemental Information
Quarterly supplemental information as of and for the period ended March 31, 2016 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 approximately 20 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, 2016.
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: economic, regulatory and socio-economic changes (including accounting standards) that impact the real estate market generally or that could affect the patters of use of commercial office space, may cause our operating results to suffer and decrease the value of our real estate properties; 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 affecting the office market in general and of the specific markets in which we operate, particularly in Washington, D.C., the New York metropolitan area, and Chicago where we have high concentrations of office properties; the illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties; acquisitions of properties may have unknown risks and other liabilities at the time of acquisition; development and construction delays and resultant increased costs and risks may negatively impact our operating results; our real estate development strategies may not be successful; future terrorist attacks in the major metropolitan areas in which we own properties could significantly impact the demand for, and value of, our properties; additional risks and costs associated with directly managing properties occupied by government tenants; adverse market and economic conditions may negatively affect us and could cause us to recognize impairment charges on both our long-lived assets or goodwill 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; future offerings of debt or equity securities may adversely affect the market price of our common stock; changes in market interest rates may have an effect on the value of our common stock; uncertainties associated with environmental and other regulatory matters; potential changes in political environment and reduction in federal and/or state funding of our governmental tenants; we may be subject to litigation, which could have a material adverse effect on our financial condition; changes in tax laws impacting REITs and real estate in general, as well as our ability to continue to qualify as a REIT under the Internal Revenue Code; and other factors detailed in the Company`s most recent Annual Report on Form 10-K for the period ended December 31, 2015, 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) | |||||||
March 31, 2016 | December 31, 2015 | ||||||
(unaudited) | |||||||
Assets: | |||||||
Real estate assets, at cost: | |||||||
Land | $ | 685,850 | $ | 685,850 | |||
Buildings and improvements | 3,844,717 | 3,826,322 | |||||
Buildings and improvements, accumulated depreciation | (951,484 | ) | (922,019 | ) | |||
Intangible lease assets | 176,436 | 177,675 | |||||
Intangible lease assets, accumulated amortization | (98,314 | ) | (93,012 | ) | |||
Construction in progress | 25,901 | 20,990 | |||||
Total real estate assets | 3,683,106 | 3,695,806 | |||||
Investments in and amounts due from unconsolidated joint ventures | 7,483 | 7,577 | |||||
Cash and cash equivalents | 4,732 | 5,441 | |||||
Tenant receivables, net of allowance for doubtful accounts | 22,040 | 26,339 | |||||
Straight line rent receivables | 161,087 | 152,122 | |||||
Notes receivable | — | 45,400 | |||||
Restricted cash and escrows | 591 | 5,174 | |||||
Prepaid expenses and other assets | 24,708 | 24,843 | |||||
Goodwill | 180,097 | 180,097 | |||||
Deferred lease costs, less accumulated amortization | 271,173 | 291,736 | |||||
Total assets | $ | 4,355,017 | $ | 4,434,535 | |||
Liabilities: | |||||||
Unsecured debt, net of discount | $ | 1,626,799 | $ | 1,528,221 | |||
Secured debt | 376,119 | 501,289 | |||||
Accounts payable, accrued expenses, and accrued capital expenditures | 103,894 | 128,465 | |||||
Deferred income | 28,143 | 27,270 | |||||
Intangible lease liabilities, less accumulated amortization | 40,926 | 42,853 | |||||
Interest rate swaps | 19,473 | 9,993 | |||||
Total liabilities | 2,195,354 | 2,238,091 | |||||
Stockholders' equity : | |||||||
Common stock | 1,451 | 1,455 | |||||
Additional paid in capital | 3,671,055 | 3,669,977 | |||||
Cumulative distributions in excess of earnings | (1,505,704 | ) | (1,477,674 | ) | |||
Other comprehensive income | (8,168 | ) | 1,661 | ||||
Piedmont stockholders' equity | 2,158,634 | 2,195,419 | |||||
Non-controlling interest | 1,029 | 1,025 | |||||
Total stockholders' equity | 2,159,663 | 2,196,444 | |||||
Total liabilities and stockholders' equity | $ | 4,355,017 | $ | 4,434,535 | |||
Number of shares of common stock outstanding as of end of period | 145,093 | 145,512 | |||||
Piedmont Office Realty Trust, Inc. | |||||||
Consolidated Statements of Income | |||||||
Unaudited (in thousands, except for per share data) | |||||||
Three Months Ended | |||||||
3/31/2016 | 3/31/2015 | ||||||
Revenues: | |||||||
Rental income | $ | 114,738 | $ | 117,807 | |||
Tenant reimbursements | 22,751 | 31,390 | |||||
Property management fee revenue | 523 | 562 | |||||
Total revenues | 138,012 | 149,759 | |||||
Expenses: | |||||||
Property operating costs | 54,188 | 64,236 | |||||
Depreciation | 31,782 | 36,232 | |||||
Amortization | 17,806 | 14,670 | |||||
General and administrative | 7,864 | 6,407 | |||||
Total operating expenses | 111,640 | 121,545 | |||||
Real estate operating income | 26,372 | 28,214 | |||||
Other income (expense): | |||||||
Interest expense | (16,385 | ) | (19,016 | ) | |||
Other income (expense) | 294 | (181 | ) | ||||
Equity in income of unconsolidated joint ventures | 115 | 159 | |||||
Gain (loss) on sales of real estate | (20 | ) | 10,073 | ||||
Net income | 10,376 | 19,249 | |||||
Less: Net income applicable to noncontrolling interest | (4 | ) | (4 | ) | |||
Net income applicable to Piedmont | $ | 10,372 | $ | 19,245 | |||
Weighted average common shares outstanding - diluted* | 145,791 | 154,580 | |||||
Per Share Information -- diluted: | |||||||
Net income applicable to common stockholders | $ | 0.07 | $ | 0.12 | |||
*Number of shares of common stock outstanding as of end of period | 145,093 | 154,340 | |||||
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 | |||||||
3/31/2016 | 3/31/2015 | ||||||
GAAP net income applicable to common stock | $ | 10,372 | $ | 19,245 | |||
Depreciation (1) (2) | 31,639 | 36,097 | |||||
Amortization (1) | 17,822 | 14,686 | |||||
Loss/(gain) on sale of real estate assets (1) | 20 | (10,073 | ) | ||||
NAREIT Funds From Operations applicable to common stock* | 59,853 | 59,955 | |||||
Acquisition costs | 12 | 144 | |||||
Core Funds From Operations applicable to common stock* | 59,865 | 60,099 | |||||
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on debt | 647 | 651 | |||||
Depreciation of non real estate assets | 204 | 196 | |||||
Straight-line effects of lease revenue (1) | (7,848 | ) | (4,510 | ) | |||
Stock-based and other non-cash compensation expense | 1,928 | 725 | |||||
Net effect of amortization of above or below-market in-place lease intangibles (1) | (1,238 | ) | (1,122 | ) | |||
Acquisition costs | (12 | ) | (144 | ) | |||
Non-incremental capital expenditures (3) | (9,996 | ) | (10,287 | ) | |||
Adjusted funds from operations applicable to common stock* | $ | 43,550 | $ | 45,608 | |||
Weighted average common shares outstanding - diluted** | 145,791 | 154,580 | |||||
Funds from operations per share (diluted) | $ | 0.41 | $ | 0.39 | |||
Core funds from operations per share (diluted) | $ | 0.41 | $ | 0.39 | |||
Adjusted funds from operations per share (diluted) | $ | 0.30 | $ | 0.30 | |||
**Number of shares of common stock outstanding as of end of period | 145,093 | 154,340 | |||||
(1) Includes adjustments for consolidated properties 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 | |||||||
3/31/2016 | 3/31/2015 | ||||||
Net income applicable to Piedmont | $ | 10,372 | $ | 19,245 | |||
Net income applicable to noncontrolling interest | 4 | 4 | |||||
Interest expense | 16,385 | 19,016 | |||||
Depreciation (1) | 31,843 | 36,292 | |||||
Amortization (1) | 17,822 | 14,686 | |||||
Acquisition costs | 12 | 144 | |||||
Loss/(gain) on sale of real estate assets (1) | 20 | (10,073 | ) | ||||
Core EBITDA* | 76,458 | 79,314 | |||||
General & administrative expenses (1) | 7,869 | 6,416 | |||||
Management fee revenue | (292 | ) | (330 | ) | |||
Other (income)/expense (1) | (307 | ) | 38 | ||||
Straight line effects of lease revenue (1) | (7,848 | ) | (4,510 | ) | |||
Amortization of lease-related intangibles (1) | (1,238 | ) | (1,122 | ) | |||
Property Net Operating Income (cash basis)* | 74,642 | 79,806 | |||||
Acquisitions | (5,215 | ) | (513 | ) | |||
Dispositions | 29 | (10,413 | ) | ||||
Other investments | (126 | ) | (270 | ) | |||
Same Store NOI (cash basis)* | $ | 69,330 | $ | 68,610 | |||
Change period over period in Property NOI | (6.5 | )% | N/A | ||||
Change period over period in Same Store NOI | 1.0 | % | N/A | ||||
(1) Includes amounts attributable to consolidated properties 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 99.2
Quarterly Supplemental Information
March 31, 2016
Corporate Headquarters | Institutional Analyst Contact | Investor Relations |
11695 Johns Creek Parkway, Suite 350 | Telephone: 770.418.8592 | Telephone: 866.354.3485 |
Johns Creek, GA 30097 | research.analysts@piedmontreit.com | investor.services@piedmontreit.com |
Telephone: 770.418.8800 | www.piedmontreit.com | |
Piedmont Office Realty Trust, Inc.
Quarterly Supplemental Information
Index
Page | Page | |||
Introduction | Other Investments | |||
Corporate Data | Other Investments Detail | |||
Investor Information | Supporting Information | |||
Financial Highlights | Definitions | |||
Key Performance Indicators | Research Coverage | |||
Financials | Non-GAAP Reconciliations & Other Detail | |||
Balance Sheets | Property Detail | |||
Income Statements | Risks, Uncertainties and Limitations | |||
Funds From Operations / Adjusted Funds From Operations | ||||
Same Store Analysis | ||||
Capitalization Analysis | ||||
Debt Summary | ||||
Debt Detail | ||||
Debt Ratio Analysis | ||||
Operational & Portfolio Information - Office Investments | ||||
Tenant Diversification | ||||
Tenant Credit Rating & Lease Distribution Information | ||||
Leased Percentage Information | ||||
Rental Rate Roll Up / Roll Down Analysis | ||||
Lease Expiration Schedule | ||||
Quarterly Lease Expirations | ||||
Annual Lease Expirations | ||||
Capital Expenditures & 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 47 for a discussion of important risks related to the business of Piedmont Office Realty Trust, Inc., as well as an investment in its securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information. Considering these risks, uncertainties, assumptions, and limitations, the forward-looking statements about leasing, financial operations, leasing prospects, 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, approximately $5 billion portfolio is comprised of nearly 20 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 | ||||
March 31, 2016 | December 31, 2015 | ||||
Number of consolidated office properties (1) | 69 | 69 | |||
Rentable square footage (in thousands) (1) | 18,930 | 18,934 | |||
Percent leased (2) | 91.7 | % | 91.5 | % | |
Capitalization (in thousands): | |||||
Total debt - principal amount outstanding | $2,013,830 | $2,040,970 | |||
Equity market capitalization (3) | $2,946,839 | $2,747,260 | |||
Total market capitalization (3) | $4,960,669 | $4,788,230 | |||
Total debt / Total market capitalization (3) | 40.6 | % | 42.6 | % | |
Total debt / Total gross assets | 37.3 | % | 37.5 | % | |
Common stock data: | |||||
High closing price during quarter | $20.42 | $19.82 | |||
Low closing price during quarter | $17.10 | $18.05 | |||
Closing price of common stock at period end | $20.31 | $18.88 | |||
Weighted average fully diluted shares outstanding during quarter (in thousands) | 145,791 | 146,014 | |||
Shares of common stock issued and outstanding at period end (in thousands) | 145,093 | 145,512 | |||
Annual dividend per share (4) | $0.84 | $0.84 | |||
Rating / outlook | |||||
Standard & Poor's | BBB / Stable | BBB / Stable | |||
Moody's | Baa2 / Stable | Baa2 / Stable | |||
Employees | 144 | 143 | |||
(1) | As of March 31, 2016, our consolidated office portfolio consisted of 69 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). There were no acquisitions or dispositions of office properties completed during the first quarter of 2016. |
(2) | Calculated as square footage associated with commenced leases plus square footage associated with uncommenced leases for 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 26 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 | Chief Investment Officer and Executive Vice |
and Director | Vice President | Senior Vice President | President |
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 | Kelly H. Barrett | Wesley E. Cantrell | Barbara B. Lang |
Director and Chairman of the | Director | Director and Chairman of | Director |
Board of Directors | Governance Committee | ||
Frank C. McDowell | Donald A. Miller, CFA | Raymond G. Milnes, Jr. | Jeffery L. Swope |
Director, Vice Chairman of the | Chief Executive Officer, President | Director and Chairman of | Director and Chairman of |
Board of Directors and Chairman | and Director | Audit Committee | Capital Committee |
of Compensation Committee | |||
Dale H. Taysom | |||
Director | |||
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 March 31, 2016
Financial Results (1)
Funds from operations (FFO) for the quarter ended March 31, 2016 was $59.9 million, or $0.41 per share (diluted), compared to $60.0 million, or $0.39 per share (diluted), for the same quarter in 2015. The dollar amount of FFO for the three months ended March 31, 2016 was comparable to that from the same period in 2015. Changes in the composition of FFO in 2016 when compared to 2015 were primarily attributable to 1) the loss of operating income contributions from properties sold since the beginning of 2015, including our largest asset, Aon Center, offset to a large degree by properties acquired and the commencement of leases representing net absorption of available space in the portfolio during the same time period, 2) increased general and administrative expense in 2016 due to higher expense accruals for potential performance-based compensation as a result of the Company's stock performance relative to its peers, and 3) decreased interest expense principally as a result of over $300 million less of debt outstanding in 2016 when compared to 2015.
