Document


 

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):  February 7, 2018
 
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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
 





Item 2.02 Results of Operations and Financial Condition

On February 7, 2018, Piedmont Office Realty Trust, Inc. (the “Registrant”) issued a press release announcing its financial results for the fourth quarter 2017, as well as the year ended December 31, 2017, and published supplemental information for the fourth quarter 2017, as well as the year ended December 31, 2017, to its website. The press release and the supplemental information are attached hereto as Exhibit 99.1 and 99.2, respectively, and are incorporated herein by reference. Pursuant to the rules and regulations of the Securities and Exchange Commission, such exhibits and the information set forth therein are deemed to have been furnished and shall not be deemed to be “filed” under the Securities Exchange Act of 1934.


Item 9.01 Financial Statements and Exhibits

(d) Exhibits:

Exhibit No.
 
Description
99.1
 
 
 
 
99.2
 









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:
February 7, 2018
 
By:
 
/s/    Robert E. Bowers
 
 
 
 
 
Robert E. Bowers
 
 
 
 
 
Chief Financial Officer and Executive Vice President

 


Exhibit


EXHIBIT 99.1
https://cdn.kscope.io/ca52c69e6bba43245328f2e649e1b4bb-piedmontlogo11630152a16.jpg

Piedmont Office Realty Trust Reports Fourth Quarter and Annual 2017 Results
ATLANTA, February 7, 2018 --Piedmont Office Realty Trust, Inc. ("Piedmont" or the "Company") (NYSE:PDM), an owner of Class A office properties in select sub-markets located primarily within eight major Eastern U.S. office markets, today announced its results for the quarter and year ended December 31, 2017.

Highlights for the Three Months and Year Ended December 31, 2017:

Completed almost 900,000 square feet of leasing during the fourth quarter, resulting in approximately 20% and 25% roll ups in cash and accrual rents, respectively, and bringing total leasing for the year to over two million square feet and year-end leased percentage to approximately 90%;
Due to the timing of completion of transactional activity undertaken in 2017, reported Net Loss Applicable to Common Stockholders of $(0.21) per diluted share for the quarter and Net Income Applicable to Common Stockholders of $0.92 per diluted share for the year ended December 31, 2017;
Achieved Core Funds From Operations ("Core FFO") of $0.42 and $1.75 per diluted share for the quarter and year ended December 31, 2017, respectively;
Reported increases of approximately 4% and 9% in Same Store NOI- Cash Basis for the quarter and year ended December 31, 2017, respectively;
Acquired Norman Pointe I during the fourth quarter, an approximately 214,000 square foot, 7-story, Class-A, value-add office building located in close proximity to Piedmont's existing Minneapolis, MN assets;
Sold one joint venture asset and two wholly-owned properties during the year, including Two Independence Square, one of the Company's largest Washington, D.C. assets, for an aggregate of approximately $396 million in gross proceeds;
Paid down debt using net disposition proceeds from the property sales mentioned above, resulting in decreased leverage levels and substantially improved debt metrics;
Repurchased 3.1 million shares for a total of $61.8 million under the Company's board-approved stock repurchase program during the year ended December 31, 2017, leaving $188 million in authorized capacity remaining under the program as of December 31, 2017; and,
Entered into two binding contracts to sell a total of 14 non-strategic properties for approximately $426 million, which closed on January 4, 2018, and thereby exit four office markets.

Commenting on the Company's 2017 results, Donald A. Miller, CFA, President and Chief Executive Officer, said, "We had a strong fourth quarter from both a leasing and transactional perspective, allowing us to finish the year with over two million square feet of leasing and to finalize the sale of 14 assets during the first couple days of January. We were able to successfully address several near term expirations or





vacancies in the portfolio through our leasing efforts; our balance sheet is in great shape as a result of paying down debt with proceeds from our sale transactions; and our portfolio is now almost exclusively focused on our eight core markets.”

Results for the Quarter ended December 31, 2017

Due to the accounting requirement to recognize losses when known, but defer gains until closing, Piedmont recognized net loss applicable to common stockholders for the three months ended December 31, 2017 of $(31.4) million, or $(0.21) per diluted share, as compared with net income of $30.2 million, or $0.21 per diluted share, for the three months ended December 31, 2016. The fourth quarter included an approximately $46.5 million, or $0.32 per diluted share, impairment loss on certain assets as a result of reclassifying 14 properties to held-for-sale during the quarter. The gains on sale for certain of these assets will not be reported until the first quarter of 2018, when the sales closed. The fourth quarter of the prior year included an approximately $19.7 million, or $0.13 per diluted share, gain on sale of real estate assets.

Funds From Operations ("FFO"), which removes the impact of the gains on sales and impairment losses mentioned above, as well as depreciation and amortization, and Core FFO, which further removes the impact of acquisition expenses and net recoveries from casualty events, were both $0.42 per diluted share for the three months ended December 31, 2017, compared to $0.44 for both for the three months ended December 31, 2016. The decrease in both FFO and Core FFO per share was due to the sale of Two Independence Square in Washington, D.C., one of the Company's largest assets, during the third quarter of 2017.

Revenues and property operating costs were $139.4 million and $55.4 million, respectively, for the three months ended December 31, 2017, compared to $143.9 million and $57.5 million, respectively, for the fourth quarter of 2016. The decrease in both items was primarily a result of the sale of four wholly-owned assets since December 1, 2016, including Two Independence Square, one of the Company's largest assets, during the third quarter of 2017.

General and administrative expense was $7.9 million for the fourth quarter of 2017, compared to $5.7 million for the same period in 2016, primarily as a result of increased accruals for potential stock-based compensation expense as compared to the fourth quarter of 2016.

Gain/ (loss) on sale of real estate assets was a loss of $(77,000) for the fourth quarter of 2017, as compared to a gain of $19.7 million for the three months ended December 31, 2016 reflecting the sale of two wholly-owned assets that occurred during the fourth quarter of 2016.

In addition, net income available to common stockholders per share, FFO per diluted share and Core FFO per diluted share for the three months ended December 31, 2017 were all favorably impacted by an approximately 1.3 million share decrease in our weighted average shares outstanding as a result of the repurchase of approximately 2.9 million shares pursuant to the Company's stock repurchase program during the quarter.

Results for the Year ended December 31, 2017

Piedmont recognized net income available to common stockholders for the year ended December 31, 2017 of $133.6 million, or $0.92 per diluted share, as compared to $99.7 million, or $0.69 per diluted share, for the year ended December 31, 2016. The 2017 results included approximately $119.6 million, or $0.82 per diluted share, in gains on sales of real estate assets, whereas the 2016 results included $93.4 million, or





$0.64 per diluted share, in such gains. Additionally, real estate operating income was approximately $10.5 million higher for the year ended 2017 as compared with the year ended 2016, primarily as a result of the commencement of several significant leases, the expiration of various operating expense abatement periods, the impact of net transactional acquisition activity during 2017 and 2016, which was partially offset by increased impairment losses in 2017 as a result of reclassifying the portfolio as held-for-sale during the fourth quarter of 2017.

FFO and Core FFO were both $1.75 per diluted share for the year ended December 31, 2017, as compared to $1.67 for both for the year ended December 31, 2016, with the increase reflecting the commencement of several significant leases, the expiration of various operating expense abatement periods, the impact of net transactional acquisition activity during 2017 and 2016, which was partially offset by an increase in interest expense as a result of lower capitalized interest in the current year due to the completion of several development projects in early 2017.

Revenues for the year ended December 31, 2017 were $574.2 million as compared with $555.7 million for the year ended December 31, 2016, with the increase primarily attributable to the commencement of several significant leases, the expiration of various operating expense abatement periods, and the impact of net transactional acquisition activity during 2017 and 2016.

Property operating costs increased $1.7 million from $218.9 million for the year ended December 31, 2016 to $220.6 million for the year ended December 31, 2017, primarily as a result of the net transactional activity mentioned above.

General and administrative expenses were $31.1 million for the year ended December 31, 2017, as compared to $29.2 million for the year ended December 31, 2016, primarily as a result of increased accruals for potential stock-based compensation expense as compared to the prior year.

Leasing Update

The Company's leasing volume for the quarter ended December 31, 2017 totaled approximately 867,000 square feet, bringing total leasing for the year to approximately 2.1 million square feet. The two largest leasing transactions completed during the fourth quarter were both previously announced and included the renewal of Raytheon Company’s approximately 440,000 square foot lease through 2024 in the Boston office market at 225 & 235 Presidential Way, and a new, full building (approximately 152,000 square foot) lease through 2034 with Gartner, Inc. in the Dallas market at 6011 Connection Drive.

Other highlights for the quarter included:
US Bancorp’s approximately 51,000 square foot expansion of its existing space at US Bancorp Center in Minneapolis, MN for 6+ years through 2024;
Harvard University’s expansion of approximately 15,000 square feet and renewal of 5,000 square feet at One Brattle Square in Cambridge, MA to 2030; and
Consilium Staffing, LLC’s renewal of approximately 15,000 square feet and expansion by an additional 4,000 square feet at 161 Corporate Center in Irving, TX to 2021.

The Company's leased percentage was 89.7%, up 50 basis points from the third quarter of 2017, and weighted average lease term remained approximately 6.5 years, each as of December 31, 2017. Same Store NOI increased 4.2% and 2.9% on a cash and accrual basis, respectively, compared to the fourth quarter of the prior year, and 9.3% and 5.8% on a cash and accrual basis, respectively, compared to the year ended December 31, 2016, primarily reflecting the expiration of abatement periods and the





commencement of leases over the last twelve months. Details outlining Piedmont's occupancy statistics after the close of the 14-property disposition on January 4, 2018, the largest upcoming lease expirations, the status of certain major leasing activity, and a schedule of the largest lease abatement periods can be found in the Company's quarterly supplemental information package available at www.piedmontreit.com.

Transactional and Financing Activity

During the fourth quarter, Piedmont entered into two binding contracts with two different buyers to sell 14 assets, each of which subsequently closed on January 4, 2018. The total gross sales price for both transactions was approximately $425.9 million. An additional $4.5 million of gross sales proceeds is contingent upon certain leasing activity occurring before July 2, 2018. The Company recorded a non-cash impairment loss of approximately $46.5 million in its results of operations for the fourth quarter of 2017 and anticipates recording a gain on sale of approximately $40 million (before consideration of the $4.5 million of contingent proceeds) during the first quarter of 2018 in conjunction with the closing of the transactions. The 14 assets sold included:

Desert Canyon 300, Phoenix, AZ
Windy Point I and II, Schaumburg, IL
2300 Cabot Drive, Lisle, IL
1075 West Entrance Drive, Auburn Hills, MI
Auburn Hills Corporate Center, Auburn Hills, MI
5301 Maryland Way, Brentwood, TN
Suwanee Gateway One, Suwanee, GA
5601 Hiatus Road, Tamarac, FL
2001 NW 64th Street, Fort Lauderdale, FL
Piedmont Pointe I & II, Bethesda, MD
1200 Crown Colony Drive, Quincy, MA
2120 West End Avenue, Nashville, TN

The Company’s line of credit and, subsequently, the sales proceeds from the above transactions were used to repurchase 2.9 million shares of the Company’s common stock and to acquire Norman Pointe I, a $35 million value-add asset located in close proximity to the Company’s existing Minneapolis assets during the fourth quarter of 2017, as well as to repay, without penalty, on January 4, 2018, $470 million of bank term loans which were scheduled to mature in 2018 and early 2019.






First Quarter 2018 Dividend Declaration

On February 7, 2018, the board of directors of Piedmont declared dividends for the first quarter of 2018 in the amount of $0.21 per share on its common stock to stockholders of record as of the close of business on February 23, 2018, payable on March 16, 2018.

Guidance for 2018

Based on management's expectations, the Company is introducing guidance for full-year 2018 as follows:
(in millions, except per share data)
 
Low
 
High
Net Income
 
$93
-
$98
Add:
 


 

         Depreciation
 
112

-
116
         Amortization
 
60

-
64
Less: Gain on Sale of Real Estate Assets
 
(39
)
-
(42)
NAREIT FFO applicable to Common Stock
 
$
226

-
$
236

NAREIT FFO per diluted share
 
$1.64
-
$1.71
 
 
 
 
 
Less: Loss on Early Extinguishment of Debt / Termination of Interest Rate Swaps
 
$1
-
$1
Core FFO applicable to Common Stock
 
$
227

-
$
237

Core FFO per diluted share
 
$1.64
-
$1.72

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, particularly the timing of any future acquisitions and dispositions as well as those factors 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, 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 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 December 31, 2017 contain certain financial measures that are not prepared in accordance with GAAP, including FFO, Core FFO, AFFO, Same Store NOI (cash basis), Property NOI (cash basis), EBITDAre, and Core EBITDA. Definitions and reconciliations of each of these non-GAAP measures to their most comparable GAAP metrics are included below and in the accompanying quarterly supplemental information.
Each of the non-GAAP measures included in this release and the accompanying quarterly supplemental financial information has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of the Company’s results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the Company’s presentation of non-GAAP measures in this release and the accompanying quarterly supplemental information may not be comparable to





similarly titled measures disclosed by other companies, including other REITs. The Company may also change the calculation of any of the non-GAAP measures included in this news release and the accompanying supplemental financial information from time to time in light of its then existing operations 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, February 8, 2018 at 10:00 A.M. Eastern 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 10 A.M. EST on February 22, 2018, and may be accessed by dialing (877) 481-4010 for participants in the United States and Canada and (919) 882-2331 for international participants, followed by conference identification code 24284. 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 fourth quarter and annual 2017 performance, discuss recent events, and conduct a question-and-answer period.

Supplemental Information

Quarterly supplemental information as of and for the period ended December 31, 2017 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 in select submarkets located primarily within eight major U.S. office markets. Its geographically-diversified, almost $5 billion portfolio is currently comprised of approximately 17 million square feet. The Company is a fully-integrated, self-managed real estate investment trust (REIT) with local management offices in each of its 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, Gain on Sale of Real Estate Assets, NAREIT FFO/Core FFO and NAREIT FFO/Core FFO per diluted share for the year ending December 31, 2018.

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/or socio-economic changes (including accounting standards) that impact the real estate market generally, or that could affect patterns of use of commercial office space; the impact of competition on our efforts to renew existing leases or re-let space on terms similar to existing leases; changes in the economies and other conditions affecting the office sector in general and 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 our Annualized Lease Revenue; lease terminations or lease defaults, particularly by one of our large lead tenants; the effect on us of adverse market and economic conditions, including any resulting impairment charges on both our long-lived assets or goodwill; the success of our real estate strategies and investment objectives, including our ability to identify and consummate suitable acquisitions and divestitures; the illiquidity of real estate investments, including the resulting impediment on our ability to quickly respond to adverse changes in the performance of our properties; the risks and uncertainties associated with our acquisition of properties, many of which risks and uncertainties may not be known at the time of acquisition; development and construction delays and resultant increased costs and risks; our real estate development strategies may not be successful; future acts of terrorism in any of the major metropolitan areas in which we own properties, or future cybersecurity attacks against us or any of our tenants; costs of complying with governmental laws and regulations; additional risks and costs associated with directly managing properties occupied by government tenants; the effect of future offerings of debt or equity securities or changes in market interest rates on the value of our common stock; uncertainties associated with environmental and other regulatory matters; potential changes in political environment and reduction in federal and/or state funding of our governmental tenants; any change in the financial condition of any of our large lead tenants; the effect of any litigation to which we are, or may become, subject; changes in tax laws impacting REITs and real estate in general, as well as our ability to continue to qualify as a REIT under the Internal Revenue Code of 1986 (the “Code”); the future effectiveness of our internal controls and procedures; and other factors, including the risk factors discussed under Item 1A. of Piedmont’s Amended Annual Report on Form 10-K/A for the year ended December 31, 2016.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company cannot guarantee the accuracy of any such forward-looking statements contained in this press release, and the Company does not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Research Analysts/ Institutional Investors Contact:
Eddie Guilbert
770-418-8592
research.analysts@piedmontreit.com

Shareholder Services/Transfer Agent Services Contact:
Computershare, Inc.
866-354-3485
investor.services@piedmontreit.com





Piedmont Office Realty Trust, Inc.
 
 
 
 
Consolidated Balance Sheets
 
 
 
 
Unaudited (in thousands)
 
 
 
 
 
 
December 31, 2017
 
December 31, 2016
 
 
  
 
 
Assets:
 
 
 
 
Real estate assets, at cost:
 
 
 
 
Land
 
$
544,794

 
$
542,640

Buildings and improvements
 
3,203,229

 
3,142,482

Buildings and improvements, accumulated depreciation
 
(785,206
)
 
(700,304
)
Intangible lease assets
 
176,950

 
208,847

Intangible lease assets, accumulated amortization
 
(99,145
)
 
(109,152
)
Construction in progress
 
11,710

 
34,460

Real estate assets held for sale, gross
 
501,526

 
856,988

Real estate assets held for sale, accumulated depreciation and amortization
 
(169,116
)
 
(244,269
)
Total real estate assets
 
3,384,742

 
3,731,692

Investments in and amounts due from unconsolidated joint ventures
 
10

 
7,360

Cash and cash equivalents
 
7,382

 
6,992

Tenant receivables, net of allowance for doubtful accounts
 
12,139

 
26,494

Straight line rent receivables
 
163,160

 
136,862

Restricted cash and escrows
 
1,373

 
1,212

Prepaid expenses and other assets
 
22,517

 
23,281

Goodwill
 
98,918

 
98,918

Interest rate swaps
 
688

 

Deferred lease costs, less accumulated amortization
 
261,907

 
276,725

Other assets held for sale, net
 
47,131

 
58,632

Total assets
 
$
3,999,967

 
$
4,368,168

Liabilities:
 
 
 
 
Unsecured debt, net of discount and unamortized debt issuance costs
 
$
1,535,311

 
$
1,687,731

Secured debt, net of premiums and unamortized debt issuance costs
 
191,616

 
332,744

Accounts payable, accrued expenses, dividends payable, and accrued capital expenditures
 
216,653

 
165,410

Deferred income
 
29,582

 
28,406

Intangible lease liabilities, less accumulated amortization
 
38,458

 
47,537

Interest rate swaps
 
1,478

 
8,169

Other liabilities held for sale, net
 
380

 
468

Total liabilities
 
2,013,478

 
2,270,465

Stockholders' equity :
 
 
 
 
Common stock
 
1,424

 
1,452

Additional paid in capital
 
3,677,360

 
3,673,128

Cumulative distributions in excess of earnings
 
(1,702,281
)
 
(1,580,863
)
Other comprehensive income
 
8,164

 
2,104

Piedmont stockholders' equity
 
1,984,667

 
2,095,821

Non-controlling interest
 
1,822

 
1,882

Total stockholders' equity
 
1,986,489

 
2,097,703

Total liabilities and stockholders' equity
 
$
3,999,967

 
$
4,368,168

 
 
 
 
 
Number of shares of common stock outstanding as of end of period
 
142,359

 
145,235








Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
Consolidated Statements of Income
 
 
 
 
 
 
 
Unaudited (in thousands, except for per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Year Ended
 
12/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
Revenues:
 
 
 
 
 
 
 
Rental income
$
114,729

 
$
119,564

 
$
475,777

 
$
459,890

Tenant reimbursements
24,371

 
23,961

 
96,711

 
93,961

Property management fee revenue
344

 
386

 
1,685

 
1,864

Total revenues
139,444

 
143,911

 
574,173

 
555,715

Expenses:
 
 
 
 
 
 
 
Property operating costs
55,377

 
57,496

 
220,630

 
218,934

Depreciation
28,461

 
32,785

 
119,288

 
127,733

Amortization
17,515

 
21,271

 
75,367

 
75,119

Impairment loss on real estate assets
46,461

 

 
46,461

 
33,901

General and administrative
7,880

 
5,726

 
31,130

 
29,244

Total operating expenses
155,694

 
117,278

 
492,876

 
484,931

Real estate operating income/(loss)
(16,250
)
 
26,633

 
81,297

 
70,784

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(15,463
)
 
(16,566
)
 
(68,124
)
 
(64,860
)
Other income/(expense)
429

 
454

 
657

 
(13
)
Net recoveries from casualty events

 

 

 
34

Equity in income of unconsolidated joint ventures
(27
)
 
8

 
3,845

 
362

Total other expense
(15,061
)
 
(16,104
)
 
(63,622
)
 
(64,477
)
Income/(loss) from continuing operations
(31,311
)
 
10,529

 
17,675

 
6,307

Gain/(loss) on sale of real estate assets
(77
)
 
19,652

 
115,874

 
93,410

Net income/(loss)
(31,388
)
 
30,181

 
133,549

 
99,717

Plus: Net income applicable to noncontrolling interest
5

 
8

 
15

 
15

Net income/(loss) applicable to Piedmont
$
(31,383
)
 
$
30,189

 
$
133,564

 
$
99,732

Weighted average common shares outstanding - diluted*
144,503

 
145,764

 
145,380

 
145,635

Per Share Information -- diluted:
 
 
 
 
 
 
 
Net income/(loss) applicable to common stockholders
$
(0.21
)
 
$
0.21

 
$
0.92

 
$
0.69

*Number of shares of common stock outstanding as of end of period
142,359

 
145,235

 
142,359

 
145,235







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
 
Year Ended
 
12/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
GAAP net income/(loss) applicable to common stock
$
(31,383
)
 
$
30,189

 
$
133,564

 
$
99,732

Depreciation of real estate assets(1) (2)
28,242

 
32,597

 
118,577

 
127,129

Amortization of lease-related costs(1)
17,499

 
21,259

 
75,327

 
75,139

Impairment loss on real estate assets
46,461

 

 
46,461

 
33,901

(Gain)/loss on sale of real estate assets (1)
77

 
(19,652
)
 
(119,557
)
 
(93,410
)
NAREIT Funds From Operations applicable to common stock*
60,896

 
64,393

 
254,372

 
242,491

Acquisition costs

 
4

 
6

 
976

Net recoveries from casualty events

 

 

 
(34
)
Core Funds From Operations applicable to common stock*
60,896

 
64,397

 
254,378

 
243,433

Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on Unsecured Senior Notes
604

 
667

 
2,496

 
2,610

Depreciation of non real estate assets
212

 
246

 
809

 
841

Straight-line effects of lease revenue (1)
(5,553
)
 
(6,429
)
 
(21,492
)
 
(21,544
)
Stock-based and other non-cash compensation
1,937

 
284

 
6,139

 
5,620

Net effect of amortization of below-market in-place lease intangibles (1)
(1,685
)
 
(1,385
)
 
(6,575
)
 
(5,065
)
Acquisition costs

 
(4
)
 
(6
)
 
(976
)
Non-incremental capital expenditures (3)
(13,463
)
 
(12,135
)
 
(35,437
)
 
(35,568
)
Adjusted funds from operations applicable to common stock*
$
42,948

 
$
45,641

 
$
200,312

 
$
189,351

Weighted average common shares outstanding - diluted**
144,503

 
145,764

 
145,380

 
145,635

Funds from operations per share (diluted)
$
0.42

 
$
0.44

 
$
1.75

 
$
1.67

Core funds from operations per share (diluted)
$
0.42

 
$
0.44

 
$
1.75

 
$
1.67

 
 
 
 
 
 
 
 
**Number of shares of common stock outstanding as of end of period
142,359

 
145,235

 
142,359

 
145,235


(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 expenses 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 then adding back non-cash items including: non-real estate depreciation, straight-lined rents and fair value lease adjustments, non-cash components of interest expense and compensation expense, and by making similar adjustments for unconsolidated partnerships and joint ventures. AFFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that AFFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments. Other REITs may not define AFFO in the same manner as the Company; therefore, the Company’s computation of AFFO may not be comparable to that of other REITs.
 






Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
EBITDAre, Core EBITDA, Property Net Operating Income (Cash and Accrual), Same Store Net Operating Income (Cash and Accrual)
 
 
 
Unaudited (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Basis
 
Accrual Basis
 
Three Months Ended
 
Three Months Ended
 
12/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
 
 
 
 
 
 
 
 
GAAP net income/ (loss) applicable to common stock
$
(31,383
)
 
$
30,189

 
$
(31,383
)
 
$
30,189

Net income applicable to noncontrolling interest
(5
)
 
(8
)
 
(5
)
 
(8
)
Interest expense
15,463

 
16,566

 
15,463

 
16,566

Depreciation (1)
28,454

 
32,844

 
28,454

 
32,844

Amortization (1)
17,499

 
21,259

 
17,499

 
21,259

Impairment loss on real estate assets
46,461

 

 
46,461

 

(Gain)/loss on sale of real estate assets (1)
77

 
(19,652
)
 
77

 
(19,652
)
EBITDAre
76,566

 
81,198

 
76,566

 
81,198

Acquisition costs

 
4

 

 
4

Net (recoveries)/loss from casualty events
(57
)
 

 
(57
)
 

Core EBITDA*
76,509

 
81,202

 
76,509

 
81,202

General & administrative expenses (1)
7,895

 
5,741

 
7,895

 
5,741

Management fee revenue
(149
)
 
(224
)
 
(149
)
 
(224
)
Other income (1)
(156
)
 
(459
)
 
(156
)
 
(459
)
Straight line effects of lease revenue (1)
(5,553
)
 
(6,429
)
 

 
 
Amortization of lease-related intangibles (1)
(1,685
)
 
(1,385
)
 
 
 
 
Property NOI*
76,861

 
78,446

 
84,099

 
86,260

   Net operating income from:
 
 


 
 
 
 
Acquisitions
(5,183
)
 
(4,848
)
 
(7,056
)
 
(6,396
)
Dispositions
(29
)
 
(5,527
)
 
(29
)
 
(5,719
)
Other investments (2)
(891
)
 
(136
)
 
(1,135
)
 
(438
)
Same Store NOI *
$
70,758

 
$
67,935

 
$
75,879

 
$
73,707

Change period over period in Same Store NOI
4.2
%
 
N/A

 
2.9
%
 
N/A

 
 
 
 
 
 
 
 






Piedmont Office Realty Trust, Inc.
 
 
 
 
 
 
 
EBITDAre, Core EBITDA, Property Net Operating Income (Cash and Accrual), Same Store Net Operating Income (Cash and Accrual)
 
 
 
Unaudited (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Basis
 
Accrual Basis
 
Year Ended
 
Year Ended
 
12/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
$
133,564

 
$
99,732

 
$
133,564

 
$
99,732

Net income applicable to noncontrolling interest
(15
)
 
(15
)
 
(15
)
 
(15
)
Interest expense
68,124

 
64,860

 
68,124

 
64,860

Depreciation (1)
119,386

 
127,970

 
119,386

 
127,970

Amortization (1)
75,327

 
75,139

 
75,327

 
75,139

Impairment loss on real estate assets
46,461

 
33,901

 
46,461

 
33,901

Gain on sale of real estate assets (1)
(119,557
)
 
(93,410
)
 
(119,557
)
 
(93,410
)
EBITDAre
323,290

 
308,177

 
323,290

 
308,177

Acquisition costs
6

 
976

 
6

 
976

Net recoveries from casualty events

 
(34
)
 

 
(34
)
Core EBITDA*
323,296

 
309,119

 
323,296

 
309,119

General & administrative expenses (1)
31,186

 
29,306

 
31,186

 
29,306

Management fee revenue
(872
)
 
(1,034
)
 
(872
)
 
(1,034
)
Other income (1)
(303
)
 
(458
)
 
(303
)
 
(458
)
Straight line effects of lease revenue (1)
(21,492
)
 
(21,544
)
 
 
 
 
Amortization of lease-related intangibles (1)
(6,575
)
 
(5,065
)
 
 
 
 
Property NOI*
325,240

 
310,324

 
353,307

 
336,933

   Net operating income from:
 
 
 
 
 
 
 
Acquisitions
(18,385
)
 
(7,333
)
 
(29,216
)
 
(9,175
)
Dispositions
(11,431
)
 
(32,550
)
 
(11,491
)
 
(33,761
)
Other investments(2)
(371
)
 
(497
)
 
(2,987
)
 
(1,311
)
Same Store NOI *
$
295,053

 
$
269,944

 
$
309,613

 
$
292,686

Change period over period in Same Store NOI
9.3
%
 
N/A

 
5.8
%
 
N/A


(1) Includes amounts attributable to consolidated properties and our proportionate share of amounts attributable to unconsolidated joint ventures.
(2)Other investments consist of our investments in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current or prior reporting periods. The operating results from 3100 Clarendon Boulevard in Arlington, Virginia, Enclave Place in Houston, Texas, and 500 TownPark in Lake Mary, Florida, are included in this line item.

*Definitions:


EBITDAre: The Company calculates EBITDAre in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines EBITDAre as net income (computed in accordance with GAAP) adjusted for gains or losses from sales of property, impairment losses, depreciation on real estate assets, amortization on real estate assets, interest expense and taxes, along with the same adjustments for unconsolidated partnerships and joint ventures. Some of the adjustments mentioned can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. EBITDAre is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that EBITDAre is helpful to investors as a supplemental performance measure because it provides a metric for understanding the Company’s results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization) and capitalization and capital structure expenses (such as interest expense and taxes). The Company also believes that EBITDAre can help facilitate comparisons of





operating performance between periods and with other REITs. However, other REITs may not define EBITDAre in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than the Company; therefore, the Company’s computation of EBITDAre may not be comparable to that of such other REITs.

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 for which the following criteria were met during the entire span of the current and prior year reporting periods: (i) they were owned, (ii) they were not under development / redevelopment, and (iii) none of the operating expenses for which were capitalized. Same Store NOI also excludes amounts attributable to unconsolidated joint venture and land assets. The Company may present this measure on an accrual basis or a cash basis. When presented on a cash basis, the effects of straight lined rents and fair value lease revenue are also eliminated. Same Store NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Same Store NOI is helpful to investors as a supplemental comparative performance measure of the income generated from the same group of properties from one period to the next. Other REITs may not define Same Store NOI in the same manner as the Company; therefore, the Company’s computation of Same Store NOI may not be comparable to that of other REITs.


Exhibit



EXHIBIT 99.2




https://cdn.kscope.io/ca52c69e6bba43245328f2e649e1b4bb-logo20jpgcolora011aa15.jpg



Quarterly Supplemental Information
December 31, 2017










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 - In-Service Portfolio
Key Performance Indicators
 
Company Metrics after Fourteen Property Disposition
Funds From Operations / Adjusted Funds From Operations
 
Risks, Uncertainties and Limitations
Same Store Analysis
 
 
 
Capitalization Analysis
 
 
 
Debt Summary
 
 
 
Debt Detail
 
 
 
Debt Covenant & Ratio Analysis
 
 
 
Operational & Portfolio Information - Office Investments
 
 
 
 
Tenant Diversification
 
 
 
Tenant Credit Rating & Lease Distribution Information
 
 
 
Leased Percentage Information
 
 
 
Rental Rate Roll Up / Roll Down Analysis
 
 
 
Lease Expiration Schedule
 
 
 
Quarterly Lease Expirations
 
 
 
Annual Lease Expirations
 
 
 
Capital Expenditures & 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 49 for a discussion of important risks related to the business of Piedmont Office Realty Trust, Inc., as well as an investment in its securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information. Considering these risks, uncertainties, assumptions, and limitations, the forward-looking statements about leasing, financial operations, leasing prospects, etc. contained in this quarterly supplemental information report may differ from actual results.
Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. In addition, many of the schedules herein contain rounding to the nearest thousands or millions and, therefore, the schedules may not total due to this rounding convention.
To supplement the presentation of the Company’s financial results prepared in accordance with U.S. generally accepted accounting principles (GAAP), this report contains certain financial measures that are not prepared in accordance with GAAP, including FFO, Core FFO, AFFO, Same Store NOI, Property NOI, EBITDAre and Core EBITDA. Definitions and reconciliations of these non-GAAP measures to their most comparable GAAP metrics are included beginning on page 39. Each of the non-GAAP measures included in this report has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of the Company’s results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the Company’s presentation of non-GAAP measures in this report may not be comparable to similarly titled measures disclosed by other companies, including other REITs. The Company may also change the calculation of any of the non-GAAP measures included in this report from time to time in light of its then existing operations 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 in select sub-markets located primarily within eight major Eastern U.S. office markets. Its geographically-diversified, almost $5 billion portfolio is comprised of approximately
17 million square feet (as of the date of release of this report). The Company is a fully-integrated, self-managed real estate investment trust ("REIT") with local management offices in each of its 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.

Subsequent to year end on January 4, 2018, Piedmont sold 14 properties and repaid $470 million of term debt. Refer to pages 47 and 48 for additional information and a presentation of certain pro forma statistical metrics (such as rentable square footage, percent leased, debt to gross assets, and average net debt to Core EBITDA) for the Company at December 31, 2017 after taking into account the elements of the transactions.
 
With Pro Forma Adjustments for
As of
As of
 
the Sale of 14 Properties
December 31, 2017
December 31, 2016
Number of consolidated office properties (1)
53 (2)
67
65
Rentable square footage (in thousands) (1)
16,476 (2)
19,061
18,885
Percent leased (3)
91.8% (2)
89.7
%
91.9
%
Capitalization (in thousands):
 
 
 
Total debt - principal amount outstanding (excludes premiums, discounts, and deferred financing costs)
$1,318,670 (2)
$1,733,670
$2,029,582
Equity market capitalization (4)
 
$2,791,659
$3,036,870
Total market capitalization (4)
 
$4,525,329
$5,066,452
Total debt / Total market capitalization (4)
approximately 32% (2)
38.3
%
40.1
%
Average net debt to Core EBITDA
under 5x's (estimated) (2)
5.6 x

6.4 x

Total debt / Total gross assets
approximately 30% (2)
34.3
%
37.4
%
Common stock data:
 
 
 
High closing price during quarter
 
$20.40
$21.53
Low closing price during quarter
 
$19.21
$18.62
Closing price of common stock at period end
 
$19.61
$20.91
Weighted average fully diluted shares outstanding during quarter (in thousands)
 
144,503
145,764
Shares of common stock issued and outstanding at period end (in thousands)
 
142,359
145,235
Annual regular dividend per share (5)
 
$0.84
$0.84
Rating / Outlook
 
 
 
Standard & Poor's
 
BBB / Stable

BBB / Stable

Moody's
 
Baa2 / Stable

Baa2 / Stable

Employees
129 (2)
136
137
(1)
As of December 31, 2017, our consolidated office portfolio consisted of 67 properties. As of December 31, 2016, our consolidated office portfolio excluded two properties under development, one property that was out of service for redevelopment, and one unconsolidated joint venture property. The three development and redevelopment properties were placed in service on January 1, 2017. There were no acquisitions or dispositions of office properties completed during the first quarter of 2017. During the second quarter of 2017, we sold Sarasota Commerce Center II, a 149,000 square foot office building located in Sarasota, FL. During the third quarter of 2017, we sold Two Independence Square, a 606,000 square foot office building located in Washington, DC, and 8560 Upland Drive, the Company's last remaining unconsolidated joint venture property, comprised of 149,000 square feet and located in Englewood, CO. During the fourth quarter of 2017, we acquired Norman Pointe I, a 214,000 square foot office building located in Bloomington, MN.
(2)
On January 4, 2018, Piedmont completed the disposition of 14 properties and used the net sales proceeds to repay debt. Figure represents the impact on this measure on a pro forma basis of the sales of the properties. Please refer to page 47 for additional details regarding the sales of the properties and the impact on various metrics for the Company.
(3)
Calculated as square footage associated with commenced leases plus square footage associated with executed but uncommenced leases for vacant spaces, divided by total rentable square footage, all as of the relevant date, expressed as a percentage. This measure is presented for our consolidated office properties and excludes unconsolidated joint venture properties. This measure presented as of December 31, 2016, has been restated to include two development properties and one re-development property that were placed into service effective January 1, 2017. The development properties that were placed in service are Enclave Place, a 301,000 square foot office property located in Houston, TX, and 500 TownPark, a 134,000 square foot office property located in Lake Mary, FL; the re-development property that was placed in service is 3100 Clarendon Boulevard, a 261,000 square foot office property located in Arlington, VA. Please refer to page 27 for additional analyses regarding Piedmont's leased percentage.
(4)
Reflects common stock closing price as of the end of the reporting period.
(5)
Total of the per share regular dividends declared over the prior four quarters. The Company declared a special dividend of $0.50 per share in December 2017 which is not included in this calculation.

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
C. Brent Smith
Edward H. Guilbert, III
Chief Executive Officer, President
Chief Financial Officer and Executive
Chief Investment Officer and Executive
Senior Vice President, Finance and
and Director
Vice President
Vice President, Northeast Region
Treasurer - Investor Relations Contact
 
 
 
 
 
 
 
 
Christopher A. Kollme
Laura P. Moon
Joseph H. Pangburn
Thomas R. Prescott
Executive Vice President,
Chief Accounting Officer and
Executive Vice President,
Executive Vice President,
Finance & Strategy
Senior Vice President
Southwest Region
Midwest Region
 
 
 
 
 
 
 
 
Carroll A. Reddic, IV
George Wells
Robert K. Wiberg
 
Executive Vice President,
Executive Vice President,
Executive Vice President,
 
Real Estate Operations and Assistant
Southeast Region
Mid-Atlantic Region and
 
Secretary
 
Head of Development
 
 
 
 
 
Board of Directors
 
 
 
 
Frank C. McDowell
Dale H. Taysom
Kelly H. Barrett
Wesley E. Cantrell
Director, Chairman of the
Director and Vice Chairman of the
Director, Member of Audit and
Director and Chairman of
Board of Directors and Chairman
Board of Directors
Governance Committees
Governance Committee
of Compensation Committee
 
 
 
 
 
 
 
Barbara B. Lang
Donald A. Miller, CFA
Raymond G. Milnes, Jr.
Jeffery L. Swope
Director, Member of Compensation and
Chief Executive Officer, President
Director and Chairman of
Director and Chairman of
Governance Committees
and Director
Audit Committee
Capital Committee
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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


4



Piedmont Office Realty Trust, Inc.
Financial Highlights
As of December 31, 2017


Financial Results (1) 

Net income attributable to Piedmont for the quarter ended December 31, 2017 was $(31.4) million, or $(0.21) per share (diluted), compared to $30.2 million, or $0.21 per share (diluted), for the same quarter in 2016. Net income attributable to Piedmont for the twelve months ended December 31, 2017 was $133.6 million, or $0.92 per share (diluted), compared to $99.7 million, or $0.69 per share (diluted) for the same period in 2016. The decrease in net income attributable to Piedmont during the three months ended December 31, 2017 when compared to the same period in 2016 was principally related to an impairment loss recorded during the quarter associated with certain properties in a multiple property disposition that did not close until the beginning of the first quarter of 2018.(2) Gains related to the multiple asset disposition will not be recognized until the first quarter of 2018 when the transactions closed. The increase in net income attributable to Piedmont during the twelve months ended December 31, 2017 when compared to the same period in 2016 was principally due to the net effect of gains and losses related to disposition transactions closed during the one-year periods, as well as increased average economic occupancy in 2017 when compared to 2016.

Funds from operations (FFO) for the quarter ended December 31, 2017 was $60.9 million, or $0.42 per share (diluted), compared to $64.4 million, or $0.44 per share (diluted), for the same quarter in 2016. FFO for the twelve months ended December 31, 2017 was $254.4 million, or $1.75 per share (diluted), compared to $242.5 million, or $1.67 per share (diluted), for the same period in 2016. The decrease in FFO for the three months ended December 31, 2017 when compared to the same period in 2016 was primarily attributable to net disposition activity completed earlier in the current year (principally the sale of Two Independence Square in July 2017). The increase in FFO for the twelve months ended December 31, 2017 when compared to the same period in 2016 was primarily due to an increase in average economic occupancy largely attributable to the commencement of a portion of the 4.1 million square feet of leases executed since the beginning of 2016.

Core funds from operations (Core FFO) for the quarter ended December 31, 2017 was $60.9 million, or $0.42 per share (diluted), compared to $64.4 million, or $0.44 per share (diluted), for the same quarter in 2016. Core FFO for the twelve months ended December 31, 2017 was $254.4 million, or $1.75 per share (diluted), compared to $243.4 million, or $1.67 per share (diluted), for the same period in 2016. Core FFO is defined as FFO with incremental adjustments for certain non-recurring items such as net insurance recoveries or losses from casualty events, acquisition-related expenses(3) and other significant non-recurring items. The decrease in Core FFO for the three months ended December 31, 2017 and the increase in Core FFO for the twelve months ended December 31, 2017 when compared to the same periods in 2016 was primarily attributable to the items described above for changes in FFO.

Adjusted funds from operations (AFFO) for the quarter ended December 31, 2017 was $42.9 million, compared to $45.6 million for the same quarter in 2016. AFFO for the twelve months ended December 31, 2017 was $200.3 million, compared to $189.4 million for the same period in 2016. The decrease in AFFO for the three months ended December 31, 2017 and the increase in AFFO for the twelve months ended December 31, 2017 when compared to the same periods in 2016 was primarily due to the items described above for changes in FFO and Core FFO.

Operations and Leasing

On a square footage leased basis, our total in-service office portfolio was 89.7% leased as of December 31, 2017, as compared to 89.2% in the prior quarter and 91.9%(4) at December 31, 2016. The main contributors to the reduction in leased percentage at year end 2017 when compared to year end 2016 were previously disclosed lease expirations, as well as the disposition of the 100% leased, 606,000 square foot Two Independence Square during the year. Please refer to page 27 for additional leased percentage information. Subsequent to quarter end, the Company completed a fourteen property disposition; the December 31, 2017 pro forma leased percentage after removing the properties included in the disposition transactions was 91.8%. For additional information on the fourteen property disposition and a presentation of key metrics at December 31, 2017 for Piedmont before and after the transactions, please see page 47.

The weighted average remaining lease term of our portfolio was 6.5 years(5) as of December 31, 2017 as compared to 6.9 years at December 31, 2016.
(1)
FFO, Core FFO and AFFO are supplemental non-GAAP financial measures. See page 39 for definitions of these non-GAAP financial measures, and pages 15 and 41 for reconciliations of FFO, Core FFO and AFFO to Net Income.
(2)
Accounting standards require that any anticipated loss from an asset sale be recorded as an impairment charge when the likelihood of a sale becomes probable. Conversely, any gain on the sale of an asset is recorded when the sale transaction closes. Therefore, Piedmont recorded impairment losses associated with the multiple asset disposition during the fourth quarter of 2017; however, it also anticipates recording gains related to the same multiple asset disposition during the first quarter of 2018.
(3)
Piedmont early adopted the revised FASB standard on the accounting treatment of Business Combinations, which results in certain real asset transactions falling outside the scope of the standard. The result is that, in many cases, acquisition costs will be capitalized, and, therefore, will not be included in net income. In such cases, there will be no add-back of acquisition expenses to Core FFO. This revised standard is applied to transactions occurring after October 1, 2016.
(4)
Restated to include two development properties and one redevelopment property that were placed in service on January 1, 2017.
(5)
Remaining lease term (after taking into account leases for vacant spaces which had been executed but not commenced as of December 31, 2017) is weighted based on Annualized Lease Revenue, as defined on page 39.

