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): August 3, 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 August 3, 2016, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the second quarter 2016, and published supplemental information for the second 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 August 3, 2016. | |
99.2 | Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Second 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) | |||||
Dated: | August 3, 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 August 3, 2016. | |
99.2 | Piedmont Office Realty Trust, Inc. Quarterly Supplemental Information for the Second Quarter 2016. | |
EXHIBIT 99.1
Piedmont Office Realty Trust Reports Second Quarter 2016 Results
ATLANTA, August 3, 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 June 30, 2016.
Highlights for the Three Months Ended June 30, 2016:
• | Reported Net Income Applicable to Common Stockholders of $0.55 per diluted share, as compared with $0.20 per diluted share for the three months ended June 30, 2015; |
• | Achieved Core Funds From Operations ("Core FFO") of $0.40 per diluted share, as compared with $0.39 per diluted share for the three months ended June 30, 2015; |
• | Completed over 573,000 square feet of leasing, of which 64% related to new leases, maintaining the overall leased percentage of the portfolio above 91%; and |
• | Included the disposal of three non-core assets, resulting in $79.0 million, or $0.54 per diluted share, in gain on sale of real estate assets, and we also had other significant capital markets activities that were completed just after quarter end. |
Donald A. Miller, CFA, President and Chief Executive Officer, said, "Second quarter was a solid quarter for us from a financial, leasing and transactional perspective. We were fortunate to secure a number of sizable, long-term leases in some of our key markets. We also made noteworthy strides in our ongoing portfolio refinement strategy which resulted in the disposition of three non-core assets and the realization of some significant gains for our stockholders during the second quarter, as well as additional strategic transactions which closed after quarter end.”
Results for the Quarter ended June 30, 2016
Piedmont recognized net income applicable to common stockholders for the three months ended June 30, 2016 of $80.1 million, or $0.55 per diluted share, as compared with $30.0 million, or $0.20 per diluted share, for the three months ended June 30, 2015. The primary reason for the increase in net income applicable to common stockholders was that the second quarter of 2016 included $79.0 million, or $0.54 per diluted share, in gain on sale of real estate assets as compared with $26.6 million, or $0.17 per diluted share of such gains during the three months ended June 30, 2015.
Revenues for the three months ended June 30, 2016 were $135.3 million, as compared to $146.7 million for the same period a year ago, primarily due to the sale of eleven assets since the second quarter of 2015, including our largest asset, Aon Center, during the fourth quarter of 2015. The decrease was partially offset by the acquisition of four assets subsequent to the second quarter of last year, new leases commencing, and overall occupancy gains over the last twelve months.
Property operating costs decreased approximately $9.2 million, from $61.5 million for the three months ended June 30, 2015 to $52.3 million for the three months ended June 30, 2016, primarily due to the asset sales mentioned above, partially offset by new properties acquired. Depreciation and amortization expense decreased on a combined basis by approximately $2.0 million with the decrease in depreciation expense attributable to the sale of eleven properties since the second quarter of 2015, partially offset by increased amortization expense associated with intangible assets related to new properties acquired during the same period.
Results for the three months ended June 30, 2016 also include the following: an approximate $2.9 million increase in impairment charges associated with management's decision to reposition certain portfolio assets; and a $1.8 million decrease in interest expense as compared to the three months ended June 30, 2015, as a result of a $430 million reduction in outstanding debt since June 30, 2015 (paid down with proceeds from previously mentioned dispositions) and lower overall interest rates. General and administrative expense was $8.3 million for the three months ended June 30, 2016, comparable to the same period in 2015.
Funds From Operations ("FFO") and Core FFO were both $0.40 per diluted share for the three months ended June 30, 2016, as compared to $0.39 for those same metrics for the three months ended June 30, 2015. The per share increase was primarily driven by an approximately eight million share reduction in our weighted average shares outstanding as a result of shares repurchased over the last twelve months using asset disposition proceeds.
Adjusted Funds From Operations ("AFFO") was $49.7 million, or $0.34 per diluted share for the three months ended June 30, 2016, compared to $45.7 million, or $0.30 per diluted share for the three months ended June 30, 2015. The approximately $4.0 million increase was driven primarily by decreased non-incremental capital expenditures during the quarter ended June 30, 2016 as compared with the same quarter of the previous year as well as the reduction in weighted average shares outstanding mentioned above.
Leasing Update
The Company's leasing volume for the three months ended June 30, 2016 totaled 573,000 square feet, of which approximately 367,000 related to new tenant leasing. Leasing highlights for the quarter included an approximately 180,000 square foot, 12+ year renewal and expansion with Demandware, a Salesforce Company, at 5 Wall Street in Burlington, MA; an approximately 59,000 square foot renewal at One Brattle Square and an approximately 50,000 square foot renewal at 1414 Massachusetts Avenue for 15 years in Cambridge, MA, by the President and Fellows of Harvard College; and an approximately 50,000 square foot, 7+ year, new lease with Amazon Corporate, LLC at 4250 North Fairfax Drive in Arlington, VA.
The Company's overall portfolio was approximately 91.4% leased as of June 30, 2016, up 260 basis points from 88.8% a year ago. Weighted average lease term remaining was approximately 6.9 years, up from 6.7 years at March 31, 2016. Same Store Cash NOI was $72.7 million for the three months ended June 30, 2016, up 6.6% compared to the same period in the prior year. As of June 30, 2016, the Company had approximately 0.9 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.
Transactional Activity
During the three months ended June 30, 2016, Piedmont sold three of its four assets located in California:
• | 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); |
• | 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); and, |
• | 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 completed various reverse 1031 exchanges with three office properties acquired by the Company in the fourth quarter of 2015.
Additional transactional activity completed subsequent to June 30, 2016 included the following:
• | Acquired a 99% interest in the entity that owns CNL Towers I and II, two trophy office buildings located in the heart of Orlando, FL's central business district, for $166.7 million; |
• | Sold 150 West Jefferson, an approximately 490,000 square foot, 88% leased, 25-story, office tower located in downtown Detroit, MI for $81.5 million, or $166 per square foot; and |
• | Sold 9221 Corporate Boulevard, a four-story, approximately 115,000 square foot, vacant building located in Rockville, MD for $12.7 million, or $110 per square foot. |
The acquisition of the controlling interest in CNL Towers complements Piedmont's recent acquisition of SunTrust Tower in downtown Orlando and establishes Piedmont as the landlord for three of the most prominent office buildings in downtown Orlando.
Third Quarter Dividend Declaration
On August 2, 2016, the board of directors of Piedmont declared dividends for the third 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 August 26, 2016, payable on September 16, 2016.
Guidance for 2016
Based on completed capital markets transactions and leasing activity year to date, as well as management's expectations for the rest of 2016, the Company is narrowing its previous guidance for full-year 2016 as follows:
(in millions, except per share data) | Low | High | |||
Net Income | $110 | - | $113 | ||
Add: | |||||
Depreciation | 125 | 130 | |||
Amortization | 65 | 69 | |||
Impairment Loss on Real Estate Assets | 8 | 8 | |||
Less: Gain on Sale of Real Estate Assets | (76 | ) | - | (81) | |
NAREIT FFO applicable to Common Stock | 232 | 239 | |||
Add Acquisition Costs | $1 | $3 | |||
Core FFO | $233 | - | $242 | ||
Core FFO per diluted share | $1.60 | - | $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
To supplement the presentation of the Company’s financial results prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), this release and the accompanying quarterly supplemental information as of and for the period ended June 30, 2016 contain certain financial measures that are not prepared in accordance with GAAP, including FFO, Core FFO, AFFO, Same Store Cash NOI, Property NOI (cash basis) and Core EBITDA. Definitions and reconciliations of each of these non-GAAP measures to their most comparable GAAP metrics are included below and in the accompanying quarterly supplemental information.
Each of the non-GAAP measures included in this release and the accompanying quarterly supplemental financial information has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of the Company’s results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the Company’s presentation of non-GAAP measures in this release and the accompanying quarterly supplemental information may not be comparable to similarly titled measures disclosed by other companies, including other REITs. The Company may also change the calculation of any of the non-GAAP measures included in this news release and the accompanying supplemental financial information from time to time in light of its then existing operations to include other adjustments that may affect its operations.
Conference Call Information
Piedmont has scheduled a conference call and an audio web cast for Thursday, August 4, 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 August 18, 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 13641957. A web cast replay will also be available after the conference call in the Investor Relations section of the Company's website. During the audio web cast and conference call, the Company's management team will review second quarter 2016 performance, discuss recent events, and conduct a question-and-answer period.
Supplemental Information
Quarterly supplemental information as of and for the period ended June 30, 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 18 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 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 | ||||||||
(in thousands) | ||||||||
June 30, 2016 | December 31, 2015 | |||||||
(unaudited) | ||||||||
Assets: | ||||||||
Real estate assets, at cost: | ||||||||
Land | $ | 656,240 | $ | 676,091 | ||||
Buildings and improvements | 3,700,364 | 3,727,320 | ||||||
Buildings and improvements, accumulated depreciation | (919,863 | ) | (889,857 | ) | ||||
Intangible lease assets | 167,702 | 177,675 | ||||||
Intangible lease assets, accumulated amortization | (95,908 | ) | (93,012 | ) | ||||
Construction in progress | 25,187 | 20,975 | ||||||
Real estate assets held for sale, gross | 103,102 | 108,776 | ||||||
Real estate assets held for sale, accumulated depreciation and amortization | (33,336 | ) | (32,162 | ) | ||||
Total real estate assets | 3,603,488 | 3,695,806 | ||||||
Investments in and amounts due from unconsolidated joint ventures | 7,413 | 7,577 | ||||||
Cash and cash equivalents | 21,109 | 5,441 | ||||||
Tenant receivables, net of allowance for doubtful accounts | 21,338 | 26,339 | ||||||
Straight line rent receivables | 154,627 | 147,393 | ||||||
Notes receivable | — | 45,400 | ||||||
Restricted cash and escrows | 10,595 | 5,174 | ||||||
Prepaid expenses and other assets | 29,731 | 24,777 | ||||||
Goodwill | 180,097 | 180,097 | ||||||
Deferred lease costs, less accumulated amortization | 261,340 | 288,041 | ||||||
Other assets held for sale, net | 8,761 | 8,490 | ||||||
Total assets | $ | 4,298,499 | $ | 4,434,535 | ||||
Liabilities: | ||||||||
Unsecured debt, net of discount and unamortized debt issuance costs | $ | 1,508,449 | $ | 1,528,221 | ||||
Secured debt, net of premiums and unamortized debt issuance costs | 375,865 | 501,289 | ||||||
Accounts payable, accrued expenses, and accrued capital expenditures | 122,387 | 128,465 | ||||||
Deferred income | 24,036 | 27,270 | ||||||
Intangible lease liabilities, less accumulated amortization | 38,970 | 42,853 | ||||||
Interest rate swaps | 22,079 | 9,993 | ||||||
Total liabilities | 2,091,786 | 2,238,091 | ||||||
Stockholders' equity : | ||||||||
Common stock | 1,452 | 1,455 | ||||||
Additional paid in capital | 3,671,475 | 3,669,977 | ||||||
Cumulative distributions in excess of earnings | (1,456,129 | ) | (1,477,674 | ) | ||||
Other comprehensive income | (11,110 | ) | 1,661 | |||||
Piedmont stockholders' equity | 2,205,688 | 2,195,419 | ||||||
Non-controlling interest | 1,025 | 1,025 | ||||||
Total stockholders' equity | 2,206,713 | 2,196,444 | ||||||
Total liabilities and stockholders' equity | $ | 4,298,499 | $ | 4,434,535 | ||||
Number of shares of common stock outstanding as of end of period | 145,230 | 145,512 | ||||||
Piedmont Office Realty Trust, Inc. | |||||||||||||||
Consolidated Statements of Income | |||||||||||||||
Unaudited (in thousands, except for per share data) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
6/30/2016 | 6/30/2015 | 6/30/2016 | 6/30/2015 | ||||||||||||
Revenues: | |||||||||||||||
Rental income | $ | 111,767 | $ | 117,454 | $ | 226,505 | $ | 235,261 | |||||||
Tenant reimbursements | 23,086 | 28,813 | 45,837 | 60,203 | |||||||||||
Property management fee revenue | 454 | 467 | 977 | 1,029 | |||||||||||
Total revenues | 135,307 | 146,734 | 273,319 | 296,493 | |||||||||||
Expenses: | |||||||||||||||
Property operating costs | 52,280 | 61,479 | 106,468 | 125,715 | |||||||||||
Depreciation | 31,556 | 36,039 | 63,338 | 72,271 | |||||||||||
Amortization | 17,402 | 14,955 | 35,208 | 29,625 | |||||||||||
Impairment loss on real estate assets | 8,308 | 5,354 | 8,308 | 5,354 | |||||||||||
General and administrative | 8,328 | 8,083 | 16,192 | 14,490 | |||||||||||
Total operating expenses | 117,874 | 125,910 | 229,514 | 247,455 | |||||||||||
Real estate operating income | 17,433 | 20,824 | 43,805 | 49,038 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense | (16,413 | ) | (18,172 | ) | (32,798 | ) | (37,188 | ) | |||||||
Other income/(expense) | (41 | ) | 596 | 253 | 415 | ||||||||||
Equity in income of unconsolidated joint ventures | 111 | 124 | 226 | 283 | |||||||||||
Total other expense | (16,343 | ) | (17,452 | ) | (32,319 | ) | (36,490 | ) | |||||||
Income from continuing operations | 1,090 | 3,372 | 11,486 | 12,548 | |||||||||||
Discontinued operations: | |||||||||||||||
Operating loss | (1 | ) | (3 | ) | (1 | ) | (3 | ) | |||||||
Loss from discontinued operations | (1 | ) | (3 | ) | (1 | ) | (3 | ) | |||||||
Gain on sale of real estate assets | 78,987 | 26,611 | 78,967 | 36,684 | |||||||||||
Net income | 80,076 | 29,980 | 90,452 | 49,229 | |||||||||||
Less: Net income applicable to noncontrolling interest | (4 | ) | (4 | ) | (8 | ) | (8 | ) | |||||||
Net income applicable to Piedmont | $ | 80,072 | $ | 29,976 | $ | 90,444 | $ | 49,221 | |||||||
Weighted average common shares outstanding - diluted* | 145,699 | 153,757 | 145,765 | 154,174 | |||||||||||
Per Share Information -- diluted: | |||||||||||||||
Income from continuing operations and gain on sale of real estate assets | $ | 0.55 | $ | 0.20 | $ | 0.62 | $ | 0.32 | |||||||
Income from discontinued operations | $ | — | $ | — | $ | — | $ | — | |||||||
Net income applicable to common stockholders | $ | 0.55 | $ | 0.20 | $ | 0.62 | $ | 0.32 | |||||||
*Number of shares of common stock outstanding as of end of period | 145,230 | 151,833 | 145,230 | 151,833 | |||||||||||
Piedmont Office Realty Trust, Inc. | |||||||||||||||
Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations | |||||||||||||||
Unaudited (in thousands, except for per share data) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
6/30/2016 | 6/30/2015 | 6/30/2016 | 6/30/2015 | ||||||||||||
GAAP net income applicable to common stock | $ | 80,072 | $ | 29,976 | $ | 90,444 | $ | 49,221 | |||||||
Depreciation (1) (2) | 31,442 | 35,935 | 63,081 | 72,032 | |||||||||||
Amortization (1) | 17,418 | 14,971 | 35,240 | 29,657 | |||||||||||
Impairment loss on real estate asset | 8,308 | 5,354 | 8,308 | 5,354 | |||||||||||
Gain on sale of real estate assets (1) | (78,987 | ) | (26,611 | ) | (78,967 | ) | (36,684 | ) | |||||||
NAREIT Funds From Operations applicable to common stock* | 58,253 | 59,625 | 118,106 | 119,580 | |||||||||||
Acquisition costs | 5 | 3 | 17 | 147 | |||||||||||
Loss on extinguishment of swaps | — | 132 | — | 132 | |||||||||||
Core Funds From Operations applicable to common stock* | 58,258 | 59,760 | 118,123 | 119,859 | |||||||||||
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on debt | 643 | 608 | 1,290 | 1,259 | |||||||||||
Depreciation of non real estate assets | 175 | 165 | 379 | 361 | |||||||||||
Straight-line effects of lease revenue (1) | (3,127 | ) | (3,745 | ) | (10,975 | ) | (8,255 | ) | |||||||
Stock-based and other non-cash compensation expense | 1,477 | 1,692 | 3,405 | 2,417 | |||||||||||
Net effect of amortization of above or below-market in-place lease intangibles (1) | (1,290 | ) | (1,102 | ) | (2,528 | ) | (2,224 | ) | |||||||
Acquisition costs | (5 | ) | (3 | ) | (17 | ) | (147 | ) | |||||||
Non-incremental capital expenditures (3) | (6,455 | ) | (11,641 | ) | (16,451 | ) | (21,928 | ) | |||||||
Adjusted funds from operations applicable to common stock* | $ | 49,676 | $ | 45,734 | $ | 93,226 | $ | 91,342 | |||||||
Weighted average common shares outstanding - diluted** | 145,699 | 153,757 | 145,765 | 154,174 | |||||||||||
Funds from operations per share (diluted) | $ | 0.40 | $ | 0.39 | $ | 0.81 | $ | 0.78 | |||||||
Core funds from operations per share (diluted) | $ | 0.40 | $ | 0.39 | $ | 0.81 | $ | 0.78 | |||||||
Adjusted funds from operations per share (diluted) | $ | 0.34 | $ | 0.30 | $ | 0.64 | $ | 0.59 | |||||||
**Number of shares of common stock outstanding as of end of period | 145,230 | 151,833 | 145,230 | 151,833 | |||||||||||
(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"): The Company calculates FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines FFO as net income (computed in accordance with GAAP), excluding gains or losses from sales of property and impairment losses, adding back depreciation and amortization on real estate assets, and after the same adjustments for unconsolidated partnerships and joint ventures. These adjustments can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that FFO is helpful to investors as a supplemental performance measure because it excludes the effects of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs, which implicitly assumes that the value of real estate diminishes predictably over time. The Company also believes that FFO can help facilitate comparisons of operating performance between periods and with other REITs. However, other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than the Company; therefore, the Company’s computation of FFO may not be comparable to that of such other REITs.