Core funds from operations (Core FFO) for the quarter ended March 31, 2016 was $59.9 million, or $0.41 per share (diluted), compared to $60.1 million, or $0.39 per share (diluted), for the same quarter in 2015. 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 ended March 31, 2016 as compared to the same period in 2015 was primarily attributable to the items described above for changes in FFO.
Adjusted funds from operations (AFFO) for the quarter ended March 31, 2016 was $43.6 million, or $0.30 per share (diluted), compared to $45.6 million, or $0.30 per share (diluted), for the same quarter in 2015. The decrease in dollar amount of AFFO for the three months ended March 31, 2016 as compared to the same period in 2015 was primarily related to the items described above for changes in FFO and Core FFO, in addition to the deduction of a greater amount of straight line rent adjustments in 2016 when compared to 2015.
The changes in per share amounts of FFO, Core FFO and AFFO for the three months ended March 31, 2016 as compared to the same period in 2015 were also impacted by reduced weighted average shares outstanding in 2016 as a result of the Company's stock repurchase program. Since the beginning of 2015, Piedmont repurchased 9.4 million shares at an average price of $17.66 per share. Since the program commenced in December 2011, Piedmont has repurchased 28.3 million shares at an average price of $17.17 per share.
Operations & Leasing
On a square footage leased basis, our total office portfolio was 91.7% leased as of March 31, 2016, as compared to 91.5% in the prior quarter and 88.8% a year earlier. Please refer to page 26 for additional leased percentage information.
The weighted average remaining lease term of our portfolio was 6.7 years(2) as of March 31, 2016 as compared to 6.7 years at December 31, 2015.
(1) | |
(2) | Remaining lease term (after taking into account leases for vacant spaces which had been executed but not commenced as of March 31, 2016) is weighted based on Annualized Lease Revenue, as defined on page 38. |
5
Within its portfolio, Piedmont has two development properties and one re-development property. The Company's two development projects are Enclave Place, a 301,000 square foot office property located in Houston, TX, and 500 TownPark, a 135,000 square foot office property located in Lake Mary, FL; its redevelopment property is 3100 Clarendon Boulevard, a 262,000 square foot office and retail property located in Arlington, VA. For the purposes of statistical reporting throughout this supplemental report, these properties are excluded from Piedmont's operating portfolio. For additional information regarding these development projects, please refer to page 37 of this report.
During the three months ended March 31, 2016, the Company completed 353,000 square feet of total leasing. Of the total leasing activity during the quarter, we signed renewal leases for approximately 171,000 square feet and new tenant leases for approximately 182,000 square feet. 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 three months ended March 31, 2016 was $2.30 and the same measure for new leases was $4.04, resulting in a weighted average of $3.36 for all leasing activity completed during the period (see page 32).
During the three months ended March 31, 2016, we executed four 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 |
Telogis, Inc. | Braker Pointe III | Austin, TX | 29,220 | 2019 | New |
GKN Aerospace, Inc. | 6031 Connection Drive | Irving, TX | 27,938 | 2027 | New |
Vertex, Inc. | Sarasota Commerce Center II | Sarasota, FL | 25,809 | 2021 | Renewal |
Bomgar Corporation | 11695 Johns Creek Parkway | Johns Creek, GA | 21,171 | 2023 | Renewal / Expansion |
As of March 31, 2016, there were three tenants whose leases individually contributed greater than 1% in net Annualized Lease Revenue expiring during the eighteen month period following the end of the first quarter of 2016. 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 |
Harcourt | Braker Pointe III | Austin, TX | 166,010 | 1.0% | Q2 2016 | The primary tenant will vacate upon lease expiration. A lease with a current subtenant was executed during the first quarter of 2016, and discussions with another subtenant are on-going. Additionally, the remaining available space consisting of 166,010 square feet is actively being marketed for lease to new tenant prospects. |
Towers Watson | Arlington Gateway | Arlington, VA | 123,286 | 1.1% | Q2 2017 | The likelihood of a lease renewal with the existing tenant is low. The space is actively being marketed for lease. |
National Park Service | 1201 Eye Street | Washington, DC | 117,813 | 1.1% | Q3 2017 | Of the 174,274 square feet currently leased to the National Park Service, 56,461 square feet have been leased to the International Food Policy Research Institute under its 101,937 square foot lease executed in 2015, leaving 117,813 square feet to be leased. The remaining available space is actively being marketed for lease. |
6
Future Lease Commencements and Abatements
As of March 31, 2016, our overall leased percentage was 91.7% 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 552,000 square feet of leases as of March 31, 2016, or 3.0% 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 1.4 million square feet of leases as of March 31, 2016, or a 5.7% impact to leased percentage on an economic basis). |
Piedmont has leases with many large corporate office space users. The average size of lease in the Company's portfolio is approximately 22,000 square feet. Due to the large size and length of term of new leases, Piedmont typically signs leases many 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 |
Motorola Solutions, Inc. | 500 West Monroe Street | Chicago, IL | 150,345 | Vacant | Q3 2016 | New |
District of Columbia (Department of Disability Services) | One Independence Square | Washington, DC | 101,982 | Vacant | Q3 2016 | New |
Norris, McLaughlin & Marcus, P.A. | 400 Bridgewater Crossing | Bridgewater, NJ | 61,642 | Not Vacant | Q4 2016 | 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. 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 |
Catamaran | Windy Point II | Schaumburg, IL | 50,686 | March 2015 through April 2016 | Q1 2025 |
Lockton Companies | 500 West Monroe Street | Chicago, IL | 52,201 | August 2015 through July 2016 | Q3 2026 |
Nestle | 800 North Brand Boulevard | Glendale, CA | 400,892 | December 2015 through March 2016 | Q1 2021 |
United States of America (Corporation for National and Community Service) | One Independence Square | Washington, DC | 84,606 | January 2016 through June 2017 | Q4 2030 |
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 |
District of Columbia (Department of Disability Services) | One Independence Square | Washington, DC | 101,982 | August 2016 through March 2017; August 2019; August 2020 | Q2 2028 |
SunTrust Bank | SunTrust Center | Orlando, FL | 120,000 | October through December 2016 and 2017 | Q3 2019 |
Norris, McLaughlin & Marcus | 400 Bridgewater Crossing | Bridgewater, NJ | 61,642 | November 2016 through February 2017; October through December 2017 and 2018; November and December 2019 | Q4 2029 |
Continental Casualty Company | 500 TownPark | Lake Mary, FL | 108,000 | February through June 2017 | Q1 2030 |
(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 |
• | repurchase Company stock. |
Information on the Company's recent accomplishments in furtherance of its strategic objectives is presented below.
Dispositions
There were no dispositions completed during the quarter ended March 31, 2016. However, we began marketing certain assets for sale during the quarter and were in advanced stages of sales negotiations for several properties as of the end of the quarter. Additional information on asset sales completed after the end of the first quarter of 2016 can be found under the Subsequent Events heading below.
Acquisitions
There were no acquisitions completed during the quarter ended March 31, 2016.
For additional information on acquisitions and dispositions completed over the previous eighteen months, please refer to page 36.
Development
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. The foundation work is complete and physical construction of the building is underway. The development costs are anticipated to be $28 million to $30 million, inclusive of leasing costs. Approximately $3.5 million had been recorded in work in progress as of March 31, 2016. The site is situated at the intersection of Interstate 4 and Highway 417 and is well located within a mixed-use development consisting of office, retail, residential and hotel uses. After the completion of 500 TownPark, the Company's remaining land holdings in the master planned, multi-use development could accommodate up to 1,200,000 square feet of additional development, including approximately 800,000 square feet of office development.
In addition, the Company has two development projects that are now substantially complete and in lease-up phase:
• | 3100 Clarendon Boulevard, a 262,000 square foot office and retail property located adjacent to the Clarendon Metrorail Station in Arlington, VA, which was upgraded to Class A after being occupied by a U.S. Government agency for over 15 years; and |
• | Enclave Place, a 301,000 square foot office building located within a deed-restricted and architecturally-controlled office park in the Energy Corridor in Houston, TX. |
For additional information on Piedmont's development projects, please refer to page 37.
Finance
As of March 31, 2016, our ratio of debt to total gross assets was 37.3%. This debt ratio is based on total principal amount outstanding for our various loans at March 31, 2016.
As of March 31, 2016, our average net debt to Core EBITDA ratio was 6.6x, a decrease from 6.9x at December 31, 2015.
On January 4, 2016, Piedmont repaid a $125 million mortgage loan with a 5.50% interest rate collateralized by 1430 Enclave Parkway located in Houston, TX, Windy Point I and Windy Point
II located in Schaumburg, IL, and 1055 East Colorado Boulevard located in Pasadena, CA. The loan had an April 1, 2016 maturity date, but was open to prepayment without yield
maintenance fees 90 days in advance of the stated maturity date. The Company repaid the loan at the earliest possible date inside of the open prepayment window with funds drawn from its
unsecured revolving line of credit and cash on hand. The Company had $381 million of availability on its $500 million line of credit as of March 31, 2016.
Loan Investments
Piedmont provided seller financing to the purchaser of Copper Ridge Center in Lyndhurst, NJ, in May 2015. The $45.4 million, 8.45% interest-only loan was repaid in full in February 2016 in accordance with the terms of the loan.
8
Stock Repurchase Program
During the first quarter of 2016, the Company repurchased 461,500 shares of common stock under its share repurchase program at an average price of $17.20 per share, or approximately $7.9 million (before the consideration of transaction costs). Since the stock repurchase program began in December 2011, the Company has repurchased a total of 28.3 million shares at an average price of $17.17 per share, or approximately $486.4 million in aggregate (before the consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases totaled approximately $70.2 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 February 4, 2016, the Board of Directors of Piedmont declared a dividend for the first quarter of 2016 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on February 26, 2016. The dividend was paid on March 18, 2016. The Company's dividend payout percentage for the three months ended March 31, 2016 was 51% of Core FFO and 70% of AFFO.
Subsequent Events
Following the end of the first quarter of 2016, the Company completed the dispositions of three properties in metropolitan Los Angeles. The completion of these dispositions allowed the Company to further advance its strategic objective of focusing its operations on select submarkets within its strategic operating footprint. The dispositions were as follows:
• | On April 21, 2016, Piedmont sold 1055 East Colorado Boulevard, a 176,000 square foot, 99% leased office building located in Pasadena, CA, for $61.3 million, or $348 per square foot; |
• | On April 28, 2016, Piedmont sold Fairway Center II, a 134,000 square foot, 97% leased office building located in Brea, CA, for $33.8 million, or $252 per square foot; and |
• | On May 2, 2016, Piedmont sold 1901 Main Street, a 173,000 square foot, 100% leased office building located in Irvine, CA, for $66.0 million, or $382 per square foot. |
Each transaction resulted in a gain on sale. As previously communicated, the Company established reverse 1031 exchanges with several recent acquisitions in order to be prepared to defer any potential tax gains resulting from the Company's prospective portfolio refinement activities. All three California property dispositions were closed as 1031 exchanges, reducing the aggregate gain that must be included in the Company's yearly required dividend calculations. Proceeds from the sales were used to reduce the balance outstanding on the Company's revolving line of credit.
On April 27, 2016, the Board of Directors of Piedmont declared a dividend for the second quarter of 2016 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on May 27, 2016. The dividend is expected to be paid on June 17, 2016.
Guidance for 2016
The following financial guidance for calendar year 2016 remains unchanged and is based upon management's expectations at this time.
Low | High | ||
Core Funds from Operations | $231 million | $242 million | |
Core Funds from Operations per diluted share | $1.58 | $1.66 | |
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.
9
Piedmont Office Realty Trust, Inc.
