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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________ 
FORM 10-Q
_______________________________________________________________________________________  
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
For the Quarterly Period Ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
For the Transition Period From                      To                     
Commission file number 001-34626
Piedmont Office Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
 ____________________________________________________ 
Maryland58-2328421
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)

5565 Glenridge Connector Ste. 450
Atlanta, Georgia 30342
(Address of principal executive offices) (Zip Code)
(770) 418-8800
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, $0.01 par valuePDMNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filerxAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No   x
Number of shares outstanding of the Registrant’s
common stock, as of October 28, 2020:
126,028,762 shares



Table of Contents
FORM 10-Q
PIEDMONT OFFICE REALTY TRUST, INC.
TABLE OF CONTENTS
 
 Page No.
PART IFinancial Information
Item 1.
Item 2.
Item 3.
Item 4.
PART II.Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q may constitute forward-looking statements within the meaning of the federal securities laws. In addition, Piedmont Office Realty Trust, Inc. ("Piedmont," "we," "our," or "us"), or its executive officers on Piedmont’s behalf, may from time to time make forward-looking statements in reports and other documents Piedmont files with the Securities and Exchange Commission or in connection with other written or oral statements made to the press, potential investors, or others. Statements regarding future events and developments and Piedmont’s future performance, as well as management’s expectations, beliefs, plans, estimates, or projections relating to the future, are forward-looking statements. Forward-looking statements include statements preceded by, followed by, or that include the words “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Examples of such statements in this report include descriptions of our real estate, financings, and operating objectives; discussions regarding future dividends and share repurchases; and discussions regarding the potential impact of economic conditions on our real estate and lease portfolio.

These statements are based on beliefs and assumptions of Piedmont’s management, which in turn are based on information available at the time the statements are made. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding the demand for office space in the markets in which Piedmont operates, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. The forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond Piedmont’s ability to control or predict. Such factors include, but are not limited to, the following:

Actual or threatened public health epidemics or outbreaks, such as the novel coronavirus ("COVID-19") pandemic that the world is currently experiencing, and governmental and private measures taken to combat such health crises, which may affect our personnel, tenants, tenants' operations and ability to pay lease obligations, demand for office space, and the costs of operating our assets;
The adequacy of our general reserve related to tenant receivables established as a result of the COVID-19 pandemic, as well as the impact of any increase in this reserve or the establishment of any other reserve in the future;
Economic, regulatory, socio-economic changes, and/or technology 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 specifically the seven markets in which we primarily operate where we have high concentrations of our Annualized Lease Revenue (see definition below);
Lease terminations, lease defaults, or changes in the financial condition of our tenants, particularly by one of our large lead tenants;
Adverse market and economic conditions, including any resulting impairment charges on both our long-lived assets or goodwill resulting therefrom;
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 regulatory restrictions to which real estate investment trusts ("REITs") are subject and 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 and disposition of properties, many of which risks and uncertainties may not be known at the time of acquisition or disposition;
Development and construction delays and resultant increased costs and risks;
Our real estate development strategies may not be successful;
Future acts of terrorism, civil unrest, or armed hostilities 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, including an increased risk of default by government tenants during periods in which state or federal governments are shut down or on furlough;
Significant price and volume fluctuations in the public markets, including on the exchange which we listed our common stock;
Changes in the method pursuant to which the LIBOR rates are determined and the phasing out of LIBOR after 2021;
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;
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Changes in the financial condition of our tenants directly or indirectly resulting from geopolitical developments that could negatively affect international trade, including the uncertainty surrounding the United Kingdom's withdrawal from the European Union, the termination or threatened termination of existing international trade agreements, or the implementation of tariffs or retaliatory tariffs on imported or exported goods;
The effect of any litigation to which we are, or may become, subject;
Additional risks and costs associated with owning properties occupied by tenants in particular industries, such as oil and gas, co-working, etc., including risks of default during start-up and during economic downturns;
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”) or otherwise adversely affect our stockholders;
The future effectiveness of our internal controls and procedures; and
Other factors, including the risk factor described in Item 1A. of this Quarterly Report on Form 10-Q, as well as the risk factors discussed under Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2019.