Core Funds From Operations ("Core FFO"): The Company calculates Core FFO by starting with FFO, as defined by NAREIT, and adjusting for gains or losses on the extinguishment of swaps and/or debt, acquisition-related costs, and any significant non-recurring items. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to the Company’s core business operations. As a result, the Company believes that Core FFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential. Other REITs may not define Core FFO in the same manner as the Company; therefore, the Company’s computation of Core FFO may not be comparable to that of other REITs.
Adjusted Funds From Operations ("AFFO"): The Company calculates AFFO by starting with Core FFO and adjusting for non-incremental capital expenditures and acquisition-related costs 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. AFFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that AFFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments. Other REITs may not define AFFO in the same manner as the Company; therefore, the Company’s computation of AFFO may not be comparable to that of other REITs.
Piedmont Office Realty Trust, Inc. | |||||||||||||||
Core EBITDA, Property Net Operating Income, Same Store Net Operating Income | |||||||||||||||
Unaudited (in thousands) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
6/30/2016 | 6/30/2015 | 6/30/2016 | 6/30/2015 | ||||||||||||
GAAP net income applicable to common stock | $ | 80,072 | $ | 29,976 | $ | 90,444 | $ | 49,221 | |||||||
Net income applicable to noncontrolling interest | 4 | 4 | 8 | 8 | |||||||||||
Interest expense | 16,413 | 18,172 | 32,798 | 37,188 | |||||||||||
Depreciation (1) | 31,616 | 36,100 | 63,459 | 72,393 | |||||||||||
Amortization (1) | 17,418 | 14,971 | 35,240 | 29,657 | |||||||||||
Acquisition costs | 5 | 3 | 17 | 147 | |||||||||||
Impairment loss on real estate assets | 8,308 | 5,354 | 8,308 | 5,354 | |||||||||||
Gain on sale of real estate assets (1) | (78,987 | ) | (26,611 | ) | (78,967 | ) | (36,684 | ) | |||||||
Core EBITDA* | 74,849 | 77,969 | 151,307 | 157,284 | |||||||||||
General & administrative expenses (1) | 8,364 | 8,102 | 16,232 | 14,518 | |||||||||||
Management fee revenue | (224 | ) | (232 | ) | (515 | ) | (562 | ) | |||||||
Other (income)/expense (1) | 543 | (599 | ) | 236 | (562 | ) | |||||||||
Straight line effects of lease revenue (1) | (3,127 | ) | (3,745 | ) | (10,975 | ) | (8,255 | ) | |||||||
Amortization of lease-related intangibles (1) | (1,290 | ) | (1,102 | ) | (2,528 | ) | (2,224 | ) | |||||||
Property NOI (cash basis)* | 79,115 | 80,393 | 153,757 | 160,199 | |||||||||||
Acquisitions | (5,437 | ) | (667 | ) | (10,652 | ) | (1,179 | ) | |||||||
Dispositions | (985 | ) | (11,293 | ) | (2,970 | ) | (23,753 | ) | |||||||
Other investments | (9 | ) | (248 | ) | (135 | ) | (518 | ) | |||||||
Same Store NOI (cash basis)* | $ | 72,684 | $ | 68,185 | $ | 140,000 | $ | 134,749 | |||||||
Change period over period in Property NOI | (1.6 | )% | N/A | (4.0 | )% | N/A | |||||||||
Change period over period in Same Store NOI | 6.6 | % | N/A | 3.9 | % | N/A | |||||||||
(1) Includes amounts attributable to consolidated properties and our proportionate share of amounts attributable to unconsolidated joint ventures.
*Definitions
Core EBITDA: The Company calculates Core EBITDA as net income (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Core EBITDA is helpful to investors as a supplemental performance measure because it provides a metric for understanding the performance of the Company’s results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization), as well as items that are not part of normal day-to-day operations of the Company’s business. Other REITs may not define Core EBITDA in the same manner as the Company; therefore, the Company’s computation of Core EBITDA may not be comparable to that of other REITs.
Property Net Operating Income ("Property NOI"): The Company calculates Property NOI by starting with Core EBITDA and adjusting for general and administrative expense, income associated with property management performed by Piedmont for other organizations and other income or expense items for the Company, such as interest income from loan investments or costs from the pursuit of non-consummated transactions. The Company may present this measure on an accrual basis or a cash basis. When presented on a cash basis, the effects of straight lined rents and fair value lease revenue are also eliminated. Property NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Property NOI is helpful to investors as a supplemental comparative performance measure of income generated by its properties alone without the administrative overhead of the Company. Other REITs may not define Property NOI in the same manner as the Company; therefore, the Company’s computation of Property NOI may not be comparable to that of other REITs.
Same Store Net Operating Income ("Same Store NOI"): The Company calculates Same Store NOI as Property NOI attributable to the properties owned or placed in service during the entire span of the current and prior year reporting periods. Same Store NOI also excludes amounts attributable
to unconsolidated joint venture assets. The Company may present this measure on an accrual basis or a cash basis. When presented on a cash basis, the effects of straight lined rents and fair value lease revenue are also eliminated. Same Store NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Same Store NOI is helpful to investors as a supplemental comparative performance measure of the income generated from the same group of properties from one period to the next. Other REITs may not define Same Store NOI in the same manner as the Company; therefore, the Company’s computation of Same Store NOI may not be comparable to that of other REITs.
EXHIBIT 99.2
Quarterly Supplemental Information
June 30, 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 | |||
Financials | Research Coverage | |||
Balance Sheets | Non-GAAP Reconciliations & Other Detail | |||
Income Statements | Property Detail | |||
Key Performance Indicators | Risks, Uncertainties and Limitations | |||
Funds From Operations / Adjusted Funds From Operations | ||||
Same Store Analysis | ||||
Capitalization Analysis | ||||
Debt Summary | ||||
Debt Detail | ||||
Debt Covenant & Ratio Analysis | ||||
Operational & Portfolio Information - Office Investments | ||||
Tenant Diversification | ||||
Tenant Credit Rating & Lease Distribution Information | ||||
Leased Percentage Information | ||||
Rental Rate Roll Up / Roll Down Analysis | ||||
Lease Expiration Schedule | ||||
Quarterly Lease Expirations | ||||
Annual Lease Expirations | ||||
Capital Expenditures & 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 48 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. |
To supplement the presentation of the Company’s financial results prepared in accordance with U.S. generally accepted accounting principles (GAAP), this discussion contains certain financial measures that are not prepared in accordance with GAAP, including FFO, Core FFO, AFFO, Same Store NOI, Property NOI and Core EBITDA. Definitions and reconciliations of each of these non-GAAP measures to their most comparable GAAP metrics are included beginning on page 39. Each of the non-GAAP measures included in this discussion has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of the Company’s results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the Company’s presentation of non-GAAP measures in this discussion may not be comparable to similarly titled measures disclosed by other companies, including other REITs. The Company may also change the calculation of any of the non-GAAP measures included in this discussion from time to time in light of its then existing operations to include other adjustments that may affect its 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 approximately 19 million square feet (as of the date of release of this report; inclusive of developments and joint ventures). 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 | ||||
June 30, 2016 | December 31, 2015 | ||||
Number of consolidated office properties (1) | 66 | 69 | |||
Rentable square footage (in thousands) (1) | 18,452 | 18,934 | |||
Percent leased (2) | 91.4 | % | 91.5 | % | |
Capitalization (in thousands): | |||||
Total debt - principal amount outstanding | $1,894,616 | $2,040,970 | |||
Equity market capitalization (3) | $3,128,246 | $2,747,260 | |||
Total market capitalization (3) | $5,022,862 | $4,788,230 | |||
Total debt / Total market capitalization (3) | 37.7 | % | 42.6 | % | |
Total debt / Total gross assets | 35.4 | % | 37.5 | % | |
Common stock data: | |||||
High closing price during quarter | $21.54 | $19.82 | |||
Low closing price during quarter | $19.44 | $18.05 | |||
Closing price of common stock at period end | $21.54 | $18.88 | |||
Weighted average fully diluted shares outstanding during quarter (in thousands) | 145,699 | 146,014 | |||
Shares of common stock issued and outstanding at period end (in thousands) | 145,230 | 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 | 139 | 143 | |||
(1) | As of June 30, 2016, our consolidated office portfolio consisted of 66 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. During the second quarter of 2016, we sold 1055 East Colorado Boulevard, a 176,000 square foot office building located in Pasadena, CA; Fairway Center II, a 134,000 square foot office building located in Brea, CA; and 1901 Main Street, a 173,000 square foot office building located in Irvine, CA. |
(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 27 for additional analyses regarding Piedmont's leased percentage. |
(3) | Reflects common stock closing price as of the end of the reporting period. |
(4) | Total of the per share dividends paid over the prior four quarters. |
3
Piedmont Office Realty Trust, Inc.
Investor Information
Corporate |
11695 Johns Creek Parkway, Suite 350 |
Johns Creek, Georgia 30097 |
770.418.8800 |
www.piedmontreit.com |
Executive Management | |||
Donald A. Miller, CFA | Robert E. Bowers | Laura P. Moon | Raymond L. Owens |
Chief Executive Officer, President | Chief Financial Officer and Executive | Chief Accounting Officer and | 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 June 30, 2016
Financial Results (1)
Net income attributable to Piedmont for the quarter ended June 30, 2016 was $80.1 million, or $0.55 per share (diluted), compared to $30.0 million, or $0.20 per share (diluted), for the same quarter in 2015. Net income attributable to Piedmont for the six months ended June 30, 2016 was $90.4 million, or $0.62 per share (diluted), compared to $49.2 million, or $0.32 per share (diluted), for the same period in 2015. The increase in net income attributable to Piedmont for the three months and the six months ended June 30, 2016 when compared to the same periods in 2015 was primarily attributable to the higher amount of gains on the sale of real estate recognized in 2016 when compared to 2015.
Funds from operations (FFO) for the quarter ended June 30, 2016 was $58.3 million, or $0.40 per share (diluted), compared to $59.6 million, or $0.39 per share (diluted), for the same quarter in 2015. FFO for the six months ended June 30, 2016 was $118.1 million, or $0.81 per share (diluted), compared to $119.6 million, or $0.78 per share (diluted), for the same period in 2015. The increase in FFO per share for the three months and the six months ended June 30, 2016 when compared to the same periods in 2015 was primarily attributable to fewer 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 (including 461,500 shares repurchased during the first quarter of 2016) at an average price of $17.66 per share. The modest decrease in dollar amount of FFO for the three months and the six months ended June 30, 2016 when compared to the same periods in 2015 was 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, and 2) increased general and administrative expense in 2016 due to catch-up expense accruals for potential performance-based compensation as a result of the Company's recent stock performance relative to its peers, partially offset by 3) decreased interest expense principally as a result of over $300 million less of average debt outstanding in 2016 when compared to 2015.
Core funds from operations (Core FFO) for the quarter ended June 30, 2016 was $58.3 million, or $0.40 per share (diluted), compared to $59.8 million, or $0.39 per share (diluted), for the same quarter in 2015. Core FFO for the six months ended June 30, 2016 was $118.1 million, or $0.81 per share (diluted), compared to $119.9 million, or $0.78 per share (diluted), for the same period 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 changes in Core FFO for the three months and the six months ended June 30, 2016 as compared to the same periods in 2015 were primarily attributable to the items described above for changes in FFO.
Adjusted funds from operations (AFFO) for the quarter ended June 30, 2016 was $49.7 million, or $0.34 per share (diluted), compared to $45.7 million, or $0.30 per share (diluted), for the same quarter in 2015. AFFO for the six months ended June 30, 2016 was $93.2 million, or $0.64 per share (diluted), compared to $91.3 million, or $0.59 per share (diluted), for the same period in 2015. The change in dollar amount of AFFO for the three months and the six ended June 30, 2016 as compared to the same periods in 2015 was principally related to a decrease in non-incremental capital expenditures in 2016 when compared to 2015, in addition to the items described above for changes in FFO and Core FFO.
The changes in per share amounts of net income attributable to Piedmont, FFO, Core FFO and AFFO for the three months and the six months ended June 30, 2016 as compared to the same periods in 2015 were impacted by reduced weighted average shares outstanding in 2016 as a result of the Company's stock repurchase program. 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 91.4% leased (approximately flat on a same store basis when compared to the prior quarter) as of June 30, 2016, as compared to 91.7% in the prior quarter and 88.8% a year earlier. Please refer to page 27 for additional leased percentage information.
The weighted average remaining lease term of our portfolio was 6.9 years(2) as of June 30, 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 June 30, 2016) is weighted based on Annualized Lease Revenue, as defined on page 39. |
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 38 of this report.
During the three months ended June 30, 2016, the Company completed 573,020 square feet of total leasing. Of the total leasing activity during the quarter, we signed renewal leases for approximately 205,759 square feet and new tenant leases for approximately 367,261 square feet. During the six months ended June 30, 2016, we completed 926,081 square feet of leasing for our consolidated office properties, consisting of 377,191 square feet of renewal leases and 548,890 square feet of new tenant leases. The average committed tenant improvement cost per square foot per year of lease term for renewal leases signed at our consolidated office properties during the six months ended June 30, 2016 was $1.13 and the same measure for new leases was $4.26, resulting in a weighted average of $3.02 for all leasing activity completed during the period (see page 33).
During the three months ended June 30, 2016, we executed seven leases greater than 20,000 square feet with lengths of term of more than one year at our consolidated office properties. Information on those leases is set forth below.
Tenant | Property | Property Location | Square Feet Leased | Expiration Year | Lease Type |
Demandware, Inc. | 5 Wall Street | Burlington, MA | 181,680 | 2029 | Renewal / Expansion |
President and Fellows of Harvard College | One Brattle Square | Cambridge, MA | 58,861 | 2032 | Renewal / Expansion |
Amazon.com | 4250 North Fairfax Drive | Arlington, VA | 50,492 | 2024 | New |
President and Fellows of Harvard College | 1414 Massachusetts Avenue | Cambridge, MA | 49,522 | 2033 | Renewal |
CliftonLarsonAllen LLP | Arlington Gateway | Arlington, VA | 24,470 | 2027 | New |
Revenue Analytics, Inc. | Galleria 300 | Atlanta, GA | 23,431 | 2024 | New |
CivilTech Engineering, Inc. | Two Pierce Place | Itasca, IL | 20,439 | 2027 | New |
As of June 30, 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 second 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 | 160,801 | 1.0% | Q2 2016 | The primary tenant vacated the space subsequent to quarter end in accordance with its June 30, 2016 lease expiration date. Two leases with former subtenants were executed during the first half of the year, and the remaining available 160,801 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 tenant is expected to vacate upon lease expiration. The space is actively being marketed for lease. |
National Park Service | 1201 Eye Street | Washington, DC | 117,813 | 1.2% | 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 June 30, 2016, our overall leased percentage was 91.4% and our economic leased percentage was 84.8%. 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 573,175 square feet of leases as of June 30, 2016, or 3.1% 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 867,293 square feet of leases as of June 30, 2016, or a 3.5% 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 23,000 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 (1) 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 |
Amazon.com | 4250 North Fairfax Drive | Arlington, VA | 50,492 | Vacant | Q3 2016 | New |
Norris, McLaughlin & Marcus | 400 Bridgewater Crossing | Bridgewater, NJ | 61,642 | Vacant | Q4 2016 | New |
Demandware, Inc. | 5 Wall Street | Burlington, MA | 150,134 | Not Vacant | Q1 2017 (22,726 SF) Q4 2019 (75,495 SF) Q3 2021 (51,913 SF) | New |
Continental Casualty Company | 500 TownPark | Lake Mary, FL | 108,000 | Under Development | Q1 2017 | New |
International Food Policy Research Institute (2) | 1201 Eye Street | Washington, DC | 101,937 | Partially Vacant | Q2 2017 / Q2 2018 | New |
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 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 |
Lockton Companies | 500 West Monroe Street | Chicago, IL | 52,201 | August 2015 through July 2016 | Q3 2026 |
United States of America (Corporation for National and Community Service) | One Independence Square | Washington, DC | 84,606 | December 2015 through May 2017 | Q4 2030 |
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 | June 2016 through January 2017; June 2019; June 2020 | Q1 2028 |
Amazon.com | 4250 North Fairfax Drive | Arlington, VA | 50,492 | August 2016 through March 2017 | Q1 2024 |
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 |
Mitsubishi Hitachi Power Systems | 400 TownPark | Lake Mary, FL | 75,321 | February and March 2017 and 2018 | Q1 2026 |
(1) | The schedule is not specifically intended to provide details about the current population of executed but not commenced leases; it does, however, provide details for all uncommenced leases that are greater than 50,000 square feet in size and are not renewals, whether or not the spaces for which the leases were signed are vacant. |
(2) | Approximately 45,000 square feet of space associated with the lease is vacant. The lease will commence in phases. The first phase, consisting of the currently vacant space, will commence in the second quarter of 2017, while the second phase, consisting of the balance of the tenant's space, will commence in the second quarter of 2018. |
7
Financing and Capital Activity
Among Piedmont's stated 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
During the second 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, resulting in a $31.5 million gain; |
• | 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, resulting in a $15.5 million gain; 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, resulting in a $32.0 million gain. |
As previously communicated, the Company established reverse 1031 exchanges with several acquisitions completed in late 2015 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 (which had a zero balance as of June 30, 2016).