Key Performance Indicators
Unaudited (in thousands except for per share data)
This section of our supplemental report includes non-GAAP financial measures, including, but not limited to, Core Earnings Before Interest, Taxes, Depreciation, and Amortization (Core EBITDA), Funds from Operations (FFO), Core Funds from Operations (Core FFO), and Adjusted Funds from Operations (AFFO). Definitions of these non-GAAP measures are provided on page 38 and reconciliations are provided beginning on page 40. |
Three Months Ended | ||||||||||||||
3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | 3/31/2015 | ||||||||||
Selected Operating Data | ||||||||||||||
Percent leased (1) | 91.7 | % | 91.5 | % | 90.6 | % | 88.8 | % | 88.8 | % | ||||
Percent leased - economic (1) (2) | 83.0 | % | 81.8 | % | 83.0 | % | 82.4 | % | 80.6 | % | ||||
Rental income | $114,738 | $115,617 | $117,994 | $117,454 | $117,807 | |||||||||
Total revenues | $138,012 | $139,461 | $148,815 | $146,734 | $149,759 | |||||||||
Total operating expenses | $111,640 | $110,523 | $149,948 | (3) | $125,910 | $121,545 | ||||||||
Core EBITDA | $76,458 | $78,485 | $80,062 | $77,969 | $79,314 | |||||||||
Core FFO applicable to common stock | $59,865 | $60,184 | $61,058 | $59,760 | $60,099 | |||||||||
Core FFO per share - diluted | $0.41 | $0.41 | $0.41 | $0.39 | $0.39 | |||||||||
AFFO applicable to common stock | $43,550 | $42,358 | $52,433 | $45,734 | $45,608 | |||||||||
AFFO per share - diluted | $0.30 | $0.29 | $0.35 | $0.30 | $0.30 | |||||||||
Gross dividends | $30,463 | $30,557 | $31,036 | $32,268 | $32,411 | |||||||||
Dividends per share | $0.210 | $0.210 | $0.210 | $0.210 | $0.210 | |||||||||
Selected Balance Sheet Data | ||||||||||||||
Total real estate assets | $3,683,106 | $3,695,806 | $3,934,113 | $4,005,824 | $4,094,942 | |||||||||
Total gross real estate assets | $4,732,904 | $4,710,837 | $5,153,613 | $5,215,938 | $5,297,481 | |||||||||
Total assets | $4,355,017 | $4,434,535 | $4,732,654 | $4,773,811 | $4,812,471 | |||||||||
Net debt (4) | $2,008,507 | $2,030,355 | $2,387,840 | $2,315,934 | $2,320,504 | |||||||||
Total liabilities | $2,195,354 | $2,238,091 | $2,639,916 | $2,517,960 | $2,526,548 | |||||||||
Ratios | ||||||||||||||
Core EBITDA margin (5) | 55.4 | % | 56.3 | % | 53.8 | % | 53.1 | % | 53.0 | % | ||||
Fixed charge coverage ratio (6) | 4.3 x | 4.1 x | 4.0 x | 4.0 x | 4.0 x | |||||||||
Average net debt to Core EBITDA (7) | 6.6 x | 6.9 x | 7.3 x | 7.4 x | 7.2 x | |||||||||
(1) | Please refer to page 26 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. |
(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 decrease in net debt in the fourth quarter of 2015 was primarily attributable to the use of a portion of the proceeds from the sale of Aon Center in Chicago, IL, to repay 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 $1,162,192 for the quarter ended March 31, 2016, $1,102,518 for the quarter ended December 31, 2015, $954,086 for the quarter ended September 30, 2015, $885,576 for the quarter ended June 30, 2015, and $823,770 for the quarter ended March 31, 2015; the Company had principal amortization of $140,539 for the quarter ended March 31, 2016, $277,217 for the quarter ended December 31, 2015, $204,580 for the quarter ended September 30, 2015, $201,768 for the quarter ended June 30, 2015, and $132,969 for the quarter ended March 31, 2015. |
(7) | For the purposes of this calculation, we annualize the period's Core EBITDA and use the average daily balance of debt outstanding during the period, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the period. The decrease in the net debt to Core EBITDA ratios for the quarters ended December 31, 2015 and March 31, 2016 was primarily attributable to the debt repayment in October 2015 using a majority of the proceeds from the sale of Aon Center in Chicago, IL. For the other quarters presented herein, the average net debt to Core EBITDA ratios 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 in previous quarters was also impacted by downtime associated with re-tenanting efforts, and some rent roll downs. |
10
Piedmont Office Realty Trust, Inc.
Consolidated Balance Sheets
Unaudited (in thousands)
March 31, 2016 | December 31, 2015 | September 30, 2015 | June 30, 2015 | March 31, 2015 | |||||||||||||||
Assets: | |||||||||||||||||||
Real estate, at cost: | |||||||||||||||||||
Land assets | $ | 685,850 | $ | 685,850 | $ | 671,832 | $ | 672,747 | $ | 679,094 | |||||||||
Buildings and improvements | 3,844,717 | 3,826,322 | 3,589,298 | 3,620,647 | 3,671,925 | ||||||||||||||
Buildings and improvements, accumulated depreciation | (951,484 | ) | (922,019 | ) | (933,717 | ) | (911,168 | ) | (914,551 | ) | |||||||||
Intangible lease asset | 176,436 | 177,675 | 148,403 | 153,106 | 153,465 | ||||||||||||||
Intangible lease asset, accumulated amortization | (98,314 | ) | (93,012 | ) | (87,633 | ) | (88,954 | ) | (84,212 | ) | |||||||||
Construction in progress | 25,901 | 20,990 | 75,083 | 63,211 | 82,246 | ||||||||||||||
Real estate assets held for sale, gross | — | — | 668,997 | 706,227 | 710,751 | ||||||||||||||
Real estate assets held for sale, accumulated depreciation & amortization | — | — | (198,150 | ) | (209,992 | ) | (203,776 | ) | |||||||||||
Total real estate assets | 3,683,106 | 3,695,806 | 3,934,113 | 4,005,824 | 4,094,942 | ||||||||||||||
Investments in and amounts due from unconsolidated joint ventures | 7,483 | 7,577 | 7,652 | 7,714 | 7,820 | ||||||||||||||
Cash and cash equivalents | 4,732 | 5,441 | 7,702 | 8,997 | 7,479 | ||||||||||||||
Tenant receivables, net of allowance for doubtful accounts | 22,040 | 26,339 | 26,748 | 25,474 | 30,132 | ||||||||||||||
Straight line rent receivable | 161,087 | 152,122 | 149,060 | 146,632 | 150,511 | ||||||||||||||
Notes receivable | — | 45,400 | 45,400 | 45,400 | — | ||||||||||||||
Escrow deposits and restricted cash | 591 | 5,174 | 37,705 | 521 | 671 | ||||||||||||||
Prepaid expenses and other assets | 24,708 | 24,843 | 31,764 | 31,070 | 24,941 | ||||||||||||||
Goodwill | 180,097 | 180,097 | 180,097 | 180,097 | 180,097 | ||||||||||||||
Interest rate swap | — | — | — | 8,290 | 520 | ||||||||||||||
Deferred lease costs, less accumulated amortization | 271,173 | 291,736 | 231,379 | 234,127 | 238,085 | ||||||||||||||
Other assets held for sale | — | — | 81,034 | 79,665 | 77,273 | ||||||||||||||
Total assets | $ | 4,355,017 | $ | 4,434,535 | $ | 4,732,654 | $ | 4,773,811 | $ | 4,812,471 | |||||||||
Liabilities: | |||||||||||||||||||
Unsecured debt, net of discount | $ | 1,626,799 | $ | 1,528,221 | $ | 1,919,504 | $ | 1,810,951 | $ | 1,870,295 | |||||||||
Secured debt | 376,119 | 501,289 | 501,595 | 501,853 | 448,423 | ||||||||||||||
Accounts payable, accrued expenses, and accrued capital expenditures | 103,894 | 128,465 | 132,741 | 128,898 | 119,466 | ||||||||||||||
Deferred income | 28,143 | 27,270 | 26,087 | 26,633 | 25,970 | ||||||||||||||
Intangible lease liabilities, less accumulated amortization | 40,926 | 42,853 | 38,896 | 40,597 | 42,311 | ||||||||||||||
Interest rate swaps | 19,473 | 9,993 | 20,526 | 8,411 | 19,416 | ||||||||||||||
Notes Payable and other liabilities held for sale | — | — | 567 | 617 | 667 | ||||||||||||||
Total liabilities | $ | 2,195,354 | $ | 2,238,091 | $ | 2,639,916 | $ | 2,517,960 | $ | 2,526,548 | |||||||||
Stockholders' equity: | |||||||||||||||||||
Common stock | 1,451 | 1,455 | 1,456 | 1,518 | 1,543 | ||||||||||||||
Additional paid in capital | 3,671,055 | 3,669,977 | 3,669,154 | 3,668,378 | 3,667,574 | ||||||||||||||
Cumulative distributions in excess of earnings | (1,505,704 | ) | (1,477,674 | ) | (1,570,377 | ) | (1,427,312 | ) | (1,378,786 | ) | |||||||||
Other comprehensive loss | (8,168 | ) | 1,661 | (8,524 | ) | 12,242 | (5,437 | ) | |||||||||||
Piedmont stockholders' equity | 2,158,634 | 2,195,419 | 2,091,709 | 2,254,826 | 2,284,894 | ||||||||||||||
Non-controlling interest | 1,029 | 1,025 | 1,029 | 1,025 | 1,029 | ||||||||||||||
Total stockholders' equity | 2,159,663 | 2,196,444 | 2,092,738 | 2,255,851 | 2,285,923 | ||||||||||||||
Total liabilities, redeemable common stock and stockholders' equity | $ | 4,355,017 | $ | 4,434,535 | $ | 4,732,654 | $ | 4,773,811 | $ | 4,812,471 | |||||||||
Common stock outstanding at end of period | 145,093 | 145,512 | 145,634 | 151,833 | 154,340 | ||||||||||||||
11
Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)
Three Months Ended | ||||||||||||||||||||
3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | 3/31/2015 | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Rental income | $ | 114,738 | $ | 115,617 | $ | 117,994 | $ | 117,454 | $ | 117,807 | ||||||||||
Tenant reimbursements | 22,751 | 23,405 | 30,273 | 28,813 | 31,390 | |||||||||||||||
Property management fee revenue | 523 | 439 | 548 | 467 | 562 | |||||||||||||||
138,012 | 139,461 | 148,815 | 146,734 | 149,759 | ||||||||||||||||
Expenses: | ||||||||||||||||||||
Property operating costs | 54,188 | 54,608 | 61,677 | 61,479 | 64,236 | |||||||||||||||
Depreciation | 31,782 | 31,033 | 31,199 | 36,039 | 36,232 | |||||||||||||||
Amortization | 17,806 | 17,240 | 14,021 | 14,955 | 14,670 | |||||||||||||||
Impairment losses on real estate assets | — | — | 34,815 | 5,354 | — | |||||||||||||||
General and administrative | 7,864 | 7,642 | 8,236 | 8,083 | 6,407 | |||||||||||||||
111,640 | 110,523 | 149,948 | 125,910 | 121,545 | ||||||||||||||||
Real estate operating income | 26,372 | 28,938 | (1,133 | ) | 20,824 | 28,214 | ||||||||||||||
Other income / (expense): | ||||||||||||||||||||
Interest expense | (16,385 | ) | (17,978 | ) | (18,832 | ) | (18,172 | ) | (19,016 | ) | ||||||||||
Other income / (expense) | 294 | 347 | 803 | 596 | (181 | ) | ||||||||||||||
Net recoveries / (loss) from casualty events and litigation settlements (1) | — | (278 | ) | — | — | — | ||||||||||||||
Equity in income / (loss) of unconsolidated joint ventures | 115 | 135 | 135 | 124 | 159 | |||||||||||||||
(15,976 | ) | (17,774 | ) | (17,894 | ) | (17,452 | ) | (19,038 | ) | |||||||||||
Income from continuing operations | 10,396 | 11,164 | (19,027 | ) | 3,372 | 9,176 | ||||||||||||||
Discontinued operations: | ||||||||||||||||||||
Operating income, excluding impairment loss | — | 71 | 16 | (3 | ) | — | ||||||||||||||
Gain / (loss) on sale of properties | — | 1 | (2 | ) | — | — | ||||||||||||||
Income / (loss) from discontinued operations | — | 72 | 14 | (3 | ) | — | ||||||||||||||
Gain on sale of real estate (2) | (20 | ) | 114,411 | 17,142 | 26,611 | 10,073 | ||||||||||||||
Net income | 10,376 | 125,647 | (1,871 | ) | 29,980 | 19,249 | ||||||||||||||
Less: Net income attributable to noncontrolling interest | (4 | ) | (3 | ) | (4 | ) | (4 | ) | (4 | ) | ||||||||||
Net income attributable to Piedmont | $ | 10,372 | $ | 125,644 | $ | (1,875 | ) | $ | 29,976 | $ | 19,245 | |||||||||
Weighted average common shares outstanding - diluted | 145,791 | 146,014 | 149,176 | 153,757 | 154,580 | |||||||||||||||
Net income per share available to common stockholders - diluted | $ | 0.07 | $ | 0.84 | $ | (0.01 | ) | $ | 0.20 | $ | 0.12 | |||||||||
Common stock outstanding at end of period | 145,093 | 145,512 | 145,634 | 151,833 | 154,340 | |||||||||||||||
(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 fourth quarter of 2015 was primarily related to the sale of Aon Center in Chicago, IL, on which we recorded a $114.3 million gain, that 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 $10.1 million gain. |
12
Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)
Three Months Ended | ||||||||||||
3/31/2016 | 3/31/2015 | Change ($) | Change (%) | |||||||||
Revenues: | ||||||||||||
Rental income | $ | 114,738 | $ | 117,807 | $ | (3,069 | ) | (2.6 | )% | |||
Tenant reimbursements | 22,751 | 31,390 | (8,639 | ) | (27.5 | )% | ||||||
Property management fee revenue | 523 | 562 | (39 | ) | (6.9 | )% | ||||||
138,012 | 149,759 | (11,747 | ) | (7.8 | )% | |||||||
Expenses: | ||||||||||||
Property operating costs | 54,188 | 64,236 | 10,048 | 15.6 | % | |||||||
Depreciation | 31,782 | 36,232 | 4,450 | 12.3 | % | |||||||
Amortization | 17,806 | 14,670 | (3,136 | ) | (21.4 | )% | ||||||
Impairment losses on real estate assets | — | — | — | — | % | |||||||
General and administrative | 7,864 | 6,407 | (1,457 | ) | (22.7 | )% | ||||||
111,640 | 121,545 | 9,905 | 8.1 | % | ||||||||
Real estate operating income | 26,372 | 28,214 | (1,842 | ) | (6.5 | )% | ||||||
Other income / (expense): | ||||||||||||
Interest expense | (16,385 | ) | (19,016 | ) | 2,631 | 13.8 | % | |||||
Other income / (expense) | 294 | (181 | ) | 475 | 262.4 | % | ||||||
Net recoveries / (loss) from casualty events and litigation settlements | — | — | — | — | % | |||||||
Equity in income / (loss) of unconsolidated joint ventures | 115 | 159 | (44 | ) | (27.7 | )% | ||||||
(15,976 | ) | (19,038 | ) | 3,062 | 16.1 | % | ||||||
Income from continuing operations | 10,396 | 9,176 | 1,220 | 13.3 | % | |||||||
Discontinued operations: | ||||||||||||
Operating income, excluding impairment loss | — | — | — | — | % | |||||||
Gain / (loss) on sale of properties | — | — | — | — | % | |||||||
Income / (loss) from discontinued operations | — | — | — | — | % | |||||||
Gain on sale of real estate (1) | (20 | ) | 10,073 | (10,093 | ) | (100.2 | )% | |||||
Net income | 10,376 | 19,249 | (8,873 | ) | (46.1 | )% | ||||||
Less: Net income attributable to noncontrolling interest | (4 | ) | (4 | ) | — | — | % | |||||
Net income attributable to Piedmont | $ | 10,372 | $ | 19,245 | $ | (8,873 | ) | (46.1 | )% | |||
Weighted average common shares outstanding - diluted | 145,791 | 154,580 | ||||||||||
Net income per share available to common stockholders - diluted | $ | 0.07 | $ | 0.12 | ||||||||
Common stock outstanding at end of period | 145,093 | 154,340 | ||||||||||
(1) | The gain on sale of real estate for the three months ended March 31, 2015 was primarily related to a $10.1 million gain recorded on the sale of 3900 Dallas Parkway in Plano, TX, in January 2015. |
13
Piedmont Office Realty Trust, Inc.
Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations
Unaudited (in thousands except for per share data)
Three Months Ended | ||||||||
3/31/2016 | 3/31/2015 | |||||||
GAAP net income applicable to common stock | $ | 10,372 | $ | 19,245 | ||||
Depreciation (1) (2) | 31,639 | 36,097 | ||||||
Amortization (1) | 17,822 | 14,686 | ||||||
Impairment loss (1) | — | — | ||||||
Loss / (gain) on sale of properties (1) | 20 | (10,073 | ) | |||||
NAREIT funds from operations applicable to common stock | 59,853 | 59,955 | ||||||
Adjustments: | ||||||||
Acquisition costs | 12 | 144 | ||||||
Loss / (gain) on extinguishment of swaps | — | — | ||||||
Net (recoveries) / loss from casualty events and litigation settlements (1) | — | — | ||||||
Core funds from operations applicable to common stock | 59,865 | 60,099 | ||||||
Adjustments: | ||||||||
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on senior notes | 647 | 651 | ||||||
Depreciation of non real estate assets | 204 | 196 | ||||||
Straight-line effects of lease revenue (1) | (7,848 | ) | (4,510 | ) | ||||
Stock-based and other non-cash compensation expense | 1,928 | 725 | ||||||
Amortization of lease-related intangibles (1) | (1,238 | ) | (1,122 | ) | ||||
Acquisition costs | (12 | ) | (144 | ) | ||||
Non-incremental capital expenditures (3) | (9,996 | ) | (10,287 | ) | ||||
Adjusted funds from operations applicable to common stock | $ | 43,550 | $ | 45,608 | ||||
Weighted average common shares outstanding - diluted | 145,791 | 154,580 | ||||||
Funds from operations per share (diluted) | $ | 0.41 | $ | 0.39 | ||||
Core funds from operations per share (diluted) | $ | 0.41 | $ | 0.39 | ||||
Adjusted funds from operations per share (diluted) | $ | 0.30 | $ | 0.30 | ||||
Common stock outstanding at end of period | 145,093 | 154,340 | ||||||
(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 38. |
14
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)
Three Months Ended | |||||||
3/31/2016 | 3/31/2015 | ||||||
Net income attributable to Piedmont | $ | 10,372 | $ | 19,245 | |||
Net income attributable to noncontrolling interest | 4 | 4 | |||||
Interest expense (1) | 16,385 | 19,016 | |||||
Depreciation (1) | 31,843 | 36,292 | |||||
Amortization (1) | 17,822 | 14,686 | |||||
Acquisition costs | 12 | 144 | |||||
Impairment loss (1) | — | — | |||||
Net (recoveries) / loss from casualty events and litigation settlements (1) | — | — | |||||
Loss / (gain) on sale of properties (1) | 20 | (10,073 | ) | ||||
Core EBITDA | 76,458 | 79,314 | |||||
General & administrative expenses (1) | 7,869 | 6,416 | |||||
Management fee revenue (2) | (292 | ) | (330 | ) | |||
Other (income) / expense (1) (3) | (307 | ) | 38 | ||||
Straight-line effects of lease revenue (1) | (7,848 | ) | (4,510 | ) | |||
Amortization of lease-related intangibles (1) | (1,238 | ) | (1,122 | ) | |||
Property net operating income (cash basis) | 74,642 | 79,806 | |||||
Change period over period | (6.5 | )% | (4) | N/A | |||
Deduct net operating (income) / loss from: | |||||||
Acquisitions (5) | (5,215 | ) | (513 | ) | |||
Dispositions (6) | 29 | (10,413 | ) | ||||
Other investments (7) | (126 | ) | (270 | ) | |||
Same store net operating income (cash basis) | $ | 69,330 | $ | 68,610 | |||
Change period over period | 1.0 | % | 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) | The decrease in property net operating income in 2016 as compared to 2015 was primarily attributable to the sale of Aon Center in Chicago, IL, during the fourth quarter of 2015. Aon Center was the largest individual asset within the Company's portfolio prior to the sale, representing over 10% of the portfolio on a square footage basis. A majority of the sale proceeds were applied to debt reduction. |
(5) | Acquisitions consist of Park Place on Turtle Creek in Dallas, TX, purchased on January 16, 2015; 80 Central Street in Boxborough, MA, purchased on July 24, 2015; SunTrust Center in Orlando, FL, purchased on November 4, 2015; Galleria 300 in Atlanta, GA, purchased on November 4, 2015; and Glenridge Highlands One in Atlanta, GA, purchased on November 24, 2015. |
(6) | Dispositions consist of 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; Chandler Forum in Chandler, AZ, sold on September 1, 2015; Aon Center in Chicago, IL, sold on October 29, 2015; and 2 Gatehall Drive in Parsippany, NJ, sold on December 21, 2015. |
(7) | 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 37. The operating results from both the office and retail portions of 3100 Clarendon Boulevard in Arlington, VA, are included in this line item. |
15
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 | ||||||||||
3/31/2016 | 3/31/2015 | ||||||||||
$ | % | $ | % | ||||||||
Washington, D.C. | $ | 12,092 | 17.5 | $ | 12,467 | 18.2 | |||||
New York (1) | 9,385 | 13.5 | 8,300 | 12.1 | |||||||
Boston | 7,113 | 10.3 | 6,856 | 10.0 | |||||||
Dallas | 6,106 | 8.8 | 5,625 | 8.2 | |||||||
Minneapolis (2) | 5,684 | 8.2 | 4,635 | 6.8 | |||||||
Chicago | 5,433 | 7.8 | 5,884 | 8.5 | |||||||
Los Angeles (3) | 1,622 | 2.3 | 4,149 | 6.0 | |||||||
Other (4) | 21,895 | 31.6 | 20,694 | 30.2 | |||||||
Total | $ | 69,330 | 100.0 | $ | 68,610 | 100.0 | |||||
(1) | The increase in New York Same Store Net Operating Income for the three months ended March 31, 2016 as compared to the same period in 2015 was primarily related to increased rental income as a result of recent leasing activity as well as reduced operating expenses in 2016 attributable to milder winter weather than in the prior year at 60 Broad Street in New York, NY. |
(2) | The increase in Minneapolis Same Store Net Operating Income for the three months ended March 31, 2016 as compared to the same period in 2015 was primarily attributable to increased rental income as a result of recent leasing activity and the expiration of rental abatements at US Bancorp Center in Minneapolis, MN, as well as recent leasing activity at Crescent Ridge II in Minnetonka, MN. |
(3) | The decrease in Los Angeles Same Store Net Operating Income for the three months ended March 31, 2016 as compared to the same period in 2015 was primarily attributable to a four-month rental abatement concession (expiring March 31, 2016) provided to Nestle at the beginning of its 401,000 square foot renewal lease's term at 800 North Brand Boulevard in Glendale, CA. |
(4) | The increase in Other Same Store Net Operating Income for the three months ended March 31, 2016 as compared to the same period in 2015 was primarily attributable to increased economic occupancy associated with recent leasing activity at Suwanee Gateway One and The Medici, as well as a one-time true-up of operating expense recovery income at 1155 Perimeter Center West, all in Atlanta, GA. |
16
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Accrual Basis)
Unaudited (in thousands)
Three Months Ended | |||||||
3/31/2016 | 3/31/2015 | ||||||
Net income attributable to Piedmont | $ | 10,372 | $ | 19,245 | |||
Net income attributable to noncontrolling interest | 4 | 4 | |||||
Interest expense (1) | 16,385 | 19,016 | |||||
Depreciation (1) | 31,843 | 36,292 | |||||
Amortization (1) | 17,822 | 14,686 | |||||
Acquisition costs | 12 | 144 | |||||
Impairment loss (1) | — | — | |||||
Net (recoveries) / loss from casualty events and litigation settlements (1) | — | — | |||||
Loss / (gain) on sale of properties (1) | 20 | (10,073 | ) | ||||
Core EBITDA | 76,458 | 79,314 | |||||
General & administrative expenses (1) | 7,869 | 6,416 | |||||
Management fee revenue (2) | (292 | ) | (330 | ) | |||
Other (income) / expense (1) (3) | (307 | ) | 38 | ||||
Property net operating income (accrual basis) | 83,728 | 85,438 | |||||
Change period over period | (2.0 | )% | (4) | N/A | |||
Deduct net operating (income) / loss from: | |||||||
Acquisitions (5) | (6,482 | ) | (630 | ) | |||
Dispositions (6) | 29 | (12,085 | ) | ||||
Other investments (7) | (150 | ) | (273 | ) | |||
Same store net operating income (accrual basis) | $ | 77,125 | $ | 72,450 | |||
Change period over period | 6.5 | % | 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) | The decrease in property net operating income in 2016 as compared to 2015 was primarily attributable to the sale of Aon Center in Chicago, IL, during the fourth quarter of 2015. Aon Center was the largest individual asset within the Company's portfolio prior to the sale, representing over 10% of the portfolio on a square footage basis. A majority of the sale proceeds were applied to debt reduction. |
(5) | Acquisitions consist of Park Place on Turtle Creek in Dallas, TX, purchased on January 16, 2015; 80 Central Street in Boxborough, MA, purchased on July 24, 2015; SunTrust Center in Orlando, FL, purchased on November 4, 2015; Galleria 300 in Atlanta, GA, purchased on November 4, 2015; and Glenridge Highlands One in Atlanta, GA, purchased on November 24, 2015. |
(6) | Dispositions consist of 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; Chandler Forum in Chandler, AZ, sold on September 1, 2015; Aon Center in Chicago, IL, sold on October 29, 2015; and 2 Gatehall Drive in Parsippany, NJ, sold on December 21, 2015. |
(7) | 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 37. The operating results from both the office and retail portions of 3100 Clarendon Boulevard in Arlington, VA, are included in this line item. |
17
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 | ||||||||||
3/31/2016 | 3/31/2015 | ||||||||||
$ | % | $ | % | ||||||||
Washington, D.C. (1) | $ | 14,438 | 18.7 | $ | 13,151 | 18.2 | |||||
New York (2) | 9,270 | 12.0 | 7,990 | 11.0 | |||||||
Boston | 7,152 | 9.3 | 6,988 | 9.6 | |||||||
Chicago | 6,370 | 8.3 | 6,291 | 8.7 | |||||||
Dallas | 5,967 | 7.7 | 5,867 | 8.1 | |||||||
Minneapolis | 5,502 | 7.1 | 5,088 | 7.0 | |||||||
Los Angeles | 4,587 | 6.0 | 4,247 | 5.9 | |||||||
Other (3) | 23,839 | 30.9 | 22,828 | 31.5 | |||||||
Total | $ | 77,125 | 100.0 | $ | 72,450 | 100.0 | |||||
(1) | The increase in Washington, D.C. Same Store Net Operating Income for the three months ended March 31, 2016 as compared to the same period in 2015 was primarily attributable to the commencement of new leases at One Independence Square in Washington, D.C., 4250 North Fairfax Drive in Arlington, VA, and 9211 Corporate Boulevard in Rockville, MD, as well as lease termination income from Lockheed Martin at 9221 Corporate Boulevard in Rockville, MD, all of which was partially offset by a 45,000 square foot contraction under the National Park Service lease in 2015 at 1201 Eye Street in Washington, D.C. |
(2) | The increase in New York Same Store Net Operating Income for the three months ended March 31, 2016 as compared to the same period in 2015 was primarily related to increased rental income as a result of recent leasing activity as well as reduced operating expenses in 2016 attributable to milder winter weather than in the prior year at 60 Broad Street in New York, NY. |
(3) | The increase in Other Same Store Net Operating Income for the three months ended March 31, 2016 as compared to the same period in 2015 was primarily attributable to increased rental income as a result of recent leasing activity at Suwanee Gateway One, The Medici and Glenridge Highlands Two, as well as a one-time true-up of operating expense recovery income at 1155 Perimeter Center West, all in Atlanta, GA. |
18
Piedmont Office Realty Trust, Inc.
Capitalization Analysis
Unaudited (in thousands except for per share data)
As of | As of | |||||||
March 31, 2016 | December 31, 2015 | |||||||
Common stock price (1) | $ | 20.31 | $ | 18.88 | ||||
Total shares outstanding | 145,093 | 145,512 | ||||||
Equity market capitalization (1) | $ | 2,946,839 | $ | 2,747,260 | ||||
Total debt - principal amount outstanding | $ | 2,013,830 | $ | 2,040,970 | ||||
Total market capitalization (1) | $ | 4,960,669 | $ | 4,788,230 | ||||
Total debt / Total market capitalization (1) | 40.6 | % | 42.6 | % | ||||
Total gross real estate assets (2) | $ | 4,732,904 | $ | 4,710,837 | ||||
Total debt / Total gross real estate assets (2) | 42.5 | % | 43.3 | % | ||||
Total debt / Total gross assets (3) | 37.3 | % | 37.5 | % | ||||
Average net debt to Core EBITDA (4) | 6.6 x | 6.9 x | ||||||
(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. |
(4) | For the purposes of this calculation, we annualize the Core EBITDA for the quarter and use the average daily balance of debt outstanding during the quarter, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the quarter. |
19
Piedmont Office Realty Trust, Inc.