Management believes these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and management undertakes no obligation to update publicly any of them in light of new information or future events.

Information Regarding Disclosures Presented

Annualized Lease Revenue ("ALR"), a non-GAAP measure, is calculated by multiplying (i) current 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 unleased 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 development properties and properties taken out of service for redevelopment, if any.

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PART I.     FINANCIAL INFORMATION

ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS.

The information presented in the accompanying consolidated balance sheets and related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows reflects all adjustments that are, in management’s opinion, necessary for a fair and consistent presentation of financial position, results of operations, and cash flows in accordance with GAAP.
The accompanying financial statements should be read in conjunction with the notes to Piedmont’s financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report on Form 10-Q and with Piedmont’s Annual Report on Form 10-K for the year ended December 31, 2019. Piedmont’s results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the operating results expected for the full year.
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except for share and per share amounts)
September 30,
2020
December 31,
2019
Assets:
Real estate assets, at cost:
Land
$505,228 $485,560 
Buildings and improvements, less accumulated depreciation of $803,160 and $730,750 as of September 30, 2020 and December 31, 2019, respectively
2,480,820 2,212,935 
Intangible lease assets, less accumulated amortization of $63,353 and $50,766 as of September 30, 2020 and December 31, 2019, respectively
98,517 74,405 
Construction in progress
56,393 29,920 
Real estate assets held for sale, net 139,690 
Total real estate assets3,140,958 2,942,510 
Cash and cash equivalents23,958 13,545 
Tenant receivables, net of allowance for doubtful accounts of $4,831 and $0 as of September 30, 2020 and December 31, 2019, respectively
11,301 8,226 
Straight-line rent receivables154,620 132,342 
Restricted cash and escrows1,781 1,841 
Prepaid expenses and other assets28,074 25,427 
Goodwill98,918 98,918 
Deferred lease costs, less accumulated amortization of $169,975 and $147,324 as of September 30, 2020 and December 31, 2019, respectively
293,472 265,747 
Other assets held for sale, net 28,201 
Total assets$3,753,082 $3,516,757 
Liabilities:
Unsecured debt, net of discount and unamortized debt issuance costs of $11,589 and $7,626 as of September 30, 2020 and December 31, 2019, respectively
$1,588,411 $1,292,374 
Secured debt, net of premiums and unamortized debt issuance costs of $448 and $343 as of September 30, 2020 and December 31, 2019, respectively
28,424 189,030 
Accounts payable, accrued expenses and accrued capital expenditures120,763 117,496 
Dividends payable 26,427 
Deferred income36,613 34,609 
Intangible lease liabilities, less accumulated amortization of $24,881 and $19,607 as of September 30, 2020 and December 31, 2019, respectively
38,324 25,069 
Interest rate swaps10,618 5,121 
Other liabilities held for sale 7,657 
Total liabilities1,823,153 1,697,783 
Commitments and Contingencies (Note 7)
  
Stockholders’ Equity:
Shares-in-trust, 150,000,000 shares authorized; none outstanding as of September 30, 2020 or December 31, 2019
  
Preferred stock, no par value, 100,000,000 shares authorized; none outstanding as of September 30, 2020 or December 31, 2019
  
Common stock, $0.01 par value, 750,000,000 shares authorized; 126,028,762 and 125,783,408 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
1,260 1,258 
Additional paid-in capital3,692,634 3,686,398 
Cumulative distributions in excess of earnings(1,740,670)(1,871,375)
Other comprehensive income/(loss)(24,993)967 
Piedmont stockholders’ equity1,928,231 1,817,248 
Noncontrolling interest1,698 1,726 
Total stockholders’ equity1,929,929 1,818,974 
Total liabilities and stockholders’ equity$3,753,082 $3,516,757 
See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except for share and per share amounts)
 