Information on asset sales completed after the end of the second quarter of 2016 can be found under the Subsequent Events heading below.
Acquisitions
There were no acquisitions completed during the quarter ended June 30, 2016. Information on asset acquisitions completed after the end of the second quarter of 2016 can be found under the Subsequent Events heading below.
For additional information on acquisitions and dispositions completed over the previous eighteen months, please refer to page 37.
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 is a 135,000 square foot, four-story office building, which is currently being constructed 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 construction of the building is on schedule and on budget and the targeted completion date is the first quarter of 2017. The development costs are anticipated to be $28 million to $30 million, inclusive of leasing costs. Approximately $12.3 million had been recorded in construction in progress as of June 30, 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 properties. 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 up to 800,000 square feet of office development.
In addition, the Company has two development projects that are 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 38.
Finance
As of June 30, 2016, our ratio of debt to total gross assets was 35.4%. This debt ratio is based on total principal amount outstanding for our various loans at June 30, 2016.
8
As of June 30, 2016, our average net debt to Core EBITDA ratio was 6.3x, a decrease from 6.9x at December 31, 2015.
Loan Investments
Piedmont provided bridge financing to the purchaser of 1901 Main Street in Irvine, CA, at closing on May 2, 2016. The 50% loan-to-value, interest-only loan with an 8.0% interest rate was repaid in full on June 9, 2016, in accordance with the terms of the loan.
Stock Repurchase Program
The Company did not complete any common stock repurchases during the second quarter of 2016. 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 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 was paid on June 17, 2016. The Company's dividend payout percentage for the six months ended June 30, 2016 was 52% of Core FFO and 65% of AFFO.
Subsequent Events
On July 11, 2016, Piedmont repaid a $42.5 million mortgage note with a 5.70% interest rate collateralized by Las Colinas Corporate Center I and II in Irving, TX. The loan had an October 11, 2016 maturity date, but opened for prepayment without yield maintenance fees three months in advance of the stated maturity date. The Company repaid the loan at the earliest possible date inside the open prepayment window with cash on hand and funds drawn from its revolving line of credit.
On July 27, 2016, Piedmont completed the sale of 9221 Corporate Boulevard, an 115,000 square foot, four-story office building located in Rockville, MD, for $12.65 million, or $110 per square foot. The transaction allowed Piedmont to further refine its Washington, DC, portfolio through the sale of this vacant, non-core, suburban asset. Piedmont recorded an impairment loss on the asset of approximately $2.3 million during the second quarter of 2016.
On July 29, 2016, Piedmont completed the sale of 150 West Jefferson, a 490,000 square foot, 25-story, 88% leased office building located in Detroit, MI, for $81.5 million, or $166 per square foot. Piedmont recorded an impairment loss on the asset of approximately $6.0 million when it was reclassified to held for sale during the second quarter of 2016. The sale allowed Piedmont to continue to reduce its exposure to the Detroit market, in which only two Auburn Hills assets, comprising approximately 330,000 square feet, remain.
On August 1, 2016, Piedmont completed the acquisition of a 99% interest in CNL Tower One and CNL Tower Two, a project consisting of 622,000 square feet of office and retail space, along with a shared parking structure, located at the epicenter of the central business district of Orlando, FL, for $166.7 million, or $268 per square foot. The purchase was completed at an estimated 27% discount to replacement cost. The investment includes the 14-story, 348,000 square foot, 96% leased CNL Tower One and the 12-story, 275,000 square foot, 93% leased CNL Tower Two. The location offers tenants an excellent amenity base, including abundant nearby hotel, retail, housing, and transportation options, in addition to several entertainment venues. Together with SunTrust Center, Piedmont now controls three of the four highest quality office buildings in downtown Orlando. Piedmont’s Orlando portfolio now consists of approximately 1.6 million square feet, inclusive of the 500 TownPark development. The acquisition allowed the Company to further its strategic objective of increasing ownership in target submarkets within its eight strategic operating markets.
On August 2, 2016, the Board of Directors of Piedmont declared a dividend for the third quarter of 2016 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on August 26, 2016. The dividend is expected to be paid on September 16, 2016.
9
Guidance for 2016
The following financial guidance for calendar year 2016 has been updated based upon completed capital transactions to date and management's current expectations.
Low | High | ||
Net Income | $110 million | to | $113 million |
Add: | |||
Depreciation | 125 million | to | 130 million |
Amortization | 65 million | to | 69 million |
Impairment Loss on Real Estate Assets | 8 million | to | 8 million |
Less: | |||
Gain on Sale of Real Estate Assets | (76) million | to | (81) million |
NAREIT FFO applicable to Common Stock | $232 million | to | $239 million |
Add: Acquisition Costs | 1 million | to | 3 million |
Core Funds from Operations | $233 million | to | $242 million |
Core Funds from Operations per diluted share | $1.60 | to | $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.
10
Piedmont Office Realty Trust, Inc.
Consolidated Balance Sheets
Unaudited (in thousands)
June 30, 2016 | March 31, 2016 | December 31, 2015 | September 30, 2015 | June 30, 2015 | |||||||||||||||
Assets: | |||||||||||||||||||
Real estate, at cost: | |||||||||||||||||||
Land assets | $ | 656,240 | $ | 676,091 | $ | 676,091 | $ | 662,073 | $ | 662,988 | |||||||||
Buildings and improvements | 3,700,364 | 3,745,466 | 3,727,320 | 3,491,110 | 3,522,701 | ||||||||||||||
Buildings and improvements, accumulated depreciation | (919,863 | ) | (919,005 | ) | (889,857 | ) | (902,393 | ) | (880,672 | ) | |||||||||
Intangible lease asset | 167,702 | 176,436 | 177,675 | 148,403 | 153,106 | ||||||||||||||
Intangible lease asset, accumulated amortization | (95,908 | ) | (98,314 | ) | (93,012 | ) | (87,633 | ) | (88,954 | ) | |||||||||
Construction in progress | 25,187 | 25,889 | 20,975 | 75,083 | 63,202 | ||||||||||||||
Real estate assets held for sale, gross | 103,102 | 109,022 | 108,776 | 776,944 | 813,941 | ||||||||||||||
Real estate assets held for sale, accumulated depreciation & amortization | (33,336 | ) | (32,479 | ) | (32,162 | ) | (229,474 | ) | (240,488 | ) | |||||||||
Total real estate assets | 3,603,488 | 3,683,106 | 3,695,806 | 3,934,113 | 4,005,824 | ||||||||||||||
Investments in and amounts due from unconsolidated joint ventures | 7,413 | 7,483 | 7,577 | 7,652 | 7,714 | ||||||||||||||
Cash and cash equivalents | 21,109 | 4,732 | 5,441 | 7,702 | 8,997 | ||||||||||||||
Tenant receivables, net of allowance for doubtful accounts | 21,338 | 22,040 | 26,339 | 26,748 | 25,474 | ||||||||||||||
Straight line rent receivable | 154,627 | 155,944 | 147,393 | 144,672 | 142,470 | ||||||||||||||
Notes receivable | — | — | 45,400 | 45,400 | 45,400 | ||||||||||||||
Escrow deposits and restricted cash | 10,595 | 591 | 5,174 | 37,705 | 521 | ||||||||||||||
Prepaid expenses and other assets | 29,731 | 24,657 | 24,777 | 31,683 | 30,973 | ||||||||||||||
Goodwill | 180,097 | 180,097 | 180,097 | 180,097 | 180,097 | ||||||||||||||
Interest rate swap | — | — | — | — | 8,290 | ||||||||||||||
Deferred lease costs, less accumulated amortization | 261,340 | 267,418 | 288,041 | 228,097 | 230,735 | ||||||||||||||
Other assets held for sale | 8,761 | 8,949 | 8,490 | 88,785 | 87,316 | ||||||||||||||
Total assets | $ | 4,298,499 | $ | 4,355,017 | $ | 4,434,535 | $ | 4,732,654 | $ | 4,773,811 | |||||||||
Liabilities: | |||||||||||||||||||
Unsecured debt, net of discount | $ | 1,508,449 | $ | 1,626,799 | $ | 1,528,221 | $ | 1,919,504 | $ | 1,810,951 | |||||||||
Secured debt | 375,865 | 376,119 | 501,289 | 501,595 | 501,853 | ||||||||||||||
Accounts payable, accrued expenses, and accrued capital expenditures | 122,387 | 103,894 | 128,465 | 132,741 | 128,898 | ||||||||||||||
Deferred income | 24,036 | 28,143 | 27,270 | 26,087 | 26,633 | ||||||||||||||
Intangible lease liabilities, less accumulated amortization | 38,970 | 40,926 | 42,853 | 38,896 | 40,597 | ||||||||||||||
Interest rate swaps | 22,079 | 19,473 | 9,993 | 20,526 | 8,411 | ||||||||||||||
Notes payable and other liabilities held for sale | — | — | — | 567 | 617 | ||||||||||||||
Total liabilities | $ | 2,091,786 | $ | 2,195,354 | $ | 2,238,091 | $ | 2,639,916 | $ | 2,517,960 | |||||||||
Stockholders' equity: | |||||||||||||||||||
Common stock | 1,452 | 1,451 | 1,455 | 1,456 | 1,518 | ||||||||||||||
Additional paid in capital | 3,671,475 | 3,671,055 | 3,669,977 | 3,669,154 | 3,668,378 | ||||||||||||||
Cumulative distributions in excess of earnings | (1,456,129 | ) | (1,505,704 | ) | (1,477,674 | ) | (1,570,377 | ) | (1,427,312 | ) | |||||||||
Other comprehensive loss | (11,110 | ) | (8,168 | ) | 1,661 | (8,524 | ) | 12,242 | |||||||||||
Piedmont stockholders' equity | 2,205,688 | 2,158,634 | 2,195,419 | 2,091,709 | 2,254,826 | ||||||||||||||
Non-controlling interest | 1,025 | 1,029 | 1,025 | 1,029 | 1,025 | ||||||||||||||
Total stockholders' equity | 2,206,713 | 2,159,663 | 2,196,444 | 2,092,738 | 2,255,851 | ||||||||||||||
Total liabilities, redeemable common stock and stockholders' equity | $ | 4,298,499 | $ | 4,355,017 | $ | 4,434,535 | $ | 4,732,654 | $ | 4,773,811 | |||||||||
Common stock outstanding at end of period | 145,230 | 145,093 | 145,512 | 145,634 | 151,833 | ||||||||||||||
11
Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)
Three Months Ended | ||||||||||||||||||||
6/30/2016 | 3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Rental income | $ | 111,767 | $ | 114,738 | $ | 115,617 | $ | 117,994 | $ | 117,454 | ||||||||||
Tenant reimbursements | 23,086 | 22,751 | 23,405 | 30,273 | 28,813 | |||||||||||||||
Property management fee revenue | 454 | 523 | 439 | 548 | 467 | |||||||||||||||
135,307 | 138,012 | 139,461 | 148,815 | 146,734 | ||||||||||||||||
Expenses: | ||||||||||||||||||||
Property operating costs | 52,280 | 54,188 | 54,608 | 61,677 | 61,479 | |||||||||||||||
Depreciation | 31,556 | 31,782 | 31,033 | 31,199 | 36,039 | |||||||||||||||
Amortization | 17,402 | 17,806 | 17,240 | 14,021 | 14,955 | |||||||||||||||
Impairment losses on real estate assets | 8,308 | — | — | 34,815 | 5,354 | |||||||||||||||
General and administrative | 8,328 | 7,864 | 7,642 | 8,236 | 8,083 | |||||||||||||||
117,874 | 111,640 | 110,523 | 149,948 | 125,910 | ||||||||||||||||
Real estate operating income | 17,433 | 26,372 | 28,938 | (1,133 | ) | 20,824 | ||||||||||||||
Other income / (expense): | ||||||||||||||||||||
Interest expense | (16,413 | ) | (16,385 | ) | (17,978 | ) | (18,832 | ) | (18,172 | ) | ||||||||||
Other income / (expense) | (41 | ) | 294 | 347 | 803 | 596 | ||||||||||||||
Net recoveries / (loss) from casualty events and litigation settlements (1) | — | — | (278 | ) | — | — | ||||||||||||||
Equity in income / (loss) of unconsolidated joint ventures | 111 | 115 | 135 | 135 | 124 | |||||||||||||||
(16,343 | ) | (15,976 | ) | (17,774 | ) | (17,894 | ) | (17,452 | ) | |||||||||||
Income from continuing operations | 1,090 | 10,396 | 11,164 | (19,027 | ) | 3,372 | ||||||||||||||
Discontinued operations: | ||||||||||||||||||||
Operating income, excluding impairment loss | (1 | ) | — | 71 | 16 | (3 | ) | |||||||||||||
Gain / (loss) on sale of properties | — | — | 1 | (2 | ) | — | ||||||||||||||
Income / (loss) from discontinued operations | (1 | ) | — | 72 | 14 | (3 | ) | |||||||||||||
Gain on sale of real estate (2) | 78,987 | (20 | ) | 114,411 | 17,142 | 26,611 | ||||||||||||||
Net income | 80,076 | 10,376 | 125,647 | (1,871 | ) | 29,980 | ||||||||||||||
Less: Net income attributable to noncontrolling interest | (4 | ) | (4 | ) | (3 | ) | (4 | ) | (4 | ) | ||||||||||
Net income attributable to Piedmont | $ | 80,072 | $ | 10,372 | $ | 125,644 | $ | (1,875 | ) | $ | 29,976 | |||||||||
Weighted average common shares outstanding - diluted | 145,699 | 145,791 | 146,014 | 149,176 | 153,757 | |||||||||||||||
Net income per share available to common stockholders - diluted | $ | 0.55 | $ | 0.07 | $ | 0.84 | $ | (0.01 | ) | $ | 0.20 | |||||||||
Common stock outstanding at end of period | 145,230 | 145,093 | 145,512 | 145,634 | 151,833 | |||||||||||||||
(1) | Presented on this line are net expenses and insurance reimbursements related to damage caused by Hurricane Sandy in October 2012. |
(2) | The gain on sale of real estate reflected in the second quarter of 2016 was primarily related to the sale of 1055 East Colorado Boulevard in Pasadena, CA, on which we recorded a $31.5 million gain; Fairway Center II in Brea, CA, on which we recorded a $15.5 million gain; and 1901 Main Street in Irvine, CA, on which we recorded a $32.0 million gain. The gain 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. The gain 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. The gain 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 $8.0 million gain. |
12
Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands except for per share data)
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||
6/30/2016 | 6/30/2015 | Change ($) | Change (%) | 6/30/2016 | 6/30/2015 | Change ($) | Change (%) | ||||||||||||||||||
Revenues: | |||||||||||||||||||||||||
Rental income | $ | 111,767 | $ | 117,454 | $ | (5,687 | ) | (4.8 | )% | $ | 226,505 | $ | 235,261 | $ | (8,756 | ) | (3.7 | )% | |||||||
Tenant reimbursements | 23,086 | 28,813 | (5,727 | ) | (19.9 | )% | 45,837 | 60,203 | (14,366 | ) | (23.9 | )% | |||||||||||||
Property management fee revenue | 454 | 467 | (13 | ) | (2.8 | )% | 977 | 1,029 | (52 | ) | (5.1 | )% | |||||||||||||
135,307 | 146,734 | (11,427 | ) | (7.8 | )% | 273,319 | 296,493 | (23,174 | ) | (7.8 | )% | ||||||||||||||
Expenses: | |||||||||||||||||||||||||
Property operating costs | 52,280 | 61,479 | 9,199 | 15.0 | % | 106,468 | 125,715 | 19,247 | 15.3 | % | |||||||||||||||
Depreciation | 31,556 | 36,039 | 4,483 | 12.4 | % | 63,338 | 72,271 | 8,933 | 12.4 | % | |||||||||||||||
Amortization | 17,402 | 14,955 | (2,447 | ) | (16.4 | )% | 35,208 | 29,625 | (5,583 | ) | (18.8 | )% | |||||||||||||
Impairment losses on real estate assets | 8,308 | 5,354 | (2,954 | ) | (55.2 | )% | 8,308 | 5,354 | (2,954 | ) | (55.2 | )% | |||||||||||||
General and administrative | 8,328 | 8,083 | (245 | ) | (3.0 | )% | 16,192 | 14,490 | (1,702 | ) | (11.7 | )% | |||||||||||||
117,874 | 125,910 | 8,036 | 6.4 | % | 229,514 | 247,455 | 17,941 | 7.3 | % | ||||||||||||||||
Real estate operating income | 17,433 | 20,824 | (3,391 | ) | (16.3 | )% | 43,805 | 49,038 | (5,233 | ) | (10.7 | )% | |||||||||||||
Other income / (expense): | |||||||||||||||||||||||||
Interest expense | (16,413 | ) | (18,172 | ) | 1,759 | 9.7 | % | (32,798 | ) | (37,188 | ) | 4,390 | 11.8 | % | |||||||||||
Other income / (expense) | (41 | ) | 596 | (637 | ) | (106.9 | )% | 253 | 415 | (162 | ) | (39.0 | )% | ||||||||||||
Net recoveries / (loss) from casualty events and litigation settlements | — | — | — | — | % | — | — | — | — | % | |||||||||||||||
Equity in income / (loss) of unconsolidated joint ventures | 111 | 124 | (13 | ) | (10.5 | )% | 226 | 283 | (57 | ) | (20.1 | )% | |||||||||||||
(16,343 | ) | (17,452 | ) | 1,109 | 6.4 | % | (32,319 | ) | (36,490 | ) | 4,171 | 11.4 | % | ||||||||||||
Income from continuing operations | 1,090 | 3,372 | (2,282 | ) | (67.7 | )% | 11,486 | 12,548 | (1,062 | ) | (8.5 | )% | |||||||||||||
Discontinued operations: | |||||||||||||||||||||||||
Operating income, excluding impairment loss | (1 | ) | (3 | ) | 2 | 66.7 | % | (1 | ) | (3 | ) | 2 | 66.7 | % | |||||||||||
Gain / (loss) on sale of properties | — | — | — | — | % | — | — | — | — | % | |||||||||||||||
Income / (loss) from discontinued operations | (1 | ) | (3 | ) | 2 | 66.7 | % | (1 | ) | (3 | ) | 2 | 66.7 | % | |||||||||||
Gain on sale of real estate (1) | 78,987 | 26,611 | 52,376 | 196.8 | % | 78,967 | 36,684 | 42,283 | 115.3 | % | |||||||||||||||
Net income | 80,076 | 29,980 | 50,096 | 167.1 | % | 90,452 | 49,229 | 41,223 | 83.7 | % | |||||||||||||||
Less: Net income attributable to noncontrolling interest | (4 | ) | (4 | ) | — | — | % | (8 | ) | (8 | ) | — | — | % | |||||||||||
Net income attributable to Piedmont | $ | 80,072 | $ | 29,976 | $ | 50,096 | 167.1 | % | $ | 90,444 | $ | 49,221 | $ | 41,223 | 83.8 | % | |||||||||
Weighted average common shares outstanding - diluted | 145,699 | 153,757 | 145,765 | 154,174 | |||||||||||||||||||||
Net income per share available to common stockholders - diluted | $ | 0.55 | $ | 0.20 | $ | 0.62 | $ | 0.32 | |||||||||||||||||
Common stock outstanding at end of period | 145,230 | 151,833 | 145,230 | 151,833 | |||||||||||||||||||||
(1) | The gain on sale of real estate for the three months and the six months ended June 30, 2016 was primarily related to the sale in the second quarter of 2016 of 1055 East Colorado Boulevard in Pasadena, CA, on which we recorded a $31.5 million gain, Fairway Center II in Brea, CA, on which we recorded a $15.5 million gain, and 1901 Main Street in Irvine, CA, on which we recorded a $32.0 million gain. The gain on sale of real estate for the three months and the six months ended June 30, 2015 was primarily related to the sale in the second quarter of 2015 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. The gain on sale of real estate for the six months ended June 30, 2015 was also 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.