Debt Summary
As of March 31, 2016
Unaudited ($ in thousands)
Floating Rate & Fixed Rate Debt | |||||
Debt (1) | Principal Amount Outstanding | Weighted Average Stated Interest Rate (2) | Weighted Average Maturity | ||
Floating Rate | $289,000 | (3) | 1.52% | 35.8 months | |
Fixed Rate | 1,724,830 | 3.65% | 63.4 months | ||
Total | $2,013,830 | 3.35% | 59.4 months | ||
Unsecured & Secured Debt | ||||||
Debt (1) | Principal Amount Outstanding | Weighted Average Stated Interest Rate (2) | Weighted Average Maturity | |||
Unsecured | $1,639,000 | 3.02% | 62.6 months | |||
Secured | 374,830 | 4.76% | 45.6 months | |||
Total | $2,013,830 | 3.35% | 59.4 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 | |
2016 | $42,525 | $— | 5.70% | 2.1% | |
2017 | 140,000 | — | 5.76% | 7.0% | |
2018 | — | 170,000 | 1.57% | 8.4% | |
2019 | — | 300,000 | 2.78% | 14.9% | |
2020 | — | 419,000 | (4) | 2.12% | 20.8% |
2021 + | 192,305 | 750,000 | 3.93% | 46.8% | |
Total | $374,830 | $1,639,000 | 3.35% | 100.0% | |
(1) | All of Piedmont's outstanding debt as of March 31, 2016, was interest-only debt with the exception of the $32.3 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 March 31, 2016, 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 21 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 initial maturity date of the $500 million unsecured revolving credit facility is June 18, 2019; however, there are two, six-month extension options available under the facility providing for a final extended maturity date of June 18, 2020. For the purposes of this schedule, we reflect the maturity date of the facility as the final extended maturity date of June 2020. |
20
Piedmont Office Realty Trust, Inc.
Debt Detail
Unaudited ($ in thousands)
Facility (1) | Property | Stated Rate | Maturity | Principal Amount Outstanding as of March 31, 2016 | ||||
Secured | ||||||||
$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 (2) | 5 Wall Street | 5.55 | % | 9/1/2021 | 32,305 | |||
$160.0 Million Fixed-Rate Loan | 1901 Market Street | 3.48 | % | (3) | 7/5/2022 | 160,000 | ||
Subtotal / Weighted Average (4) | 4.76 | % | $ | 374,830 | ||||
Unsecured | ||||||||
$170.0 Million Unsecured 2015 Term Loan | N/A | 1.57 | % | (5) | 5/15/2018 | $ | 170,000 | |
$300.0 Million Unsecured 2013 Term Loan | N/A | 2.78 | % | (6) | 1/31/2019 | 300,000 | ||
$300.0 Million Unsecured 2011 Term Loan | N/A | 2.39 | % | (7) | 1/15/2020 | 300,000 | ||
$500.0 Million Unsecured Line of Credit (8) | N/A | 1.45 | % | (9) | 6/18/2020 | 119,000 | ||
$350.0 Million Unsecured Senior Notes | N/A | 3.40 | % | (10) | 6/1/2023 | 350,000 | ||
$400.0 Million Unsecured Senior Notes | N/A | 4.45 | % | (11) | 3/15/2024 | 400,000 | ||
Subtotal / Weighted Average (4) | 3.02 | % | $ | 1,639,000 | ||||
Total Debt - Principal Amount Outstanding / Weighted Average Stated Rate (4) | 3.35 | % | $ | 2,013,830 | ||||
GAAP Accounting Adjustments (12) | (10,912 | ) | ||||||
Total Debt - GAAP Amount Outstanding | $ | 2,002,918 | ||||||
(1) | All of Piedmont’s outstanding debt as of March 31, 2016, was interest-only debt with the exception of the $32.3 million of debt associated with 5 Wall Street located in Burlington, MA. |
(2) | The loan is amortizing based on a 25-year amortization schedule. |
(3) | 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%. |
(4) | Weighted average is based on the principal amount outstanding and interest rate at March 31, 2016. |
(5) | 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 March 31, 2016) over the selected rate based on Piedmont’s current credit rating. |
(6) | 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. |
(7) | 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. |
(8) | All of Piedmont’s outstanding debt as of March 31, 2016, was term debt with the exception of $119 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. |
(9) | The interest rate presented for the $500 million unsecured revolving credit facility is the weighted average interest rate for all outstanding draws as of March 31, 2016. 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 March 31, 2016) over the selected rate based on Piedmont’s current credit rating. |
(10) | 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%. |
(11) | The $400 million unsecured senior notes were offered for sale at 99.791% of the principal amount. The resulting effective cost of the financing is approximately 4.48% before the consideration of transaction costs and proceeds from interest rate hedges. After the application of proceeds from interest rate hedges, the effective cost of the financing is approximately 4.10%. |
(12) | The GAAP accounting adjustments relate to original issue discounts, third-party fees, and lender fees resulting from the procurement processes for our various debt facilities, along with debt fair value adjustments associated with the assumed 5 Wall Street debt. The original issue discounts and fees, along with the debt fair value adjustments, are amortized to interest expense over the contractual term of the related debt. |
21
Piedmont Office Realty Trust, Inc.
Debt Ratio Analysis
As of March 31, 2016
Unaudited
Bank Debt Covenant Compliance (1) | Required | Actual |
Maximum Leverage Ratio | 0.60 | 0.40 |
Minimum Fixed Charge Coverage Ratio (2) | 1.50 | 3.86 |
Maximum Secured Indebtedness Ratio | 0.40 | 0.10 |
Minimum Unencumbered Leverage Ratio | 1.60 | 2.69 |
Minimum Unencumbered Interest Coverage Ratio (3) | 1.75 | 5.05 |
Bond Covenant Compliance (4) | Required | Actual |
Total Debt to Total Assets | 60% or less | 42.3% |
Secured Debt to Total Assets | 40% or less | 7.9% |
Ratio of Consolidated EBITDA to Interest Expense | 1.50 or greater | 4.48 |
Unencumbered Assets to Unsecured Debt | 150% or greater | 258% |
Three Months Ended | Year Ended | |
Other Debt Coverage Ratios | March 31, 2016 | December 31, 2015 |
Average net debt to core EBITDA (5) | 6.6 x | 7.2 x |
Fixed charge coverage ratio (6) | 4.3 x | 4.0 x |
Interest coverage ratio (7) | 4.4 x | 4.1 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 March 31, 2016 and December 31, 2015. The Company had capitalized interest of $1,162,192 for the three months ended March 31, 2016 and $3,765,950 for the twelve months ended December 31, 2015. The Company had principal amortization of $140,539 for the three months ended March 31, 2016 and $816,534 for the twelve months ended December 31, 2015. |
(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 $1,162,192 for the three months ended March 31, 2016 and $3,765,950 for the twelve months ended December 31, 2015. |
22
Piedmont Office Realty Trust, Inc.
Tenant Diversification (1)
As of March 31, 2016
(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 | 6 | (4) | $47,009 | 8.5 | 962 | 5.6 | |
State of New York | AA+ / Aa1 | 1 | 2019 | 24,843 | 4.5 | 481 | 2.8 | |
US Bancorp | A+ / A1 | 3 | 2023 / 2024 | 22,043 | 4.0 | 733 | 4.2 | |
Independence Blue Cross | No rating available | 1 | 2033 | 18,016 | 3.2 | 801 | 4.6 | |
GE | AA+ / A1 | 1 | 2027 | 15,872 | 2.9 | 452 | 2.6 | |
Nestle | AA / Aa2 | 1 | 2021 | 12,281 | 2.2 | 401 | 2.3 | |
City of New York | AA / Aa2 | 1 | 2020 | 10,844 | 2.0 | 313 | 1.8 | |
Gallagher | No rating available | 2 | 2018 | 9,631 | 1.7 | 315 | 1.8 | |
Catamaran | A+ / A3 | 1 | 2025 | 8,713 | 1.6 | 301 | 1.7 | |
Caterpillar Financial | A / A2 | 1 | 2022 | 7,968 | 1.4 | 312 | 1.8 | |
Harvard University | AAA / Aaa | 2 | 2017 / 2018 | 7,262 | 1.3 | 110 | 0.6 | |
Technip | BBB+ | 1 | 2018 | 6,623 | 1.2 | 150 | 0.9 | |
Harcourt | BBB+ | 1 | 2016 | 6,543 | 1.2 | 195 | 1.1 | |
Raytheon | A / A3 | 2 | 2019 | 6,279 | 1.1 | 440 | 2.5 | |
Motorola | BBB- / Baa3 | 1 | 2028 | 5,916 | 1.1 | 150 | 0.9 | |
Goldman Sachs | BBB+ / A3 | 2 | 2018 | 5,899 | 1.1 | 235 | 1.4 | |
Towers Watson | No rating available | 1 | 2017 | 5,876 | 1.1 | 123 | 0.7 | |
Henry M Jackson | No rating available | 2 | 2022 | 5,691 | 1.0 | 145 | 0.8 | |
District of Columbia | AA- / A1 | 2 | 2028 | 5,683 | 1.0 | 121 | 0.7 | |
Epsilon Data Management | No rating available | 1 | 2026 | 5,566 | 1.0 | 222 | 1.3 | |
First Data Corporation | B+ / B2 | 1 | 2027 | 5,517 | 1.0 | 195 | 1.1 | |
Lockheed Martin | BBB+ / Baa1 | 2 | 2016 / 2020 | 5,355 | 1.0 | 168 | 1.0 | |
SunTrust Bank | BBB+ / Baa1 | 3 | 2019 | 5,287 | 1.0 | 145 | 0.8 | |
Other | Various | 299,389 | 53.9 | 9,880 | 57.0 | |||
Total | $554,106 | 100.0 | 17,350 | 100.0 | ||||
23
Tenant Diversification
Percentage of Annualized Leased Revenue (%)
March 31, 2016 as compared to December 31, 2015
(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 2031. |
24
Piedmont Office Realty Trust, Inc.
Tenant Credit Rating & Lease Distribution Information
As of March 31, 2016
Tenant Credit Rating (1)
Rating Level | Annualized Lease Revenue (in thousands) | Percentage of Annualized Lease Revenue (%) | |
AAA / Aaa | $59,638 | 10.8 | |
AA / Aa | 98,067 | 17.7 | |
A / A | 81,614 | 14.7 | |
BBB / Baa | 49,390 | 8.9 | |
BB / Ba | 21,649 | 3.9 | |
B / B | 23,756 | 4.3 | |
Below | 2,222 | 0.4 | |
Not rated (2) | 217,770 | 39.3 | |
Total | $554,106 | 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 | 243 | 31.4 | $20,221 | 3.6 | 225 | 1.3 | |
2,501 - 10,000 | 258 | 33.4 | 44,086 | 8.0 | 1,363 | 7.9 | |
10,001 - 20,000 | 102 | 13.2 | 43,799 | 7.9 | 1,422 | 8.2 | |
20,001 - 40,000 | 70 | 9.0 | 64,781 | 11.7 | 2,022 | 11.6 | |
40,001 - 100,000 | 57 | 7.4 | 103,967 | 18.8 | 3,298 | 19.0 | |
Greater than 100,000 | 43 | 5.6 | 277,252 | 50.0 | 9,020 | 52.0 | |
Total | 773 | 100.0 | $554,106 | 100.0 | 17,350 | 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; it either indicates that the tenant does not have any debt or, if the tenant does have debt, its debt has not been rated. Included in this category are such tenants as Independence Blue Cross, McKinsey & Company and Towers Watson. |
25
Piedmont Office Realty Trust, Inc.
Leased Percentage Information
(in thousands)
Three Months Ended | Three Months Ended | ||||||||||||||
March 31, 2016 | March 31, 2015 | ||||||||||||||
Leased Square Footage | Rentable Square Footage | Percent Leased (1) | Leased Square Footage | Rentable Square Footage | Percent Leased (1) | ||||||||||
As of December 31, 20xx | 17,323 | 18,934 | 91.5 | % | 18,828 | 21,471 | 87.7 | % | |||||||
Leases signed during period | 353 | 817 | |||||||||||||
Less: lease renewals signed during period | (171 | ) | (442 | ) | |||||||||||
New leases signed during period | 182 | 375 | |||||||||||||
Leases expired during period and other | (155 | ) | (4 | ) | (127 | ) | 2 | ||||||||
Subtotal | 17,350 | 18,930 | 91.7 | % | 19,076 | 21,473 | 88.8 | % | |||||||
Acquisitions during period | 156 | 178 | |||||||||||||
Dispositions during period | (120 | ) | (120 | ) | |||||||||||
As of March 31, 20xx (2) | 17,350 | 18,930 | 91.7 | % | 19,112 | 21,531 | 88.8 | % | |||||||
Same Store Analysis | |||||||||||||||
Less acquisitions / dispositions after March 31, 2015 and redevelopments (3) (4) | (1,364 | ) | (1,521 | ) | 89.7 | % | (3,525 | ) | (4,135 | ) | 85.2 | % | |||
Same Store Leased Percentage (2) | 15,986 | 17,409 | 91.8 | % | 15,587 | 17,396 | 89.6 | % | |||||||
(1) | Calculated as square footage associated with commenced leases as of period end with the addition of square footage associated with uncommenced leases for spaces vacant as of period end, divided by total rentable square footage as of period end, expressed as a percentage. |
(2) | The square footage associated with leases with end of period expiration dates is included in the end of the period leased square footage. |
(3) | |
(4) | 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. |
26
Piedmont Office Realty Trust, Inc.
Rental Rate Roll Up / Roll Down Analysis (1)
(in thousands)
Three Months Ended | ||||||
March 31, 2016 | ||||||
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 | 168 | 47.7% | 0.9% | 3.3% | 13.1% | |
Leases executed for spaces excluded from analysis (5) | 185 | 52.3% | ||||
(1) | The population analyzed consists of consolidated office leases executed during the period with lease terms of greater than one year. 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. |
27
Piedmont Office Realty Trust, Inc.