5




During the three months ended December 31, 2017, the Company completed 866,790 square feet of total leasing. Of the total leasing activity during the quarter, we signed new tenant leases for 323,348 square feet and renewal leases for 543,442 square feet. During the twelve months ended December 31, 2017, we completed 2,069,770 square feet of leasing for our consolidated office properties, consisting of 870,969 square feet of new tenant leases and 1,198,801 square feet of renewal leases. The average committed tenant improvement cost per square foot per year of lease term for new tenant leases signed at our consolidated office properties during the twelve months ended December 31, 2017 was $4.73 and the same measure for renewal leases was $1.84, resulting in a weighted average of $3.55 for all leasing activity completed during the period (see page 33).

During the three months ended December 31, 2017, we executed eleven leases greater than 10,000 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
Raytheon Company
225 & 235 Presidential Way
Woburn, MA
440,130
2024
Renewal
Gartner, Inc.
6011 Connection Drive
Irving, TX
152,086
2034
New
US Bancorp
US Bancorp Center
Minneapolis, MN
51,280
2024
Expansion
President and Fellows of Harvard College
One Brattle Square
Cambridge, MA
20,509
2030
Renewal / Expansion
Consilium Staffing, LLC
161 Corporate Center
Irving, TX
19,293
2021
Renewal / Expansion
AmeriCredit Financial Services, Inc.
400 TownPark
Lake Mary, FL
15,367
2025
New
Axios Media, Inc.
3100 Clarendon Boulevard
Arlington, VA
15,301
2029
New
Amazon Corporate, LLC
4250 North Fairfax Drive
Arlington, VA
12,988
2024
Expansion
Kinetica DB, Inc.
Arlington Gateway
Arlington, VA
12,766
2025
New
KPMG, LLP
CNL Center II
Orlando, FL
12,590
2030
New
Applied Predictive Technologies, Inc.
4250 North Fairfax Drive
Arlington, VA
10,454
2028
Expansion

At the end of the fourth quarter of 2017, there were two tenants whose leases individually contributed greater than 1% in Annualized Lease Revenue expiring during the eighteen month period following December 31, 2017. 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
Gallagher
Two Pierce Place
Itasca, IL
286,892
1.6%
Q1 2018
Of the 306,890 square feet currently leased to Gallagher, approximately 20,000 square feet have been leased to CivilTech Engineering under its lease executed in 2016. The remaining available space is actively being marketed for lease; a $10 million redevelopment of the property commenced in early 2018.
State of New York
60 Broad Street
New York, NY
480,708
4.6%
Q1 2019
The Company is in preliminary discussions with the tenant regarding a potential renewal of the lease.

During the fourth quarter of 2017, Piedmont successfully resolved the majority of two impending lease expirations for leases that, as of the end of the third quarter of 2017, individually contributed greater than 1% in Annualized Lease Revenue and were set to expire during the eighteen month period following December 31, 2017. Updated information for the affected spaces is presented below.
Current Tenant
Property
Property Location
Net Square
Footage
Expiring Over
Next 18 Months
Net Percentage of
Current Quarter
Annualized Lease
Revenue Expiring
Next 18 Mos. (%)
Expiration
Current Leasing Status
Goldman Sachs
6011 & 6031 Connection Drive
Irving, TX
55,124
0.2%
Q1 2018
During the fourth quarter, Gartner, Inc. signed a 152,000 square foot, full-building lease at 6011 Connection Drive, which is currently occupied by Goldman Sachs. The new lease is anticipated to commence in stages beginning in the third quarter of 2018 and expire in 2034. The remaining 55,000 square feet of available space is actively being marketed for lease.
Raytheon Company
225 & 235 Presidential Way
Woburn, MA
—%
Q2 2024
During the fourth quarter, Raytheon executed a five-year lease extension for the entirety of the 440,000 square feet that it occupies. The new lease extended the expiration date from Q2 2019 to Q2 2024.

6




Future Lease Commencements and Abatements

As of December 31, 2017, our overall leased percentage was 89.7% and our economic leased percentage was 82.1%. The difference between overall leased percentage and economic leased percentage is attributable to two factors:

1)
leases which have been contractually entered into for currently vacant spaces but have not yet commenced (amounting to 393,279 square feet of leases as of December 31, 2017, or 2.2% of the office portfolio); and
2)
leases which have commenced but the tenants have not commenced paying full rent due to rental abatements (amounting to 1,184,020 square feet of leases as of December 31, 2017, or a 5.4% impact to leased percentage on an economic basis).

We expect this gap to narrow further subsequent to quarter end, incorporating the elements of the fourteen property disposition and the burn off of several large abatements after December 31, 2017. While the gap between reported leased percentage and economic leased percentage did not narrow as quickly as originally anticipated due to higher volumes of leasing activity, the gap has narrowed from a high of almost 13% to the 5% to 7% range and is expected to generally remain around this lower range in the future. This gap, however, is anticipated to fluctuate over time as (1) new leases are signed for vacant spaces, (2) abatements associated with existing or newly executed leases commence and expire (see page 8 for more detail on existing large leases with abatements), and/or (3) properties are bought and sold.

Piedmont has leases with many large corporate office space users. The average size of lease in the Company's portfolio is approximately 21,000 square feet. Due to the large size and length of term of new leases, Piedmont typically signs leases several months in advance of their anticipated lease commencement dates. Presented below is a schedule (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
United States of America
(Social Security Administration Commissioner)
One Independence Square
Washington, DC
52,720
Vacant
Q2 2018
New
US Bancorp
US Bancorp Center
Minneapolis, MN
51,280
Vacant
Q2 2018
Expansion
International Food Policy Research Institute (2)
1201 Eye Street
Washington, DC
56,461
Vacant
Q2 2018
New
Gartner, Inc.
6011 Connection Drive
Irving, TX
152,086
Not Vacant
Q3 2018 (71,439 SF)(3) 
Q3 2019 (26,695 SF)
Q3 2020 (53,952 SF)
New
salesforce.com (formerly Demandware, Inc.)
5 Wall Street
Burlington, MA
127,408
Not Vacant
Q4 2019 (75,495 SF)
Q3 2021 (51,913 SF)
New
Children's Hospital Los Angeles
800 North Brand Boulevard
Glendale, CA
50,285
Not Vacant
Q2 2021
New









(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 not renewals, whether or not the spaces for which the leases were signed are vacant.
(2)
The first phase of the lease, which consists of 45,476 square feet of previously vacant space, commenced in the second quarter of 2017. The second phase, consisting of 56,461 square feet, will commence in the second quarter of 2018.
(3)
While the commencement of the Gartner lease will be phased, only the first phase of 71,439 square feet will receive ten months of rental abatements. The other two phases will not receive rental abatements.

7




Many recently negotiated leases provide for rental abatement concessions to tenants. Rental abatements typically occur at the beginning of a new lease's term. The Company's current cash net operating income and AFFO are being negatively impacted, therefore, by the large number of recently commenced new leases with abatements. Presented below are two schedules related to abatements. The first is a schedule of leases with abatements of 50,000 square feet or greater that expired during the fourth quarter of 2017, and the second is a schedule of leases with abatements of 50,000 square feet or greater that are either currently under abatement or will be so within the next twelve months.

Abatements Expired During Quarter
Tenant
Property
Property Location
Abated Square Feet
Abatement Schedule
Lease Expiration
FCA US, LLC
1075 West Entrance Drive
Auburn Hills, MI
210,000
September through December 2017
Q3 2024
SunTrust Bank
SunTrust Center
Orlando, FL
120,000
October through December 2017
Q3 2019
Norris, McLaughlin & Marcus
400 Bridgewater Crossing
Bridgewater, NJ
78,088
October through December 2017
Q4 2029
Neovia Logistics, LP
Las Colinas Corporate Center II
Irving, TX
54,682
December 2017
Q2 2024

Current / Future Abatements
Tenant
Property
Property Location
Abated Square Feet
Remaining Abatement Schedule
Lease Expiration
Applied Predictive Technologies, Inc.
4250 North Fairfax Drive
Arlington, VA
87,786
June 2017 through February 2018 (on 87,786 square feet);
March through May 2018 (on 102,324 square feet)
Q2 2028
RaceTrac Petroleum, Inc.
Galleria 200
Atlanta, GA
133,707
July 2017 through May 2018
Q3 2032
Mitsubishi Hitachi Power Systems
400 TownPark
Lake Mary, FL
75,321
February and March 2018
Q1 2026
US Bancorp
US Bancorp Center
Minneapolis, MN
51,280
April through June 2018
Q2 2024
International Food Policy Research Institute
1201 Eye Street
Washington, DC
101,937
May 2018 through April 2019
Q2 2029
United States of America
(Social Security Administration Commissioner)
One Independence Square
Washington, DC
52,720
June 2018 through May 2019
Q2 2028
Gartner, Inc.
6011 Connection Drive
Irving, TX
71,439
September 2018 through June 2019
Q2 2034
Norris, McLaughlin & Marcus
400 Bridgewater Crossing
Bridgewater, NJ
61,642
October through December 2018; November and December 2019
Q4 2029

Financing and Capital Activity

Among Piedmont's stated objectives for 2017 is to be a net seller of assets by harvesting capital through the disposition of non-core assets and assets in which the Company believes values have been maximized, 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 with a competitive advantage and that otherwise meet our strategic criteria;
reduce leverage levels by repaying outstanding debt; and/or
repurchase Company stock when market conditions allow.
Information on the Company's recent accomplishments in furtherance of its strategic objectives is presented below.

Dispositions
On November 10, 2017, Piedmont entered into two binding contracts to sell a 2.6 million square foot, 76% leased, fourteen-asset portfolio comprised of non-strategic assets, as well as assets in which the Company believed value had been fully realized, for a sales price of $425.9 million (subject to an additional $4.5 million in contingent proceeds), or $166 per square foot. The transactions were closed subsequent to quarter end, on January 4, 2018. The sale of this portfolio of assets allowed the Company to complete its exit from the Phoenix, Detroit, Nashville and South Florida office markets, as well as reduce its suburban holdings in the Chicago, Washington, DC, Boston and Atlanta markets. In addition, the proceeds significantly contributed to the Company's ability to:
Enhance its balance sheet through the repayment of $470 million of outstanding bank term debt that was scheduled to mature in 2018 and 2019 (the Company has no additional debt maturities until 2020);
Acquire a high-quality, value-add asset within one of our core markets at a significant discount to replacement cost; and

8



Repurchase stock at what the Company estimates to be a substantial discount to net asset value.
The assets included in the two disposition transactions were:
Property
City
State
Rentable Square
Footage
Desert Canyon 300
Phoenix
AZ
148
5601 Hiatus Road
Tamarac
FL
100
2001 NW 64th Street
Ft. Lauderdale
FL
48
Auburn Hills Corporate Center
Auburn Hills
MI
120
1075 West Entrance Drive
Auburn Hills
MI
210
2120 West End Avenue
Nashville
TN
312
5301 Maryland Way
Brentwood
TN
201
Piedmont Pointe I
Bethesda
MD
189
Piedmont Pointe II
Bethesda
MD
238
Windy Point I
 Schaumburg
 IL
187
Windy Point II
 Schaumburg
 IL
301
2300 Cabot Drive
 Lisle
 IL
153
1200 Crown Colony Drive
 Quincy
 MA
235
Suwanee Gateway One
 Suwanee
 GA
143
Total
 
 
2,585

Please refer to page 47 for a presentation of key metrics at December 31, 2017 for Piedmont, with and without the sales of the fourteen assets and the related use of proceeds.

Acquisitions
On December 28, 2017, Piedmont completed the purchase of Norman Pointe I, a 214,000 square foot, 70% leased, seven-story, Class A, value-add office building with an attached parking structure, located in Bloomington, MN, for $35.2 million, or $164 per square foot. The building is currently leased to an investment grade tenant with substantial lease term remaining. The property is situated within a master-planned development at the southwest corner of the Interstate 494 and Highway 100 interchange, one of the most heavily traveled junctions in the Twin Cities market, offering superior visibility and accessibility to the Minneapolis metropolitan area. This asset is a strong strategic fit for the Company in terms of physical quality, location within one of its strategic submarkets, and proximity to other Piedmont-owned assets, which will allow the Company to realize additional marketing and operating synergies. The acquisition was completed at an estimated discount to replacement cost of over 50%. Refer to the investment rationale presentation available in the Investor Relations section of the Company's website for more detailed information.

For additional information on acquisitions and dispositions completed over the previous eighteen months, please refer to page 37.

Development
The Company had no developments or re-developments underway as of December 31, 2017. Subsequent to year end, the Company commenced a $10 million redevelopment at Two Pierce Place in Itasca, IL. Additional detail on the Company's developable land parcels, all of which are located adjacent to existing Piedmont properties, can be found on page 38.

Finance
Subsequent to quarter end, the Company completed a fourteen property disposition; the December 31, 2017 pro forma ratio of debt to total gross assets after applying proceeds from the transactions to debt reduction was approximately 30% and that for average net debt to Core EBITDA was under 5.0 x. As of December 31, 2017, our ratio of debt to total gross assets was 34.3% and our average net debt to Core EBITDA ratio was 5.6 x. For additional information on the fourteen property disposition and a presentation of key metrics at December 31, 2017 for Piedmont before and after the transactions, please see page 47.
Stock Repurchase Program
During the fourth quarter of 2017, the Company repurchased approximately 2.9 million shares of common stock under its share repurchase program at an average price of $19.68 per share, or approximately $57.8 million (before the consideration of transaction costs and the impact on the special dividend)(1). During the calendar year of 2017, Piedmont repurchased approximately 3.1 million shares at an average price of $19.70 per share, or $61.7 million in aggregate (before the consideration of transaction costs and the impact on the special dividend)(1). Since the stock repurchase program began in December 2011, the Company has repurchased approximately 31.5 million shares at an average price of $17.42 per share,
(1)
In July 2017, the Company sold Two Independence Square in Washington, DC with a large tax-basis gain which was the primary driver for a $0.50 per share special dividend. The Company was able to forgo the payment of the special dividend on the shares it repurchased subsequent to the large asset sale in July 2017 and up to the time at which its stock began trading ex-dividend for the special dividend. If the special dividend that would have otherwise been payable on the shares repurchased were to be deducted from the amount paid for the repurchases during the applicable period, the weighted average stock repurchase price per share during the fourth quarter and calendar year of 2017 would have been $19.22 and $19.26, respectively.

9




or approximately $548.1 million in aggregate (before the consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases totaled approximately $188.2 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 October 31, 2017, the Board of Directors of Piedmont declared a dividend for the fourth quarter of 2017 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on November 24, 2017. The dividend was paid on January 4, 2018. The Company's dividend payout percentage (for regular dividends declared) for the twelve months ended December 31, 2017 was 48% of Core FFO and 61% of AFFO (excludes the special dividend declared on December 13, 2017; see directly below).

On December 13, 2017, the Board of Directors of Piedmont declared a special dividend in the amount of $0.50 per common share outstanding to stockholders of record as of the close of business on December 26, 2017. The dividend was paid on January 9, 2018. The reason for the special dividend was the required distribution of net taxable gains realized on sales occurring during 2017 in order to maintain tax status as a REIT.

Subsequent Events

On January 4, 2018, Piedmont repaid its $300 million term loan with a maturity date of January 31, 2019, and its $170 million term loan with a maturity date of May 15, 2018. The loans were repaid using proceeds from the sales of fourteen properties completed on January 4, 2018, along with funds from the Company's $500 million revolving line of credit. There were no prepayment costs associated with the repayments and the Company received approximately $800,000 in net cash proceeds from the termination of several related interest rate swap agreements. As a result of the repayment of the term loans, the Company has no debt maturities until 2020. The December 31, 2017 pro forma ratio of debt to total gross assets after applying proceeds from the disposition transactions to debt reduction was approximately 30% and that for average net debt to Core EBITDA was under 5.0 x. For additional information on the fourteen property disposition and a presentation of key metrics at December 31, 2017 for Piedmont before and after the transactions, please see page 47.

On February 7, 2018, the Board of Directors of Piedmont declared a dividend for the first quarter of 2018 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on February 23, 2018. The dividend is expected to be paid on March 16, 2018.

Guidance for 2018

The following financial guidance for calendar year 2018 is based upon management's expectations at this time.
 
Low
 
High
 
 
 
 
Net Income
$93 million
to
$98 million
Add:
 
 
 
         Depreciation
112 million
to
116 million
         Amortization
60 million
to
64 million
Less:
 
 
 
         Gain on Sale of Real Estate Assets
(39) million
to
(42) million
NAREIT Funds from Operations applicable to Common Stock
$226 million
 
$236 million
NAREIT Funds from Operations per diluted share
$1.64
to
$1.71
 
 
 
 
Less:
 
 
 
         Loss on Early Extinguishment of Debt / Termination of Interest Rate Swaps
$1 million
to
$1 million
Core Funds From Operations
$227 million
to
$237 million
Core Funds from Operations per diluted share
$1.64
to
$1.72

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, abatement periods, 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)

 
December 31, 2017

September 30, 2017

June 30, 2017

March 31, 2017

December 31, 2016
Assets:

 
 
 
 
 
 
 
 
Real estate, at cost:

 
 
 
 
 
 
 
 
Land assets
$
544,794

 
$
540,436

 
$
540,436

 
$
542,640

 
$
542,640

Buildings and improvements
3,203,229

 
3,178,184

 
3,168,725

 
3,178,655

 
3,142,482

Buildings and improvements, accumulated depreciation
(785,206
)
 
(758,800
)
 
(733,568
)
 
(722,397
)
 
(700,304
)
Intangible lease asset
176,950

 
171,965

 
179,540

 
205,061

 
208,847

Intangible lease asset, accumulated amortization
(99,145
)
 
(93,265
)
 
(94,551
)
 
(113,129
)
 
(109,152
)
Construction in progress
11,710

 
7,560

 
14,671

 
18,664

 
34,460

Real estate assets held for sale, gross
501,526

 
546,979

 
860,302

 
858,320

 
856,988

Real estate assets held for sale, accumulated depreciation & amortization
(169,116
)
 
(167,305
)
 
(252,583
)
 
(248,651
)
 
(244,269
)
Total real estate assets
3,384,742

 
3,425,754

 
3,682,972

 
3,719,163

 
3,731,692

Investments in and amounts due from unconsolidated joint ventures
10

 
49

 
7,762

 
7,654

 
7,360

Cash and cash equivalents
7,382

 
36,108

 
9,596

 
6,808

 
6,992

Tenant receivables, net of allowance for doubtful accounts
12,139

 
12,802

 
24,269

 
25,194

 
26,494

Straight line rent receivable
163,160

 
157,289

 
152,084

 
144,513

 
136,862

Escrow deposits and restricted cash
1,373

 
1,260

 
1,290

 
1,253

 
1,212

Prepaid expenses and other assets
22,517

 
27,893

 
29,866

 
21,214

 
23,281

Goodwill
98,918

 
98,918

 
98,918

 
98,918

 
98,918

Interest rate swap
688

 
34

 

 

 

Deferred lease costs, less accumulated amortization
261,907

 
253,608

 
257,677

 
268,328

 
276,725

Other assets held for sale
47,131

 
46,935

 
55,878

 
57,695

 
58,632

Total assets
$
3,999,967

 
$
4,060,650

 
$
4,320,312

 
$
4,350,740

 
$
4,368,168

Liabilities:
 
 
 
 
 
 
 
 
 
Unsecured debt, net of discount
$
1,535,311

 
$
1,511,663

 
$
1,720,986

 
$
1,733,343

 
$
1,687,731

Secured debt
191,616

 
191,923

 
332,196

 
332,471

 
332,744

Accounts payable, accrued expenses, and accrued capital expenditures
216,653

 
108,120

 
111,011

 
116,077

 
165,410

Deferred income
29,582

 
29,970

 
27,416

 
30,683

 
28,406

Intangible lease liabilities, less accumulated amortization
38,458

 
40,662

 
42,905

 
45,148

 
47,537

Interest rate swaps
1,478

 
3,915

 
5,061

 
5,475

 
8,169

Other liabilities held for sale
380

 
402

 
423

 
446

 
468

Total liabilities
$
2,013,478

 
$
1,886,655

 
$
2,239,998

 
$
2,263,643

 
$
2,270,465

Stockholders' equity:
 
 
 
 
 
 
 
 
 
Common stock
1,424

 
1,453

 
1,455

 
1,453

 
1,452

Additional paid in capital
3,677,360

 
3,676,706

 
3,675,562

 
3,675,575

 
3,673,128

Cumulative distributions in excess of earnings
(1,702,281
)
 
(1,511,428
)
 
(1,603,119
)
 
(1,596,276
)
 
(1,580,863
)
Other comprehensive loss
8,164

 
5,400

 
4,547

 
4,466

 
2,104

Piedmont stockholders' equity
1,984,667

 
2,172,131

 
2,078,445

 
2,085,218

 
2,095,821

Non-controlling interest
1,822

 
1,864

 
1,869

 
1,879

 
1,882

Total stockholders' equity
1,986,489

 
2,173,995

 
2,080,314

 
2,087,097

 
2,097,703

Total liabilities, redeemable common stock and stockholders' equity
$
3,999,967

 
$
4,060,650

 
$
4,320,312

 
$
4,350,740

 
$
4,368,168

Common stock outstanding at end of period
142,359

 
145,295

 
145,490

 
145,320

 
145,235



11



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

 
 
Three Months Ended
 
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
Revenues:
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
114,729

 
$
113,350

 
$
124,248

 
$
123,450

 
$
119,564

Tenant reimbursements
 
24,371

 
23,796

 
24,044

 
24,500

 
23,961

Property management fee revenue
 
344

 
441

 
387

 
513

 
386

 
 
139,444

 
137,587

 
148,679

 
148,463

 
143,911

Expenses:
 
 
 
 
 
 
 
 
 
 
Property operating costs
 
55,377

 
54,090

 
55,779

 
55,384

 
57,496

Depreciation
 
28,461

 
30,000

 
30,059

 
30,768

 
32,785

Amortization
 
17,515

 
18,123

 
19,314

 
20,415

 
21,271

Impairment loss on real estate assets (1)
 
46,461

 

 

 

 

General and administrative
 
7,880

 
6,618

 
8,036

 
8,596

 
5,726

 
 
155,694

 
108,831

 
113,188

 
115,163

 
117,278

Real estate operating income
 
(16,250
)
 
28,756

 
35,491

 
33,300

 
26,633

Other income / (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(15,463
)
 
(16,183
)
 
(18,421
)
 
(18,057
)
 
(16,566
)
Other income / (expense)
 
429

 
290

 
38

 
(100
)
 
454

Equity in income / (loss) of unconsolidated joint ventures
 
(27
)
 
3,754

 
107

 
11

 
8

 
 
(15,061
)
 
(12,139
)
 
(18,276
)
 
(18,146
)
 
(16,104
)
Income from continuing operations
 
(31,311
)
 
16,617

 
17,215

 
15,154

 
10,529

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss
 

 

 

 

 

Gain / (loss) on sale of properties
 

 

 

 

 

Income / (loss) from discontinued operations
 

 

 

 

 

Gain / (loss) on sale of real estate (2)
 
(77
)
 
109,512

 
6,492

 
(53
)
 
19,652

Net income
 
(31,388
)
 
126,129

 
23,707

 
15,101

 
30,181

Less: Net income attributable to noncontrolling interest
 
5

 
4

 
3

 
3

 
8

Net income attributable to Piedmont
 
$
(31,383
)
 
$
126,133

 
$
23,710

 
$
15,104

 
$
30,189

Weighted average common shares outstanding - diluted
 
144,503

 
145,719

 
145,813

 
145,833

 
145,764

Net income per share available to common stockholders - diluted
 
$
(0.21
)
 
$
0.87

 
$
0.16

 
$
0.10

 
$
0.21

Common stock outstanding at end of period
 
142,359

 
145,295

 
145,490

 
145,320

 
145,235

(1)
The impairment loss on real estate assets recorded in the fourth quarter of 2017 was related to certain properties within the multiple asset disposition that closed at the beginning of 2018. Accounting standards require that any anticipated loss from an asset sale be recorded as an impairment charge when the likelihood of a sale becomes probable. Conversely, any gain on the sale of an asset is not recorded until the sale transaction closes. Therefore, Piedmont recorded an impairment loss associated with the multiple asset sale during the fourth quarter of 2017; however, it also anticipates recording a gain related to the same multiple asset sale during the first quarter of 2018.
(2)
The gain on sale of real estate reflected in the third quarter of 2017 was related to the sale of Two Independence Square in Washington, DC, on which the Company recorded a $109.5 million gain. The gain on sale of real estate reflected in the second quarter of 2017 was related to the sale of Sarasota Commerce Center II in Sarasota, FL, on which the Company recorded a $6.5 million gain. The gain in the fourth quarter of 2016 was primarily related to the sale of Braker Pointe III in Austin, TX, on which the Company recorded an $18.6 million gain.