Key Performance Indicators
Unaudited (in thousands except for per share data)
This section of our supplemental report includes non-GAAP financial measures, including, but not limited to, Core Earnings Before Interest, Taxes, Depreciation, and Amortization (Core EBITDA), Funds from Operations (FFO), Core Funds from Operations (Core FFO), and Adjusted Funds from Operations (AFFO). Definitions of these non-GAAP measures are provided on page 39 and reconciliations are provided beginning on page 41. |
Three Months Ended | ||||||||||||||
6/30/2016 | 3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | ||||||||||
Selected Operating Data | ||||||||||||||
Percent leased (1) | 91.4 | % | 91.7 | % | 91.5 | % | 90.6 | % | 88.8 | % | ||||
Percent leased - economic (1) (2) | 84.8 | % | 83.0 | % | 81.8 | % | 83.0 | % | 82.4 | % | ||||
Rental income | $111,767 | $114,738 | $115,617 | $117,994 | $117,454 | |||||||||
Total revenues | $135,307 | $138,012 | $139,461 | $148,815 | $146,734 | |||||||||
Total operating expenses | $117,874 | (3) | $111,640 | $110,523 | $149,948 | (3) | $125,910 | |||||||
Core EBITDA | $74,849 | $76,458 | $78,485 | $80,062 | $77,969 | |||||||||
Core FFO applicable to common stock | $58,258 | $59,865 | $60,184 | $61,058 | $59,760 | |||||||||
Core FFO per share - diluted | $0.40 | $0.41 | $0.41 | $0.41 | $0.39 | |||||||||
AFFO applicable to common stock | $49,676 | $43,550 | $42,358 | $52,433 | $45,734 | |||||||||
AFFO per share - diluted | $0.34 | $0.30 | $0.29 | $0.35 | $0.30 | |||||||||
Gross dividends | $30,498 | $30,463 | $30,557 | $31,036 | $32,268 | |||||||||
Dividends per share | $0.210 | $0.210 | $0.210 | $0.210 | $0.210 | |||||||||
Selected Balance Sheet Data | ||||||||||||||
Total real estate assets | $3,603,488 | $3,683,106 | $3,695,806 | $3,934,113 | $4,005,824 | |||||||||
Total assets | $4,298,499 | $4,355,017 | $4,434,535 | $4,732,654 | $4,773,811 | |||||||||
Total liabilities | $2,091,786 | $2,195,354 | $2,238,091 | $2,639,916 | $2,517,960 | |||||||||
Ratios & Information for Debt Holders | ||||||||||||||
Core EBITDA margin (4) | 55.3 | % | 55.4 | % | 56.3 | % | 53.8 | % | 53.1 | % | ||||
Fixed charge coverage ratio (5) | 4.3 x | 4.3 x | 4.1 x | 4.0 x | 4.0 x | |||||||||
Average net debt to Core EBITDA (6) | 6.3 x | 6.6 x | 6.9 x | 7.3 x | 7.4 x | |||||||||
Total gross real estate assets | $4,652,595 | $4,732,904 | $4,710,837 | $5,153,613 | $5,215,938 | |||||||||
Net debt (7) | $1,862,912 | $2,008,507 | $2,030,355 | $2,387,840 | $2,315,934 | |||||||||
(1) | Please refer to page 27 for additional leased percentage information. |
(2) | Economic leased percentage excludes the square footage associated with executed but not commenced leases for currently vacant spaces and the square footage associated with tenants receiving rental abatements (after proportional adjustments for tenants receiving only partial rental abatements). Due to variations in rental abatement structures whereby some abatements are provided for the first few months of each lease year as opposed to being provided entirely at the beginning of the lease, there will be variability to the economic leased percentage over time as abatements commence and expire. Please see the Future Lease Commencements and Abatements section of Financial Highlights for details on near-term abatements for large leases. |
(3) | Amount in the second quarter of 2016 includes $8.3 million in impairment losses associated with 150 West Jefferson located in Detroit, MI, and 9221 Corporate Boulevard located in Rockville, MD. Amount in the third quarter of 2015 includes a $34.8 million impairment loss associated with 2 Gatehall Drive located in Parsippany, NJ. |
(4) | Core EBITDA margin is calculated as Core EBITDA divided by total revenues (including revenues associated with discontinued operations). |
(5) | The fixed charge coverage ratio is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. The Company had no preferred dividends during any of the periods presented; the Company had capitalized interest of $735,192 for the quarter ended June 30, 2016, $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, and $885,576 for the quarter ended June 30, 2015; the Company had principal amortization of $213,255 for the quarter ended June 30, 2016, $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, and $201,768 for the quarter ended June 30, 2015. |
(6) | For the purposes of this calculation, we annualize the period's Core EBITDA and use the average daily balance of debt outstanding during the period, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the period. The decrease in the net debt to Core EBITDA ratios for the quarters ended December 31, 2015, March 31, 2016 and June 30, 2016 was primarily attributable to debt repayments completed using a majority of the proceeds from recent asset sales, information on which can be found on page 37. For the other quarters presented herein, the average net debt to Core EBITDA ratios were 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. |
(7) | 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. The decrease in net debt in the second quarter of 2016 was primarily attributable to the use of a portion of the proceeds from the sales of 1055 East Colorado Boulevard in Pasadena, CA, Fairway Center II in Brea, CA, and 1901 Main Street in Irvine, CA, to repay debt. |
14
Piedmont Office Realty Trust, Inc.
Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations
Unaudited (in thousands except for per share data)
Three Months Ended | Six Months Ended | |||||||||||||||
6/30/2016 | 6/30/2015 | 6/30/2016 | 6/30/2015 | |||||||||||||
GAAP net income applicable to common stock | $ | 80,072 | $ | 29,976 | $ | 90,444 | $ | 49,221 | ||||||||
Depreciation (1) (2) | 31,442 | 35,935 | 63,081 | 72,032 | ||||||||||||
Amortization (1) | 17,418 | 14,971 | 35,240 | 29,657 | ||||||||||||
Impairment loss (1) | 8,308 | 5,354 | 8,308 | 5,354 | ||||||||||||
Loss / (gain) on sale of properties (1) | (78,987 | ) | (26,611 | ) | (78,967 | ) | (36,684 | ) | ||||||||
NAREIT funds from operations applicable to common stock | 58,253 | 59,625 | 118,106 | 119,580 | ||||||||||||
Adjustments: | ||||||||||||||||
Acquisition costs | 5 | 3 | 17 | 147 | ||||||||||||
Loss / (gain) on extinguishment of swaps | — | 132 | — | 132 | ||||||||||||
Net (recoveries) / loss from casualty events and litigation settlements (1) | — | — | — | — | ||||||||||||
Core funds from operations applicable to common stock | 58,258 | 59,760 | 118,123 | 119,859 | ||||||||||||
Adjustments: | ||||||||||||||||
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on senior notes | 643 | 608 | 1,290 | 1,259 | ||||||||||||
Depreciation of non real estate assets | 175 | 165 | 379 | 361 | ||||||||||||
Straight-line effects of lease revenue (1) | (3,127 | ) | (3,745 | ) | (10,975 | ) | (8,255 | ) | ||||||||
Stock-based and other non-cash compensation expense | 1,477 | 1,692 | 3,405 | 2,417 | ||||||||||||
Amortization of lease-related intangibles (1) | (1,290 | ) | (1,102 | ) | (2,528 | ) | (2,224 | ) | ||||||||
Acquisition costs | (5 | ) | (3 | ) | (17 | ) | (147 | ) | ||||||||
Non-incremental capital expenditures (3) | (6,455 | ) | (11,641 | ) | (16,451 | ) | (21,928 | ) | ||||||||
Adjusted funds from operations applicable to common stock | $ | 49,676 | $ | 45,734 | $ | 93,226 | $ | 91,342 | ||||||||
Weighted average common shares outstanding - diluted | 145,699 | 153,757 | 145,765 | 154,174 | ||||||||||||
Funds from operations per share (diluted) | $ | 0.40 | $ | 0.39 | $ | 0.81 | $ | 0.78 | ||||||||
Core funds from operations per share (diluted) | $ | 0.40 | $ | 0.39 | $ | 0.81 | $ | 0.78 | ||||||||
Adjusted funds from operations per share (diluted) | $ | 0.34 | $ | 0.30 | $ | 0.64 | $ | 0.59 | ||||||||
Common stock outstanding at end of period | 145,230 | 151,833 | 145,230 | 151,833 | ||||||||||||
(1) | Includes adjustments for consolidated properties, including discontinued operations, and for our proportionate share of amounts attributable to unconsolidated joint ventures. |
(2) | Excludes depreciation of non real estate assets. |
(3) | Non-incremental capital expenditures are defined on page 39. |
15
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)
Three Months Ended | Six Months Ended | ||||||||||||||
6/30/2016 | 6/30/2015 | 6/30/2016 | 6/30/2015 | ||||||||||||
Net income attributable to Piedmont | $ | 80,072 | $ | 29,976 | $ | 90,444 | $ | 49,221 | |||||||
Net income attributable to noncontrolling interest | 4 | 4 | 8 | 8 | |||||||||||
Interest expense (1) | 16,413 | 18,172 | 32,798 | 37,188 | |||||||||||
Depreciation (1) | 31,616 | 36,100 | 63,459 | 72,393 | |||||||||||
Amortization (1) | 17,418 | 14,971 | 35,240 | 29,657 | |||||||||||
Acquisition costs | 5 | 3 | 17 | 147 | |||||||||||
Impairment loss (1) | 8,308 | 5,354 | 8,308 | 5,354 | |||||||||||
Net (recoveries) / loss from casualty events and litigation settlements (1) | — | — | — | — | |||||||||||
Loss / (gain) on sale of properties (1) | (78,987 | ) | (26,611 | ) | (78,967 | ) | (36,684 | ) | |||||||
Core EBITDA | 74,849 | 77,969 | 151,307 | 157,284 | |||||||||||
General & administrative expenses (1) | 8,364 | 8,102 | 16,232 | 14,518 | |||||||||||
Management fee revenue (2) | (224 | ) | (232 | ) | (515 | ) | (562 | ) | |||||||
Other (income) / expense (1) (3) | 543 | (599 | ) | 236 | (562 | ) | |||||||||
Straight-line effects of lease revenue (1) | (3,127 | ) | (3,745 | ) | (10,975 | ) | (8,255 | ) | |||||||
Amortization of lease-related intangibles (1) | (1,290 | ) | (1,102 | ) | (2,528 | ) | (2,224 | ) | |||||||
Property net operating income (cash basis) | 79,115 | 80,393 | 153,757 | 160,199 | |||||||||||
Deduct net operating (income) / loss from: | |||||||||||||||
Acquisitions (4) | (5,437 | ) | (667 | ) | (10,652 | ) | (1,179 | ) | |||||||
Dispositions (5) | (985 | ) | (11,293 | ) | (2,970 | ) | (23,753 | ) | |||||||
Other investments (6) | (9 | ) | (248 | ) | (135 | ) | (518 | ) | |||||||
Same store net operating income (cash basis) | $ | 72,684 | $ | 68,185 | $ | 140,000 | $ | 134,749 | |||||||
Change period over period | 6.6 | % | N/A | 3.9 | % | N/A | |||||||||
(1) | Includes amounts attributable to consolidated properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures. |
(2) | Presented net of related operating expenses incurred to earn the revenue; therefore, the information presented on this line will not tie to the data presented on the income statements. |
(3) | Figures presented on this line may not tie back to the relevant sources as some activity is attributable to property operations and is, therefore, presented in property net operating income. |
(4) | Acquisitions consist of 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. |
(5) | 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; 2 Gatehall Drive in Parsippany, NJ, sold on December 21, 2015; 1055 East Colorado Boulevard in Pasadena, CA, sold on April 21, 2016; Fairway Center II in Brea, CA, sold on April 28, 2016; and 1901 Main Street in Irvine, CA, sold on May 2, 2016. |
(6) | Other investments consists of operating results from our investments in unconsolidated joint ventures and redevelopment and development projects. Additional information on our unconsolidated joint ventures and redevelopment and development projects can be found on page 38. The operating results from both the office and the retail portions of 3100 Clarendon Boulevard in Arlington, VA, are included in this line item. |
16
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)
Same Store Net Operating Income (Cash Basis) | |||||||||||||||||||||||
Contributions from Strategic Operating Markets | Three Months Ended | Six Months Ended | |||||||||||||||||||||
6/30/2016 | 6/30/2015 | 6/30/2016 | 6/30/2015 | ||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||
Washington, D.C. | $ | 12,567 | 17.3 | $ | 12,855 | 18.9 | $ | 24,659 | 17.6 | $ | 25,321 | 18.8 | |||||||||||
New York (1) | 9,914 | 13.6 | 8,944 | 13.1 | 19,299 | 13.8 | 17,244 | 12.8 | |||||||||||||||
Boston (2) | 7,094 | 9.8 | 6,332 | 9.3 | 14,206 | 10.1 | 13,188 | 9.8 | |||||||||||||||
Chicago (3) | 6,741 | 9.3 | 5,846 | 8.6 | 12,175 | 8.7 | 11,729 | 8.7 | |||||||||||||||
Dallas | 5,658 | 7.8 | 5,750 | 8.4 | 11,764 | 8.4 | 11,375 | 8.4 | |||||||||||||||
Minneapolis (4) | 5,777 | 7.9 | 4,790 | 7.0 | 11,461 | 8.2 | 9,425 | 7.0 | |||||||||||||||
Atlanta (5) | 4,490 | 6.2 | 3,751 | 5.5 | 9,314 | 6.7 | 7,598 | 5.6 | |||||||||||||||
Orlando | 670 | 0.9 | 756 | 1.1 | 1,036 | 0.7 | 1,053 | 0.8 | |||||||||||||||
Other (6) | 19,773 | 27.2 | 19,161 | 28.1 | 36,086 | 25.8 | 37,816 | 28.1 | |||||||||||||||
Total | $ | 72,684 | 100.0 | $ | 68,185 | 100.0 | $ | 140,000 | 100.0 | $ | 134,749 | 100.0 | |||||||||||
(1) | The increase in New York Same Store Net Operating Income for the three months and the six months ended June 30, 2016 as compared to the same periods in 2015 was primarily related to increased rental income as a result of new leasing activity at 60 Broad Street in New York, NY, as well as the sale of solar renewable energy credits attributable to the solar power production plant at 400 Bridgewater Crossing in Bridgewater, NJ. |
(2) | The increase in Boston Same Store Net Operating Income for the three months and the six months ended June 30, 2016 as compared to the same periods in 2015 was primarily related to the expiration of the rental abatement concession associated with a large lease renewal at 90 Central Street in Boxborough, MA. |
(3) | The increase in Chicago Same Store Net Operating Income for the three months and the six months ended June 30, 2016 as compared to the same periods in 2015 was primarily related to the expirations of rental abatement periods associated with several leases at 500 West Monroe Street in Chicago, IL, and Windy Point II in Schaumburg, IL. |
(4) | The increase in Minneapolis Same Store Net Operating Income for the three months and the six months ended June 30, 2016 as compared to the same periods in 2015 was primarily attributable to the expirations of rental abatement periods associated with several leases at US Bancorp Center in Minneapolis, MN, and Crescent Ridge II in Minnetonka, MN. |
(5) | The increase in Atlanta Same Store Net Operating Income for the three months and the six months ended June 30, 2016 as compared to the same periods in 2015 was primarily related to the expirations of rental abatement periods associated with leases at Suwanee Gateway One in Suwanee, GA, and The Medici in Atlanta, GA. |
(6) | The decrease in Other Same Store Net Operating Income for the six months ended June 30, 2016 as compared to the same period in 2015 was primarily attributable to a four-month rental abatement concession (which expired 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. |
17
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Accrual Basis)
Unaudited (in thousands)
Three Months Ended | Six Months Ended | ||||||||||||||
6/30/2016 | 6/30/2015 | 6/30/2016 | 6/30/2015 | ||||||||||||