Lease Expiration Schedule
As of March 31, 2016
(in thousands)
Expiration Year | Annualized Lease Revenue (1) | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | |
Vacant | $— | — | 1,580 | 8.3 | |
2016 (2) | 19,985 | 3.6 | 602 | 3.2 | |
2017 (3) | 43,082 | 7.8 | 1,248 | 6.6 | |
2018 | 47,503 | 8.6 | 1,517 | 8.0 | |
2019 | 72,140 | 13.0 | 2,340 | 12.4 | |
2020 | 49,040 | 8.9 | 1,756 | 9.3 | |
2021 | 39,338 | 7.1 | 1,293 | 6.8 | |
2022 | 37,844 | 6.8 | 1,235 | 6.5 | |
2023 | 34,736 | 6.3 | 1,221 | 6.5 | |
2024 | 40,583 | 7.3 | 1,417 | 7.5 | |
2025 | 26,336 | 4.7 | 855 | 4.5 | |
2026 | 20,774 | 3.7 | 714 | 3.8 | |
2027 | 33,875 | 6.1 | 1,045 | 5.5 | |
2028 | 43,113 | 7.8 | 933 | 4.9 | |
Thereafter | 45,757 | 8.3 | 1,174 | 6.2 | |
Total / Weighted Average | $554,106 | 100.0 | 18,930 | 100.0 | |
Average Lease Term Remaining | |
3/31/2016 | 6.7 years |
12/31/2015 | 6.7 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 March 31, 2016, comprised of 27,000 square feet and Annualized Lease Revenue of $0.7 million. |
(3) | Leases and other revenue-producing agreements on a month-to-month basis, comprised of 500 square feet and Annualized Lease Revenue of $0.2 million, are assigned a lease expiration date of a year and a day beyond the period end date. |
28
Piedmont Office Realty Trust, Inc.
Lease Expirations by Quarter
As of March 31, 2016
(in thousands)
Q2 2016 (1) | Q3 2016 | Q4 2016 | Q1 2017 | |||||||||
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 | 9 | $148 | 2 | $43 | 9 | $234 | 15 | $424 | ||||
Austin | 166 | 5,565 | — | 4 | — | — | — | — | ||||
Boston | 2 | 32 | — | — | 2 | 169 | 13 | 243 | ||||
Central & South Florida | 18 | 481 | 8 | 213 | 28 | 782 | 11 | 327 | ||||
Chicago | 6 | 164 | 29 | 883 | 7 | 288 | 1 | 3 | ||||
Dallas | 24 | 619 | 11 | 352 | 19 | 511 | 33 | 1,153 | ||||
Detroit | 2 | 38 | 6 | 112 | — | 5 | 43 | 861 | ||||
Houston | — | — | — | — | — | — | — | — | ||||
Los Angeles | — | — | 16 | 497 | 21 | 914 | 19 | 599 | ||||
Minneapolis | 3 | 80 | 1 | 48 | 12 | 395 | 17 | 567 | ||||
Nashville | — | 850 | (3) | — | — | — | — | 66 | — | |||
New York | 14 | 487 | — | 19 | 17 | 888 | 41 | 1,332 | ||||
Philadelphia | — | — | — | — | — | — | — | — | ||||
Phoenix | 7 | 164 | — | — | — | — | 38 | 887 | ||||
Washington, D.C. | 120 | 3,070 | 39 | 1,711 | 4 | 245 | 56 | 2,855 | ||||
Total / Weighted Average (4) | 371 | $11,698 | 112 | $3,882 | 119 | $4,431 | 353 | $9,251 | ||||
(1) | Includes leases with an expiration date of March 31, 2016, comprised of 27,000 square feet and expiring lease revenue of $0.7 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) | As part of Comdata's recent lease renewal at 5301 Maryland Way in Brentwood, TN, the tenant was granted the right to use its give-back space beyond the original expiration date of May 31, 2016 with no base rental charges; therefore, the revenue associated with the space contraction is presented as expiring in Q2 2016 while the square footage is presented as expiring in Q1 2017. The tenant will continue to be directly responsible for operating expenses associated with the space until its rights to use the space have ended. |
(4) | Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule on the previous page as the Lease Expiration Schedule accounts for the revenue effects of newly signed leases. Reflected herein are expiring revenues based on in-place rental rates. |
29
Piedmont Office Realty Trust, Inc.
Lease Expirations by Year
As of March 31, 2016
(in thousands)
12/31/2016 (1) | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | ||||||||||
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 | 20 | $425 | 69 | $1,743 | 165 | $4,215 | 400 | $10,567 | 189 | $4,125 | ||||
Austin | 166 | 5,568 | — | — | — | — | 29 | 979 | — | — | ||||
Boston | 4 | 201 | 171 | 7,583 | 150 | 6,663 | 569 | 10,494 | 232 | 5,664 | ||||
Central & South Florida | 54 | 1,476 | 181 | 4,924 | 99 | 2,671 | 203 | 6,440 | 92 | 1,960 | ||||
Chicago | 43 | 1,335 | 15 | 594 | 401 | 11,894 | 10 | 238 | 104 | 2,601 | ||||
Dallas | 53 | 1,482 | 160 | 4,638 | 374 | 9,678 | 197 | 5,577 | 112 | 2,997 | ||||
Detroit | 8 | 156 | 63 | 1,337 | — | — | 230 | 4,811 | 116 | 2,976 | ||||
Houston | — | — | — | 2 | 150 | 6,642 | — | — | 162 | 4,479 | ||||
Los Angeles | 37 | 1,412 | 54 | 1,563 | 22 | 602 | 8 | 343 | 85 | 2,623 | ||||
Minneapolis | 15 | 523 | 36 | 1,326 | 35 | 1,236 | 146 | 4,401 | 95 | 3,406 | ||||
Nashville | — | 850 | (3) | 66 | — | — | — | — | — | — | — | |||
New York | 31 | 1,393 | 52 | 1,822 | 79 | 2,127 | 489 | 25,506 | 503 | 15,622 | ||||
Philadelphia | — | — | — | — | — | — | — | — | — | — | ||||
Phoenix | 7 | 164 | 39 | 887 | — | — | — | — | — | — | ||||
Washington, D.C. | 164 | 5,026 | 342 | 17,018 | 42 | 1,812 | 59 | 2,649 | 66 | 3,103 | ||||
Total / Weighted Average (4) | 602 | $20,011 | 1,248 | $43,437 | 1,517 | $47,540 | 2,340 | $72,005 | 1,756 | $49,556 | ||||
(1) | Includes leases with an expiration date of March 31, 2016, comprised of 27,000 square feet and expiring lease revenue of $0.7 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) | As part of Comdata's recent lease renewal at 5301 Maryland Way in Brentwood, TN, the tenant was granted the right to use its give-back space beyond the original expiration date of May 31, 2016 with no base rental charges; therefore, the revenue associated with the space contraction is presented as expiring in 2016 while the square footage is presented as expiring in 2017. The tenant will continue to be directly responsible for operating expenses associated with the space until its rights to use the space have ended. |
(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 28 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.
Capital Expenditures & Commitments
For the quarter ended March 31, 2016
Unaudited (in thousands)
For the Three Months Ended | |||||||||||||||||||
3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | 3/31/2015 | |||||||||||||||
Non-incremental | |||||||||||||||||||
Building / construction / development | $ | 1,508 | $ | 2,294 | $ | 1,824 | $ | 441 | $ | 1,704 | |||||||||
Tenant improvements | 7,314 | 6,167 | 3,483 | 4,226 | 6,717 | ||||||||||||||
Leasing costs | 1,174 | 5,478 | 2,962 | 6,974 | 1,866 | ||||||||||||||
Total non-incremental | 9,996 | 13,939 | 8,269 | 11,641 | 10,287 | ||||||||||||||
Incremental | |||||||||||||||||||
Building / construction / development | 9,690 | 16,243 | 11,248 | 14,019 | 19,949 | ||||||||||||||
Tenant improvements | 9,171 | 11,893 | 2,621 | 3,960 | 11,106 | ||||||||||||||
Leasing costs | 1,803 | 7,765 | 10,449 | 3,296 | 2,593 | ||||||||||||||
Total incremental | 20,664 | 35,901 | 24,318 | 21,275 | 33,648 | ||||||||||||||
Total capital expenditures | $ | 30,660 | $ | 49,840 | $ | 32,587 | $ | 32,916 | $ | 43,935 | |||||||||
Non-incremental tenant improvement commitments (1) | |||||||
Non-incremental tenant improvement commitments outstanding as of December 31, 2015 | $ | 40,402 | |||||
New non-incremental tenant improvement commitments related to leases executed during period | 2,352 | ||||||
Non-incremental tenant improvement expenditures | (7,314 | ) | |||||
Tenant improvement expenditures fulfilled through accrued liabilities already presented on Piedmont's balance sheet, expired commitments or other adjustments | 260 | ||||||
Non-incremental tenant improvement commitments fulfilled, expired or other adjustments | (7,054 | ) | |||||
Total as of March 31, 2016 | $ | 35,700 | |||||
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 $19.6 million, or 55% of the total outstanding commitments. |
31
Piedmont Office Realty Trust, Inc.
Contractual Tenant Improvements and Leasing Commissions
For the Three Months Ended March 31, 2016 | For the Year Ended | ||||||||
2015 | 2014 | 2013 | |||||||
Renewal Leases | |||||||||
Number of leases | 16 | 74 | 56 | 56 | |||||
Square feet | 171,192 | 1,334,398 | 959,424 | 2,376,177 | |||||
Tenant improvements per square foot (1) | $9.68 | $16.91 | $19.02 | $14.24 | |||||
Leasing commissions per square foot | $6.27 | $8.29 | $8.33 | $4.66 | |||||
Total per square foot | $15.95 | $25.20 | $27.35 | $18.90 | |||||
Tenant improvements per square foot per year of lease term | $2.30 | $2.90 | $2.97 | $1.88 | |||||
Leasing commissions per square foot per year of lease term | $1.49 | $1.42 | $1.30 | $0.62 | |||||
Total per square foot per year of lease term | $3.79 | $4.32 | (2) | $4.27 | (3) | $2.50 | |||
New Leases | |||||||||
Number of leases | 24 | 90 | 98 | 87 | |||||
Square feet | 181,509 | 1,563,866 | 1,142,743 | 1,050,428 | |||||
Tenant improvements per square foot (1) | $24.88 | $60.41 | $34.46 | $35.74 | |||||
Leasing commissions per square foot | $11.56 | $20.23 | $15.19 | $12.94 | |||||
Total per square foot | $36.44 | $80.64 | $49.65 | $48.68 | |||||
Tenant improvements per square foot per year of lease term | $4.04 | $5.68 | $3.78 | $4.17 | |||||
Leasing commissions per square foot per year of lease term | $1.88 | $1.90 | $1.66 | $1.51 | |||||
Total per square foot per year of lease term | $5.92 | $7.58 | (4) | $5.44 | $5.68 | ||||
Total | |||||||||
Number of leases | 40 | 164 | 154 | 143 | |||||
Square feet | 352,701 | 2,898,264 | 2,102,167 | 3,426,605 | |||||
Tenant improvements per square foot (1) | $17.50 | $40.38 | $27.41 | $20.83 | |||||
Leasing commissions per square foot | $9.00 | $14.73 | $12.06 | $7.20 | |||||
Total per square foot | $26.50 | $55.11 | $39.47 | $28.03 | |||||
Tenant improvements per square foot per year of lease term | $3.36 | $4.79 | $3.48 | $2.64 | |||||
Leasing commissions per square foot per year of lease term | $1.73 | $1.75 | $1.53 | $0.91 | |||||
Total per square foot per year of lease term | $5.09 | $6.54 | (4) | $5.01 | (3) | $3.55 | |||
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 2015 was higher than our historical performance on this measure primarily as a result of four large lease renewals, two of which were completed in the Washington, D.C. market, that involved higher capital commitments. If the costs associated with those renewals were to be removed from the average committed capital cost calculation, the average committed capital cost per square foot per year of lease term for renewal leases completed during 2015 would be $3.33. The one-year lease renewal with Comdata at 5301 Maryland Way in Brentwood, TN, executed in the third quarter of 2015 was excluded from this analysis as that renewal was superceded by the long-term renewal completed during the fourth quarter of 2015. |
(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 2014 would be $2.12 and $4.47, respectively. |
(4) | During 2015, we completed seven new leases in Washington, D.C., and Chicago, IL, comprising 680,035 square feet with above-average capital commitments. If the costs associated with those 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 2015 would be $5.42 and $4.88, respectively. |
32
Piedmont Office Realty Trust, Inc.
Geographic Diversification
As of March 31, 2016
($ 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 (%) |
Washington, D.C. | 12 | $105,730 | 19.1 | 3,039 | 16.1 | 2,271 | 74.7 |
New York | 4 | 67,945 | 12.3 | 1,766 | 9.3 | 1,743 | 98.7 |
Chicago | 5 | 63,778 | 11.5 | 2,094 | 11.1 | 1,864 | 89.0 |
Atlanta | 8 | 48,747 | 8.8 | 2,064 | 10.9 | 1,905 | 92.3 |
Minneapolis | 4 | 47,291 | 8.5 | 1,618 | 8.6 | 1,465 | 90.5 |
Dallas | 9 | 46,778 | 8.4 | 1,798 | 9.5 | 1,744 | 97.0 |
Boston | 9 | 44,742 | 8.1 | 1,627 | 8.6 | 1,608 | 98.8 |
Los Angeles | 4 | 31,705 | 5.7 | 1,010 | 5.3 | 1,004 | 99.4 |
Central & South Florida | 5 | 29,820 | 5.4 | 1,124 | 5.9 | 1,030 | 91.6 |
Philadelphia | 1 | 18,016 | 3.3 | 801 | 4.2 | 801 | 100.0 |
Detroit | 3 | 17,790 | 3.2 | 819 | 4.3 | 745 | 91.0 |
Other | 5 | 31,764 | 5.7 | 1,170 | 6.2 | 1,170 | 100.0 |
Total / Weighted Average | 69 | $554,106 | 100.0 | 18,930 | 100.0 | 17,350 | 91.7 |
33
Piedmont Office Realty Trust, Inc.