12



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

 
Three Months Ended
 
Twelve Months Ended
 
12/31/2017
12/31/2016
 
Change ($)
Change (%)
 
12/31/2017
12/31/2016
 
Change ($)
Change (%)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
114,729

$
119,564

 
$
(4,835
)
(4.0
)%
 
$
475,777

$
459,890

 
$
15,887

3.5
 %
Tenant reimbursements
24,371

23,961

 
410

1.7
 %
 
96,711

93,961

 
2,750

2.9
 %
Property management fee revenue
344

386

 
(42
)
(10.9
)%
 
1,685

1,864

 
(179
)
(9.6
)%
 
139,444

143,911

 
(4,467
)
(3.1
)%
 
574,173

555,715

 
18,458

3.3
 %
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
55,377

57,496

 
2,119

3.7
 %
 
220,630

218,934

 
(1,696
)
(0.8
)%
Depreciation
28,461

32,785

 
4,324

13.2
 %
 
119,288

127,733

 
8,445

6.6
 %
Amortization
17,515

21,271

 
3,756

17.7
 %
 
75,367

75,119

 
(248
)
(0.3
)%
Impairment loss on real estate assets (1)
46,461


 
(46,461
)
(100.0
)%
 
46,461

33,901

 
(12,560
)
(37.0
)%
General and administrative
7,880

5,726

 
(2,154
)
(37.6
)%
 
31,130

29,244

 
(1,886
)
(6.4
)%
 
155,694

117,278

 
(38,416
)
(32.8
)%
 
492,876

484,931

 
(7,945
)
(1.6
)%
Real estate operating income
(16,250
)
26,633

 
(42,883
)
(161.0
)%
 
81,297

70,784

 
10,513

14.9
 %
Other income / (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(15,463
)
(16,566
)
 
1,103

6.7
 %
 
(68,124
)
(64,860
)
 
(3,264
)
(5.0
)%
Other income / (expense)
429

454

 
(25
)
(5.5
)%
 
657

(13
)
 
670

5,153.8
 %
Net recoveries / (loss) from casualty events


 



 

34

 
(34
)
(100.0
)%
Equity in income / (loss) of unconsolidated joint ventures
(27
)
8

 
(35
)
(437.5
)%
 
3,845

362

 
3,483

962.2
 %
 
(15,061
)
(16,104
)
 
1,043

6.5
 %
 
(63,622
)
(64,477
)
 
855

1.3
 %
Income from continuing operations
(31,311
)
10,529

 
(41,840
)
(397.4
)%
 
17,675

6,307

 
11,368

180.2
 %
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss


 



 


 



Gain / (loss) on sale of properties


 



 


 



Income / (loss) from discontinued operations


 



 


 



Gain / (loss) on sale of real estate (2)
(77
)
19,652

 
(19,729
)
(100.4
)%
 
115,874

93,410

 
22,464

24.0
 %
Net income
(31,388
)
30,181

 
(61,569
)
(204.0
)%
 
133,549

99,717

 
33,832

33.9
 %
Less: Net income attributable to noncontrolling interest
5

8

 
(3
)
(37.5
)%
 
15

15

 

 %
Net income attributable to Piedmont
$
(31,383
)
$
30,189

 
$
(61,572
)
(204.0
)%
 
$
133,564

$
99,732

 
$
33,832

33.9
 %
Weighted average common shares outstanding - diluted
144,503

145,764

 
 
 
 
145,380

145,635

 
 
 
Net income per share available to common stockholders - diluted
$
(0.21
)
$
0.21

 
 
 
 
$
0.92

$
0.69

 
 
 
Common stock outstanding at end of period
142,359

145,235

 
 
 
 
142,359

145,235

 
 
 
(1)
The impairment loss on real estate assets for the three months ended December 31, 2017 was related to certain properties within the multiple asset disposition that closed at the beginning of 2018. Accounting standards require that any anticipated loss from an asset sale be recorded as an impairment charge when the likelihood of a sale becomes probable. Conversely, any gain on the sale of an asset is not recorded until the sale transaction closes. Therefore, Piedmont recorded an impairment loss associated with the multiple asset sale during the fourth quarter of 2017; however, it also anticipates recording a gain related to the same multiple asset sale during the first quarter of 2018.
(2)
The gain on sale of real estate for the twelve months ended December 31, 2017 was primarily related to the sale of Two Independence Square in Washington, DC, on which the Company recorded a $109.5 million gain. The gain on sale of real estate for the three months ended December 31, 2016 was primarily related to the sale of Braker Pointe III in Austin, TX, on which the Company recorded an $18.6 million gain. In addition to the gain attributable to the sale of Braker Pointe III, the gain on sale of real estate for the twelve months ended December 31, 2016 was primarily related to the sales in the second quarter of 2016 of 1055 East Colorado Boulevard in Pasadena, CA, on which the Company recorded a $29.5 million gain; Fairway Center II in Brea, CA, on which the Company recorded a $14.4 million gain; and 1901 Main Street in Irvine, CA, on which the Company recorded a $30.0 million gain.

13



Piedmont Office Realty Trust, Inc.
Key Performance Indicators
Unaudited (in thousands except for per share data)

This section of our supplemental report includes non-GAAP financial measures, including, but not limited to, Earnings Before Interest, Taxes, Depreciation, and Amortization for real estate (EBITDAre), Core Earnings Before Interest, Taxes, Depreciation, and Amortization (Core EBITDA), Funds from Operations (FFO), Core Funds from Operations (Core FFO), and Adjusted Funds from Operations (AFFO). Definitions of these non-GAAP measures are provided on page 39 and reconciliations are provided beginning on page 41.
Subsequent to year end on January 4, 2018, Piedmont sold 14 properties and repaid $470 million of term debt. Refer to pages 47 and 48 for additional information and a presentation of certain pro forma statistical metrics (such as rentable square footage, percent leased, debt to gross assets, and average net debt to Core EBITDA) for the Company at December 31, 2017 after taking into account the elements of the transactions.
 
With Pro Forma Adjustments for
Three Months Ended
Selected Operating Data
the Sale of 14 Properties
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
 
 
 
 
 
 
 
 
 
 
 
 
Percent leased (1)
91.8% (2)
89.7
%
 
89.2
%
 
91.0
%
 
91.5
%
 
91.9
%
(3) 
Percent leased - economic (1) (4)
84.5% (2)
82.1
%
 
83.4
%
 
84.4
%
 
84.1
%
 
83.8
%
(3) 
Rental income
 
$114,729
 
$113,350
 
$124,248
 
$123,450
 
$119,564
 
Total revenues
 
$139,444
 
$137,587
 
$148,679
 
$148,463
 
$143,911
 
Total operating expenses
 
$155,694
 
$108,831
 
$113,188
 
$115,163
 
$117,278
 
Core EBITDA
 
$76,509

$77,242

$85,041

$84,505

$81,202
 
Core FFO applicable to common stock
 
$60,896

$60,819

$66,465

$66,198

$64,397
 
Core FFO per share - diluted
 
$0.42

$0.42

$0.46

$0.45

$0.44
 
AFFO applicable to common stock
 
$42,948

$52,370

$50,870

$54,124

$45,641
 
Gross regular dividends (5)
 
$30,276
 
$30,549
 
$30,553
 
$30,517
 
$30,499
 
Regular dividends per share
 
$0.210
 
$0.210
 
$0.210
 
$0.210
 
$0.210
 
Gross special dividends (5) (6)
 
$71,367
 
$0
 
$0
 
$0
 
$0
 
Special dividends per share
 
$0.500
 
NA

 
NA

 
NA

 
NA

 
Selected Balance Sheet Data
 
 
 
 
 
 
 
 
 
 
 
Total real estate assets
 
$3,384,742

$3,425,754

$3,682,972

$3,719,163

$3,731,692
 
Total assets
 
$3,999,967

$4,060,650

$4,320,312

$4,350,740

$4,368,168
 
Total liabilities
 
$2,013,478

$1,886,655

$2,239,998

$2,263,643

$2,270,465
 
Ratios & Information for Debt Holders
 
 
 
 
 
 
 
 
 
 
 
Core EBITDA margin (7)
 
54.9
%
 
56.1
%
 
57.2
%
 
56.9
%
 
56.4
%
 
Fixed charge coverage ratio (8)
over 5x (2)
4.9 x

 
4.7 x

 
4.6 x

 
4.6 x

 
4.5 x

 
Average net debt to Core EBITDA (9)
under 5x's (estimated) (2)
5.6 x

 
5.6 x

 
6.0 x

 
6.1 x

 
6.4 x

 
Total gross real estate assets
 
$4,438,209
 
$4,445,124
 
$4,763,674
 
$4,803,340
 
$4,785,417
 
Net debt (10)
 
$1,724,915
 
$1,673,535
 
$2,050,246
 
$2,066,298
 
$2,021,378
 
(1)
Please refer to page 27 for additional leased percentage information.
(2)
On January 4, 2018, Piedmont completed the disposition of 14 properties and used the net sales proceeds to repay debt. Figure represents the impact on this measure on a pro forma basis of the sales of the properties. Please refer to page 47 for additional details regarding the sales of the properties and the impact on various metrics for the Company.
(3)
Percent leased and percent leased - economic as of December 31, 2016 have been restated to include two development properties and one re-development property that were placed into service effective January 1, 2017. The development properties that were placed in service are Enclave Place, a 301,000 square foot office property located in Houston, TX, and 500 TownPark, a 134,000 square foot office property located in Lake Mary, FL; the re-development property that was placed in service is 3100 Clarendon Boulevard, a 261,000 square foot office property located in Arlington, VA.
(4)
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.
(5)
Dividends are reflected in the quarter in which they were declared.
(6)
On December 13, 2017, the Board of Directors of Piedmont declared a special dividend in the amount of $0.50 per common share outstanding to stockholders of record as of the close of business on December 26, 2017 as a result of taxable gains realized on property sales occurring during 2017.
(7)
Core EBITDA margin is calculated as Core EBITDA divided by total revenues (including revenues associated with discontinued operations).
(8)
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 $37,908 for the quarter ended December 31, 2017, $37,259 for the quarter ended September 30, 2017, $35,376 for the quarter ended June 30, 2017, $78,939 for the quarter ended March 31, 2017, and $1,181,074 for the quarter ended December 31, 2016; the Company had principal amortization of $232,796 for the quarter ending December 31, 2017, $229,596 for the quarter ended September 30, 2017, $226,439 for the quarter ended June 30, 2017, $223,326 for the quarter ended March 31, 2017, and $220,256 for the quarter ended December 31, 2016.
(9)
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.
(10)
Net debt is calculated as the total principal amount of debt outstanding minus cash and cash equivalents and escrow deposits and restricted cash as of the end of the period. The decrease in net debt during the third quarter of 2017 was primarily attributable to the use of the proceeds from the sale of Two Independence Square in Washington, DC, 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
 
Twelve Months Ended
 
 
12/31/2017

12/31/2016
 
12/31/2017
 
12/31/2016
 
 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
 
$
(31,383
)
 
$
30,189

 
$
133,564

 
$
99,732

Depreciation (1) (2)
 
28,242

 
32,597

 
118,577

 
127,129

Amortization (1)
 
17,499

 
21,259

 
75,327

 
75,139

Impairment loss (1)
 
46,461

 

 
46,461

 
33,901

Loss / (gain) on sale of properties (1)
 
77

 
(19,652
)
 
(119,557
)
 
(93,410
)
NAREIT funds from operations applicable to common stock
 
60,896

 
64,393

 
254,372

 
242,491

Adjustments:
 
 
 
 
 
 
 
 
Acquisition costs
 

 
4

 
6

 
976

Net (recoveries) / loss from casualty events (1)
 

 

 

 
(34
)
Core funds from operations applicable to common stock
 
60,896

 
64,397

 
254,378

 
243,433

Adjustments:
 
 
 
 
 
 
 
 
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on senior notes
 
604

 
667

 
2,496

 
2,610

Depreciation of non real estate assets
 
212

 
246

 
809

 
841

Straight-line effects of lease revenue (1)
 
(5,553
)
 
(6,429
)
 
(21,492
)
 
(21,544
)
Stock-based and other non-cash compensation expense
 
1,937

 
284

 
6,139

 
5,620

Amortization of lease-related intangibles (1)
 
(1,685
)
 
(1,385
)
 
(6,575
)
 
(5,065
)
Acquisition costs
 

 
(4
)
 
(6
)
 
(976
)
Non-incremental capital expenditures (3)
 
(13,463
)
 
(12,135
)
 
(35,437
)
 
(35,568
)
Adjusted funds from operations applicable to common stock
 
$
42,948

 
$
45,641

 
$
200,312

 
$
189,351

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
 
144,503

 
145,764

 
145,380

 
145,635

 
 
 
 
 
 
 
 
 
Funds from operations per share (diluted)
 
$
0.42

 
$
0.44

 
$
1.75

 
$
1.67

Core funds from operations per share (diluted)
 
$
0.42

 
$
0.44

 
$
1.75

 
$
1.67

 
 
 
 
 
 
 
 
 
Common stock outstanding at end of period
 
142,359


145,235

 
142,359

 
145,235


(1)
Includes our proportionate share of amounts attributable to consolidated properties and 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
 
Twelve Months Ended
 
12/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
Net income attributable to Piedmont
$
(31,383
)
 
$
30,189

 
$
133,564

 
$
99,732

Net income attributable to noncontrolling interest
(5
)
 
(8
)
 
(15
)
 
(15
)
Interest expense (1)
15,463

 
16,566

 
68,124

 
64,860

Depreciation (1) (2)
28,454

 
32,844

 
119,386

 
127,970

Amortization (1) (2)
17,499

 
21,259

 
75,327

 
75,139

Impairment loss (1)
46,461

 

 
46,461

 
33,901

Loss / (gain) on sale of properties (1)
77

 
(19,652
)
 
(119,557
)
 
(93,410
)
EBITDAre
76,566

 
81,198

 
323,290

 
308,177

Acquisition costs

 
4

 
6

 
976

Net (recoveries) / loss from casualty events (1)
(57
)
 

 

 
(34
)
Core EBITDA
76,509

 
81,202

 
323,296

 
309,119

General & administrative expenses (1)
7,895

 
5,741

 
31,186

 
29,306

Management fee revenue (3)
(149
)
 
(224
)
 
(872
)
 
(1,034
)
Other (income) / expense (1) (4)
(156
)
 
(459
)
 
(303
)
 
(458
)
Straight-line effects of lease revenue (1)
(5,553
)
 
(6,429
)
 
(21,492
)
 
(21,544
)
Amortization of lease-related intangibles (1)
(1,685
)
 
(1,385
)
 
(6,575
)
 
(5,065
)
Property net operating income (cash basis)
76,861

 
78,446

 
325,240

 
310,324

 

 

 
 
 
 
Deduct net operating (income) / loss from:

 

 
 
 
 
Acquisitions (5)
(5,183
)
 
(4,848
)
 
(18,385
)
 
(7,333
)
Dispositions (6)
(29
)
 
(5,527
)
 
(11,431
)
 
(32,550
)
Other investments (7)
(891
)
 
(136
)
 
(371
)
 
(497
)
Same store net operating income (cash basis)
$
70,758

 
$
67,935

 
$
295,053

 
$
269,944

Change period over period
4.2
%
 
N/A

 
9.3
%
 
N/A



(1)
Includes our proportionate share of amounts attributable to consolidated properties and unconsolidated joint ventures.
(2)
Excludes amounts attributable to noncontrolling interests. Depreciation related to noncontrolling interests for the three months ended December 31, 2017 and 2016 and the twelve months ended December 31, 2017 and 2016 amounted to (in thousands) $7, $7, $30 and $12, respectively. Amortization related to noncontrolling interests for the three months ended December 31, 2017 and 2016 and the twelve months ended December 31, 2017 and 2016 amounted to (in thousands) $16, $20, $64 and $36, respectively.
(3)
Presented net of related operating expenses incurred to earn the revenue; therefore, the information presented on this line will not tie to the data presented on the income statements. Expenses incurred to earn the revenue for the three months ended December 31, 2017 and 2016 and the twelve months ended December 31, 2017 and 2016 amounted to (in thousands) $196, $162, $813, and $830, respectively.
(4)
Figures presented on this line may not tie back to the relevant sources as some activity is attributable to property operations and is, therefore, presented in property net operating income. Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. Amounts attributable to property operations for the three months ended December 31, 2017 and 2016 and the twelve months ended December 31, 2017 and 2016 were (in thousands) $216, $0, $359, and $506, respectively.
(5)
Acquisitions consist of CNL Center I and CNL Center II in Orlando, FL, purchased on August 1, 2016; One Wayside Road in Burlington, MA, purchased on August 10, 2016; Galleria 200 in Atlanta, GA, purchased on October 7, 2016; 750 West John Carpenter Freeway in Irving, TX, purchased on November 30, 2016; and Norman Pointe I in Bloomington, MN, purchased on December 28, 2017.
(6)
Dispositions consist of 1055 East Colorado Boulevard in Pasadena, CA, sold on April 21, 2016; Fairway Center II in Brea, CA, sold on April 28, 2016; 1901 Main Street in Irvine, CA, sold on May 2, 2016; 9221 Corporate Boulevard in Rockville, MD, sold on July 27, 2016; 150 West Jefferson in Detroit, MI, sold on July 29, 2016; 9200 and 9211 Corporate Boulevard in Rockville, MD, sold on September 28, 2016; 11695 Johns Creek Parkway in Johns Creek, GA, sold on December 22, 2016; Braker Pointe III in Austin, TX, sold on December 29, 2016; Sarasota Commerce Center II in Sarasota, FL, sold on June 16, 2017; and Two Independence Square in Washington, DC, sold on July 5, 2017.
(7)
Other investments consist of our interests in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. Additional information on our land holdings can be found on page #SectionPage#. The operating results from 3100 Clarendon Boulevard in Arlington, VA, Enclave Place in Houston, TX, and 500 TownPark in Lake Mary, FL, 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
 
Twelve Months Ended
 
12/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
 
$
%
 
$
%
 
$
%
 
$
%
New York (1)
$
10,071

14.2

 
$
8,461

12.5

 
$
40,717

13.8

 
$
38,206

14.2

Chicago (2)
9,832

13.9

 
7,632

11.2

 
36,035

12.2

 
29,244

10.8

Boston (3)
7,875

11.1

 
8,360

12.3

 
32,907

11.2

 
31,993

11.8

Washington, D.C. (4)
7,156

10.1

 
6,999

10.3

 
32,898

11.1

 
27,136

10.1

Atlanta (5)
7,810

11.1

 
7,033

10.3

 
30,627

10.4

 
27,028

10.0

Dallas
6,386

9.0

 
6,838

10.1

 
27,041

9.2

 
26,516

9.8

Minneapolis (6)
6,604

9.3

 
6,225

9.2

 
26,277

8.9

 
24,534

9.1

Orlando (7)
2,714

3.9

 
2,272

3.3

 
13,574

4.6

 
12,324

4.6

Other (8)
12,310

17.4

 
14,115

20.8

 
54,977

18.6

 
52,963

19.6

Total
$
70,758

100.0

 
$
67,935

100.0

 
$
295,053

100.0

 
$
269,944

100.0

 
 