Net income attributable to Piedmont | $ | 80,072 | $ | 29,976 | $ | 90,444 | $ | 49,221 | |||||||
Net income attributable to noncontrolling interest | 4 | 4 | 8 | 8 | |||||||||||
Interest expense (1) | 16,413 | 18,172 | 32,798 | 37,188 | |||||||||||
Depreciation (1) | 31,616 | 36,100 | 63,459 | 72,393 | |||||||||||
Amortization (1) | 17,418 | 14,971 | 35,240 | 29,657 | |||||||||||
Acquisition costs | 5 | 3 | 17 | 147 | |||||||||||
Impairment loss (1) | 8,308 | 5,354 | 8,308 | 5,354 | |||||||||||
Net (recoveries) / loss from casualty events and litigation settlements (1) | — | — | — | — | |||||||||||
Loss / (gain) on sale of properties (1) | (78,987 | ) | (26,611 | ) | (78,967 | ) | (36,684 | ) | |||||||
Core EBITDA | 74,849 | 77,969 | 151,307 | 157,284 | |||||||||||
General & administrative expenses (1) | 8,364 | 8,102 | 16,232 | 14,518 | |||||||||||
Management fee revenue (2) | (224 | ) | (232 | ) | (515 | ) | (562 | ) | |||||||
Other (income) / expense (1) (3) | 543 | (599 | ) | 236 | (562 | ) | |||||||||
Property net operating income (accrual basis) | 83,532 | 85,240 | 167,260 | 170,678 | |||||||||||
Deduct net operating (income) / loss from: | |||||||||||||||
Acquisitions (4) | (6,394 | ) | (770 | ) | (12,877 | ) | (1,400 | ) | |||||||
Dispositions (5) | (989 | ) | (12,594 | ) | (3,025 | ) | (26,714 | ) | |||||||
Other investments (6) | (178 | ) | (297 | ) | (328 | ) | (570 | ) | |||||||
Same store net operating income (accrual basis) | $ | 75,971 | $ | 71,579 | $ | 151,030 | $ | 141,994 | |||||||
Change period over period | 6.1 | % | N/A | 6.4 | % | N/A | |||||||||
(1) | Includes amounts attributable to consolidated properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures. |
(2) | Presented net of related operating expenses incurred to earn the revenue; therefore, the information presented on this line will not tie to the data presented on the income statements. |
(3) | Figures presented on this line may not tie back to the relevant sources as some activity is attributable to property operations and is, therefore, presented in property net operating income. |
(4) | Acquisitions consist of 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. |
(5) | 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; 2 Gatehall Drive in Parsippany, NJ, sold on December 21, 2015; 1055 East Colorado Boulevard in Pasadena, CA, sold on April 21, 2016; Fairway Center II in Brea, CA, sold on April 28, 2016; and 1901 Main Street in Irvine, CA, sold on May 2, 2016. |
(6) | Other investments consists of operating results from our investments in unconsolidated joint ventures and redevelopment and development projects. Additional information on our unconsolidated joint ventures and redevelopment and development projects can be found on page 38. The operating results from both the office and the retail portions of 3100 Clarendon Boulevard in Arlington, VA, are included in this line item. |
18
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Accrual Basis)
Unaudited (in thousands)
Same Store Net Operating Income (Accrual Basis) | |||||||||||||||||||||||
Contributions from Strategic Operating Markets | Three Months Ended | Six Months Ended | |||||||||||||||||||||
6/30/2016 | 6/30/2015 | 6/30/2016 | 6/30/2015 | ||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||
Washington, D.C. (1) | $ | 14,964 | 19.7 | $ | 13,547 | 18.9 | $ | 29,402 | 19.5 | $ | 26,698 | 18.8 | |||||||||||
New York (2) | 9,612 | 12.7 | 8,490 | 11.9 | 18,882 | 12.5 | 16,481 | 11.6 | |||||||||||||||
Boston | 7,156 | 9.4 | 6,705 | 9.4 | 14,308 | 9.5 | 13,692 | 9.7 | |||||||||||||||
Chicago | 7,190 | 9.5 | 6,717 | 9.4 | 13,560 | 9.0 | 13,008 | 9.2 | |||||||||||||||
Dallas | 5,568 | 7.3 | 5,900 | 8.2 | 11,536 | 7.6 | 11,766 | 8.3 | |||||||||||||||
Minneapolis (3) | 5,494 | 7.2 | 5,047 | 7.0 | 10,996 | 7.3 | 10,134 | 7.1 | |||||||||||||||
Atlanta (4) | 4,923 | 6.5 | 4,010 | 5.6 | 10,152 | 6.7 | 8,137 | 5.7 | |||||||||||||||
Orlando | 632 | 0.8 | 687 | 1.0 | 1,270 | 0.8 | 1,283 | 0.9 | |||||||||||||||
Other | 20,432 | 26.9 | 20,476 | 28.6 | 40,924 | 27.1 | 40,795 | 28.7 | |||||||||||||||
Total | $ | 75,971 | 100.0 | $ | 71,579 | 100.0 | $ | 151,030 | 100.0 | $ | 141,994 | 100.0 | |||||||||||
(1) | The increase in Washington, D.C. Same Store Net Operating Income for the three months and the six months ended June 30, 2016 as compared to the same periods in 2015 was primarily attributable to the commencement of several new leases at One Independence Square in Washington, D.C., 4250 North Fairfax Drive in Arlington, VA, and 9211 Corporate Boulevard in Rockville, MD. |
(2) | The increase in New York Same Store Net Operating Income for the three months and the six months ended June 30, 2016 as compared to the same periods in 2015 was primarily related to increased rental income as a result of recent leasing activity at 60 Broad Street in New York, NY, as well as the sale of solar renewable energy credits attributable to the solar power production plant at 400 Bridgewater Crossing in Bridgewater, NJ. |
(3) | The increase in Minneapolis Same Store Net Operating Income for the three months and the six months ended June 30, 2016 as compared to the same periods in 2015 was primarily attributable to increased rental income as a result of recent leasing activity at US Bancorp Center in Minneapolis, MN, and Crescent Ridge II in Minnetonka, MN. |
(4) | The increase in Atlanta Same Store Net Operating Income for the three months and the six months ended June 30, 2016 as compared to the same periods in 2015 was primarily attributable to increased rental income as a result of recent leasing activity at Suwanee Gateway One in Suwanee, GA, and Glenridge Highlands Two in Atlanta, GA. |
19
Piedmont Office Realty Trust, Inc.
Capitalization Analysis
Unaudited (in thousands except for per share data)
As of | As of | |||||||
June 30, 2016 | December 31, 2015 | |||||||
Market Capitalization | ||||||||
Common stock price (1) | $ | 21.54 | $ | 18.88 | ||||
Total shares outstanding | 145,230 | 145,512 | ||||||
Equity market capitalization (1) | $ | 3,128,246 | $ | 2,747,260 | ||||
Total debt - principal amount outstanding | $ | 1,894,616 | $ | 2,040,970 | ||||
Total market capitalization (1) | $ | 5,022,862 | $ | 4,788,230 | ||||
Total debt / Total market capitalization (1) | 37.7 | % | 42.6 | % | ||||
Ratios & Information for Debt Holders | ||||||||
Total gross real estate assets (2) | $ | 4,652,595 | $ | 4,710,837 | ||||
Total debt / Total gross real estate assets (2) | 40.7 | % | 43.3 | % | ||||
Total debt / Total gross assets (3) | 35.4 | % | 37.5 | % | ||||
Average net debt to Core EBITDA (4) | 6.3 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. |
20
Piedmont Office Realty Trust, Inc.
Debt Summary
As of June 30, 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 | $170,000 | (3) | 1.58% | 22.5 months | |
Fixed Rate | 1,724,616 | 3.65% | 60.4 months | ||
Total | $1,894,616 | 3.47% | 57.0 months | ||
Unsecured & Secured Debt | ||||||
Debt (1) | Principal Amount Outstanding | Weighted Average Stated Interest Rate (2) | Weighted Average Maturity | |||
Unsecured | $1,520,000 | 3.15% | 60.5 months | |||
Secured | 374,616 | 4.76% | 42.5 months | |||
Total | $1,894,616 | 3.47% | 57.0 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 | (4) | $— | 5.70% | 2.3% | |
2017 | 140,000 | — | 5.76% | 7.4% | ||
2018 | — | 170,000 | 1.58% | 9.0% | ||
2019 | — | 300,000 | 2.78% | 15.8% | ||
2020 | — | 300,000 | (5) | 2.39% | 15.8% | |
2021 + | 192,091 | 750,000 | 3.93% | 49.7% | ||
Total | $374,616 | $1,520,000 | 3.47% | 100.0% | ||
(1) | All of Piedmont's outstanding debt as of June 30, 2016, was interest-only debt with the exception of the $32.1 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 $170 million unsecured term loan; the $500 million unsecured revolving credit facility had no outstanding balance as of June 30, 2016. Two other loans, the $300 million unsecured term loan that closed in 2011 and the $300 million unsecured term loan that closed in 2013, have stated variable rates. However, Piedmont entered into $300 million in notional amount of interest rate swap agreements which effectively fix the interest rate on the 2011 unsecured term loan at 2.39% through November 22, 2016 (please see page 22 for information on additional swap agreements for this loan that will become effective on 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) | Amount represents the $42.5 million fixed-rate loan. On July 11, 2016, the entire $42.5 million principal amount was repaid. The loan was repaid on the first business day inside of the loan's open prepayment period; no prepayment penalty was incurred. A combination of cash on hand and proceeds from a draw on the Company's revolving line of credit were used to make the debt repayment. For additional information, please refer to the Subsequent Events section of Financial Highlights. |
(5) | The initial maturity date of the $500 million unsecured revolving credit facility is June 18, 2019; however, there are two, six-month extension options available under the facility providing for a final extended maturity date of June 18, 2020. For the purposes of this schedule, we reflect the maturity date of the facility as the final extended maturity date of June 2020. |
21
Piedmont Office Realty Trust, Inc.
Debt Detail
Unaudited ($ in thousands)
Facility (1) | Property | Stated Rate | Maturity | Principal Amount Outstanding as of June 30, 2016 | ||||
Secured | ||||||||
$42.5 Million Fixed-Rate Loan (2) | Las Colinas Corporate Center I & II | 5.70 | % | 10/11/2016 | 42,525 | |||
$140.0 Million WDC Fixed-Rate Loans | 1201 & 1225 Eye Street | 5.76 | % | 11/1/2017 | 140,000 | |||
$35.0 Million Fixed-Rate Loan (3) | 5 Wall Street | 5.55 | % | 9/1/2021 | 32,091 | |||
$160.0 Million Fixed-Rate Loan | 1901 Market Street | 3.48 | % | (4) | 7/5/2022 | 160,000 | ||
Subtotal / Weighted Average (5) | 4.76 | % | $ | 374,616 | ||||
Unsecured | ||||||||
$170.0 Million Unsecured 2015 Term Loan | N/A | 1.58 | % | (6) | 5/15/2018 | $ | 170,000 | |
$300.0 Million Unsecured 2013 Term Loan | N/A | 2.78 | % | (7) | 1/31/2019 | 300,000 | ||
$300.0 Million Unsecured 2011 Term Loan | N/A | 2.39 | % | (8) | 1/15/2020 | 300,000 | ||
$500.0 Million Unsecured Line of Credit (9) | N/A | 1.47 | % | (10) | 6/18/2020 | — | ||
$350.0 Million Unsecured Senior Notes | N/A | 3.40 | % | (11) | 6/1/2023 | 350,000 | ||
$400.0 Million Unsecured Senior Notes | N/A | 4.45 | % | (12) | 3/15/2024 | 400,000 | ||
Subtotal / Weighted Average (5) | 3.15 | % | $ | 1,520,000 | ||||
Total Debt - Principal Amount Outstanding / Weighted Average Stated Rate (5) | 3.47 | % | $ | 1,894,616 | ||||
GAAP Accounting Adjustments (13) | (10,302 | ) | ||||||
Total Debt - GAAP Amount Outstanding | $ | 1,884,314 | ||||||
(1) | All of Piedmont’s outstanding debt as of June 30, 2016, was interest-only debt with the exception of the $32.1 million of debt associated with 5 Wall Street located in Burlington, MA. |
(2) | On July 11, 2016, the first business day inside of the loan's open prepayment window, Piedmont repaid the loan with no prepayment penalty. A combination of cash on hand and proceeds from a draw on the Company's revolving line of credit were used to make the debt repayment. For additional information, please refer to the Subsequent Events section of Financial Highlights. |
(3) | The loan is amortizing based on a 25-year amortization schedule. |
(4) | The stated interest rate on the $160 million fixed-rate loan is 3.48%. After the application of interest rate hedges, the effective cost of the financing is approximately 3.58%. |
(5) | Weighted average is based on the principal amount outstanding and interest rate at June 30, 2016. |
(6) | The $170 million unsecured term loan has a variable interest rate. Piedmont may select from multiple interest rate options under the facility, including the prime rate and various length LIBOR locks. All LIBOR selections are subject to an additional spread (1.125% as of June 30, 2016) over the selected rate based on Piedmont’s current credit rating. |
(7) | The $300 million unsecured term loan that closed in 2013 has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix the interest rate on this loan at 2.78% through its maturity date of January 31, 2019, assuming no credit rating change for the Company. |
(8) | The $300 million unsecured term loan that closed in 2011 has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix the interest rate on this loan at 2.39% until November 22, 2016, assuming no credit rating change for the Company. Additionally, for the period from November 22, 2016 to January 15, 2020, Piedmont has entered into interest rate swap agreements which effectively fix the interest rate on this loan at 3.35%, assuming no credit rating change for the Company. |
(9) | All of Piedmont’s outstanding debt as of June 30, 2016, was term debt with the exception of our unsecured revolving credit facility (which had no balance outstanding as of June 30, 2016). The $500 million unsecured revolving credit facility has an initial maturity date of June 18, 2019; however, there are two, six-month extension options available under the facility providing for a total extension of up to one year to June 18, 2020. The final extended maturity date is presented on this schedule. |
(10) | Given that there was no balance outstanding as of the end of the second quarter of 2016, the interest rate presented for the $500 million unsecured revolving credit facility is the interest rate that would have applied to any draws made on June 30, 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 June 30, 2016) over the selected rate based on Piedmont’s current credit rating. |
(11) | The $350 million unsecured senior notes were offered for sale at 99.601% of the principal amount. The resulting effective cost of the financing is approximately 3.45% before the consideration of transaction costs and proceeds from interest rate hedges. After the application of proceeds from interest rate hedges, the effective cost of the financing is approximately 3.43%. |
(12) | The $400 million unsecured senior notes were offered for sale at 99.791% of the principal amount. The resulting effective cost of the financing is approximately 4.48% before the consideration of transaction costs and proceeds from interest rate hedges. After the application of proceeds from interest rate hedges, the effective cost of the financing is approximately 4.10%. |
(13) | The GAAP accounting adjustments relate to original issue discounts, third-party fees, and lender fees resulting from the procurement processes for our various debt facilities, along with debt fair value adjustments associated with the assumed 5 Wall Street debt. The original issue discounts and fees, along with the debt fair value adjustments, are amortized to interest expense over the contractual term of the related debt. |
22
Piedmont Office Realty Trust, Inc.