Three Months EndedNine Months Ended
 September 30,September 30,
 2020201920202019
Revenues:
Rental and tenant reimbursement revenue$128,280 $130,579 $391,681 $382,213 
Property management fee revenue751 405 2,146 2,819 
Other property related income2,662 4,437 9,668 13,993 
131,693 135,421 403,495 399,025 
Expenses:
Property operating costs53,293 54,613 159,631 158,798 
Depreciation28,255 27,131 83,339 80,004 
Amortization22,990 19,505 70,970 55,666 
Impairment loss on real estate assets 1,953  1,953 
General and administrative
5,469 7,950 20,049 29,736 
110,007 111,152 333,989 326,157 
Other income (expense):
Interest expense(12,725)(16,145)(41,942)(46,750)
Other income319 263 817 1,292 
Loss on early extinguishment of debt  (9,336) 
Gain/(loss) on sale of real estate assets(340)32 191,032 39,370 
(12,746)(15,850)140,571 (6,088)
Net income8,940 8,419 210,077 66,780 
Net loss applicable to noncontrolling interest
3 3 2 3 
Net income applicable to Piedmont$8,943 $8,422 $210,079 $66,783 
Per share information – basic:
Net income applicable to common stockholders$0.07 $0.07 $1.67 $0.53 
Per share information – diluted:
Net income applicable to common stockholders$0.07 $0.07 $1.66 $0.53 
Weighted-average common shares outstanding – basic126,028,762 125,783,408 125,955,097 125,684,202 
Weighted-average common shares outstanding – diluted126,385,035 126,239,744 126,302,051 126,189,851 
See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)

Three Months EndedNine Months Ended
 September 30,September 30,
 2020201920202019
Net income applicable to Piedmont$8,943 $8,422 $210,079 $66,783 
Other comprehensive loss:
Effective portion of loss on derivative instruments that are designated and qualify as cash flow hedges (See Note 5)
(2,443)(1,386)(26,949)(6,874)
Plus/(less): Reclassification of net (gain)/loss included in net income (See Note 5)
810 (427)989 (1,871)
Other comprehensive loss(1,633)(1,813)(25,960)(8,745)
Comprehensive income applicable to Piedmont
$7,310 $6,609 $184,119 $58,038 

See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(in thousands, except per share amounts)

 Common  StockAdditional
Paid-In
Capital
Cumulative
Distributions
in Excess of
Earnings
Other
Comprehensive
Income/(Loss)
Non-
controlling
Interest
Total
Stockholders’
Equity
 SharesAmount
Balance, June 30, 2020126,025 $1,260 $3,691,377 $(1,723,147)$(23,360)$1,707 $1,947,837 
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested
   (26,466) (6)(26,472)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax
4  1,257    1,257 
Net loss applicable to noncontrolling interest     (3)(3)
Net income applicable to Piedmont   8,943   8,943 
Other comprehensive loss    (1,633) (1,633)
Balance, September 30, 2020126,029 $1,260 $3,692,634 $(1,740,670)$(24,993)$1,698 $1,929,929 
Common  StockAdditional
Paid-In
Capital
Cumulative
Distributions
in Excess of
Earnings
Other
Comprehensive
Income/(Loss)
Non-
controlling
Interest
Total
Stockholders’
Equity
SharesAmount
Balance, June 30, 2019125,783 $1,258 $3,687,881 $(1,989,446)$1,530 $1,752 $1,702,975 
Offering costs— — (700)— — — (700)
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested
— — (74)(26,414)— (7)(26,495)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax
  (1,603)— — — (1,603)
Net loss applicable to noncontrolling interest— — — — — (3)(3)
Net income applicable to Piedmont— — — 8,422 — — 8,422 
Other comprehensive loss— — — — (1,813)— (1,813)
Balance, September 30, 2019125,783 $1,258 $3,685,504 $(2,007,438)$(283)$1,742 $1,680,783 