 
 
 
 
 
 
 
 
 
 









(1)
The increase in metropolitan New York Same Store Net Operating Income for the three months and the twelve months ended December 31, 2017 as compared to the same periods in 2016 was primarily related to increased economic occupancy attributable to recent leasing activity as well as lease restructuring income.
(2)
The increase in Chicago Same Store Net Operating Income for the three months and the twelve months ended December 31, 2017 as compared to the same periods in 2016 was primarily a result of increased economic occupancy at 500 West Monroe Street in Chicago, IL.
(3)
The increase in Boston Same Store Net Operating Income for the twelve months ended December 31, 2017 as compared to the same period in 2016 was related to lease restructuring income, the majority of which was recorded during the first quarter of 2017.
(4)
The increase in Washington, D.C. Same Store Net Operating Income for the twelve months ended December 31, 2017 as compared to the same period in 2016 was primarily a result of increased economic occupancy at One Independence Square and 1225 Eye Street, both located in Washington, D.C., and 4250 North Fairfax Drive in Arlington, VA, offset somewhat by the loss of rental income associated with lease expirations at Arlington Gateway in Arlington, VA, and 1201 Eye Street in Washington, D.C.
(5)
The increase in Atlanta Same Store Net Operating Income for the three months and the twelve months ended December 31, 2017 as compared to the same periods in 2016 was primarily related to increased economic occupancy at Galleria 300, Glenridge Highlands One, Glenridge Highlands Two, and The Medici, all located in Atlanta, GA.
(6)
The increase in Minneapolis Same Store Net Operating Income for the twelve months ended December 31, 2017 as compared to the same period in 2016 was primarily a result of increased economic occupancy at US Bancorp Center in Minneapolis, MN.
(7)
The increase in Orlando Same Store Net Operating Income for the twelve months ended December 31, 2017 as compared to the same period in 2016 was primarily attributable to increased economic occupancy as well as increased parking income at SunTrust Center in Orlando, FL.
(8)
The decrease in Other Same Store Net Operating Income for the three months ended December 31, 2017 as compared to the same period in 2016 was primarily attributable to the expiration of a large lease at Desert Canyon 300 in Phoenix, AZ, and a rental abatement associated with the lease renewal of the full-building tenant at 1075 West Entrance Drive in Auburn Hills, MI. The increase in Other Same Store Net Operating Income for the twelve months ended December 31, 2017 as compared to the same period in 2016 was primarily attributable to the expiration of the rental abatement period associated with a lease 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
 
Twelve Months Ended
 
12/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
Net income attributable to Piedmont
$
(31,383
)
 
$
30,189

 
$
133,564

 
$
99,732

Net income attributable to noncontrolling interest
(5
)
 
(8
)
 
(15
)
 
(15
)
Interest expense (1)
15,463

 
16,566

 
68,124

 
64,860

Depreciation (1) (2)
28,454

 
32,844

 
119,386

 
127,970

Amortization (1) (2)
17,499

 
21,259

 
75,327

 
75,139

Impairment loss (1)
46,461

 

 
46,461

 
33,901

Loss / (gain) on sale of properties (1)
77

 
(19,652
)
 
(119,557
)
 
(93,410
)
EBITDAre
76,566

 
81,198

 
323,290

 
308,177

Acquisition costs

 
4

 
6

 
976

Net (recoveries) / loss from casualty events (1)
(57
)
 

 

 
(34
)
Core EBITDA
76,509

 
81,202

 
323,296

 
309,119

General & administrative expenses (1)
7,895

 
5,741

 
31,186

 
29,306

Management fee revenue (3)
(149
)
 
(224
)
 
(872
)
 
(1,034
)
Other (income) / expense (1) (4)
(156
)
 
(459
)
 
(303
)
 
(458
)
Property net operating income (accrual basis)
84,099

 
86,260

 
353,307

 
336,933

 
 
 
 
 

 
 
Deduct net operating (income) / loss from:
 
 
 
 

 
 
Acquisitions (5)
(7,056
)
 
(6,396
)
 
(29,216
)
 
(9,175
)
Dispositions (6)
(29
)
 
(5,719
)
 
(11,491
)
 
(33,761
)
Other investments (7)
(1,135
)
 
(438
)
 
(2,987
)
 
(1,311
)
Same store net operating income (accrual basis)
$
75,879

 
$
73,707

 
$
309,613

 
$
292,686

Change period over period
2.9
%
 
N/A

 
5.8
%
 
N/A






(1)
Includes our proportionate share of amounts attributable to consolidated properties and unconsolidated joint ventures.
(2)
Excludes amounts attributable to noncontrolling interests. Depreciation related to noncontrolling interests for the three months ended December 31, 2017 and 2016 and the twelve months ended December 31, 2017 and 2016 amounted to (in thousands) $7, $7, $30 and $12, respectively. Amortization related to noncontrolling interests for the three months ended December 31, 2017 and 2016 and the twelve months ended December 31, 2017 and 2016 amounted to (in thousands) $16, $20, $64 and $36, respectively.
(3)
Presented net of related operating expenses incurred to earn the revenue; therefore, the information presented on this line will not tie to the data presented on the income statements. Expenses incurred to earn the revenue for the three months ended December 31, 2017 and 2016 and the twelve months ended December 31, 2017 and 2016 amounted to (in thousands) $196, $162, $813, and $830, respectively.
(4)
Figures presented on this line may not tie back to the relevant sources as some activity is attributable to property operations and is, therefore, presented in property net operating income. Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. Amounts attributable to property operations for the three months ended December 31, 2017 and 2016 and the twelve months ended December 31, 2017 and 2016 were (in thousands) $216, $0, $359, and $506, respectively.
(5)
Acquisitions consist of CNL Center I and CNL Center II in Orlando, FL, purchased on August 1, 2016; One Wayside Road in Burlington, MA, purchased on August 10, 2016; Galleria 200 in Atlanta, GA, purchased on October 7, 2016; 750 West John Carpenter Freeway in Irving, TX, purchased on November 30, 2016; and Norman Pointe I in Bloomington, MN, purchased on December 28, 2017.
(6)
Dispositions consist of 1055 East Colorado Boulevard in Pasadena, CA, sold on April 21, 2016; Fairway Center II in Brea, CA, sold on April 28, 2016; 1901 Main Street in Irvine, CA, sold on May 2, 2016; 9221 Corporate Boulevard in Rockville, MD, sold on July 27, 2016; 150 West Jefferson in Detroit, MI, sold on July 29, 2016; 9200 and 9211 Corporate Boulevard in Rockville, MD, sold on September 28, 2016; 11695 Johns Creek Parkway in Johns Creek, GA, sold on December 22, 2016; Braker Pointe III in Austin, TX, sold on December 29, 2016; Sarasota Commerce Center II in Sarasota, FL, sold on June 16, 2017; and Two Independence Square in Washington, DC, sold on July 5, 2017.
(7)
Other investments consist of our interests in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. Additional information on our land holdings can be found on page 38. The operating results from 3100 Clarendon Boulevard in Arlington, VA, Enclave Place in Houston, TX, and 500 TownPark in Lake Mary, FL, 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
 
Twelve Months Ended
 
12/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
 
$
%
 
$
%
 
$
%
 
$
%
Washington, D.C. (1)
$
8,699

11.5

 
$
10,015

13.6

 
$
39,781

12.9

 
$
37,033

12.7

New York (2)
9,806

12.9

 
7,826

10.6

 
39,450

12.7

 
36,438

12.4

Chicago (3)
9,757

12.9

 
8,646

11.7

 
37,592

12.1

 
32,819

11.2

Boston (4)
9,136

12.0

 
8,306

11.3

 
35,221

11.4

 
32,073

11.0

Atlanta (5)
8,006

10.5

 
7,815

10.6

 
32,320

10.4

 
30,939

10.6

Dallas
6,515

8.6

 
7,053

9.6

 
27,518

8.9

 
27,050

9.2

Minneapolis (6)
6,291

8.3

 
5,979

8.1

 
24,905

8.0

 
23,561

8.0

Orlando
3,713

4.9

 
3,546

4.8

 
14,772

4.8

 
14,312

4.9

Other
13,956

18.4

 
14,521

19.7

 
58,054

18.8

 
58,461

20.0

Total
$
75,879

100.0

 
$
73,707

100.0

 
$
309,613

100.0

 
$
292,686

100.0

 
 
 
 
 
 
 
 
 
 
 
 













(1)
The decrease in Washington, D.C. Same Store Net Operating Income for the three months ended December 31, 2017 as compared to the same period in 2016 was primarily attributable to lease expirations at Arlington Gateway in Arlington, VA, and 1201 Eye Street in Washington, D.C. The increase in Washington, D.C. Same Store Net Operating Income for the twelve months ended December 31, 2017 as compared to the same period in 2016 was primarily attributable to increased rental income due the commencement of several new leases at One Independence Square and 1225 Eye Street, both located in Washington, D.C., and 4250 North Fairfax Drive in Arlington, VA.
(2)
The increase in metropolitan New York Same Store Net Operating Income for the three months and the twelve months ended December 31, 2017 as compared to the same periods in 2016 was primarily attributable to increased rental income resulting from recent leasing activity and lease restructuring income at 200 and 400 Bridgewater Crossing in Bridgewater, NJ.
(3)
The increase in Chicago Same Store Net Operating Income for the three months and the twelve months ended December 31, 2017 as compared to the same periods in 2016 was primarily attributable to increased rental income resulting from the commencement of several new leases at 500 West Monroe Street in Chicago, IL.
(4)
The increase in Boston Same Store Net Operating Income for the twelve months ended December 31, 2017 as compared to the same period in 2016 was attributable to lease restructuring income, the majority of which was recorded in the first quarter of 2017, and recent leasing activity.
(5)
The increase in Atlanta Same Store Net Operating Income for the twelve months ended December 31, 2017 as compared to the same period in 2016 was primarily attributable to increased rental income due to the commencement of new leases at Galleria 300 and Glenridge Highlands One, both located in Atlanta, GA.
(6)
The increase in Minneapolis Same Store Net Operating Income for the twelve months ended December 31, 2017 as compared to the same period in 2016 was primarily attributable to increased rental income resulting from the commencement of several new leases at US Bancorp Center in Minneapolis, MN.
 
 

19



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


Subsequent to year end on January 4, 2018, Piedmont sold 14 properties and repaid $470 million of term debt. Refer to pages 47 and 48 for additional information and a presentation of certain pro forma statistical metrics (such as rentable square footage, percent leased, debt to gross assets, and average net debt to Core EBITDA) for the Company at December 31, 2017 after taking into account the elements of the transactions.

 
With Pro Forma Adjustments for
As of
 
As of
 
the Sale of 14 Properties
December 31, 2017
 
December 31, 2016
 
 
 
 
 
Market Capitalization
 
 
 
 
Common stock price (1)
 
$
19.61

 
$
20.91

Total shares outstanding
 
142,359

 
145,235

Equity market capitalization (1)
 
$
2,791,659

 
$
3,036,870

Total debt - principal amount outstanding (excludes premiums, discounts, and deferred financing costs)
$1,318,670 (2)
$
1,733,670

 
$
2,029,582

Total market capitalization (1)
 
$
4,525,329

 
$
5,066,452

Total debt / Total market capitalization (1)
approximately 32% (2)
38.3
%
 
40.1
%
Ratios & Information for Debt Holders
 
 
 
 
Total gross real estate assets (3)
 
$
4,438,209

 
$
4,785,417

Total debt / Total gross real estate assets (3)
 
39.1
%
 
42.4
%
Total debt / Total gross assets (4)
approximately 30% (2)
34.3
%
 
37.4
%
Average net debt to Core EBITDA (5)
under 5x's (estimated) (2)
5.6 x

 
6.4 x




(1)
Reflects common stock closing price as of the end of the reporting period.
(2)
On January 4, 2018, Piedmont completed the disposition of 14 properties and used the net sales proceeds to repay debt. Figure represents the impact on this measure on a pro forma basis of the sales of the properties. Please refer to page 47 for additional details regarding the sales of the properties and the impact on various metrics for the Company.
(3)
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.
(4)
Gross assets is defined as total assets with the add-back of accumulated depreciation and accumulated amortization related to real estate assets.
(5)
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 December 31, 2017
Unaudited ($ in thousands)

Floating Rate & Fixed Rate Debt
 
 
 
Debt (1)
Principal Amount
Outstanding
Weighted Average Stated
Interest Rate (2)
Weighted Average
Maturity
 
 
 
 
 
Floating Rate
$193,000
(3) 
2.54%
7.4 months
 
 
 
 
 
Fixed Rate
1,540,670

 
3.59%
47.9 months
 
 
 
 
 
Total
$1,733,670
 
3.48%
43.4 months
https://cdn.kscope.io/ca52c69e6bba43245328f2e649e1b4bb-pdm93015e_chart-59900a10.jpg
 
Unsecured & Secured Debt
Debt (1)
Principal Amount
Outstanding
Weighted Average Stated
Interest Rate (2)
Weighted Average
Maturity
 
 
 
 
 
 
Unsecured
$1,543,000
 
3.43%
 
42.3 months
 
 
 
 
 
 
Secured
190,670

 
3.81%
 
52.5 months
 
 
 
 
 
 
Total
$1,733,670
 
3.48%
 
43.4 months
https://cdn.kscope.io/ca52c69e6bba43245328f2e649e1b4bb-pdm93015e_chart-01025a10.jpg
 
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
 
 
 
 
 
 
 
 
2018
$—
 
$170,000
(4) 
2.54%
 
9.8%
2019
 
300,000
(4) 
2.78%
 
17.3%
2020
 
323,000
(5) 
3.29%
 
18.6%
2021
30,670
 
 
5.55%
(6) 
1.8%
2022
160,000
 
 
3.48%
 
9.2%
2023 +
 
750,000
 
3.96%
 
43.3%
 
 
 
 
 
 
 
 
Total
$190,670
 
$1,543,000
 
3.48%
 
100.0%
https://cdn.kscope.io/ca52c69e6bba43245328f2e649e1b4bb-pdm93015e_chart-01812a10.jpg
(1)
All of Piedmont's outstanding debt as of December 31, 2017, was interest-only debt with the exception of the $30.7 million of debt associated with 5 Wall Street located in Burlington, MA.
(2)
Weighted average stated interest rate is calculated based upon the principal amounts outstanding.
(3)
Amount represents the $23 million outstanding balance as of December 31, 2017 on the $500 million unsecured revolving credit facility and the $170 million unsecured term loan. Two other loans, the $300 million unsecured term loan that closed in 2011 and the $300 million unsecured term loan that closed in 2013, have stated variable rates. However, Piedmont entered into $300 million in notional amount of interest rate swap agreements which effectively fix the interest rate on the 2011 unsecured term loan at 3.35% through its maturity date of January 15, 2020, 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)
On January 4, 2018, Piedmont repaid the $300 million unsecured term loan that closed in 2013 and the $170 million unsecured term loan with no prepayment penalties. The debt repayments were made with the proceeds from the sales of 14 properties along with a borrowing under the Company's unsecured revolving line of credit. For additional information, please refer to the Subsequent Events section of Financial Highlights on page 10 and a presentation of certain pro forma statistical metrics for the Company at December 31, 2017 after taking into account the debt repayment on page 47.
(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.
(6)
The $35.0 million fixed-rate loan has a stated interest rate of 5.55%; however, upon acquiring 5 Wall Street and assuming the loan, the Company marked the debt to its estimated fair value as of that time, resulting in an effective interest rate of 3.75%.

21



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

Facility (1)
Property
Stated Rate
Maturity
Principal Amount Outstanding as of December 31, 2017
 
 
 
 
 
 
Secured
 
 
 
 
 
$35.0 Million Fixed-Rate Loan (2)
5 Wall Street
5.55
%
(3) 
9/1/2021
$
30,670

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

Subtotal / Weighted Average (5)
 
3.81
%
 
 
$
190,670

 
 
 
 
 
 
Unsecured
 
 
 
 
 
$170.0 Million Unsecured 2015 Term Loan
N/A
2.54
%
(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
3.35
%
(8) 
1/15/2020
300,000

$500.0 Million Unsecured Line of Credit (9)
N/A
2.57
%
(10) 
6/18/2020
23,000

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

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

Subtotal / Weighted Average (5)
 
3.43
%
 
 
$
1,543,000

 
 
 
 
 
 
Total Debt - Principal Amount Outstanding / Weighted Average Stated Rate (5)
3.48
%
 
 
$
1,733,670

GAAP Accounting Adjustments (13)
 
 
 
 
(6,743
)
Total Debt - GAAP Amount Outstanding
 
 
 
$
1,726,927

(1)
All of Piedmont’s outstanding debt as of December 31, 2017, was interest-only debt with the exception of the $30.7 million of debt associated with 5 Wall Street located in Burlington, MA.
(2)
The loan is amortizing based on a 25-year amortization schedule.
(3)
The loan has a stated interest rate of 5.55%; however, upon acquiring 5 Wall Street and assuming the loan, the Company marked the debt to its estimated fair value as of that time, resulting in an effective interest rate of 3.75%.
(4)
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 December 31, 2017.
(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 December 31, 2017) over the selected rate based on Piedmont’s current credit rating. On January 4, 2018, Piedmont repaid the loan with no prepayment penalty. The debt repayment was made with the proceeds from the sales of 14 properties along with a borrowing under the Company's unsecured revolving line of credit. For additional information, please refer to the Subsequent Events section of Financial Highlights on page 10 and a presentation of certain pro forma statistical metrics for the Company at December 31, 2017 after taking into account the debt repayment on page 47.
(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. On January 4, 2018, Piedmont repaid the loan with no prepayment penalty and terminated the related interest rate swap agreements. The debt repayment was made with the proceeds from the sales of 14 properties along with a borrowing under the Company's unsecured revolving line of credit. For additional information, please refer to the Subsequent Events section of Financial Highlights on page 10 and a presentation of certain pro forma statistical metrics for the Company at December 31, 2017 after taking into account the debt repayment on page 47.
(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 3.35% through its maturity date of January 15, 2020, assuming no credit rating change for the Company.
(9)
All of Piedmont’s outstanding debt as of December 31, 2017, was term debt with the exception of $23 million outstanding on our unsecured revolving credit facility. The $500 million unsecured revolving credit facility has an initial maturity date of June 18, 2019; however, there are two, six-month extension options available under the facility providing for a total extension of up to one year to June 18, 2020. The final extended maturity date is presented on this schedule.
(10)
The interest rate presented for the $500 million unsecured revolving credit facility is the weighted average interest rate for all outstanding draws as of December 31, 2017. 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 December 31, 2017) 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 December 31, 2017
Unaudited


 
 
Three Months Ended
Bank Debt Covenant Compliance (1)
Required
12/31/2017
9/30/2017
06/30/2017
3/31/2017
12/31/2016



 
 
 
 
Maximum leverage ratio
0.60
0.34
0.34
0.38
0.38
0.39
Minimum fixed charge coverage ratio (2)
1.50
4.29
4.24
4.19
4.19
4.10
Maximum secured indebtedness ratio
0.40
0.04
0.04
0.06
0.06
0.06
Minimum unencumbered leverage ratio
1.60
3.09
3.09
2.79
2.77
2.66
Minimum unencumbered interest coverage ratio (3)
1.75
5.11
5.15
5.01
5.12
5.07

 
 
Three Months Ended
Bond Covenant Compliance (4)
Required
12/31/2017
9/30/2017
06/30/2017
3/31/2017
12/31/2016
 
 
 
 
 
 
 
Total debt to total assets
60% or less
38.9%
38.1%
43.1%
43.0%
42.2%
Secured debt to total assets
40% or less
4.3%
4.3%
6.9%
6.9%
6.9%
Ratio of consolidated EBITDA to interest expense
1.50 or greater
4.95
4.93
4.97
4.98
4.99
Unencumbered assets to unsecured debt
150% or greater
269%
276%
248%
249%
255%


Three Months Ended
Twelve Months Ended
Twelve Months Ended
Other Debt Coverage Ratios for Debt Holders
December 31, 2017
December 31, 2017
December 31, 2016

 
 
 
Average net debt to core EBITDA (5)
5.6 x
5.8 x
6.4 x
Fixed charge coverage ratio (6)
4.9 x
4.7 x
4.4 x
Interest coverage ratio (7)
4.9 x
4.7 x
4.5 x



(1)
Bank debt covenant compliance calculations relate to specific calculations detailed in the relevant credit agreements.
(2)
Defined as EBITDA for the trailing four quarters (including the Company's share of EBITDA from unconsolidated interests), 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 December 31, 2017 and December 31, 2016. The Company had capitalized interest of $37,908 for the three months ended December 31, 2017, $189,482 for the twelve months ended December 31, 2017, and $4,555,407 for the twelve months ended December 31, 2016. The Company had principal amortization of $232,796 for the three months ended December 31, 2017, $912,157 for the twelve months ended December 31, 2017, and $863,022 for the twelve months ended December 31, 2016.
(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 $37,908 for the three months ended December 31, 2017, $189,482 for the twelve months ended December 31, 2017, and $4,555,407 for the twelve months ended December 31, 2016.