Debt Covenant & Ratio Analysis (for Debt Holders)
As of June 30, 2016
Unaudited
Bank Debt Covenant Compliance (1) | Required | Actual |
Maximum leverage ratio | 0.60 | 0.38 |
Minimum fixed charge coverage ratio (2) | 1.50 | 3.92 |
Maximum secured indebtedness ratio | 0.40 | 0.08 |
Minimum unencumbered leverage ratio | 1.60 | 2.83 |
Minimum unencumbered interest coverage ratio (3) | 1.75 | 5.15 |
Bond Covenant Compliance (4) | Required | Actual |
Total debt to total assets | 60% or less | 40.3% |
Secured debt to total assets | 40% or less | 8.0% |
Ratio of consolidated EBITDA to interest expense | 1.50 or greater | 4.65 |
Unencumbered assets to unsecured debt | 150% or greater | 274% |
Three Months Ended | Six Months Ended | Year Ended | |
Other Debt Coverage Ratios for Debt Holders | June 30, 2016 | June 30, 2016 | December 31, 2015 |
Average net debt to core EBITDA (5) | 6.3 x | 6.5 x | 7.2 x |
Fixed charge coverage ratio (6) | 4.3 x | 4.3 x | 4.0 x |
Interest coverage ratio (7) | 4.4 x | 4.4 x | 4.1 x |
(1) | Bank debt covenant compliance calculations relate to specific calculations detailed in the relevant credit agreements. |
(2) | Defined as EBITDA for the trailing four quarters (including the Company's share of EBITDA from unconsolidated interests), 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) | Bond covenant compliance calculations relate to specific calculations prescribed in the relevant debt agreements. Please refer to the Indenture dated May 9, 2013, and the Indenture and the Supplemental Indenture dated March 6, 2014, for detailed information about the calculations. |
(5) | For the purposes of this calculation, we use the average daily balance of debt outstanding during the period, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the period. |
(6) | Fixed charge coverage ratio is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. The Company had no preferred dividends during the periods ended June 30, 2016 and December 31, 2015. The Company had capitalized interest of $735,192 for the three months ended June 30, 2016, $1,897,384 for the six months ended June 30, 2016, and $3,765,950 for the twelve months ended December 31, 2015. The Company had principal amortization of $213,255 for the three months ended June 30, 2016, $353,794 for the six months ended June 30, 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 $735,192 for the three months ended June 30, 2016, $1,897,384 for the six months ended June 30, 2016, and $3,765,950 for the twelve months ended December 31, 2015. |
23
Piedmont Office Realty Trust, Inc.
Tenant Diversification (1)
As of June 30, 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 | 5 | (4) | $47,122 | 8.7 | 945 | 5.6 | |
State of New York | AA+ / Aa1 | 1 | 2019 | 25,242 | 4.6 | 481 | 2.8 | |
US Bancorp | A+ / A1 | 3 | 2023 / 2024 | 22,242 | 4.1 | 733 | 4.3 | |
Independence Blue Cross | No Rating Available | 1 | 2033 | 18,016 | 3.3 | 801 | 4.7 | |
GE | AA+ / A1 | 1 | 2027 | 15,872 | 2.9 | 452 | 2.7 | |
Nestle | AA / Aa2 | 1 | 2021 | 12,281 | 2.3 | 401 | 2.4 | |
City of New York | AA / Aa2 | 1 | 2020 | 10,844 | 2.0 | 313 | 1.8 | |
Gallagher | No Rating Available | 2 | 2018 | 9,631 | 1.8 | 315 | 1.9 | |
Catamaran | A+ / A3 | 1 | 2025 | 8,713 | 1.6 | 301 | 1.8 | |
Caterpillar Financial | A / A2 | 1 | 2022 | 8,137 | 1.5 | 312 | 1.8 | |
Harvard University | AAA / Aaa | 2 | 2032 / 2033 | 7,343 | 1.3 | 110 | 0.6 | |
District of Columbia | AA- / A2 | 2 | 2028 | 6,877 | 1.3 | 146 | 0.9 | |
Harcourt | BBB+ | 1 | 2016 | 6,543 | 1.2 | 195 | 1.2 | |
Goldman Sachs | BBB+ / A3 | 2 | 2018 | 6,325 | 1.2 | 235 | 1.4 | |
Raytheon | A / A3 | 2 | 2019 | 6,279 | 1.1 | 440 | 2.6 | |
Motorola | BBB- / Baa3 | 1 | 2028 | 5,916 | 1.1 | 150 | 0.9 | |
Towers Watson | No Rating Available | 1 | 2017 | 5,876 | 1.1 | 123 | 0.7 | |
Schlumberger | AA- / A1 | 1 | 2020 | 5,775 | 1.1 | 163 | 1.0 | |
Henry M Jackson | No Rating Available | 2 | 2022 | 5,669 | 1.0 | 145 | 0.9 | |
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 | 1.2 | |
Technip | BBB+ | 1 | 2018 | 5,327 | 1.0 | 150 | 0.9 | |
SunTrust Bank | BBB+ / Baa1 | 3 | 2019 | 5,298 | 1.0 | 145 | 0.9 | |
Other | Various | 286,490 | 52.8 | 9,393 | 55.7 | |||
Total | $542,901 | 100.0 | 16,866 | 100.0 | ||||
24
Tenant Diversification
Percentage of Annualized Leased Revenue (%)
June 30, 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. |
25
Piedmont Office Realty Trust, Inc.
Tenant Credit Rating & Lease Distribution Information
As of June 30, 2016
Tenant Credit Rating (1)
Rating Level | Annualized Lease Revenue (in thousands) | Percentage of Annualized Lease Revenue (%) | |
AAA / Aaa | $59,726 | 11.0 | |
AA / Aa | 96,538 | 17.8 | |
A / A | 79,433 | 14.6 | |
BBB / Baa | 46,505 | 8.6 | |
BB / Ba | 21,274 | 3.9 | |
B / B | 22,546 | 4.2 | |
Below | 3,473 | 0.6 | |
Not rated (2) | 213,406 | 39.3 | |
Total | $542,901 | 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 | 235 | 31.6 | $19,634 | 3.6 | 219 | 1.3 | |
2,501 - 10,000 | 248 | 33.3 | 42,951 | 7.9 | 1,336 | 7.9 | |
10,001 - 20,000 | 96 | 12.9 | 40,142 | 7.4 | 1,325 | 7.8 | |
20,001 - 40,000 | 70 | 9.4 | 66,014 | 12.2 | 2,017 | 12.0 | |
40,001 - 100,000 | 53 | 7.1 | 97,608 | 18.0 | 3,046 | 18.1 | |
Greater than 100,000 | 42 | 5.7 | 276,552 | 50.9 | 8,923 | 52.9 | |
Total | 744 | 100.0 | $542,901 | 100.0 | 16,866 | 100.0 | |
(1) | Credit rating may reflect the credit rating of the parent or a guarantor. Where differences exist between the Standard & Poor's credit rating for a tenant and the Moody's credit rating for a tenant, the higher credit rating is selected for this analysis. |
(2) | The classification of a tenant as "not rated" is no indication of the credit worthiness of the tenant; 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. |
26
Piedmont Office Realty Trust, Inc.
Leased Percentage Information
(in thousands)
Three Months Ended | Three Months Ended | ||||||||||||||
June 30, 2016 | June 30, 2015 | ||||||||||||||
Leased Square Footage | Rentable Square Footage | Percent Leased (1) | Leased Square Footage | Rentable Square Footage | Percent Leased (1) | ||||||||||
As of March 31, 20xx | 17,350 | 18,930 | 91.7 | % | 19,112 | 21,531 | 88.8 | % | |||||||
Leases signed during the period | 573 | 572 | |||||||||||||
Less: lease renewals signed during period | (206 | ) | (246 | ) | |||||||||||
New leases signed during period | 367 | 326 | |||||||||||||
Less: new leases signed during period for currently occupied space | (130 | ) | (192 | ) | |||||||||||
New leases commencing during period | 237 | 134 | |||||||||||||
Leases expired during period and other | (244 | ) | 5 | (102 | ) | 2 | |||||||||
Subtotal | 17,343 | 18,935 | 91.6 | % | 19,144 | 21,533 | 88.9 | % | |||||||
Acquisitions during period | — | — | — | — | |||||||||||
Dispositions during period | (477 | ) | (483 | ) | (532 | ) | (567 | ) | |||||||
As of June 30, 20xx (2) | 16,866 | 18,452 | 91.4 | % | 18,612 | 20,966 | 88.8 | % | |||||||
Six Months Ended | Six Months Ended | ||||||||||||||
June 30, 2016 | June 30, 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 | 926 | 1,389 | |||||||||||||
Less: lease renewals signed during period | (377 | ) | (689 | ) | |||||||||||
New leases signed during period | 549 | 700 | |||||||||||||
Less: new leases signed during period for currently occupied space | (132 | ) | (168 | ) | |||||||||||
New leases commencing during period | 417 | 532 | |||||||||||||
Leases expired during period and other | (397 | ) | 1 | (252 | ) | 4 | |||||||||
Subtotal | 17,343 | 18,935 | 91.6 | % | 19,108 | 21,475 | 89.0 | % | |||||||
Acquisitions during period | — | — | 156 | 178 | |||||||||||
Dispositions during period | (477 | ) | (483 | ) | (652 | ) | (687 | ) | |||||||
As of June 30, 20xx (2) | 16,866 | 18,452 | 91.4 | % | 18,612 | 20,966 | 88.8 | % | |||||||
Same Store Analysis | |||||||||||||||
Less acquisitions / dispositions after June 30, 2015 and redevelopments (3) (4) | (1,396 | ) | (1,521 | ) | 91.8 | % | (3,462 | ) | (4,051 | ) | 85.5 | % | |||
Same Store Leased Percentage (2) | 15,470 | 16,931 | 91.4 | % | 15,150 | 16,915 | 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. |
27
Piedmont Office Realty Trust, Inc.
Rental Rate Roll Up / Roll Down Analysis (1)
(in thousands)
Three Months Ended | ||||||
June 30, 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 | 396 | 69.1% | 2.1% | (5.7)% | 6.4% | |
Leases executed for spaces excluded from analysis (5) | 177 | 30.9% | ||||
Six Months Ended | ||||||
June 30, 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 | 564 | 60.9% | 3.1% | (3.8)% | 7.8% | |
Leases executed for spaces excluded from analysis (5) | 362 | 39.1% | ||||
(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 of the previous leases are compared to the first twelve months of cash rents of the new leases in order to calculate the percentage change. |
(3) | For the purposes of this analysis, the accrual basis rents of the previous leases are compared to the accrual basis rents of the new leases in order to calculate the percentage change. For newly signed leases which have variations in accrual basis rents, whether because of known future expansions, contractions, lease expense recovery structure changes, or other similar reasons, the weighted average of such varying accrual basis rents is used for the purposes of this analysis. |
(4) | For leases under which a tenant may use, at its discretion, a portion of its tenant improvement allowance for expenses other than those related to improvements to its space, an assumption is made that the tenant elects to use any such portion of its tenant improvement allowance for improvements to its space prior to the commencement of its lease, unless the Company is notified otherwise by the tenant. This assumption is made based upon historical usage patterns of tenant improvement allowances by the Company's tenants. |
(5) | Represents leases signed at our consolidated office assets that do not qualify for inclusion in the analysis primarily because the spaces for which the new leases were signed had been vacant for greater than one year. |
28
Piedmont Office Realty Trust, Inc.
Lease Expiration Schedule
As of June 30, 2016
(in thousands)
Expiration Year | Annualized Lease Revenue (1) | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | |
Vacant | $— | — | 1,586 | 8.6 | |
2016 (2) | 11,552 | 2.1 | 360 | 2.0 | |
2017 (3) | 37,247 | 6.9 | 1,092 | 5.9 | |
2018 | 42,825 | 7.9 | 1,425 | 7.7 | |
2019 | 69,516 | 12.8 | 2,259 | 12.2 | |
2020 | 48,188 | 8.9 | 1,683 | 9.1 | |
2021 | 36,756 | 6.8 | 1,227 | 6.6 | |
2022 | 37,795 | 7.0 | 1,221 | 6.6 | |
2023 | 34,870 | 6.4 | 1,216 | 6.6 | |
2024 | 38,437 | 7.1 | 1,308 | 7.1 | |
2025 | 27,457 | 5.0 | 870 | 4.7 | |
2026 | 20,945 | 3.8 | 717 | 3.9 | |
2027 | 34,097 | 6.3 | 1,061 | 5.8 | |
2028 | 44,440 | 8.2 | 970 | 5.3 | |
Thereafter | 58,776 | 10.8 | 1,457 | 7.9 | |
Total / Weighted Average | $542,901 | 100.0 | 18,452 | 100.0 | |
Average Lease Term Remaining | |
6/30/2016 | 6.9 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 June 30, 2016, comprised of 193,000 square feet and Annualized Lease Revenue of $6.1 million. |
(3) | Leases and other revenue-producing agreements on a month-to-month basis, comprised of 2,600 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. |
29
Piedmont Office Realty Trust, Inc.
Lease Expirations by Quarter
As of June 30, 2016
(in thousands)
Q3 2016 (1) | Q4 2016 | Q1 2017 | Q2 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 | 1 | $44 | 9 | $234 | 15 | $424 | 44 | $1,063 | ||||
Boston | — | — | — | — | 13 | 250 | 1 | 7 | ||||
Chicago | — | 10 | 36 | 1,166 | 1 | 3 | — | 8 | ||||
Dallas | 24 | 530 | 19 | 511 | 33 | 1,153 | 17 | 453 | ||||
Minneapolis | — | 2 | 6 | 200 | 17 | 567 | 11 | 450 | ||||
New York | — | 19 | 17 | 888 | 41 | 1,356 | 2 | 82 | ||||
Orlando | 21 | 558 | 1 | 60 | — | 68 | 2 | 65 | ||||
Washington, D.C. | 20 | 804 | 4 | 245 | 56 | 2,858 | 147 | 7,129 | ||||
Other | 174 | 5,674 | 28 | 759 | 149 | 1,838 | (3) | 100 | 2,791 | |||
Total / Weighted Average (4) | 240 | $7,641 | 120 | $4,063 | 325 | $8,517 | 324 | $12,048 | ||||
(1) | Includes leases with an expiration date of June 30, 2016, comprised of 193,000 square feet and expiring lease revenue of $6.2 million. No such adjustments are made to other periods presented. |
(2) | Expiring Lease Revenue is calculated as expiring square footage multiplied by the gross rent per square foot of the tenant currently leasing the space. |
(3) | 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. The tenant's rights to use the 66,000 square feet of give-back space will end 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. |
30
Piedmont Office Realty Trust, Inc.
Lease Expirations by Year
As of June 30, 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 | 11 | $278 | 69 | $1,748 | 165 | $4,257 | 402 | $10,558 | 196 | $4,459 | ||||
Boston | — | — | 80 | 2,209 | 103 | 3,987 | 493 | 7,378 | 232 | 5,664 | ||||
Chicago | 36 | 1,176 | 15 | 594 | 381 | 11,292 | 10 | 238 | 104 | 2,620 | ||||
Dallas | 42 | 1,041 | 157 | 4,544 | 371 | 10,017 | 197 | 5,598 | 112 | 3,013 | ||||
Minneapolis | 6 | 202 | 36 | 1,330 | 35 | 1,244 | 146 | 4,405 | 96 | 3,426 | ||||
New York | 17 | 906 | 52 | 1,874 | 79 | 2,127 | 489 | 25,906 | 503 | 15,639 | ||||
Orlando | 22 | 618 | 72 | 1,916 | 55 | 1,534 | 202 | 6,423 | 30 | 547 | ||||
Washington, D.C. | 24 | 1,049 | 339 | 17,436 | 42 | 1,816 | 60 | 2,629 | 66 | 3,110 | ||||
Other | 202 | 6,433 | 272 | 5,150 | (3) | 194 | 6,485 | 260 | 5,927 | 344 | 10,218 | |||
Total / Weighted Average (4) | 360 | $11,703 | 1,092 | $36,801 | 1,425 | $42,759 | 2,259 | $69,062 | 1,683 | $48,696 | ||||
(1) | Includes leases with an expiration date of June 30, 2016, comprised of 193,000 square feet and expiring lease revenue of $6.2 million. No such adjustments are made to other periods presented. |
(2) | Expiring Lease Revenue is calculated as expiring square footage multiplied by the gross rent per square foot of the tenant currently leasing the space. |
(3) | 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. The tenant's rights to use the 66,000 square feet of give-back space will end 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 29 as the Lease Expiration Schedule accounts for the revenue effects of newly signed leases. Reflected herein are expiring revenues based on in-place rental rates. |
31
Piedmont Office Realty Trust, Inc.