See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(in thousands, except per share amounts)

Common StockAdditional Paid-In CapitalCumulative Distributions in Excess of EarningsOther Comprehensive Income/(Loss)Non- controlling InterestTotal Stockholders’ Equity
SharesAmount
Balance, December 31, 2019125,783 $1,258 $3,686,398 $(1,871,375)$967 $1,726 $1,818,974 
Dividends to common stockholders ($0.63 per share), stockholders of subsidiaries, and dividends reinvested
  (5)(79,374) (26)(79,405)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax246 2 6,241    6,243 
Net loss applicable to noncontrolling interest     (2)(2)
Net income applicable to Piedmont   210,079   210,079 
Other comprehensive loss    (25,960) (25,960)
Balance, September 30, 2020126,029 $1,260 $3,692,634 $(1,740,670)$(24,993)$1,698 $1,929,929 


Common StockAdditional Paid-In CapitalCumulative Distributions in Excess of EarningsOther Comprehensive Income/(Loss)Non- controlling InterestTotal Stockholders’ Equity
SharesAmount
Balance, December 31, 2018126,219 $1,262 $3,683,186 $(1,982,542)$8,462 $1,772 $1,712,140 
Share repurchases as part of an announced plan(728)(7)— (12,475)— — (12,482)
Offering costs— — (700)— — — (700)
Dividends to common stockholders ($0.63 per share), stockholders of subsidiaries, and dividends reinvested
— — (216)(79,204)— (27)(79,447)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax292 3 3,234 — — — 3,237 
Net loss applicable to noncontrolling interest— — — — — (3)(3)
Net income applicable to Piedmont— — — 66,783 — — 66,783 
Other comprehensive loss— — — — (8,745)— (8,745)
Balance, September 30, 2019125,783 $1,258 $3,685,504 $(2,007,438)$(283)$1,742 $1,680,783 

See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands) 

Nine Months Ended
September 30,
20202019
Cash Flows from Operating Activities:
Net income$210,077 $66,780 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation83,339 80,004 
Amortization of debt issuance costs net of favorable settlement of interest rate swaps
1,319 419 
Other amortization64,076 52,057 
Impairment loss on real estate assets 1,953 
Loss on early extinguishment of debt349  
General reserve for uncollectible accounts4,831  
Stock compensation expense6,980 12,365 
Gain on sale of real estate assets(191,032)(39,370)
Changes in assets and liabilities:
Increase in tenant and straight-line rent receivables(30,898)(10,660)
Increase in prepaid expenses and other assets(3,745)(1,958)
Cash paid upon settlement of interest rate swaps(19,930) 
Increase/(decrease) in accounts payable and accrued expenses12,834 (2,496)
Increase in deferred income610 1,149 
Net cash provided by operating activities138,810 160,243 
Cash Flows from Investing Activities:
Acquisition of real estate assets and intangibles(396,745)(326,144)
Capitalized expenditures(80,007)(57,368)
Net sales proceeds from wholly-owned properties350,807 180,975 
Deferred lease costs paid(27,011)(16,632)
Net cash used in investing activities(152,956)(219,169)
Cash Flows from Financing Activities:
Debt issuance and other costs paid(1,116)(91)
Proceeds from debt1,136,383 550,000 
Repayments of debt(1,001,711)(358,041)
Discount paid due to loan modification(525) 
Costs of issuance of common stock (259)
Value of shares withheld for payment of taxes related to employee stock compensation(2,700)(3,295)
Repurchases of common stock as part of announced plan (16,899)
Dividends paid and discount on dividend reinvestments(105,832)(106,419)
Net cash provided by financing activities24,499 64,996 
Net increase in cash, cash equivalents, and restricted cash and escrows10,353 6,070 
Cash, cash equivalents, and restricted cash and escrows, beginning of period15,386 6,034 
Cash, cash equivalents, and restricted cash and escrows, end of period$25,739 $12,104 