23



Piedmont Office Realty Trust, Inc.
Tenant Diversification (1) 
As of December 31, 2017
(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 (%)
State of New York
AA+ / Aa1
1
2019

$25,755
4.6
 
481
2.8
US Bancorp
A+ / A1
3
2023 / 2024

24,054
4.3
 
783
4.6
Independence Blue Cross
No Rating Available
1
2033

18,731
3.3
 
801
4.7
GE
A / A2
1
2027

16,854
3.0
 
452
2.6
Nestle
AA- / Aa2
1
2021

12,300
2.2
 
401
2.3
City of New York
AA / Aa2
1
2020

10,896
1.9
 
313
1.8
U.S. Government (4)
AA+ / Aaa
4
2018 - 2032
(5)
10,703
1.9
 
229
1.3
Gallagher
No Rating Available
2
2018

9,737
1.7
 
315
1.8
Catamaran
A+ / A3
1
2025

8,847
1.6
 
301
1.8
Nuance Communications
BB- / Ba3
2
2018 / 2030
(6)
8,344
1.5
 
247
1.4
Caterpillar Financial
A / A3
1
2022

8,309
1.5
 
312
1.8
Motorola Solutions
BBB- / Baa3
1
2028
 
8,165
1.5
 
206
1.2
Harvard University
AAA / Aaa
2
2032 / 2033
 
7,787
1.4
 
129
0.8
District of Columbia
AA / Aa1
2
2028
 
7,148
1.3
 
146
0.9
Raytheon
A / A3
2
2024

6,442
1.1
 
440
2.6
Henry M Jackson
No Rating Available
2
2022

6,025
1.1
 
145
0.9
Schlumberger Technology
AA- / A1
1
2020

5,952
1.1
 
163
1.0
Goldman Sachs
BBB+ / A3
2
2018
 
5,920
1.1
 
207
1.2
First Data Corporation
B+ / B1
1
2027
 
5,868
1.0
 
201
1.2
Epsilon Data Management
No Rating Available
1
2026
 
5,832
1.0
 
222
1.3
SunTrust Bank
BBB+ / Baa1
3
2019 / 2025
(7) 
5,634
1.0
 
145
0.9
International Food Policy Research Institute
No Rating Available
1
2029
 
5,581
1.0
 
102
0.6
CVS Caremark
BBB+ / Baa1
1
2022
 
5,533
1.0
 
208
1.2
Other


Various
 
330,926
58.9
 
10,142
59.3
Total



 
$561,343
100.0
 
17,091
100.0


24



Tenant Diversification
Percentage of Annualized Leased Revenue (%)
December 31, 2017 as compared to December 31, 2016


    
https://cdn.kscope.io/ca52c69e6bba43245328f2e649e1b4bb-pdm123114_chart-49339a13.jpg
        






(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 creditworthiness of the tenant; in most cases, the lack of a credit rating reflects that the tenant has not sought such a rating.
(3)
Unless otherwise indicated, Lease Expiration represents the expiration year of the majority of the square footage leased by the tenant.
(4)
The Company sold Two Independence Square in Washington, D.C., during the third quarter of 2017. The building is fully leased to the United States of America and functions as the headquarters of NASA. As a result of the sale of the building, the percentage of Annualized Lease Revenue derived from our various leasing relationships with the U.S. Government decreased from 8.2% as of December 31, 2016 to 1.9% as of December 31, 2017.
(5)
There are several leases with several different agencies of the U.S. Government with expiration years ranging from 2018 to 2032. Of the total population of U.S. Government leases, leases contributing 1.5% to Annualized Lease Revenue expire in 2025 and after.
(6)
Of the total amount of space leased to the tenant, the lease for approximately 46,000 square feet expires in 2018 and the lease for approximately 201,000 square feet expires in 2030.
(7)
Of the total amount of space leased to the tenant, the leases for approximately 129,000 square feet expire in 2019 and the lease for approximately 16,000 square feet expires in 2025.

25



Piedmont Office Realty Trust, Inc.
Tenant Credit Rating & Lease Distribution Information
As of December 31, 2017


Tenant Credit Rating (1) 
Rating Level
Annualized
Lease Revenue
(in thousands)
Percentage of
Annualized Lease
Revenue (%)
 
 
 
AAA / Aaa
$23,969
4.3
AA / Aa
80,646
14.4
A / A
108,878
19.4
BBB / Baa
57,335
10.2
BB / Ba
31,800
5.7
B / B
28,656
5.1
Below
2,376

0.4
Not rated (2)
227,683
40.5
Total
$561,343
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
268
32.3
$21,723
3.9
214

1.3
2,501 - 10,000
288
34.8
50,570
9.0
1,512

8.8
10,001 - 20,000
102
12.3
45,508
8.1
1,427

8.4
20,001 - 40,000
76
9.2
73,704
13.1
2,181

12.8
40,001 - 100,000
50
6.0
99,035
17.6
2,913

17.0
Greater than 100,000
45
5.4
270,803
48.3
8,844

51.7
Total
829
100.0
$561,343
100.0
17,091

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 creditworthiness of the tenant; in most cases, the lack of a credit rating reflects that the tenant has not sought such a rating. Included in this category are such tenants as Independence Blue Cross, Piper Jaffray, Brother International, and RaceTrac Petroleum.

26



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

Subsequent to year end on January 4, 2018, Piedmont sold 14 properties and repaid $470 million of term debt. Refer to pages 47 and 48 for additional information and a presentation of certain pro forma statistical metrics (such as rentable square footage, percent leased, debt to gross assets, and average net debt to Core EBITDA) for the Company at December 31, 2017 after taking into account the elements of the transactions. The pro forma leased percentage at December 31, 2017 was 91.8%.
 
 
Three Months Ended
 
Three Months Ended
 
 
 
December 31, 2017
 
December 31, 2016
 
 
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 
As of September 30, 20xx
16,817

18,847

89.2
%
 
17,221

18,442

93.4
%
 
 
Leases signed during the period
867

 
 
 
329


 
 
 
   Less: lease renewals signed during period
(544
)
 
 
 
(163
)

 
 
 
New leases signed during period
323



 
 
166



 
 
 
      Less: new leases signed during period for currently occupied space
(151
)
 
 
 
(67
)
 
 
 
 
   New leases commencing during period
172

 
 
 
99

 
 
 
 
   Leases expired during period and other
(49
)


 
(16
)
(7
)

 
 
Subtotal
16,940

18,847

89.9
%
 
17,304

18,435

93.9
%
 
 
Acquisitions and properties placed in service during period
151

214

 
 
831

1,443

 
(3 
) 
 
Dispositions during period


 
 
(139
)
(297
)
 
 
 
As of December 31, 20xx (2)
17,091

19,061

89.7
%
 
17,996

19,581

91.9
%
(3 
) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve Months Ended
 
Twelve Months Ended
 
 
 
December 31, 2017
 
December 31, 2016
 
 
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 Leased
Square Footage
 Rentable
Square Footage
Percent
Leased (1)
 
 
As of December 31, 20xx (3)
17,996

19,581

91.9
%
 
17,323

18,934

91.5
%
 
 
Leases signed during period
2,070


 
 
1,956


 
 
 
  Less: lease renewals signed during period
(1,199
)

 
 
(881
)

 
 
 
New leases signed during period
871



 
 
1,075



 
 
 
   Less: new leases signed during period for currently occupied space
(321
)
 
 
 
(235
)
 
 
 
 
New leases commencing during period
550

 
 
 
840

 
 
 
 
Leases expired during period and other
(863
)
21

 
 
(701
)
(5
)
 
 
 
Subtotal
17,683

19,602

90.2
%
 
17,462

18,929

92.2
%
 
 
Acquisitions and properties placed in service during period
151

214

 
 
1,624

2,262

 
(3) 
 
Dispositions during period
(743
)
(755
)
 
 
(1,090
)
(1,610
)
 
 
 
As of December 31, 20xx (2)
17,091

19,061

89.7
%
 
17,996

19,581

91.9
%
(3) 
 
 
 
 
 
 
 
 
 
 
 
Same Store Analysis
 
 
 
 
 
 
 
 
 
Less acquisitions / dispositions after December 31, 2016
and developments / redevelopments (4) (5)
(151
)
(214
)
70.6
%
 
(745
)
(755
)
98.7
%
 
 
Same Store Leased Percentage (2)
16,940

18,847

89.9
%
 
17,251

18,826

91.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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)
Leased Square Footage and Rentable Square Footage as of December 31, 2016 have been restated to include two development properties and one re-development property that were placed into service effective January 1, 2017. The development properties that were placed in service are Enclave Place, a 301,000 square foot office property located in Houston, TX, and 500 TownPark, a 134,000 square foot office property located in Lake Mary, FL; the re-development property that was placed in service is 3100 Clarendon Boulevard, a 261,000 square foot office property located in Arlington, VA.
(4)
For additional information on acquisitions and dispositions completed during the last year and current developments and redevelopments, please refer to pages 37 and 38, respectively.
(5)
Dispositions completed during the previous twelve months are deducted from the previous period data and acquisitions completed during the previous twelve months are deducted from the current period data. Redevelopments commenced during the previous twelve months are deducted from the previous period data and developments and redevelopments placed in service during the previous twelve months are deducted from the current period data.

27



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


 
Three Months Ended
 
 
December 31, 2017
 
 
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
611
70.5%
3.2%
20.6%
24.9%
(6) 
Leases executed for spaces excluded from analysis (5)
256
29.5%
 
 
 
 

 
 
 
 
 
 
 
 
Twelve Months Ended
 
 
December 31, 2017
 
 
Square Feet
% of Total Signed
During Period
% of Rentable
Square Footage
% Change
Cash Rents (2)
% Change
Accrual Rents (3) (4)
 
 
 
 
 
 
 
 
Leases executed for spaces vacant one year or less
1,335
64.5%
7.0%
10.3%
16.5%
 
Leases executed for spaces excluded from analysis (5)
735
35.5%
 
 
 
 
 
 
 
 
 
 
 











(1)
The population analyzed consists of consolidated office leases executed during the period with lease terms of greater than one year. Leases associated with storage spaces, management offices, newly acquired assets for which there is less than one year of operating history, and unconsolidated joint venture assets are excluded from this analysis.
(2)
For the purposes of this analysis, the last twelve months of cash paying rents of the previous leases are compared to the first twelve months of cash paying rents of the new leases in order to calculate the percentage change.
(3)
For the purposes of this analysis, the accrual basis rents of the previous leases are compared to the accrual basis rents of the new leases in order to calculate the percentage change. For newly signed leases which have variations in accrual basis rents, whether because of known future expansions, contractions, lease expense recovery structure changes, or other similar reasons, the weighted average of such varying accrual basis rents is used for the purposes of this analysis.
(4)
For leases under which a tenant may use, at its discretion, a portion of its tenant improvement allowance for expenses other than those related to improvements to its space, an assumption is made that the tenant elects to use any such portion of its tenant improvement allowance for improvements to its space prior to the commencement of its lease, unless the Company is notified otherwise by the tenant. This assumption is made based upon historical usage patterns of tenant improvement allowances by the Company's tenants.
(5)
Represents leases signed at our consolidated office assets that do not qualify for inclusion in the analysis primarily because the spaces for which the new leases were signed had been vacant for greater than one year.
(6)
The results for the fourth quarter of 2017 were influenced by one large transaction, the 440,000 square foot renewal of Raytheon Company at 225 and 235 Presidential Way in Woburn, MA. If the effects of this transaction were to be removed, the percent change in cash rents would be 4.6% and the percent change in accrual rents would be 19.3%.

28



Piedmont Office Realty Trust, Inc.
Lease Expiration Schedule
As of December 31, 2017
(in thousands)

Subsequent to year end on January 4, 2018, Piedmont sold 14 properties and repaid $470 million of term debt. Refer to pages 47 and 48 for additional information and a presentation of certain pro forma statistical metrics (such as rentable square footage, percent leased, debt to gross assets, and average net debt to Core EBITDA) for the Company at December 31, 2017 after taking into account the elements of the transactions.
 
 
 
Expiration Year
 
Annualized Lease
Revenue (1)
Percentage of
Annualized Lease
Revenue (%)
 Rentable
Square Footage
 Percentage of
Rentable
Square Footage (%)
Vacant
 
$—
1,970
10.3
2018 (2)
 
40,528
7.2
1,316
6.9
2019 (3)
 
59,994
10.7
1,615
8.5
2020
 
46,711
8.3
1,536
8.1
2021
 
30,835
5.5
976
5.1
2022
 
55,022
9.8
1,723
9.0
2023
 
35,010
6.2
1,181
6.2
2024
 
65,570
11.7
2,395
12.6
2025
 
32,635
5.8
994
5.2
2026
 
28,100
5.0
874
4.6
2027
 
49,636
8.9
1,407
7.4
2028
 
34,993
6.2
879
4.6
2029
 
21,232
3.8
558
2.9
Thereafter
 
61,077
10.9
1,637
8.6
Total / Weighted Average
 
$561,343
100.0
19,061
100.0
Average Lease Term Remaining
12/31/2017
6.5 years
12/31/2016
6.9 years
https://cdn.kscope.io/ca52c69e6bba43245328f2e649e1b4bb-pdm123114_chart-48500a13.jpg
(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 December 31, 2017, comprised of 65,000 square feet and Annualized Lease Revenue of $1.7 million.
(3)
Leases and other revenue-producing agreements on a month-to-month basis, comprised of approximately 14,000 square feet and Annualized Lease Revenue of $0.4 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 December 31, 2017
(in thousands)

 
 
Q1 2018 (1)
 
Q2 2018
 
Q3 2018
 
Q4 2018
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
 
12
$327
 
23
$623
 
26
$771
 
25
$651
Boston
 
71
2,443
 
 
2
45
 
81
2,364
Chicago
 
290
8,812
 
42
1,386
 
5
119
 
30
747
Dallas
 
109
3,121
 
16
385
 
42
789
 
34
966
Minneapolis
 
1
 
6
232
 
9
364
 
4
129
New York
 
7
229
 
28
916
 
 
39
1,234
Orlando
 
38
1,059
 
2
73
 
10
290
 
52
1,531
Washington, D.C.
 
13
694
 
25
1,185
 
4
113
 
5
225
Other
 
52
1,585
 
12
288
 
52
1,193
 
150
5,488
Total / Weighted Average (3)
 
592
$18,271
 
154
$5,088
 
150
$3,684
 
420
$13,335
















(1)
Includes leases with an expiration date of December 31, 2017, comprised of 65,000 square feet and expiring lease revenue of $1.9 million. No such adjustments are made to other periods presented.
(2)
Expiring Lease Revenue is calculated as expiring square footage multiplied by the gross rent per square foot of the tenant currently leasing the space.
(3)
Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule on the previous page as the Lease Expiration Schedule accounts for the revenue effects of newly signed leases. Reflected herein are expiring revenues based on in-place rental rates.
 
 

30



Piedmont Office Realty Trust, Inc.
Lease Expirations by Year
As of December 31, 2017
(in thousands)

 
12/31/2018 (1)
 
12/31/2019
 
12/31/2020
 
12/31/2021
 
12/31/2022
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
86
$2,372
 
450
$12,378
 
240
$6,135
 
147
$4,197
 
373
$10,109
Boston
154
4,852
 
6
200
 
156
3,383
 
78
1,576
 
91
4,087
Chicago
367
11,065
 
16
452
 
104
2,696
 
21
631
 
24
732
Dallas
201
5,261
 
182
5,633
 
130
3,659
 
107
3,049
 
405
11,782
Minneapolis
20
725
 
143
4,390
 
107
4,017
 
91
3,116
 
58
2,035
New York
74
2,379
 
489
26,532
 
503
15,845
 
92
4,265
 
79
2,553
Orlando
102
2,953
 
270
9,211
 
50
1,216
 
29
851
 
112
3,452
Washington, D.C.
47
2,217
 
59
2,662
 
79
3,815
 
95
4,494
 
260
11,807
Other
265
8,554
 
 
167
6,046
 
316
9,622
 
321
8,532
Total / Weighted Average (3)
1,316
$40,378
 
1,615
$61,458
 
1,536
$46,812
 
976
$31,801
 
1,723
$55,089

















(1)
Includes leases with an expiration date of December 31, 2017, comprised of 65,000 square feet and expiring lease revenue of $1.9 million. No such adjustments are made to other periods presented.
(2)
Expiring Lease Revenue is calculated as expiring square footage multiplied by the gross rent per square foot of the tenant currently leasing the space.
(3)
Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule on 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 December 31, 2017
Unaudited (in thousands)

 
For the Three Months Ended
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
Non-incremental
 
 
 
 
 
 
 
 
 
Building / construction / development
$
2,081

 
$
984

 
$
2,883

 
$
1,070

 
$
1,479

Tenant improvements
3,909

 
2,450

 
4,619

 
4,797

 
4,547

Leasing costs
7,473

 
1,795

 
1,571

 
1,805

 
6,109

Total non-incremental
13,463

 
5,229

 
9,073

 
7,672

 
12,135

Incremental
 
 
 
 
 
 
 
 
 
Building / construction / development
4,932

 
2,365

 
1,689

 
6,348

 
10,098

Tenant improvements
4,317

 
9,501

 
12,345

 
15,784

 
5,893

Leasing costs
2,412

 
2,359

 
3,251

 
1,473

 
4,180

Total incremental
11,661

 
14,225

 
17,285

 
23,605

 
20,171

Total capital expenditures
$
25,124

 
$
19,454

 
$
26,358

 
$
31,277

 
$
32,306




 
 
 
 
 
 
Non-incremental tenant improvement commitments (1)
 
 
 
 
Non-incremental tenant improvement commitments outstanding as of September 30, 2017
 
$
32,062

 
 
New non-incremental tenant improvement commitments related to leases executed during period
 
14,842

 
 
Non-incremental tenant improvement expenditures
(3,909
)
 
 
 
Tenant improvement expenditures fulfilled through accrued liabilities already presented on Piedmont's balance sheet, expired commitments or other adjustments
(994
)
 
 
 
Non-incremental tenant improvement commitments fulfilled, expired or other adjustments
 
(4,903
)
 
 
Total as of December 31, 2017
 
$
42,001

 
 
 
 
 
 








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 $22.9 million, or 55% of the total outstanding commitments.
 
 

32



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

 
 
Three Months
Ended December 31, 2017
Twelve Months
Ended December 31, 2017
For the Year Ended
 
 
2016
2015
2014
2013
Renewal Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of leases
14
 
64
 
79
 
74
 
56
 
56
 
 
Square feet 
543,442
 
1,198,603
 
880,289
 
1,334,398
 
959,424
 
2,376,177
 
 
Tenant improvements per square foot (1)
$6.47
 
$7.84
 
$7.36
 
$16.91
 
$19.02
 
$14.24
 
 
Leasing commissions per square foot
$5.11
 
$4.80
 
$5.76
 
$8.29
 
$8.33
 
$4.66
 
 
Total per square foot
$11.58
 
$12.64
 
$13.12
 
$25.20
 
$27.35
 
$18.90
 
 
Tenant improvements per square foot per year of lease term
$1.51
 
$1.84
 
$1.35
 
$2.90
 
$2.97
 
$1.88
 
 
Leasing commissions per square foot per year of lease term
$1.19
 
$1.12
 
$1.05
 
$1.42
 
$1.30
 
$0.62
 
 
Total per square foot per year of lease term
$2.70
 
$2.96
 
$2.40
 
$4.32
(2) 
$4.27
(3) 
$2.50
 
New Leases
 
 
 
 
 
 
 
 
 
 

 
 
Number of leases
17
 
74
 
93
 
90
 
98
 
87
 
 
Square feet
322,448
 
855,069
 
1,065,630
 
1,563,866
 
1,142,743
 
1,050,428
 
 
Tenant improvements per square foot (1)
$52.81
 
$41.19
 
$40.78
 
$60.41
 
$34.46
 
$35.74
 
 
Leasing commissions per square foot
$21.33
 
$15.90
 
$15.13
 
$20.23
 
$15.19
 
$12.94
 
 
Total per square foot
$74.14
 
$57.09
 
$55.91
 
$80.64
 
$49.65
 
$48.68
 
 
Tenant improvements per square foot per year of lease term
$4.70
 
$4.73
 
$5.01
 
$5.68
 
$3.78
 
$4.17
 
 
Leasing commissions per square foot per year of lease term
$1.90
 
$1.83
 
$1.86
 
$1.90
 
$1.66
 
$1.51
 
 
Total per square foot per year of lease term
$6.60
 
$6.56
 
$6.87
 
$7.58
(4) 
$5.44
 
$5.68
 
Total
 
 
 
 
 
 
 
 
 
 

 
 
Number of leases
31
 
138
 
172
 
164
 
154
 
143
 
 
Square feet
865,890
 
2,053,672
 
1,945,919
 
2,898,264
 
2,102,167
 
3,426,605
 
 
Tenant improvements per square foot (1)
$23.73
 
$21.73
 
$25.66
 
$40.38
 
$27.41
 
$20.83
 
 
Leasing commissions per square foot
$11.15
 
$9.42
 
$10.89
 
$14.73
 
$12.06
 
$7.20
 
 
Total per square foot
$34.88
 
$31.15
 
$36.55
 
$55.11
 
$39.47
 
$28.03
 
 
Tenant improvements per square foot per year of lease term
$3.45
 
$3.55
 
$3.70
 
$4.79
 
$3.48
 
$2.64
 
 
Leasing commissions per square foot per year of lease term
$1.62
 
$1.54
 
$1.57
 
$1.75
 
$1.53
 
$0.91
 
 
Total per square foot per year of lease term
$5.07
 
$5.09
 
$5.27
 
$6.54
(4) 
$5.01
(3) 
$3.55
 
Less Adjustment for Current Period Commitment Expirations (5)
 
 
 
 
 
 
 
 
 
 
 
 
 
Expired tenant improvements (not paid out) per square foot
-$3.56
 
-$2.72
 
-$1.12
 
-$2.77
 
-$5.60
 
-$5.47
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted total per square foot
$31.32
 
$28.42
 
$35.43
 
$52.34
 
$33.87
 
$22.56
 
 
Adjusted total per square foot per year of lease term
$4.55
 
$4.65
 
$5.11
 
$6.21
 
$4.30
 
$2.86
 
NOTE:
This information is presented for our consolidated office assets only and excludes activity associated with storage and license spaces.
(1)
For leases under which a tenant may use, at its discretion, a portion of its tenant improvement allowance for expenses other than those related to improvements to its space, an assumption is made that the tenant elects to use any such portion of its tenant improvement allowance for improvements to its space prior to the commencement of its lease, unless the Company is notified otherwise by the tenant. This assumption is made based upon historical usage patterns of tenant improvement allowances by the Company's tenants.
(2)
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.
(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.
(5)
The Company has historically reported capital committed in leasing transactions at lease signing with no subsequent updates for variations and/or changes in tenants' uses of tenant improvement allowances. Many times, tenants do not use the full allowance provided in their leases or they let portions of their tenant improvement allowances expire. In an effort to provide additional clarity on the actual cost of completed leasing transactions, tenant improvement allowances that have expired in the current period or can no longer be used by tenants is disclosed in this section and are deducted from the current period's capital commitments per square foot of leased space in an effort to provide a better estimation of leasing transaction costs over time.