Geographic Diversification by Location Type
As of March 31, 2016
(square footage in thousands)
CBD / URBAN INFILL | SUBURBAN | TOTAL | ||||||||||||||
Location | State | Number of Properties | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | Number of Properties | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | Number of Properties | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | |||
Washington, D.C. | DC, VA, MD | 9 | 18.4 | 2,699 | 14.3 | 3 | 0.7 | 340 | 1.8 | 12 | 19.1 | 3,039 | 16.1 | |||
New York | NY, NJ | 1 | 8.7 | 1,033 | 5.4 | 3 | 3.6 | 733 | 3.9 | 4 | 12.3 | 1,766 | 9.3 | |||
Chicago | IL | 1 | 6.4 | 967 | 5.2 | 4 | 5.1 | 1,127 | 5.9 | 5 | 11.5 | 2,094 | 11.1 | |||
Atlanta | GA | 5 | 7.5 | 1,682 | 8.9 | 3 | 1.3 | 382 | 2.0 | 8 | 8.8 | 2,064 | 10.9 | |||
Minneapolis | MN | 1 | 5.0 | 933 | 5.0 | 3 | 3.5 | 685 | 3.6 | 4 | 8.5 | 1,618 | 8.6 | |||
Dallas | TX | 2 | 2.3 | 440 | 2.3 | 7 | 6.1 | 1,358 | 7.2 | 9 | 8.4 | 1,798 | 9.5 | |||
Boston | MA | 2 | 2.4 | 173 | 0.9 | 7 | 5.7 | 1,454 | 7.7 | 9 | 8.1 | 1,627 | 8.6 | |||
Los Angeles | CA | 3 | 5.0 | 876 | 4.6 | 1 | 0.7 | 134 | 0.7 | 4 | 5.7 | 1,010 | 5.3 | |||
Central & South Florida | FL | 1 | 3.3 | 651 | 3.4 | 4 | 2.1 | 473 | 2.5 | 5 | 5.4 | 1,124 | 5.9 | |||
Philadelphia | PA | 1 | 3.3 | 801 | 4.2 | — | — | — | — | 1 | 3.3 | 801 | 4.2 | |||
Detroit | MI | 1 | 2.0 | 489 | 2.6 | 2 | 1.2 | 330 | 1.7 | 3 | 3.2 | 819 | 4.3 | |||
Other | 1 | 1.4 | 312 | 1.6 | 4 | 4.3 | 858 | 4.6 | 5 | 5.7 | 1,170 | 6.2 | ||||
Total / Weighted Average | 28 | 65.7 | 11,056 | 58.4 | 41 | 34.3 | 7,874 | 41.6 | 69 | 100.0 | 18,930 | 100.0 | ||||
34
Piedmont Office Realty Trust, Inc.
Industry Diversification
As of March 31, 2016
($ 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 | 0.8 | $82,962 | 15.0 | 1,699 | 9.8 |
Business Services | 94 | 14.9 | 48,852 | 8.8 | 1,838 | 10.6 |
Depository Institutions | 15 | 2.4 | 38,813 | 7.0 | 1,328 | 7.7 |
Engineering, Accounting, Research, Management & Related Services | 67 | 10.6 | 35,925 | 6.5 | 991 | 5.7 |
Nondepository Credit Institutions | 18 | 2.8 | 34,355 | 6.2 | 1,153 | 6.6 |
Insurance Carriers | 20 | 3.2 | 31,293 | 5.6 | 1,240 | 7.2 |
Insurance Agents, Brokers & Services | 21 | 3.3 | 29,068 | 5.2 | 975 | 5.6 |
Security & Commodity Brokers, Dealers, Exchanges & Services | 38 | 6.0 | 22,931 | 4.1 | 763 | 4.4 |
Communications | 46 | 7.3 | 19,950 | 3.6 | 625 | 3.6 |
Legal Services | 49 | 7.8 | 18,677 | 3.4 | 625 | 3.6 |
Electronic & Other Electrical Equipment & Components, Except Computer | 14 | 2.2 | 18,555 | 3.4 | 577 | 3.3 |
Educational Services | 8 | 1.3 | 15,133 | 2.7 | 395 | 2.3 |
Real Estate | 30 | 4.7 | 14,749 | 2.7 | 485 | 2.8 |
Food & Kindred Products | 3 | 0.5 | 12,522 | 2.3 | 408 | 2.4 |
Automotive Repair, Services & Parking | 6 | 0.9 | 11,693 | 2.1 | 4 | — |
Other | 198 | 31.3 | 118,628 | 21.4 | 4,244 | 24.4 |
Total | 632 | 100.0 | $554,106 | 100.0 | 17,350 | 100.0 |
35
Piedmont Office Realty Trust, Inc.
Property Investment Activity
As of March 31, 2016
($ 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 (%) | |
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 | |
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 | |
Glenridge Highlands One | Atlanta, GA | 11/24/2015 | 100 | 1998 | 63,562 | 290 | 90 | |
Suwanee Gateway Land | Suwanee, GA | 12/21/2015 | 100 | N/A | 1,350 | N/A | N/A | |
Total / Weighted Average | $395,542 | 1,706 | 89 | |||||
Dispositions Over Previous Eighteen Months
Property | Location | Disposition Date | Percent Ownership (%) | Year Built | Sale Price | Rentable Square Footage | Percent Leased at Disposition (%) | |
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 | |
Aon Center | Chicago, IL | 10/29/2015 | 100 | 1972 | 712,000 | 2,738 | 87 | |
2 Gatehall Drive | Parsippany, NJ | 12/21/2015 | 100 | 1985 | 51,000 | 405 | 100 | |
Total / Weighted Average | $964,978 | 4,255 | 90 | |||||
Dispositions Subsequent to Quarter End
Property | Location | Disposition Date | Percent Ownership (%) | Year Built | Sale Price | Rentable Square Footage | Percent Leased at Disposition (%) | |
1055 East Colorado Boulevard | Pasadena, CA | 4/21/2016 | 100 | 2001 | $61,250 | 176 | 99 | |
Fairway Center II | Brea, CA | 4/28/2016 | 100 | 2002 | 33,800 | 134 | 97 | |
1901 Main Street | Irvine, CA | 5/2/2016 | 100 | 2001 | 66,000 | 173 | 100 | |
$161,050 | 483 | 99 | ||||||
36
Piedmont Office Realty Trust, Inc.
Other Investments
As of March 31, 2016
($ 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 | $6,859 | $9,541 | 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 One and Two | 3.0 | 1,725 |
Suwanee Gateway | Suwanee, GA | Suwanee Gateway One | 5.0 | 1,401 |
State Highway 161 | Irving, TX | Las Colinas Corporate Center I and II, 161 Corporate Center | 4.5 | 3,320 |
Royal Lane | Irving, TX | 6011, 6021 and 6031 Connection Drive | 10.6 | 2,664 |
TownPark | Lake Mary, FL | 400 and 500 TownPark | 18.9 | 5,741 |
Total | 44.0 | $17,351 | ||
Development - Construction
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) |
500 TownPark | Lake Mary, FL | 400 TownPark | Development | Q1 2017 | 80 | 135.0 | 8,021 | 2,776 | $25 to $27 million |
Development - Lease-Up
Property | Location | Adjacent Piedmont Property | Construction Type | Actual or Targeted Completion Date | Percent Leased (%) | Square Feet | Current Asset Basis (4) (Accrual) | Project Capital Expended (4) (Cash) |
Enclave Place | Houston, TX | 1430 Enclave Parkway | Development | Q3 2015 | — | 300.9 | $62,272 | $60,865 |
3100 Clarendon Boulevard (2) | Arlington, VA | Not Applicable | Redevelopment | Q4 2015 (3) | 28 | 261.8 | 86,776 | 36,680 |
Total | 562.7 | $149,048 | $97,545 | |||||
(1) | Amount includes anticipated development costs as well as estimated lease-up costs. |
(2) | The Current Asset Basis presented is that of the office and Metro retail portions of the property only. The street retail portion of the property remained in service and street retail tenants remained in occupancy during the redevelopment. |
(3) | The redevelopment of the office tower and the retail facade improvements are complete; the remaining plaza work will be completed during the second quarter of 2016. |
(4) | Inclusive of tenant improvement and leasing costs. Predominately tenant improvement and leasing costs for the lease-up of each property remain and will vary by tenant and by market. |
37
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 40. |
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 revenues associated with our unconsolidated joint venture properties and development / re-development properties, if any. |
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. |
38
Piedmont Office Realty Trust, Inc.
Research Coverage
Equity Research Coverage
Barry Oxford | Jed Reagan | Anthony Paolone, CFA | Steve Manaker, CFA |
D.A. Davidson & Company | Green Street Advisors | JP Morgan | Oppenheimer & Co. |
260 Madison Avenue, 8th Floor | 660 Newport Center Drive, Suite 800 | 383 Madison Avenue | 85 Broad Street |
New York, NY 10016 | Newport Beach, CA 92660 | 34th Floor | New York, NY 10004 |
Phone: (212) 240-9871 | Phone: (949) 640-8780 | New York, NY 10179 | Phone: (212) 667-5950 |
Phone: (212) 622-6682 | |||
David Rodgers, CFA | John W. Guinee, III | Michael Lewis, CFA | |
Robert W. Baird & Co. | Erin Aslakson | SunTrust Robinson Humphrey | |
200 Public Square | Stifel, Nicolaus & Company | 711 Fifth Avenue, 14th Floor | |
Suite 1650 | One South Street | New York, NY 10022 | |
Cleveland, OH 44139 | 16th Floor | Phone: (212) 319-5659 | |
Phone: (216) 737-7341 | Baltimore, MD 21202 | ||
Phone: (443) 224-1307 | |||
Fixed Income Research Coverage
Mark S. Streeter, CFA | ||
JP Morgan | ||
383 Madison Avenue | ||
3rd Floor | ||
New York, NY 10179 | ||
Phone: (212) 834-5086 | ||
39
Piedmont Office Realty Trust, Inc.
Funds From Operations, Core Funds From Operations, and Adjusted Funds From Operations Reconciliations
Unaudited (in thousands)
Three Months Ended | |||||||||||||||||||
3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | 3/31/2015 | |||||||||||||||
GAAP net income applicable to common stock | $ | 10,372 | $ | 125,644 | $ | (1,875 | ) | $ | 29,976 | $ | 19,245 | ||||||||
Depreciation | 31,639 | 30,867 | 31,093 | 35,935 | 36,097 | ||||||||||||||
Amortization | 17,822 | 17,257 | 14,037 | 14,971 | 14,686 | ||||||||||||||
Impairment loss | — | — | 34,815 | 5,354 | — | ||||||||||||||
Loss / (gain) on sale of properties | 20 | (114,412 | ) | (17,140 | ) | (26,611 | ) | (10,073 | ) | ||||||||||
NAREIT funds from operations applicable to common stock | 59,853 | 59,356 | 60,930 | 59,625 | 59,955 | ||||||||||||||
Adjustments: | |||||||||||||||||||
Acquisition costs | 12 | 644 | 128 | 3 | 144 | ||||||||||||||
Loss / (gain) on extinguishment of swaps | — | (94 | ) | — | 132 | — | |||||||||||||
Net (recoveries) / loss from casualty events and litigation settlements | — | 278 | — | — | — | ||||||||||||||
Core funds from operations applicable to common stock | 59,865 | 60,184 | 61,058 | 59,760 | 60,099 | ||||||||||||||
Adjustments: | |||||||||||||||||||
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on senior notes | 647 | 642 | 646 | 608 | 651 | ||||||||||||||
Depreciation of non real estate assets | 204 | 226 | 168 | 165 | 196 | ||||||||||||||
Straight-line effects of lease revenue | (7,848 | ) | (4,960 | ) | (2,519 | ) | (3,745 | ) | (4,510 | ) | |||||||||
Stock-based and other non-cash compensation expense | 1,928 | 2,051 | 2,622 | 1,692 | 725 | ||||||||||||||
Amortization of lease-related intangibles | (1,238 | ) | (1,202 | ) | (1,145 | ) | (1,102 | ) | (1,122 | ) | |||||||||
Acquisition costs | (12 | ) | (644 | ) | (128 | ) | (3 | ) | (144 | ) | |||||||||
Non-incremental capital expenditures | (9,996 | ) | (13,939 | ) | (8,269 | ) | (11,641 | ) | (10,287 | ) | |||||||||
Adjusted funds from operations applicable to common stock | $ | 43,550 | $ | 42,358 | $ | 52,433 | $ | 45,734 | $ | 45,608 | |||||||||
40
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)
Three Months Ended | |||||||||||||||||||
3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | 3/31/2015 | |||||||||||||||
Net income attributable to Piedmont | $ | 10,372 | $ | 125,644 | $ | (1,875 | ) | $ | 29,976 | $ | 19,245 | ||||||||
Net income attributable to noncontrolling interest | 4 | 3 | 4 | 4 | 4 | ||||||||||||||
Interest expense | 16,385 | 17,978 | 18,832 | 18,172 | 19,016 | ||||||||||||||
Depreciation | 31,843 | 31,093 | 31,261 | 36,100 | 36,292 | ||||||||||||||
Amortization | 17,822 | 17,257 | 14,037 | 14,971 | 14,686 | ||||||||||||||
Acquisition costs | 12 | 644 | 128 | 3 | 144 | ||||||||||||||
Impairment loss | — | — | 34,815 | 5,354 | — | ||||||||||||||
Net (recoveries) / loss from casualty events and litigation settlements | — | 278 | — | — | — | ||||||||||||||
Loss / (gain) on sale of properties | 20 | (114,412 | ) | (17,140 | ) | (26,611 | ) | (10,073 | ) | ||||||||||
Core EBITDA | 76,458 | 78,485 | 80,062 | 77,969 | 79,314 | ||||||||||||||
General & administrative expenses | 7,869 | 7,646 | 8,246 | 8,102 | 6,416 | ||||||||||||||
Management fee revenue | (292 | ) | (224 | ) | (329 | ) | (232 | ) | (330 | ) | |||||||||
Other (income) / expense | (307 | ) | (992 | ) | (931 | ) | (599 | ) | 38 | ||||||||||
Straight-line effects of lease revenue | (7,848 | ) | (4,960 | ) | (2,519 | ) | (3,745 | ) | (4,510 | ) | |||||||||
Amortization of lease-related intangibles | (1,238 | ) | (1,202 | ) | (1,145 | ) | (1,102 | ) | (1,122 | ) | |||||||||
Property net operating income (cash basis) | 74,642 | 78,753 | 83,384 | 80,393 | 79,806 | ||||||||||||||
Deduct net operating (income) / loss from: | |||||||||||||||||||
Acquisitions | (5,215 | ) | (2,997 | ) | (893 | ) | (667 | ) | (513 | ) | |||||||||
Dispositions | 29 | (5,519 | ) | (11,002 | ) | (9,216 | ) | (10,413 | ) | ||||||||||
Other investments | (126 | ) | (168 | ) | (284 | ) | (248 | ) | (270 | ) | |||||||||
Same store net operating income (cash basis) | $ | 69,330 | $ | 70,069 | $ | 71,205 | $ | 70,262 | $ | 68,610 | |||||||||
41
Piedmont Office Realty Trust, Inc.