Capital Expenditures & Commitments
For the quarter ended June 30, 2016
Unaudited (in thousands)
For the Three Months Ended | |||||||||||||||||||
6/30/2016 | 3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | |||||||||||||||
Non-incremental | |||||||||||||||||||
Building / construction / development | $ | 1,094 | $ | 1,508 | $ | 2,294 | $ | 1,824 | $ | 441 | |||||||||
Tenant improvements | 4,022 | 7,314 | 6,167 | 3,483 | 4,226 | ||||||||||||||
Leasing costs | 1,339 | 1,174 | 5,478 | 2,962 | 6,974 | ||||||||||||||
Total non-incremental | 6,455 | 9,996 | 13,939 | 8,269 | 11,641 | ||||||||||||||
Incremental | |||||||||||||||||||
Building / construction / development | 10,217 | 9,690 | 16,243 | 11,248 | 14,019 | ||||||||||||||
Tenant improvements | 11,701 | 9,171 | 11,893 | 2,621 | 3,960 | ||||||||||||||
Leasing costs | 2,038 | 1,803 | 7,765 | 10,449 | 3,296 | ||||||||||||||
Total incremental | 23,956 | 20,664 | 35,901 | 24,318 | 21,275 | ||||||||||||||
Total capital expenditures | $ | 30,411 | $ | 30,660 | $ | 49,840 | $ | 32,587 | $ | 32,916 | |||||||||
Non-incremental tenant improvement commitments (1) | |||||||
Non-incremental tenant improvement commitments outstanding as of March 31, 2016 | $ | 35,700 | |||||
New non-incremental tenant improvement commitments related to leases executed during period | 8,019 | ||||||
Non-incremental tenant improvement expenditures | (4,022 | ) | |||||
Tenant improvement expenditures fulfilled through accrued liabilities already presented on Piedmont's balance sheet, expired commitments or other adjustments | (1,976 | ) | |||||
Non-incremental tenant improvement commitments fulfilled, expired or other adjustments | (5,998 | ) | |||||
Total as of June 30, 2016 | $ | 37,721 | |||||
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 $20.8 million, or 55% of the total outstanding commitments. |
32
Piedmont Office Realty Trust, Inc.
Contractual Tenant Improvements and Leasing Commissions
For the Three Months Ended June 30, 2016 | For the Six Months Ended June 30, 2016 | For the Year Ended | |||||||||
2015 | 2014 | 2013 | |||||||||
Renewal Leases | |||||||||||
Number of leases | 17 | 33 | 74 | 56 | 56 | ||||||
Square feet | 205,759 | 376,951 | 1,334,398 | 959,424 | 2,376,177 | ||||||
Tenant improvements per square foot (1) | $7.72 | $8.61 | $16.91 | $19.02 | $14.24 | ||||||
Leasing commissions per square foot | $3.37 | $4.69 | $8.29 | $8.33 | $4.66 | ||||||
Total per square foot | $11.09 | $13.30 | $25.20 | $27.35 | $18.90 | ||||||
Tenant improvements per square foot per year of lease term | $0.74 | $1.13 | $2.90 | $2.97 | $1.88 | ||||||
Leasing commissions per square foot per year of lease term | $0.32 | $0.62 | $1.42 | $1.30 | $0.62 | ||||||
Total per square foot per year of lease term | $1.06 | $1.75 | $4.32 | (2) | $4.27 | (3) | $2.50 | ||||
New Leases | |||||||||||
Number of leases | 23 | 47 | 90 | 98 | 87 | ||||||
Square feet | 367,261 | 548,770 | 1,563,866 | 1,142,743 | 1,050,428 | ||||||
Tenant improvements per square foot (1) | $38.03 | $33.68 | $60.41 | $34.46 | $35.74 | ||||||
Leasing commissions per square foot | $14.21 | $13.33 | $20.23 | $15.19 | $12.94 | ||||||
Total per square foot | $52.24 | $47.01 | $80.64 | $49.65 | $48.68 | ||||||
Tenant improvements per square foot per year of lease term | $4.33 | $4.26 | $5.68 | $3.78 | $4.17 | ||||||
Leasing commissions per square foot per year of lease term | $1.62 | $1.68 | $1.90 | $1.66 | $1.51 | ||||||
Total per square foot per year of lease term | $5.95 | $5.94 | $7.58 | (4) | $5.44 | $5.68 | |||||
Total | |||||||||||
Number of leases | 40 | 80 | 164 | 154 | 143 | ||||||
Square feet | 573,020 | 925,721 | 2,898,264 | 2,102,167 | 3,426,605 | ||||||
Tenant improvements per square foot (1) | $27.14 | $23.47 | $40.38 | $27.41 | $20.83 | ||||||
Leasing commissions per square foot | $10.32 | $9.81 | $14.73 | $12.06 | $7.20 | ||||||
Total per square foot | $37.46 | $33.28 | $55.11 | $39.47 | $28.03 | ||||||
Tenant improvements per square foot per year of lease term | $2.90 | $3.02 | $4.79 | $3.48 | $2.64 | ||||||
Leasing commissions per square foot per year of lease term | $1.10 | $1.26 | $1.75 | $1.53 | $0.91 | ||||||
Total per square foot per year of lease term | $4.00 | $4.28 | $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 superseded 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 $4.88, respectively. |
33
Piedmont Office Realty Trust, Inc.
Geographic Diversification
As of June 30, 2016
($ 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 | $106,798 | 19.7 | 3,041 | 16.5 | 2,224 | 73.1 |
New York | 4 | 67,990 | 12.5 | 1,767 | 9.6 | 1,739 | 98.4 |
Chicago | 5 | 63,678 | 11.7 | 2,094 | 11.3 | 1,858 | 88.7 |
Atlanta | 8 | 49,785 | 9.2 | 2,064 | 11.2 | 1,937 | 93.8 |
Minneapolis | 4 | 48,219 | 8.9 | 1,619 | 8.8 | 1,482 | 91.5 |
Dallas | 9 | 46,952 | 8.6 | 1,798 | 9.7 | 1,736 | 96.6 |
Boston | 9 | 44,923 | 8.3 | 1,627 | 8.8 | 1,608 | 98.8 |
Orlando | 2 | 22,702 | 4.2 | 827 | 4.5 | 752 | 90.9 |
Other | 13 | 91,854 | 16.9 | 3,615 | 19.6 | 3,530 | 97.6 |
Total / Weighted Average | 66 | $542,901 | 100.0 | 18,452 | 100.0 | 16,866 | 91.4 |
34
Piedmont Office Realty Trust, Inc.
Geographic Diversification by Location Type
As of June 30, 2016
(square footage in thousands)
CBD / URBAN INFILL | SUBURBAN | TOTAL | ||||||||||||||
Location | State | Number of Properties | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | Number of Properties | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | Number of Properties | Percentage of Annualized Lease Revenue (%) | Rentable Square Footage | Percentage of Rentable Square Footage (%) | |||
Washington, D.C. | DC, VA, MD | 9 | 19.5 | 2,701 | 14.6 | 3 | 0.2 | 340 | 1.9 | 12 | 19.7 | 3,041 | 16.5 | |||
New York | NY, NJ | 1 | 8.9 | 1,033 | 5.6 | 3 | 3.6 | 734 | 4.0 | 4 | 12.5 | 1,767 | 9.6 | |||
Chicago | IL | 1 | 6.5 | 967 | 5.2 | 4 | 5.2 | 1,127 | 6.1 | 5 | 11.7 | 2,094 | 11.3 | |||
Atlanta | GA | 5 | 7.9 | 1,682 | 9.1 | 3 | 1.3 | 382 | 2.1 | 8 | 9.2 | 2,064 | 11.2 | |||
Minneapolis | MN | 1 | 5.3 | 933 | 5.1 | 3 | 3.6 | 686 | 3.7 | 4 | 8.9 | 1,619 | 8.8 | |||
Dallas | TX | 2 | 2.4 | 440 | 2.4 | 7 | 6.2 | 1,358 | 7.3 | 9 | 8.6 | 1,798 | 9.7 | |||
Boston | MA | 2 | 2.4 | 173 | 0.9 | 7 | 5.9 | 1,454 | 7.9 | 9 | 8.3 | 1,627 | 8.8 | |||
Orlando | FL | 1 | 3.4 | 651 | 3.5 | 1 | 0.8 | 176 | 1.0 | 2 | 4.2 | 827 | 4.5 | |||
Other | 4 | 10.0 | 2,130 | 11.6 | 9 | 6.9 | 1,485 | 8.0 | 13 | 16.9 | 3,615 | 19.6 | ||||
Total / Weighted Average | 26 | 66.3 | 10,710 | 58.0 | 40 | 33.7 | 7,742 | 42.0 | 66 | 100.0 | 18,452 | 100.0 | ||||
35
Piedmont Office Realty Trust, Inc.
Industry Diversification
As of June 30, 2016
($ 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 | 4 | 0.6 | $83,168 | 15.3 | 1,672 | 9.9 |
Business Services | 91 | 14.8 | 50,032 | 9.2 | 1,912 | 11.3 |
Depository Institutions | 15 | 2.4 | 38,869 | 7.2 | 1,323 | 7.9 |
Engineering, Accounting, Research, Management & Related Services | 67 | 10.9 | 36,830 | 6.8 | 1,022 | 6.1 |
Insurance Carriers | 20 | 3.3 | 29,043 | 5.4 | 1,173 | 7.0 |
Nondepository Credit Institutions | 16 | 2.6 | 28,805 | 5.3 | 951 | 5.6 |
Insurance Agents, Brokers & Services | 19 | 3.1 | 28,265 | 5.2 | 943 | 5.6 |
Security & Commodity Brokers, Dealers, Exchanges & Services | 39 | 6.4 | 22,325 | 4.1 | 724 | 4.3 |
Legal Services | 48 | 7.8 | 20,225 | 3.7 | 680 | 4.0 |
Communications | 41 | 6.7 | 19,831 | 3.7 | 621 | 3.7 |
Electronic & Other Electrical Equipment & Components, Except Computer | 13 | 2.1 | 17,477 | 3.2 | 532 | 3.2 |
Educational Services | 7 | 1.1 | 15,228 | 2.8 | 393 | 2.3 |
Real Estate | 28 | 4.6 | 14,150 | 2.6 | 467 | 2.8 |
Food & Kindred Products | 3 | 0.5 | 12,522 | 2.3 | 408 | 2.4 |
Automotive Repair, Services & Parking | 8 | 1.3 | 11,220 | 2.1 | 4 | — |
Other | 194 | 31.8 | 114,911 | 21.1 | 4,041 | 23.9 |
Total | 613 | 100.0 | $542,901 | 100.0 | 16,866 | 100.0 |
36
Piedmont Office Realty Trust, Inc.
Property Investment Activity
As of June 30, 2016
($ 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 (%) | |
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 | $387,842 | 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 | |
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 | |
Total / Weighted Average | $1,126,028 | 4,738 | 91 | |||||
Acquisitions Subsequent to Quarter End
Property | Location | Acquisition Date | Percent Ownership (%) | Year Built | Purchase Price | Rentable Square Footage | Percent Leased at Acquisition (%) | |
CNL Tower One and CNL Tower Two | Orlando, FL | 8/1/2016 | 99 | 1999 / 2006 | 166,745 | 622 | 95 | |
Dispositions Subsequent to Quarter End
Property | Location | Disposition Date | Percent Ownership (%) | Year Built | Sale Price | Rentable Square Footage | Percent Leased at Disposition (%) | |
9221 Corporate Boulevard | Rockville, MD | 7/27/2016 | 100 | 1989 | $12,650 | 115 | 0 | |
150 West Jefferson | Detroit, MI | 7/29/2016 | 100 | 1989 | 81,500 | 490 | 88 | |
Total / Weighted Average | $94,150 | 605 | 71 | |||||
37
Piedmont Office Realty Trust, Inc.
Other Investments
As of June 30, 2016
($ 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 | $6,808 | $9,470 | 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 | 16,887 | 8,012 | $20 to $22 million |
Development - Lease-Up
Property | Location | Adjacent Piedmont Property | Construction Type | Actual or Targeted Completion Date | Percent Leased (%) | Square Feet | Current Asset Basis (2) (Accrual) | Project Capital Expended (2) (Cash) |
Enclave Place | Houston, TX | 1430 Enclave Parkway | Development | Q3 2015 | — | 300.9 | $62,820 | $61,858 |
3100 Clarendon Boulevard (3) | Arlington, VA | Not Applicable | Redevelopment | Q4 2015 (4) | 29 | 261.8 | 88,623 | 40,527 |
Total | 562.7 | $151,443 | $102,385 | |||||
(1) | Amount includes anticipated development costs as well as estimated lease-up costs. |
(2) | 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. |
(3) | 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. |
(4) | The redevelopment of the office tower and the retail facade improvements are complete; there are some remaining plaza components that will be completed during the third quarter of 2016. |
38
Piedmont Office Realty Trust, Inc.
Supplemental Definitions
Included below are definitions of various terms used throughout this supplemental report, including definitions of certain non-GAAP financial measures and the reasons why the Company’s management believes these measures provide useful information to investors about the Company’s financial condition and results of operations. Reconciliations of any non-GAAP financial measures defined below are included beginning on page 41. |
Adjusted Funds From Operations ("AFFO"): The Company calculates AFFO by starting with Core FFO and adjusting for non-incremental capital expenditures and acquisition-related costs 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. AFFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that AFFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments. Other REITs may not define AFFO in the same manner as the Company; therefore, the Company’s computation of AFFO may not be comparable to that of other REITs. |
Annualized Lease Revenue ("ALR"): ALR is calculated by multiplying (i) rental payments (defined as base rent plus operating expense reimbursements, if payable by the tenant on a monthly basis under the terms of a lease that has been executed, but excluding a) rental abatements and b) rental payments related to executed but not commenced leases for space that was covered by an existing lease), by (ii) 12. In instances in which contractual rents or operating expense reimbursements are collected on an annual, semi-annual, or quarterly basis, such amounts are multiplied by a factor of 1, 2, or 4, respectively, to calculate the annualized figure. For leases that have been executed but not commenced relating to un-leased space, ALR is calculated by multiplying (i) the monthly base rental payment (excluding abatements) plus any operating expense reimbursements for the initial month of the lease term, by (ii) 12. Unless stated otherwise, this measure excludes revenues associated with our unconsolidated joint venture properties and development / re-development properties, if any. |
Core EBITDA: The Company calculates Core EBITDA as net income (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Core EBITDA is helpful to investors as a supplemental performance measure because it provides a metric for understanding the performance of the Company’s results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization), as well as items that are not part of normal day-to-day operations of the Company’s business. Other REITs may not define Core EBITDA in the same manner as the Company; therefore, the Company’s computation of Core EBITDA may not be comparable to that of other REITs. |
Core Funds From Operations ("Core FFO"): The Company calculates Core FFO by starting with FFO, as defined by NAREIT, and adjusting for gains or losses on the extinguishment of swaps and/or debt, acquisition-related costs, and any significant non-recurring items. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to the Company’s core business operations. As a result, the Company believes that Core FFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential. Other REITs may not define Core FFO in the same manner as the Company; therefore, the Company’s computation of Core FFO may not be comparable to that of other REITs. |
EBITDA: EBITDA is defined as net income before interest, taxes, depreciation and amortization. |
Funds From Operations ("FFO"): The Company calculates FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines FFO as net income (computed in accordance with GAAP), excluding gains or losses from sales of property and impairment losses, adding back depreciation and amortization on real estate assets, and after the same adjustments for unconsolidated partnerships and joint ventures. These adjustments can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that FFO is helpful to investors as a supplemental performance measure because it excludes the effects of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs, which implicitly assumes that the value of real estate diminishes predictably over time. The Company also believes that FFO can help facilitate comparisons of operating performance between periods and with other REITs. However, other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than the Company; therefore, the Company’s computation of FFO may not be comparable to that of such other REITs. |
Gross Assets: Gross Assets is defined as total assets with the add back of accumulated depreciation and accumulated amortization related to real estate assets. |
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"): The Company calculates Property NOI by starting with Core EBITDA and adjusting for general and administrative expense, income associated with property management performed by Piedmont for other organizations and other income or expense items for the Company, such as interest income from loan investments or costs from the pursuit of non-consummated transactions. The Company may present this measure on an accrual basis or a cash basis. When presented on a cash basis, the effects of straight lined rents and fair value lease revenue are also eliminated. Property NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Property NOI is helpful to investors as a supplemental comparative performance measure of income generated by its properties alone without the administrative overhead of the Company. Other REITs may not define Property NOI in the same manner as the Company; therefore, the Company’s computation of Property NOI may not be comparable to that of other REITs. |
Same Store Net Operating Income ("Same Store NOI"): The Company calculates Same Store NOI as Property NOI attributable to the properties owned or placed in service during the entire span of the current and prior year reporting periods. Same Store NOI also excludes amounts attributable to unconsolidated joint venture assets. The Company may present this measure on an accrual basis or a cash basis. When presented on a cash basis, the effects of straight lined rents and fair value lease revenue are also eliminated. Same Store NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Same Store NOI is helpful to investors as a supplemental comparative performance measure of the income generated from the same group of properties from one period to the next. Other REITs may not define Same Store NOI in the same manner as the Company; therefore, the Company’s computation of Same Store NOI may not be comparable to that of other REITs. |
Same Store Properties: Same Store Properties is defined as 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. |
39
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 | ||
40
Piedmont Office Realty Trust, Inc.