33



Piedmont Office Realty Trust, Inc.
Geographic Diversification
As of December 31, 2017
($ and square footage in thousands)

Subsequent to year end on January 4, 2018, Piedmont sold 14 properties and repaid $470 million of term debt. Refer to pages 47 and 48 for additional information and a presentation of certain pro forma statistical metrics (such as rentable square footage, percent leased, debt to gross assets, and average net debt to Core EBITDA) for the Company at December 31, 2017 after taking into account the elements of the transactions.
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.
9
$80,503
14.3
(1)
2,374
12.5
1,670
70.3
New York
4
68,909
12.3
 
1,771
9.3
1,748
98.7
Chicago
5
67,634
12.0
 
2,094
11.0
1,924
91.9
Atlanta
8
61,669
11.0
 
2,392
12.5
2,239
93.6
Minneapolis
5
56,000
10.0
 
1,833
9.6
1,720
93.8
Dallas
10
55,589
9.9
 
2,114
11.1
1,971
93.2
Boston
10
53,139
9.5
 
1,829
9.6
1,806
98.7
Orlando
5
48,277
8.6
 
1,573
8.2
1,503
95.5
Other
11
69,623
12.4
 
3,081
16.2
2,510
81.5
Total / Weighted Average
67
$561,343
100.0
 
19,061
100.0
17,091
89.7
https://cdn.kscope.io/ca52c69e6bba43245328f2e649e1b4bb-pdm123114_chart-48425a13.jpg
(1)
The Company sold Two Independence Square in Washington, D.C., during the third quarter of 2017. As a result of the sale of the building, the percentage of Annualized Lease Revenue derived from the Washington, D.C. market decreased from 19.5% as of December 31, 2016 to 14.3% as of December 31, 2017.
 
 

34



Piedmont Office Realty Trust, Inc.
Geographic Diversification by Location Type
As of December 31, 2017
(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
14.3
2,374
12.5
 
 
9
14.3
2,374
12.5
New York
NY, NJ
 
1
8.7
1,033
5.4
 
3
3.6
738
3.9
 
4
12.3
1,771
9.3
Chicago
IL
 
1
6.9
967
5.1
 
4
5.1
1,127
5.9
 
5
12.0
2,094
11.0
Atlanta
GA
 
6
10.0
2,111
11.1
 
2
1.0
281
1.4
 
8
11.0
2,392
12.5
Minneapolis
MN
 
1
5.7
934
4.9
 
4
4.3
899
4.7
 
5
10.0
1,833
9.6
Dallas
TX
 
2
2.5
440
2.3
 
8
7.4
1,674
8.8
 
10
9.9
2,114
11.1
Boston
MA
 
2
2.2
174
0.9
 
8
7.3
1,655
8.7
 
10
9.5
1,829
9.6
Orlando
FL
 
3
7.2
1,263
6.6
 
2
1.4
310
1.6
 
5
8.6
1,573
8.2
Other

 
3
7.9
1,640
8.6
 
8
4.5
1,441
7.6
 
11
12.4
3,081
16.2
Total / Weighted Average
 
28
65.4
10,936
57.4
 
39
34.6
8,125
42.6
 
67
100.0
19,061
100.0


35



Piedmont Office Realty Trust, Inc.
Industry Diversification
As of December 31, 2017
($ and square footage in thousands)

 
 
 
 
Percentage of
 
 
 
Number of
Percentage of Total
Annualized Lease
Annualized Lease
Leased Square
Percentage of Leased
Industry
Tenants
Tenants (%)
Revenue
Revenue (%)
Footage
Square Footage (%)
Business Services
81
12.3
$62,685
11.2
 
2,011
11.8
Governmental Entity
4
0.6
47,398
8.4
(1)
956
5.6
Depository Institutions
18
2.7
43,979
7.8
 
1,440
8.4
Engineering, Accounting, Research, Management & Related Services
80
12.1
38,353
6.8
 
1,097
6.4
Insurance Carriers
20
3.0
32,112
5.7
 
1,250
7.3
Insurance Agents, Brokers & Services
20
3.0
29,957
5.3
 
975
5.7
Nondepository Credit Institutions
16
2.4
29,763
5.3
 
921
5.4
Security & Commodity Brokers, Dealers, Exchanges & Services
41
6.2
23,098
4.1
 
715
4.2
Legal Services
50
7.6
22,951
4.1
 
725
4.2
Communications
44
6.7
22,356
4.0
 
647
3.8
Electronic & Other Electrical Equipment & Components, Except Computer
12
1.8
19,656
3.5
 
565
3.3
Real Estate
34
5.1
16,645
3.0
 
501
2.9
Eating & Drinking Places
43
6.5
14,948
2.7
 
461
2.7
Holding and Other Investment Offices
29
4.4
12,536
2.2
 
391
2.3
Food & Kindred Products
2
0.3
12,375
2.2
 
403
2.4
Other
167
25.3
132,531
23.7
 
4,033
23.6
Total
661
100.0
$561,343
100.0
 
17,091
100.0
https://cdn.kscope.io/ca52c69e6bba43245328f2e649e1b4bb-pdm123114_chart-48420a13.jpg
(1)
The Company sold Two Independence Square in Washington, D.C., during the third quarter of 2017. The building is fully leased to the United States of America and functions as the headquarters of NASA. As a result of the sale of the building, the percentage of Annualized Lease Revenue derived from Governmental Entities decreased from 14.4% as of December 31, 2016 to 8.4% as of December 31, 2017.

36



Piedmont Office Realty Trust, Inc.
Property Investment Activity
As of December 31, 2017
($ 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 (%)
CNL Center I and CNL Center II
 
Orlando, FL
8/1/2016
99
1999 & 2006
$166,745
622
95
One Wayside Road
 
Burlington, MA
8/10/2016
100
1997
62,900
201
100
Galleria 200
 
Atlanta, GA
10/7/2016
100
1984
69,604
432
89
750 West John Carpenter Freeway
 
Irving, TX
11/30/2016
100
1999
49,585
315
78
John Carpenter Freeway Land
 
Irving, TX
11/30/2016
100
N/A
1,000
N/A
N/A
Norman Pointe I
 
Bloomington, MN
12/28/2017
100
2000
35,159
214
71
Total / Weighted Average
 
 
 
 
 
$384,993
1,784
88

Dispositions Over Previous Eighteen Months
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
9200 & 9211 Corporate Boulevard
 
Rockville, MD
9/28/2016
100
1982 & 1989
13,250
225
19
11695 Johns Creek Parkway
 
Johns Creek, GA
12/22/2016
100
2001
14,000
101
91
Braker Pointe III
 
Austin, TX
12/29/2016
100
2001
49,250
196
18
Sarasota Commerce Center II
 
Sarasota, FL
6/16/2017
100
1999
23,500
149
92
Two Independence Square
 
Washington, DC
7/5/2017
100
1991
359,600
606
100
8560 Upland Drive (1)
 
Englewood, CO
7/27/2017
72
2001
17,600
149
100
Total / Weighted Average
 
 
 
 
 
$571,350
2,031
73

Dispositions Subsequent to Quarter End
Property
 
Location
Disposition Date
Percent
Ownership (%)
Year Built
Sale Price
 Rentable Square
Footage
 Percent Leased at
Disposition (%)
2300 Cabot Drive
 
Lisle, IL

100
1998

153
86
Windy Point I
 
Schaumburg, IL

100
1999

187
50
Windy Point II
 
Schaumburg, IL

100
2001

301
100
Suwanee Gateway One and Land
Suwanee, GA

100
2008

143
50
1200 Crown Colony Drive
 
Quincy, MA

100
1990

235
100
Piedmont Pointe I
 
Bethesda, MD

100
2007

189
68
Piedmont Pointe II
 
Bethesda, MD

100
2008

238
57
1075 West Entrance Drive
 
Auburn Hills, MI

100
2001

210
100
Auburn Hills Corporate Center
Auburn Hills, MI

100
2001

120
59
5601 Hiatus Road
 
Tamarac, FL

100
2001

100
50
2001 NW 64th Street
 
Ft. Lauderdale, FL

100
2001

48
81
Desert Canyon 300
 
Phoenix, AZ

100
2001

148
35
5301 Maryland Way
 
Brentwood, TN

100
1989

201
67
Subtotal - Portfolio of 13 Properties
 
1/4/2018
 
 
$334,985
2,273
73
2120 West End Avenue
 
Nashville, TN
1/4/2018
100
2000
90,900
312
100
Total / Weighted Average
 
 
 
 
 
$425,885
2,585
76
(1)
The sale price and rentable square footage presented for 8560 Upland Drive are gross figures and have not been adjusted for Piedmont's ownership percentage; however, the weighted average percent leased at disposition for dispositions completed over the previous eighteen months includes this property at the Company's pro rata share of ownership.

37



Piedmont Office Realty Trust, Inc.
Other Investments
As of December 31, 2017
($ and square footage in thousands)



Land Parcels
Property
Location
Adjacent Piedmont Property
Acres
Real Estate Book Value
Gavitello
 Atlanta, GA
The Medici
2.0
$2,691
Glenridge Highlands Three
 Atlanta, GA
Glenridge Highlands One and Two
3.0
1,938
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
2,834
John Carpenter Freeway
Irving, TX
750 West John Carpenter Freeway
3.5
1,000
TownPark
Lake Mary, FL
400 and 500 TownPark
18.9
6,192
Total
 
 
47.5
$19,376









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 then adding back non-cash items including: non-real estate depreciation, straight-lined rents and fair value lease adjustments, non-cash components of interest expense and compensation expense, and by making similar adjustments for unconsolidated partnerships and joint ventures. AFFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that AFFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments. Other REITs may not define AFFO in the same manner as the Company; therefore, the Company’s computation of AFFO may not be comparable to that of other REITs.
Annualized Lease Revenue ("ALR"): ALR is calculated by multiplying (i) rental payments (defined as base rent plus operating expense reimbursements, if payable by the tenant on a monthly basis under the terms of a lease that has been executed, but excluding a) rental abatements and b) rental payments related to executed but not commenced leases for space that was covered by an existing lease), by (ii) 12. In instances in which contractual rents or operating expense reimbursements are collected on an annual, semi-annual, or quarterly basis, such amounts are multiplied by a factor of 1, 2, or 4, respectively, to calculate the annualized figure. For leases that have been executed but not commenced relating to un-leased space, ALR is calculated by multiplying (i) the monthly base rental payment (excluding abatements) plus any operating expense reimbursements for the initial month of the lease term, by (ii) 12. Unless stated otherwise, this measure excludes revenues associated with 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 expenses and any significant non-recurring items. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to the Company’s core business operations. As a result, the Company believes that Core FFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential. Other REITs may not define Core FFO in the same manner as the Company; therefore, the Company’s computation of Core FFO may not be comparable to that of other REITs.
EBITDA: EBITDA is defined as net income before interest, taxes, depreciation and amortization.
EBITDAre: The Company calculates EBITDAre in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines EBITDAre as net income (computed in accordance with GAAP) adjusted for gains or losses from sales of property, impairment losses, depreciation on real estate assets, amortization on real estate assets, interest expense and taxes, along with the same adjustments for unconsolidated partnerships and joint ventures. Some of the adjustments mentioned can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. EBITDAre is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that EBITDAre is helpful to investors as a supplemental performance measure because it provides a metric for understanding the Company’s results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization) and capitalization and capital structure expenses (such as interest expense and taxes). The Company also believes that EBITDAre can help facilitate comparisons of operating performance between periods and with other REITs. However, other REITs may not define EBITDAre in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than the Company; therefore, the Company’s computation of EBITDAre may not be comparable to that of such other REITs.
Funds From Operations ("FFO"): The Company calculates FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines FFO as net income (computed in accordance with GAAP), excluding gains or losses from sales of property and impairment losses, adding back depreciation and amortization on real estate assets, and after the same adjustments for unconsolidated partnerships and joint ventures. These adjustments can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that FFO is helpful to investors as a supplemental performance measure because it excludes the effects of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs, which implicitly assumes that the value of real estate diminishes predictably over time. The Company also believes that FFO can help facilitate comparisons of operating performance between periods and with other REITs. However, other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than the Company; therefore, the Company’s computation of FFO may not be comparable to that of such other REITs.
Gross Assets: Gross Assets is defined as total assets with the add-back of accumulated depreciation and accumulated amortization related to real estate assets.
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 for which the following criteria were met during the entire span of the current and prior year reporting periods: (i) they were owned, (ii) they were not under development / redevelopment, and (iii) none of the operating expenses for which were capitalized. Same Store NOI also excludes amounts attributable to unconsolidated joint venture and land assets. The Company may present this measure on an accrual basis or a cash basis. When presented on a cash basis, the effects of straight lined rents and fair value lease revenue are also eliminated. Same Store NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of the Company’s operating performance. The Company believes that Same Store NOI is helpful to investors as a supplemental comparative performance measure of the income generated from the same group of properties from one period to the next. Other REITs may not define Same Store NOI in the same manner as the Company; therefore, the Company’s computation of Same Store NOI may not be comparable to that of other REITs.
Same Store Properties: Same Store Properties is defined as those properties for which the following criteria were met during the entire span of the current and prior year reporting periods: (i) they were owned, (ii) they were not under development / redevelopment, and (iii) none of the operating expenses for which were capitalized. Same Store Properties excludes unconsolidated joint venture and land assets.

39



Piedmont Office Realty Trust, Inc.
Research Coverage

Equity Research Coverage
Barry Oxford
Jed Reagan
Anthony Paolone, CFA
 
D.A. Davidson & Company
Green Street Advisors
JP Morgan
 
260 Madison Avenue, 8th Floor
660 Newport Center Drive, Suite 800
383 Madison Avenue
 
New York, NY 10016
Newport Beach, CA 92660
34th Floor
 
Phone: (212) 240-9871
Phone: (949) 640-8780
New York, NY 10179
 
 
 
Phone: (212) 622-6682
 
 
 
 
 
 
 
 
 
David Rodgers, CFA
John W. Guinee, III
Michael Lewis, CFA
 
Robert W. Baird & Co.
Stifel, Nicolaus & Company
SunTrust Robinson Humphrey
 
200 Public Square
One South Street
711 Fifth Avenue, 14th Floor
 
Suite 1650
16th Floor
New York, NY 10022
 
Cleveland, OH 44139
Baltimore, MD 21202
Phone: (212) 319-5659
 
Phone: (216) 737-7341
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
 
Twelve Months Ended
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
$
(31,383
)
 
$
126,133

 
$
23,710

 
$
15,104

 
$
30,189

 
$
133,564

 
$
99,732

Depreciation (1) (2)
28,242

 
29,774

 
29,932

 
30,629

 
32,597

 
118,577

 
127,129

Amortization (1)
17,499

 
18,107

 
19,315

 
20,406

 
21,259

 
75,327

 
75,139

Impairment loss (1)
46,461

 

 

 

 

 
46,461

 
33,901

Loss / (gain) on sale of properties (1)
77

 
(113,195
)
 
(6,492
)
 
53

 
(19,652
)
 
(119,557
)
 
(93,410
)
NAREIT funds from operations applicable to common stock
60,896

 
60,819

 
66,465

 
66,192

 
64,393

 
254,372

 
242,491

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition costs

 

 

 
6

 
4

 
6

 
976

Net (recoveries) / loss from casualty events (1)

 

 

 

 

 

 
(34
)
Core funds from operations applicable to common stock
60,896

 
60,819

 
66,465

 
66,198

 
64,397

 
254,378

 
243,433

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on senior notes
604

 
634

 
628

 
630

 
667

 
2,496

 
2,610

Depreciation of non real estate assets
212

 
218

 
184

 
195

 
246

 
809

 
841

Straight-line effects of lease revenue (1)
(5,553
)
 
(3,602
)
 
(6,634
)
 
(5,703
)
 
(6,429
)
 
(21,492
)
 
(21,544
)
Stock-based and other non-cash compensation expense
1,937

 
1,250

 
911

 
2,041

 
284

 
6,139

 
5,620

Amortization of lease-related intangibles (1)
(1,685
)
 
(1,720
)
 
(1,611
)
 
(1,559
)
 
(1,385
)
 
(6,575
)
 
(5,065
)
Acquisition costs

 

 

 
(6
)
 
(4
)
 
(6
)
 
(976
)
Non-incremental capital expenditures
(13,463
)
 
(5,229
)
 
(9,073
)
 
(7,672
)
 
(12,135
)
 
(35,437
)
 
(35,568
)
Adjusted funds from operations applicable to common stock
$
42,948

 
$
52,370

 
$
50,870

 
$
54,124

 
$
45,641

 
$
200,312

 
$
189,351













(1)
Includes our proportionate share of amounts attributable to consolidated properties and 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
 
Twelve Months Ended
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Piedmont
$
(31,383
)
 
$
126,133

 
$
23,710

 
$
15,104

 
$
30,189

 
$
133,564

 
$
99,732

Net income attributable to noncontrolling interest
(5
)
 
(4
)
 
(3
)
 
(3
)
 
(8
)
 
(15
)
 
(15
)
Interest expense
15,463

 
16,183

 
18,421

 
18,057

 
16,566

 
68,124

 
64,860

Depreciation
28,454

 
29,993

 
30,116

 
30,824

 
32,844

 
119,386

 
127,970

Amortization
17,499

 
18,107

 
19,315

 
20,406

 
21,259

 
75,327

 
75,139

Impairment loss
46,461

 

 

 

 

 
46,461

 
33,901

Loss / (gain) on sale of properties
77

 
(113,195
)
 
(6,492
)
 
53

 
(19,652
)
 
(119,557
)
 
(93,410
)
EBITDAre
76,566

 
77,217

 
85,067

 
84,441

 
81,198

 
323,290

 
308,177

Acquisition costs

 

 

 
6

 
4

 
6

 
976

Net (recoveries) / loss from casualty events
(57
)
 
25

 
(26
)
 
58

 

 

 
(34
)
Core EBITDA
76,509

 
77,242

 
85,041

 
84,505

 
81,202

 
323,296

 
309,119

General & administrative expenses
7,895

 
6,631

 
8,059

 
8,602

 
5,741

 
31,186

 
29,306

Management fee revenue
(149
)
 
(241
)
 
(168
)
 
(317
)
 
(224
)
 
(872
)
 
(1,034
)
Other (income) / expense
(156
)
 
(171
)
 
(12
)
 
36

 
(459
)
 
(303
)
 
(458
)
Straight-line effects of lease revenue
(5,553
)
 
(3,602
)
 
(6,634
)
 
(5,703
)
 
(6,429
)
 
(21,492
)
 
(21,544
)
Amortization of lease-related intangibles
(1,685
)
 
(1,720
)
 
(1,611
)
 
(1,559
)
 
(1,385
)
 
(6,575
)
 
(5,065
)
Property net operating income (cash basis)
76,861

 
78,139

 
84,675

 
85,564

 
78,446

 
325,240

 
310,324

Deduct net operating (income) / loss from:
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions
(5,183
)
 
(4,584
)
 
(3,548
)
 
(5,068
)
 
(4,848
)
 
(18,385
)
 
(7,333
)
Dispositions
(29
)
 
(9
)
 
(5,354
)
 
(6,040
)
 
(5,527
)
 
(11,431
)
 
(32,550
)
Other investments
(891
)
 
(99
)
 
361

 
259

 
(136
)
 
(371
)
 
(497
)
Same store net operating income (cash basis)
$
70,758

 
$
73,447

 
$
76,134

 
$
74,715

 
$
67,935

 
$
295,053

 
$
269,944








42



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


 
Three Months Ended
 
Twelve Months Ended
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
 
12/31/2017
 
12/31/2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity in income of unconsolidated joint ventures
$
(27
)
 
$
3,754

 
$
107

 
$
11

 
$
8

 
$
3,845

 
$
362

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation

 

 
65

 
64

 
65

 
129

 
249

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization

 

 
16

 
8

 
8

 
24

 
56

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment loss

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss / (gain) on sale of properties

 
(3,683
)
 

 

 

 
(3,683
)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDAre and Core EBITDA
(27
)
 
71

 
188

 
83

 
81

 
315

 
667

 
 
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
15

 
13

 
22

 
5

 
15

 
55

 
63

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other (income) / expense

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property net operating income (accrual basis)
(12
)
 
84

 
210

 
88

 
96

 
370

 
730

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Straight-line effects of lease revenue

 
(41
)
 
(95
)
 
2

 
(1
)
 
(134
)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of lease-related intangibles

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property net operating income (cash basis)
$
(12
)
 
$
43

 
$
115

 
$
90

 
$
95

 
$
236

 
$
730





43



Piedmont Office Realty Trust, Inc.
Property Detail - In-Service Portfolio (1) 
As of December 31, 2017
(in thousands)

Property
City
State
Percent
Ownership
Year Built / Major Refurbishment
Rentable
Square
Footage
Owned
Leased
Percentage
Commenced
Leased
Percentage
Economic
Leased
Percentage
 (2)
Annualized Lease Revenue
 