Unconsolidated Joint Venture Net Operating Income Reconciliations
Pro rata and unaudited (in thousands)
Three Months Ended | |||||||||||||||||||
3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | 3/31/2015 | |||||||||||||||
Equity in income of unconsolidated joint ventures | $ | 115 | $ | 135 | $ | 135 | $ | 124 | $ | 159 | |||||||||
Interest expense | — | — | — | — | — | ||||||||||||||
Depreciation | 61 | 60 | 61 | 62 | 62 | ||||||||||||||
Amortization | 16 | 16 | 16 | 16 | 16 | ||||||||||||||
Impairment loss | — | — | — | — | — | ||||||||||||||
Loss / (gain) on sale of properties | — | — | — | — | — | ||||||||||||||
Core EBITDA | 192 | 211 | 212 | 202 | 237 | ||||||||||||||
General and administrative expenses | 4 | 6 | 10 | 18 | 8 | ||||||||||||||
Other (income) / expense | — | — | — | — | — | ||||||||||||||
Property net operating income (accrual basis) | 196 | 217 | 222 | 220 | 245 | ||||||||||||||
Straight-line effects of lease revenue | 1 | (3 | ) | (3 | ) | (5 | ) | (5 | ) | ||||||||||
Amortization of lease-related intangibles | — | — | — | — | — | ||||||||||||||
Property net operating income (cash basis) | $ | 197 | $ | 214 | $ | 219 | $ | 215 | $ | 240 | |||||||||
42
Piedmont Office Realty Trust, Inc.
Discontinued Operations
Unaudited (in thousands)
Three Months Ended | |||||||||||||||||||
3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | 3/31/2015 | |||||||||||||||
Revenues: | |||||||||||||||||||
Rental income | $ | — | $ | — | $ | 19 | $ | — | $ | — | |||||||||
Tenant reimbursements | — | 67 | — | (3 | ) | — | |||||||||||||
Property management fee revenue | — | — | — | — | — | ||||||||||||||
Other rental income | — | — | — | — | — | ||||||||||||||
— | 67 | 19 | (3 | ) | — | ||||||||||||||
Expenses: | |||||||||||||||||||
Property operating costs | — | (3 | ) | 3 | (1 | ) | — | ||||||||||||
Depreciation | — | — | — | — | — | ||||||||||||||
Amortization | — | — | — | — | — | ||||||||||||||
General and administrative | — | (1 | ) | — | 1 | — | |||||||||||||
— | (4 | ) | 3 | — | — | ||||||||||||||
Other income / (expense): | |||||||||||||||||||
Interest expense | — | — | — | — | — | ||||||||||||||
Other income / (expense) | — | — | — | — | — | ||||||||||||||
Net recoveries / (loss) from casualty events and litigation settlements | — | — | — | — | — | ||||||||||||||
Net income attributable to noncontrolling interest | — | — | — | — | — | ||||||||||||||
— | — | — | — | — | |||||||||||||||
Operating income, excluding impairment loss and gain / (loss) on sale | — | 71 | 16 | (3 | ) | — | |||||||||||||
Impairment loss | — | — | — | — | — | ||||||||||||||
Gain / (loss) on sale of properties | — | 1 | (2 | ) | — | — | |||||||||||||
Income from discontinued operations | $ | — | $ | 72 | $ | 14 | $ | (3 | ) | $ | — | ||||||||
43
Piedmont Office Realty Trust, Inc.
Property Detail
As of March 31, 2016
(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 | % | 88.1 | % | 88.1 | % |
Glenridge Highlands Two | Atlanta | GA | 100.0% | 2000 | 427 | 98.4 | % | 98.4 | % | 89.2 | % |
Suwanee Gateway One | Suwanee | GA | 100.0% | 2008 | 143 | 46.9 | % | 42.0 | % | 42.0 | % |
The Dupree | Atlanta | GA | 100.0% | 1997 | 138 | 100.0 | % | 100.0 | % | 100.0 | % |
The Medici | Atlanta | GA | 100.0% | 2008 | 158 | 96.8 | % | 93.7 | % | 86.1 | % |
1155 Perimeter Center West | Atlanta | GA | 100.0% | 2000 | 377 | 100.0 | % | 100.0 | % | 100.0 | % |
Galleria 300 | Atlanta | GA | 100.0% | 1987 | 432 | 91.0 | % | 88.7 | % | 88.0 | % |
Glenridge Highlands One | Atlanta | GA | 100.0% | 1998 | 288 | 91.7 | % | 86.5 | % | 71.2 | % |
Metropolitan Area Subtotal / Weighted Average | 2,064 | 92.3 | % | 90.3 | % | 85.6 | % | ||||
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 | 87.3 | % | 87.3 | % | 87.3 | % |
90 Central Street | Boxborough | MA | 100.0% | 2001 | 175 | 100.0 | % | 100.0 | % | 100.0 | % |
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 | 272 | 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 | 1,627 | 98.8 | % | 98.8 | % | 98.8 | % | ||||
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 | % |
Two Pierce Place | Itasca | IL | 100.0% | 1991 | 486 | 96.7 | % | 96.7 | % | 88.5 | % |
2300 Cabot Drive | Lisle | IL | 100.0% | 1998 | 153 | 74.5 | % | 74.5 | % | 74.5 | % |
500 West Monroe Street | Chicago | IL | 100.0% | 1991 | 967 | 88.4 | % | 71.8 | % | 63.3 | % |
Metropolitan Area Subtotal / Weighted Average | 2,094 | 89.0 | % | 81.3 | % | 73.1 | % | ||||
44
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 | % | 87.9 | % | 87.9 | % |
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 | 91.8 | % | 91.8 | % | 91.8 | % |
Las Colinas Corporate Center II | Irving | TX | 100.0% | 1998 | 228 | 99.1 | % | 99.1 | % | 98.7 | % |
6565 North MacArthur Boulevard | Irving | TX | 100.0% | 1998 | 260 | 96.2 | % | 95.4 | % | 93.8 | % |
One Lincoln Park | Dallas | TX | 100.0% | 1999 | 262 | 93.9 | % | 92.0 | % | 90.5 | % |
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 | 92.7 | % | 82.0 | % | 67.4 | % |
Metropolitan Area Subtotal / Weighted Average | 1,798 | 97.0 | % | 94.0 | % | 92.0 | % | ||||
Detroit | |||||||||||
150 West Jefferson | Detroit | MI | 100.0% | 1989 | 489 | 88.3 | % | 84.3 | % | 83.4 | % |
Auburn Hills Corporate Center | Auburn Hills | MI | 100.0% | 2001 | 120 | 85.8 | % | 85.8 | % | 85.8 | % |
1075 West Entrance Drive | Auburn Hills | MI | 100.0% | 2001 | 210 | 100.0 | % | 100.0 | % | 100.0 | % |
Metropolitan Area Subtotal / Weighted Average | 819 | 91.0 | % | 88.5 | % | 88.0 | % | ||||
Central & South Florida | |||||||||||
Sarasota Commerce Center II | Sarasota | FL | 100.0% | 1999 | 149 | 93.3 | % | 93.3 | % | 85.9 | % |
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 | 94.9 | % | 94.9 | % | 50.6 | % |
SunTrust Center | Orlando | FL | 100.0% | 1988 | 651 | 88.5 | % | 88.5 | % | 86.3 | % |
Metropolitan Area Subtotal / Weighted Average | 1,124 | 91.6 | % | 91.6 | % | 82.5 | % | ||||
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 | % | 22.8 | % |
1055 East Colorado Boulevard | Pasadena | CA | 100.0% | 2001 | 176 | 98.9 | % | 96.6 | % | 94.9 | % |
Fairway Center II | Brea | CA | 100.0% | 2002 | 134 | 97.0 | % | 97.0 | % | 91.0 | % |
1901 Main Street | Irvine | CA | 100.0% | 2001 | 173 | 100.0 | % | 91.3 | % | 89.6 | % |
Metropolitan Area Subtotal / Weighted Average | 1,010 | 99.4 | % | 97.1 | % | 55.8 | % | ||||
Minneapolis | |||||||||||
Crescent Ridge II | Minnetonka | MN | 100.0% | 2000 | 301 | 83.4 | % | 83.4 | % | 83.4 | % |
US Bancorp Center | Minneapolis | MN | 100.0% | 2000 | 933 | 89.2 | % | 87.2 | % | 87.2 | % |
One Meridian Crossings | Richfield | MN | 100.0% | 1997 | 195 | 100.0 | % | 100.0 | % | 100.0 | % |
Two Meridian Crossings | Richfield | MN | 100.0% | 1998 | 189 | 98.9 | % | 98.9 | % | 98.9 | % |
Metropolitan Area Subtotal / Weighted Average | 1,618 | 90.5 | % | 89.4 | % | 89.4 | % | ||||
45
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 | |||||||||||
200 Bridgewater Crossing | Bridgewater | NJ | 100.0% | 2002 | 309 | 97.4 | % | 93.9 | % | 93.9 | % |
60 Broad Street | New York | NY | 100.0% | 1962 | 1,033 | 100.0 | % | 100.0 | % | 96.1 | % |
600 Corporate Drive | Lebanon | NJ | 100.0% | 2005 | 125 | 100.0 | % | 100.0 | % | 100.0 | % |
400 Bridgewater Crossing | Bridgewater | NJ | 100.0% | 2002 | 299 | 95.0 | % | 90.3 | % | 90.3 | % |
Metropolitan Area Subtotal / Weighted Average | 1,766 | 98.7 | % | 97.3 | % | 95.0 | % | ||||
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 | 82.9 | % | 66.2 | % | 66.2 | % |
1225 Eye Street | Washington | DC | 49.5% (2) | 1986 | 225 | 88.4 | % | 77.8 | % | 65.3 | % |
400 Virginia Avenue | Washington | DC | 100.0% | 1985 | 224 | 82.1 | % | 82.1 | % | 78.1 | % |
4250 North Fairfax Drive | Arlington | VA | 100.0% | 1998 | 306 | 46.7 | % | 46.7 | % | 38.6 | % |
9211 Corporate Boulevard | Rockville | MD | 100.0% | 1989 | 116 | 36.2 | % | 36.2 | % | — | % |
9221 Corporate Boulevard | Rockville | MD | 100.0% | 1989 | 115 | 100.0 | % | 100.0 | % | 100.0 | % |
One Independence Square | Washington | DC | 100.0% | 1991 | 334 | 70.7 | % | 29.9 | % | 4.5 | % |
9200 Corporate Boulevard | Rockville | MD | 100.0% | 1982 | 109 | — | % | — | % | — | % |
Two Independence Square | Washington | DC | 100.0% | 1991 | 606 | 100.0 | % | 100.0 | % | 99.8 | % |
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 | % | 57.0 | % |
Arlington Gateway | Arlington | VA | 100.0% | 2005 | 326 | 79.8 | % | 78.5 | % | 71.2 | % |
Metropolitan Area Subtotal / Weighted Average | 3,039 | 74.7 | % | 67.9 | % | 60.5 | % | ||||
Grand Total | 18,930 | 91.7 | % | 88.7 | % | 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. |
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Piedmont Office Realty Trust, Inc.
Supplemental Operating & Financial Data
Risks, Uncertainties and Limitations
Certain statements contained in this supplemental package constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such information is subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “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 2016 and certain expected future financing requirements and expenditures.
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: economic, regulatory and socio-economic changes (including accounting standards) that impact the real estate market generally or that could affect the patterns of use of commercial office space, may cause our operating results to suffer and decrease the value of our real estate properties; 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 affecting 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, where we have high concentrations of office properties; the illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties; acquisitions of properties may have unknown risks and other liabilities at the time of acquisition; development and construction delays and resultant increased costs and risks may negatively impact our operating results; our real estate development strategies may not be successful; future terrorist attacks in the major metropolitan areas in which we own properties could significantly impact the demand for, and value of, our properties; additional risks and costs associated with directly managing properties occupied by government tenants; adverse market and economic conditions may negatively affect us and could cause us to recognize impairment charges on our long-lived assets or goodwill 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; future offerings of debt or equity securities may adversely affect the market price of our common stock; changes in market interest rates may have an effect on the value of our common stock; uncertainties associated with environmental and other regulatory matters; potential changes in political environment and reduction in federal and/or state funding of our governmental tenants; we may be subject to litigation, which could have a material adverse effect on our financial condition; changes in tax laws impacting REITs and real estate in general, as well as our ability to continue to qualify as a REIT under the Internal Revenue Code; and other factors detailed in our most recent Annual Report on Form 10-K and other documents we file with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this supplemental report. We cannot guarantee the accuracy of any such forward-looking statements contained in this supplemental report, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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