Funds From Operations, Core Funds From Operations, and Adjusted Funds From Operations Reconciliations
Unaudited (in thousands)
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||
6/30/2016 | 3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | 6/30/2016 | 6/30/2015 | |||||||||||||||||||||
GAAP net income applicable to common stock | $ | 80,072 | $ | 10,372 | $ | 125,644 | $ | (1,875 | ) | $ | 29,976 | $ | 90,444 | $ | 49,221 | ||||||||||||
Depreciation (1)(2) | 31,442 | 31,639 | 30,867 | 31,093 | 35,935 | 63,081 | 72,032 | ||||||||||||||||||||
Amortization (1) | 17,418 | 17,822 | 17,257 | 14,037 | 14,971 | 35,240 | 29,657 | ||||||||||||||||||||
Impairment loss (1) | 8,308 | — | — | 34,815 | 5,354 | 8,308 | 5,354 | ||||||||||||||||||||
Loss / (gain) on sale of properties (1) | (78,987 | ) | 20 | (114,412 | ) | (17,140 | ) | (26,611 | ) | (78,967 | ) | (36,684 | ) | ||||||||||||||
NAREIT funds from operations applicable to common stock | 58,253 | 59,853 | 59,356 | 60,930 | 59,625 | 118,106 | 119,580 | ||||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||
Acquisition costs | 5 | 12 | 644 | 128 | 3 | 17 | 147 | ||||||||||||||||||||
Loss / (gain) on extinguishment of swaps | — | — | (94 | ) | — | 132 | — | 132 | |||||||||||||||||||
Net (recoveries) / loss from casualty events and litigation settlements (1) | — | — | 278 | — | — | — | — | ||||||||||||||||||||
Core funds from operations applicable to common stock | 58,258 | 59,865 | 60,184 | 61,058 | 59,760 | 118,123 | 119,859 | ||||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on senior notes | 643 | 647 | 642 | 646 | 608 | 1,290 | 1,259 | ||||||||||||||||||||
Depreciation of non real estate assets | 175 | 204 | 226 | 168 | 165 | 379 | 361 | ||||||||||||||||||||
Straight-line effects of lease revenue (1) | (3,127 | ) | (7,848 | ) | (4,960 | ) | (2,519 | ) | (3,745 | ) | (10,975 | ) | (8,255 | ) | |||||||||||||
Stock-based and other non-cash compensation expense | 1,477 | 1,928 | 2,051 | 2,622 | 1,692 | 3,405 | 2,417 | ||||||||||||||||||||
Amortization of lease-related intangibles (1) | (1,290 | ) | (1,238 | ) | (1,202 | ) | (1,145 | ) | (1,102 | ) | (2,528 | ) | (2,224 | ) | |||||||||||||
Acquisition costs | (5 | ) | (12 | ) | (644 | ) | (128 | ) | (3 | ) | (17 | ) | (147 | ) | |||||||||||||
Non-incremental capital expenditures | (6,455 | ) | (9,996 | ) | (13,939 | ) | (8,269 | ) | (11,641 | ) | (16,451 | ) | (21,928 | ) | |||||||||||||
Adjusted funds from operations applicable to common stock | $ | 49,676 | $ | 43,550 | $ | 42,358 | $ | 52,433 | $ | 45,734 | $ | 93,226 | $ | 91,342 | |||||||||||||
(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. |
41
Piedmont Office Realty Trust, Inc.
Same Store Net Operating Income (Cash Basis)
Unaudited (in thousands)
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||
6/30/2016 | 3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | 6/30/2016 | 6/30/2015 | |||||||||||||||||||||
Net income attributable to Piedmont | $ | 80,072 | $ | 10,372 | $ | 125,644 | $ | (1,875 | ) | $ | 29,976 | $ | 90,444 | $ | 49,221 | ||||||||||||
Net income attributable to noncontrolling interest | 4 | 4 | 3 | 4 | 4 | 8 | 8 | ||||||||||||||||||||
Interest expense | 16,413 | 16,385 | 17,978 | 18,832 | 18,172 | 32,798 | 37,188 | ||||||||||||||||||||
Depreciation | 31,616 | 31,843 | 31,093 | 31,261 | 36,100 | 63,459 | 72,393 | ||||||||||||||||||||
Amortization | 17,418 | 17,822 | 17,257 | 14,037 | 14,971 | 35,240 | 29,657 | ||||||||||||||||||||
Acquisition costs | 5 | 12 | 644 | 128 | 3 | 17 | 147 | ||||||||||||||||||||
Impairment loss | 8,308 | — | — | 34,815 | 5,354 | 8,308 | 5,354 | ||||||||||||||||||||
Net (recoveries) / loss from casualty events and litigation settlements | — | — | 278 | — | — | — | — | ||||||||||||||||||||
Loss / (gain) on sale of properties | (78,987 | ) | 20 | (114,412 | ) | (17,140 | ) | (26,611 | ) | (78,967 | ) | (36,684 | ) | ||||||||||||||
Core EBITDA | 74,849 | 76,458 | 78,485 | 80,062 | 77,969 | 151,307 | 157,284 | ||||||||||||||||||||
General & administrative expenses | 8,364 | 7,869 | 7,646 | 8,246 | 8,102 | 16,232 | 14,518 | ||||||||||||||||||||
Management fee revenue | (224 | ) | (292 | ) | (224 | ) | (329 | ) | (232 | ) | (515 | ) | (562 | ) | |||||||||||||
Other (income) / expense | 543 | (307 | ) | (992 | ) | (931 | ) | (599 | ) | 236 | (562 | ) | |||||||||||||||
Straight-line effects of lease revenue | (3,127 | ) | (7,848 | ) | (4,960 | ) | (2,519 | ) | (3,745 | ) | (10,975 | ) | (8,255 | ) | |||||||||||||
Amortization of lease-related intangibles | (1,290 | ) | (1,238 | ) | (1,202 | ) | (1,145 | ) | (1,102 | ) | (2,528 | ) | (2,224 | ) | |||||||||||||
Property net operating income (cash basis) | 79,115 | 74,642 | 78,753 | 83,384 | 80,393 | 153,757 | 160,199 | ||||||||||||||||||||
Deduct net operating (income) / loss from: | |||||||||||||||||||||||||||
Acquisitions | (5,437 | ) | (5,215 | ) | (2,997 | ) | (893 | ) | (667 | ) | (10,652 | ) | (1,179 | ) | |||||||||||||
Dispositions | (985 | ) | (1,985 | ) | (7,481 | ) | (13,032 | ) | (11,293 | ) | (2,970 | ) | (23,753 | ) | |||||||||||||
Other investments | (9 | ) | (126 | ) | (168 | ) | (284 | ) | (248 | ) | (135 | ) | (518 | ) | |||||||||||||
Same store net operating income (cash basis) | $ | 72,684 | $ | 67,316 | $ | 68,107 | $ | 69,175 | $ | 68,185 | $ | 140,000 | $ | 134,749 | |||||||||||||
42
Piedmont Office Realty Trust, Inc.
Unconsolidated Joint Venture Net Operating Income Reconciliations
Pro rata and unaudited (in thousands)
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||
6/30/2016 | 3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | 6/30/2016 | 6/30/2015 | |||||||||||||||||||||
Equity in income of unconsolidated joint ventures | $ | 111 | $ | 115 | $ | 135 | $ | 135 | $ | 124 | $ | 226 | $ | 283 | |||||||||||||
Interest expense | — | — | — | — | — | — | — | ||||||||||||||||||||
Depreciation | 61 | 61 | 60 | 61 | 62 | 122 | 123 | ||||||||||||||||||||
Amortization | 16 | 16 | 16 | 16 | 16 | 32 | 32 | ||||||||||||||||||||
Impairment loss | — | — | — | — | — | — | — | ||||||||||||||||||||
Loss / (gain) on sale of properties | — | — | — | — | — | — | — | ||||||||||||||||||||
Core EBITDA | 188 | 192 | 211 | 212 | 202 | 380 | 438 | ||||||||||||||||||||
General and administrative expenses | 34 | 4 | 6 | 10 | 18 | 38 | 27 | ||||||||||||||||||||
Other (income) / expense | — | — | — | — | — | — | — | ||||||||||||||||||||
Property net operating income (accrual basis) | 222 | 196 | 217 | 222 | 220 | 418 | 465 | ||||||||||||||||||||
Straight-line effects of lease revenue | — | 1 | (3 | ) | (3 | ) | (5 | ) | 1 | (10 | ) | ||||||||||||||||
Amortization of lease-related intangibles | — | — | — | — | — | — | — | ||||||||||||||||||||
Property net operating income (cash basis) | $ | 222 | $ | 197 | $ | 214 | $ | 219 | $ | 215 | $ | 419 | $ | 455 | |||||||||||||
43
Piedmont Office Realty Trust, Inc.
Discontinued Operations
Unaudited (in thousands)
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||
6/30/2016 | 3/31/2016 | 12/31/2015 | 9/30/2015 | 6/30/2015 | 6/30/2016 | 6/30/2015 | |||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||
Rental income | $ | — | $ | — | $ | — | $ | 19 | $ | — | $ | — | $ | — | |||||||||||||
Tenant reimbursements | — | — | 67 | — | (3 | ) | — | (3 | ) | ||||||||||||||||||
Property management fee revenue | — | — | — | — | — | — | — | ||||||||||||||||||||
Other rental income | — | — | — | — | — | — | — | ||||||||||||||||||||
— | — | 67 | 19 | (3 | ) | — | (3 | ) | |||||||||||||||||||
Expenses: | |||||||||||||||||||||||||||
Property operating costs | — | — | (3 | ) | 3 | (1 | ) | — | (1 | ) | |||||||||||||||||
Depreciation | — | — | — | — | — | — | — | ||||||||||||||||||||
Amortization | — | — | — | — | — | — | — | ||||||||||||||||||||
General and administrative | 1 | — | (1 | ) | — | 1 | 1 | 1 | |||||||||||||||||||
1 | — | (4 | ) | 3 | — | 1 | — | ||||||||||||||||||||
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 | (1 | ) | — | 71 | 16 | (3 | ) | (1 | ) | (3 | ) | ||||||||||||||||
Impairment loss | — | — | — | — | — | — | — | ||||||||||||||||||||
Gain / (loss) on sale of properties | — | — | 1 | (2 | ) | — | — | — | |||||||||||||||||||
Income from discontinued operations | $ | (1 | ) | $ | — | $ | 72 | $ | 14 | $ | (3 | ) | $ | (1 | ) | $ | (3 | ) | |||||||||
44
Piedmont Office Realty Trust, Inc.
Property Detail
As of June 30, 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 | % | 46.9 | % | 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 | % | 96.8 | % | 88.6 | % |
1155 Perimeter Center West | Atlanta | GA | 100.0% | 2000 | 377 | 100.0 | % | 100.0 | % | 100.0 | % |
Galleria 300 | Atlanta | GA | 100.0% | 1987 | 432 | 95.1 | % | 87.5 | % | 86.8 | % |
Glenridge Highlands One | Atlanta | GA | 100.0% | 1998 | 288 | 96.5 | % | 88.2 | % | 78.1 | % |
Metropolitan Area Subtotal / Weighted Average | 2,064 | 93.8 | % | 90.9 | % | 86.5 | % | ||||
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 | % | 86.0 | % |
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 | % | 98.7 | % | ||||
Chicago | |||||||||||
Windy Point I | Schaumburg | IL | 100.0% | 1999 | 187 | 66.3 | % | 66.3 | % | 66.3 | % |
Windy Point II | Schaumburg | IL | 100.0% | 2001 | 301 | 100.0 | % | 100.0 | % | 100.0 | % |
Two Pierce Place | Itasca | IL | 100.0% | 1991 | 486 | 96.7 | % | 96.7 | % | 88.5 | % |
2300 Cabot Drive | Lisle | IL | 100.0% | 1998 | 153 | 70.6 | % | 70.6 | % | 68.0 | % |
500 West Monroe Street | Chicago | IL | 100.0% | 1991 | 967 | 88.4 | % | 71.8 | % | 66.0 | % |
Metropolitan Area Subtotal / Weighted Average | 2,094 | 88.7 | % | 81.0 | % | 76.3 | % | ||||
45
Property | City | State | Percent Ownership | Year Built | Rentable Square Footage Owned | Leased Percentage | Commenced Leased Percentage | Economic Leased Percentage (1) | |||
Dallas | |||||||||||
6031 Connection Drive | Irving | TX | 100.0% | 1999 | 232 | 100.0 | % | 94.4 | % | 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 | % | 99.1 | % |
6565 North MacArthur Boulevard | Irving | TX | 100.0% | 1998 | 260 | 89.2 | % | 88.5 | % | 88.1 | % |
One Lincoln Park | Dallas | TX | 100.0% | 1999 | 262 | 95.0 | % | 92.7 | % | 90.8 | % |
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 | 96.6 | % | 93.8 | % | 87.1 | % |
Metropolitan Area Subtotal / Weighted Average | 1,798 | 96.6 | % | 95.1 | % | 93.3 | % | ||||
Minneapolis | |||||||||||
Crescent Ridge II | Minnetonka | MN | 100.0% | 2000 | 301 | 86.7 | % | 83.4 | % | 83.4 | % |
US Bancorp Center | Minneapolis | MN | 100.0% | 2000 | 933 | 89.9 | % | 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 | 190 | 98.4 | % | 94.2 | % | 94.2 | % |
Metropolitan Area Subtotal / Weighted Average | 1,619 | 91.5 | % | 88.9 | % | 88.9 | % | ||||
New York | |||||||||||
200 Bridgewater Crossing | Bridgewater | NJ | 100.0% | 2002 | 309 | 97.4 | % | 97.4 | % | 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 | 300 | 93.3 | % | 64.7 | % | 64.7 | % |
Metropolitan Area Subtotal / Weighted Average | 1,767 | 98.4 | % | 93.5 | % | 90.7 | % | ||||
Orlando | |||||||||||
400 TownPark | Lake Mary | FL | 100.0% | 2008 | 176 | 100.0 | % | 94.9 | % | 94.9 | % |
SunTrust Center | Orlando | FL | 100.0% | 1988 | 651 | 88.5 | % | 88.5 | % | 85.7 | % |
Metropolitan Area Subtotal / Weighted Average | 827 | 90.9 | % | 89.8 | % | 87.7 | % | ||||
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 | 90.2 | % | 87.6 | % | 63.6 | % |
400 Virginia Avenue | Washington | DC | 100.0% | 1985 | 224 | 80.4 | % | 80.4 | % | 80.4 | % |
4250 North Fairfax Drive | Arlington | VA | 100.0% | 1998 | 308 | 56.5 | % | 40.3 | % | 32.1 | % |
9211 Corporate Boulevard | Rockville | MD | 100.0% | 1989 | 116 | 36.2 | % | 36.2 | % | — | % |
9221 Corporate Boulevard | Rockville | MD | 100.0% | 1989 | 115 | — | % | — | % | — | % |
One Independence Square | Washington | DC | 100.0% | 1991 | 334 | 77.2 | % | 60.5 | % | 4.5 | % |
9200 Corporate Boulevard | Rockville | MD | 100.0% | 1982 | 109 | — | % | — | % | — | % |
Two Independence Square | Washington | DC | 100.0% | 1991 | 606 | 100.0 | % | 100.0 | % | 100.0 | % |
Piedmont Pointe I | Bethesda | MD | 100.0% | 2007 | 186 | 68.8 | % | 68.8 | % | 68.8 | % |
Piedmont Pointe II | Bethesda | MD | 100.0% | 2008 | 223 | 60.5 | % | 60.5 | % | 60.1 | % |
Arlington Gateway | Arlington | VA | 100.0% | 2005 | 326 | 84.4 | % | 77.0 | % | 66.6 | % |
Metropolitan Area Subtotal / Weighted Average | 3,041 | 73.1 | % | 67.2 | % | 55.9 | % | ||||
46
Property | City | State | Percent Ownership | Year Built | Rentable Square Footage Owned | Leased Percentage | Commenced Leased Percentage | Economic Leased Percentage (1) | |||
Other | |||||||||||
Desert Canyon 300 | Phoenix | AZ | 100.0% | 2001 | 149 | 100.0 | % | 100.0 | % | 100.0 | % |
800 North Brand Boulevard | Glendale | CA | 100.0% | 1990 | 527 | 100.0 | % | 99.2 | % | 98.7 | % |
Sarasota Commerce Center II | Sarasota | FL | 100.0% | 1999 | 149 | 93.3 | % | 93.3 | % | 93.3 | % |
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 | % |
150 West Jefferson | Detroit | MI | 100.0% | 1989 | 490 | 88.2 | % | 88.2 | % | 88.2 | % |
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 | % |
1901 Market Street | Philadelphia | PA | 100.0% | 1987 | 801 | 100.0 | % | 100.0 | % | 100.0 | % |
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 | % |
1430 Enclave Parkway | Houston | TX | 100.0% | 1994 | 313 | 100.0 | % | 100.0 | % | 100.0 | % |
Braker Pointe III | Austin | TX | 100.0% | 2001 | 195 | 100.0 | % | 100.0 | % | 100.0 | % |
Subtotal / Weighted Average | 3,615 | 97.6 | % | 97.5 | % | 97.5 | % | ||||
Grand Total | 18,452 | 91.4 | % | 88.3 | % | 84.8 | % | ||||
(1) | Economic leased percentage excludes the square footage associated with executed but not commenced leases for currently vacant spaces and the square footage associated with tenants receiving rental abatements (after proportional adjustments for tenants receiving only partial rental abatements). |
(2) | Although Piedmont owns 49.5% of the asset, it is entitled to 100% of the cash flows under the terms of the property ownership entity's joint venture agreement. |
47
Piedmont Office Realty Trust, Inc.
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.
48