 
 
 
 
 
 
 
 
 
PROPERTIES REMAINING AFTER FOURTEEN-PROPERTY DISPOSITION (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Atlanta
 
 
 
 
 
 
 
 
 
Glenridge Highlands Two
 Atlanta
 GA
100.0%
2000
426
100.0
%
97.4
%
97.4
%
12,039
The Dupree
 Atlanta
 GA
100.0%
1997
138
100.0
%
100.0
%
100.0
%
3,761
The Medici
 Atlanta
 GA
100.0%
2008
156
100.0
%
100.0
%
96.8
%
4,800
1155 Perimeter Center West
 Atlanta
 GA
100.0%
2000
377
100.0
%
100.0
%
100.0
%
10,157
Galleria 300
 Atlanta
 GA
100.0%
1987
432
97.0
%
97.0
%
96.5
%
11,200
Glenridge Highlands One
 Atlanta
 GA
100.0%
1998
288
95.1
%
95.1
%
95.1
%
8,053
Galleria 200
 Atlanta
 GA
100.0%
1984
432
87.3
%
87.3
%
55.1
%
9,903
Metropolitan Area Subtotal / Weighted Average
 
 
 
 
2,249
96.4
%
95.9
%
89.4
%
59,913
Boston
 
 
 
 
 
 
 
 
 
80 Central Street
 Boxborough
 MA
100.0%
1988
150
85.3
%
85.3
%
85.3
%
2,644
90 Central Street
 Boxborough
 MA
100.0%
2001
175
100.0
%
100.0
%
100.0
%
3,806
1414 Massachusetts Avenue
 Cambridge
 MA
100.0%
1873 / 1956
78
100.0
%
100.0
%
100.0
%
5,021
One Brattle Square
 Cambridge
 MA
100.0%
1991
96
99.0
%
99.0
%
83.3
%
7,367
225 Presidential Way
 Woburn
 MA
100.0%
2001
202
100.0
%
100.0
%
100.0
%
2,963
235 Presidential Way
 Woburn
 MA
100.0%
2000
238
100.0
%
100.0
%
100.0
%
3,479
5 & 15 Wayside Road
 Burlington
 MA
100.0%
1999 & 2001
272
100.0
%
100.0
%
87.9
%
9,378
5 Wall Street
 Burlington
 MA
100.0%
2008
182
100.0
%
100.0
%
100.0
%
6,894
One Wayside Road
 Burlington
 MA
100.0%
1997
201
100.0
%
100.0
%
100.0
%
6,839
Metropolitan Area Subtotal / Weighted Average
 
 
 
 
1,594
98.6
%
98.6
%
95.5
%
48,391
Chicago
 
 
 
 
 
 
 
 
 
Two Pierce Place
 Itasca
 IL
100.0%
1991
486
98.1
%
97.7
%
96.7
%
13,689
500 West Monroe Street
 Chicago
 IL
100.0%
1991
967
95.3
%
95.3
%
93.6
%
39,079
Metropolitan Area Subtotal / Weighted Average
 
 
 
 
1,453
96.3
%
96.1
%
94.6
%
52,768






   

44



Property
City
State
Percent
Ownership
Year Built / Major Refurbishment
Rentable
Square
Footage
Owned
Leased
Percentage
Commenced
Leased
Percentage
Economic
Leased
Percentage
 (2)
Annualized Lease Revenue
Dallas









6031 Connection Drive
 Irving
 TX
100.0%
1999
232
87.9
%
76.7
%
65.1
%
5,515
6021 Connection Drive
 Irving
 TX
100.0%
2000
222
100.0
%
100.0
%
100.0
%
5,922
6011 Connection Drive
 Irving
 TX
100.0%
1999
152
100.0
%
100.0
%
100.0
%
4,331
Las Colinas Corporate Center I
 Irving
 TX
100.0%
1998
159
88.1
%
88.1
%
81.1
%
3,820
Las Colinas Corporate Center II
 Irving
 TX
100.0%
1998
228
92.5
%
90.4
%
65.8
%
5,775
6565 North MacArthur Boulevard
 Irving
 TX
100.0%
1998
260
93.5
%
93.5
%
92.7
%
6,352
One Lincoln Park
 Dallas
 TX
100.0%
1999
262
99.6
%
99.6
%
99.6
%
8,088
161 Corporate Center
 Irving
 TX
100.0%
1998
105
100.0
%
96.2
%
87.6
%
2,631
Park Place on Turtle Creek
 Dallas
 TX
100.0%
1986
178
89.9
%
87.6
%
87.6
%
6,065
750 West John Carpenter Freeway
 Irving
 TX
100.0%
1999
316
86.4
%
86.4
%
78.2
%
7,090
Metropolitan Area Subtotal / Weighted Average




2,114
93.2
%
91.4
%
85.2
%
55,589
Minneapolis









Crescent Ridge II
Minnetonka
MN
100.0%
2000
301
90.4
%
90.4
%
90.0
%
8,565
US Bancorp Center
Minneapolis
MN
100.0%
2000
934
98.2
%
92.5
%
88.9
%
31,682
One Meridian Crossings
Richfield
MN
100.0%
1997
195
100.0
%
100.0
%
100.0
%
5,819
Two Meridian Crossings
Richfield
MN
100.0%
1998
189
97.9
%
97.9
%
97.9
%
5,520
Norman Pointe I
Bloomington
MN
100.0%
2000
214
70.6
%
70.6
%
66.4
%
4,414
Metropolitan Area Subtotal / Weighted Average




1,833
93.8
%
90.9
%
88.5
%
56,000
New York









200 Bridgewater Crossing
Bridgewater
NJ
100.0%
2002
309
97.7
%
95.8
%
95.8
%
8,883
60 Broad Street
New York
NY
100.0%
1962
1,033
98.5
%
98.5
%
98.5
%
48,505
600 Corporate Drive
Lebanon
NJ
100.0%
2005
125
100.0
%
100.0
%
100.0
%
2,514
400 Bridgewater Crossing
Bridgewater
NJ
100.0%
2002
304
100.0
%
100.0
%
74.3
%
9,007
Metropolitan Area Subtotal / Weighted Average




1,771
98.7
%
98.4
%
94.0
%
68,909
Orlando









400 TownPark
Lake Mary
FL
100.0%
2008
176
97.7
%
89.2
%
89.2
%
4,362
500 TownPark
Lake Mary
FL
100.0%
2016
134
90.3
%
79.9
%
79.9
%
3,422
SunTrust Center
Orlando
FL
100.0%
1988
646
93.7
%
89.9
%
69.7
%
20,525
CNL Center I
Orlando
FL
99.0%
1999
347
98.6
%
96.5
%
96.5
%
10,991
CNL Center II
Orlando
FL
99.0%
2006
270
97.4
%
92.6
%
83.7
%
8,977
Metropolitan Area Subtotal / Weighted Average




1,573
95.5
%
90.9
%
81.1
%
48,277
Washington, D.C.









1201 Eye Street
Washington
DC
98.6% (4)
2001
269
47.6
%
26.8
%
15.2
%
7,762
1225 Eye Street
Washington
DC
98.1% (4)
1986
225
94.7
%
90.2
%
89.3
%
11,173
3100 Clarendon Boulevard
Arlington
VA
100.0%
1987 / 2015
261
51.7
%
39.5
%
29.9
%
6,266
400 Virginia Avenue
Washington
DC
100.0%
1985
224
71.4
%
71.4
%
65.6
%
7,753
4250 North Fairfax Drive
Arlington
VA
100.0%
1998
308
92.9
%
80.5
%
51.9
%
13,314
One Independence Square
Washington
DC
100.0%
1991
334
93.7
%
77.8
%
72.8
%
14,767
Arlington Gateway
Arlington
VA
100.0%
2005
326
52.5
%
46.0
%
42.9
%
8,658
Metropolitan Area Subtotal / Weighted Average




1,947
72.2
%
61.4
%
51.9
%
69,693

45



Property
City
State
Percent
Ownership
Year Built / Major Refurbishment
Rentable
Square
Footage
Owned
Leased
Percentage
Commenced
Leased
Percentage
Economic
Leased
Percentage
 (2)
Annualized Lease Revenue
 
 
 
 
 
 
 
 
 
 
Other









800 North Brand Boulevard
Glendale
CA
100.0%
1990
527
100.0
%
100.0
%
100.0
%
17,348
1901 Market Street
Philadelphia
PA
100.0%
1987 / 2014
801
100.0
%
100.0
%
100.0
%
18,731
Enclave Place
Houston
TX
100.0%
2015
301
%
%
%
0
1430 Enclave Parkway
Houston
TX
100.0%
1994
313
100.0
%
100.0
%
100.0
%
11,443
Subtotal / Weighted Average




1,942
84.5
%
84.5
%
84.5
%
47,522










Subtotal - Properties Remaining After Fourteen-Property Disposition


16,476
91.8
%
89.4
%
84.5
%
$507,062










 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FOURTEEN PROPERTIES INCLUDED IN DISPOSITION (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Suwanee Gateway One
Suwanee
GA
100.0%
2008
143
50.3
%
50.3
%
48.3
%
$1,756
1200 Crown Colony Drive
Quincy
MA
100.0%
1990
235
100.0
%
100.0
%
100.0
%
4,748
Windy Point I
Schaumburg
IL
100.0%
1999
187
49.7
%
49.7
%
49.7
%
2,825
Windy Point II
Schaumburg
IL
100.0%
2001
301
100.0
%
100.0
%
100.0
%
8,847
2300 Cabot Drive
Lisle
IL
100.0%
1998
153
85.6
%
79.7
%
78.4
%
3,194
Piedmont Pointe I
Bethesda
MD
100.0%
2007
189
67.7
%
67.7
%
67.7
%
5,301
Piedmont Pointe II
Bethesda
MD
100.0%
2008
238
57.1
%
57.1
%
57.1
%
5,509
Desert Canyon 300
Phoenix
AZ
100.0%
2001
148
35.1
%
35.1
%
35.1
%
1,193
5601 Hiatus Road
Tamarac
FL
100.0%
2001
100
50.0
%
50.0
%
50.0
%
1,395
2001 NW 64th Street
Ft. Lauderdale
FL
100.0%
2001
48
81.3
%
41.7
%
41.7
%
953
Auburn Hills Corporate Center
Auburn Hills
MI
100.0%
2001
120
59.2
%
59.2
%
59.2
%
1,504
1075 West Entrance Drive
Auburn Hills
MI
100.0%
2001
210
100.0
%
100.0
%
2.4
%
4,616
2120 West End Avenue
Nashville
TN
100.0%
2000
312
100.0
%
100.0
%
100.0
%
8,309
5301 Maryland Way
Brentwood
TN
100.0%
1989
201
67.2
%
67.2
%
67.2
%
4,131










Subtotal - Fourteen Properties Included In Disposition

2,585
76.0
%
74.9
%
66.8
%
$54,281




















 
 
 
 
 
 
 
 
 
 
Grand Total - Properties Owned at December 31, 2017


19,061
89.7
%
87.5
%
82.1
%
$561,343














(1)
This schedule includes information for Piedmont's in-service portfolio of properties only. Information on investments excluded from this schedule can be found on page 38.
(2)
Economic leased percentage excludes the square footage associated with executed but not commenced leases for currently vacant spaces and the square footage associated with tenants receiving rental abatements (after proportional adjustments for tenants receiving only partial rental abatements).
(3)
On January 4, 2018, Piedmont completed the disposition of 14 properties. For the purposes of this schedule, the 53 properties owned by the Company subsequent to the sales of the 14 properties are presented in the upper portion of the schedule, grouped within the relevant strategic operating market and shown separately from the assets included in the multiple-property disposition. The properties included in the multiple-property disposition are presented as one group at the bottom of the schedule. This presentation methodology was undertaken to provide readers with clear information on the properties owned by the Company in each strategic operating market subsequent to the disposition. Please refer to page 47 for additional details regarding the sales of the properties and the pro forma impact on various metrics for the Company as a result of the sales.
(4)
Although Piedmont owns 98.6% of 1201 Eye Street and 98.1% of 1225 Eye Street, it is entitled to 100% of the cash flows for each asset pursuant to the terms of each property ownership entity's joint venture agreement.

46



Piedmont Office Realty Trust, Inc.
Company Metrics After Fourteen Property Disposition
As of December 31, 2017
($ and square footage in thousands)


The below information presents certain financial information about the Company as of December 31, 2017 on an actual basis and a pro forma basis giving effect to the completion of the fourteen property disposition for approximately $415 million in net proceeds and the use of the net proceeds from the sales to: (1) repay the $300 million unsecured term loan that was set to mature in January 2019, and (2) along with a draw under the Company's unsecured revolving line of credit, repay the $170 million unsecured term loan that was set to mature in May 2018.  The information below has been presented to show the impact of these transactions on certain of the Company’s statistical measures; however, the information below is not intended to present the Company’s operating results on a pro forma basis giving effect to the actions listed above and does not contain all of the information required in connection with pro forma financial statements prepared pursuant to Article 11 of Regulation S-X. 

Additional information on the disposition and debt reduction transactions can be found in the Financing and Capital Activity and Subsequent Events sections of Financial Highlights and on page 37.

 
 
 
As of December 31, 2017
 
 
As of December 31, 2017
 
with Pro Forma Adjustments for the Sale of Fourteen Properties in January 2018
 
Debt Metrics
 
 
 
 
Total debt / Total gross assets
34.3
%
 
approximately 30%

 
Average net debt to Core EBITDA (1) (2)
5.6 x
 
under 5x's (estimated)
 
Fixed charge coverage ratio (3)
4.9 x
 
over 5x
 
Principal amount of debt - fixed rate
$1,540,670
88.9
%
$1,240,670
94.1
%
Principal amount of debt - floating rate
$193,000
11.1
%
$78,000
5.9
%
Principal amount of debt - unsecured
$1,543,000
89.0
%
$1,128,000
85.5
%
Principal amount of debt - secured
$190,670
11.0
%
$190,670
14.5
%
 
 
 
 
 
General Statistical Metrics
 
 
 
 
Number of consolidated office properties
67
 
53
 
Rentable square footage
19,061
 
16,476
 
Percent leased
89.7
%
 
91.8
%
 
Percent leased - commenced
87.5
%
 
89.4
%
 
Percent leased - economic
82.1
%
 
84.5
%
 
Non-incremental tenant improvement commitments
$42,001
 
$38,644
 
Weighted average lease term remaining
6.5 years

 
6.6 years

 
Employees
136

 
129

 
(1)
Average net debt as of December 31, 2017 on a pro forma basis is calculated as the Company’s average net debt for the quarter ended December 31, 2017 (i) reduced by $470 million for the repayment of the $300 million unsecured term loan that was set to mature in 2019 and the $170 million unsecured term loan that was set to mature in 2018, (ii) increased for a borrowing under the Company’s revolving line of credit to supplement disposition proceeds in the payoff of the $170 million unsecured term loan, and (iii) increased to account for a full quarter's impact of the borrowing completed on December 28, 2017 to fund the acquisition of Norman Pointe I in Bloomington, MN.

(2)
Core EBITDA as of December 31, 2017 on a pro forma basis is calculated as Core EBITDA for the quarter ended December 31, 2017, adjusted to (i) remove contributions from the fourteen properties sold in January 2018, and (ii) add estimated full-quarter contributions from Norman Pointe I in Bloomington, MN, which was purchased on December 28, 2017. The resultant figure is then annualized for the purposes of this calculation.
(3)
Fixed charges as of December 31, 2017 on a pro forma basis are calculated as the Company’s fixed charges for the quarter ended December 31, 2017, adjusted to (i) remove interest expense associated with the Company's $300 million unsecured term loan that was set to mature in 2019 and its $170 million unsecured term loan that was set to mature in 2018, (ii) add interest expense associated with a borrowing under the Company's revolving line of credit that was used to supplement disposition proceeds in the repayment of the $170 million unsecured term loan, and (iii) add interest expense in order to account for a full quarter's impact of the line of credit borrowing on December 28, 2017 to complete the acquisition of Norman Pointe I in Bloomington, MN.



47



Piedmont Office Realty Trust, Inc.
Company Metrics After Fourteen Property Disposition
As of December 31, 2017
($ and square footage in thousands)


Lease Expiration Schedule                                     List of Disposition Properties
 
As Reported
 
Pro Forma for the Sale of Fourteen
Properties in January 2018 (1)
Expiration Year
Annualized Lease
Revenue
Percentage of
Annualized Lease
Revenue (%)
 
Annualized Lease
Revenue
Percentage of
Annualized Lease
Revenue (%)
Vacant
$—
 
$—
2018
40,528
7.2
 
38,056
7.5
2019
59,994
10.7
 
58,894
11.6
2020
46,711
8.3
 
43,637
8.6
2021
30,835
5.5
 
30,291
6.0
2022
55,022
9.8
 
39,124
7.7
2023
35,010
6.2
 
31,362
6.2
2024
65,570
11.7
 
54,415
10.7
2025
32,635
5.8
 
21,612
4.3
2026
28,100
5.0
 
27,420
5.4
2027
49,636
8.9
 
45,505
9.0
2028
34,993
6.2
 
34,437
6.8
2029
21,232
3.8
 
21,232
4.2
Thereafter
61,077
10.9
 
61,077
12.0
Total
$561,343
100.0
 
$507,062
100.0
                
Property
City
State
Rentable Square
Footage
Desert Canyon 300
Phoenix
AZ
148
5601 Hiatus Road
Tamarac
FL
100
2001 NW 64th Street
Ft. Lauderdale
FL
48
Auburn Hills Corporate Center
Auburn Hills
MI
120
1075 West Entrance Drive
Auburn Hills
MI
210
2120 West End Avenue
Nashville
TN
312
5301 Maryland Way
Brentwood
TN
201
Piedmont Pointe I
Bethesda
MD
189
Piedmont Pointe II
Bethesda
MD
238
Windy Point I
 Schaumburg
 IL
187
Windy Point II
 Schaumburg
 IL
301
2300 Cabot Drive
 Lisle
 IL
153
1200 Crown Colony Drive
 Quincy
 MA
235
Suwanee Gateway One
 Suwanee
 GA
143
Total
 
 
2,585
 
 
 
 

Geographic Diversification
 
As Reported
 
Pro Forma for the Sale of Fourteen
Properties in January 2018 (1)
Location
 Annualized
Lease Revenue
 Percentage of
Annualized Lease
Revenue (%)
 Rentable
Square Footage
Percentage of
Rentable Square
Footage (%)
Percent Leased (%)
 
 Annualized
Lease Revenue
 Percentage of
Annualized Lease
Revenue (%)
 Rentable
Square Footage
Percentage of
Rentable Square
Footage (%)
Percent Leased (%)
Washington, D.C.
$80,503
14.3
2,374
12.5
70.3
 
$69,693
13.8
1,947
11.8
72.2
New York
68,909
12.3
1,771
9.3
98.7
 
68,909
13.6
1,771
10.8
98.7
Chicago
67,634
12.0
2,094
11.0
91.9
 
52,768
10.4
1,453
8.8
96.3
Atlanta
61,669
11.0
2,392
12.5
93.6
 
59,913
11.8
2,249
13.7
96.4
Minneapolis
56,000
10.0
1,833
9.6
93.8
 
56,000
11.0
1,833
11.1
93.8
Dallas
55,589
9.9
2,114
11.1
93.2
 
55,589
11.0
2,114
12.8
93.2
Boston
53,139
9.5
1,829
9.6
98.7
 
48,391
9.5
1,594
9.7
98.6
Orlando
48,277
8.6
1,573
8.2
95.5
 
48,277
9.5
1,573
9.5
95.5
Other
69,623
12.4
3,081
16.2
81.5
 
47,522
9.4
1,942
11.8
84.5
Total
$561,343
100.0
19,061
100.0
89.7
 
$507,062
100.0
16,476
100.0
91.8
 
 
 
 
 
 
 
 
 
 
 
 
CBD / Urban Infill
 
65.4
 
 
 
 
 
68.7
 
 
 
Suburban
 
34.6
 
 
 
 
 
31.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Pro forma Annualized Lease Revenue is calculated by starting with the Company's Annualized Lease Revenue as of December 31, 2017, and deducting therefrom the contributions provided by the fourteen properties sold in January 2018.

48



Piedmont Office Realty Trust, Inc.
Supplemental Operating & Financial Data
Risks, Uncertainties and Limitations


Certain statements contained in this supplemental package constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such information is subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” "estimate," “believe,” “continue” or similar words or phrases that are predictions of future events or trends and which do not relate solely to historical matters. Examples of such statements in this supplemental package include our estimated Core FFO and Core FFO per diluted share for calendar year 2017 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 / or 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; 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 sector in general and 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, including the resulting impediment on our ability to quickly respond to adverse changes in the performance of our properties; the risks and uncertainties associated with the acquisition of properties, many of which risks and uncertainties may not be known at the time of acquisition; development and construction delays and resultant increased costs and risks; our real estate development strategies may not be successful; future acts of terrorism in any of the major metropolitan areas in which we own properties or future cybersecurity attacks against us or any of our tenants; additional risks and costs associated with directly managing properties occupied by government tenants; the effect on us of adverse market and economic conditions, including any resulting impairment charges on both our long-lived assets or goodwill; availability of financing and our lending banks' ability to honor existing line of credit commitments; costs of complying with governmental laws and regulations; the effect of future offerings of debt or equity securities or changes in market interest rates on the value of our common stock; uncertainties associated with environmental and other regulatory matters; potential changes in political environment and reduction in federal and/or state funding of our governmental tenants; any change in the financial condition of any of our large lead tenants; the effect of any litigation to which we are, or may become, subject; changes in tax laws impacting REITs and real estate in general, as well as our ability to continue to qualify as a REIT under the Internal Revenue Code of 1986; the future effectiveness of our internal controls and procedures; 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.




49