See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)

1.    Organization
Piedmont Office Realty Trust, Inc. (“Piedmont”) (NYSE: PDM) is a Maryland corporation that operates in a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes and engages in the acquisition, development, redevelopment, management, and ownership of commercial real estate properties located primarily in select sub-markets within seven major Eastern U.S. office markets, including properties that are under construction, are newly constructed, or have operating histories. Piedmont was incorporated in 1997 and commenced operations in 1998. Piedmont conducts business primarily through Piedmont Operating Partnership, L.P. (“Piedmont OP”), a Delaware limited partnership, as well as performing the management of its buildings through two wholly-owned subsidiaries, Piedmont Government Services, LLC and Piedmont Office Management, LLC. Piedmont owns 99.9% of, and is the sole general partner of, Piedmont OP and as such, possesses full legal control and authority over the operations of Piedmont OP. The remaining 0.1% ownership interest of Piedmont OP is held indirectly by Piedmont through its wholly-owned, taxable REIT subsidiary, Piedmont Office Holdings, Inc. ("POH"), the sole limited partner of Piedmont OP. Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through various joint ventures which it controls. References to Piedmont herein shall include Piedmont and all of its subsidiaries, including Piedmont OP and its subsidiaries and joint ventures.

As of September 30, 2020, Piedmont owned 57 in-service office properties in select sub-markets located within seven major U.S. office markets: Atlanta, Boston, Dallas, Minneapolis, New York, Orlando, and Washington, D.C. As of September 30, 2020, Piedmont's 57 in-service office properties comprised approximately 17.2 million square feet of primarily Class A commercial office space and were 86.9% leased.

Piedmont internally evaluates all of its real estate assets as one operating segment, and accordingly does not report segment information.

2.    Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation

The consolidated financial statements of Piedmont have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of a full year’s results.

Piedmont’s consolidated financial statements include the accounts of Piedmont, Piedmont’s wholly-owned subsidiaries, any variable interest entity ("VIE") for which Piedmont or any of its wholly-owned subsidiaries is considered to have the power to direct the activities of the entity and the obligation to absorb losses/right to receive benefits, or any entity in which Piedmont or any of its wholly-owned subsidiaries owns a controlling interest. In determining whether Piedmont or Piedmont OP has a controlling interest, the following factors, among others, are considered: equity ownership, voting rights, protective rights of investors, and participatory rights of investors. For further information, refer to the financial statements and footnotes included in Piedmont’s Annual Report on Form 10-K for the year ended December 31, 2019.

All intercompany balances and transactions have been eliminated upon consolidation.

Further, Piedmont has formed special purpose entities to acquire and hold real estate. Each special purpose entity is a separate legal entity. Consequently, the assets of these special purpose entities are not available to all creditors of Piedmont. The assets owned by these special purpose entities are being reported on a consolidated basis with Piedmont’s assets for financial reporting purposes only.

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Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and notes. The most significant of these estimates include the underlying cash flows and holding periods used in assessing impairment, judgements regarding the recoverability of goodwill, and the assessment of the collectibility of receivables. Future impacts of the COVID-19 pandemic on Piedmont and its tenants may affect these and other estimates used in the preparation of these financial statements. While Piedmont has made, what it believes to be, appropriate accounting estimates based on the facts and circumstances available as of the reporting date, actual results could materially differ from those estimates.

Income Taxes

Piedmont has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and has operated as such, beginning with its taxable year ended December 31, 1998. To qualify as a REIT, Piedmont must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income. As a REIT, Piedmont is generally not subject to federal income taxes, subject to fulfilling, among other things, its taxable income distribution requirement. Piedmont is subject to certain taxes related to the operations of properties in certain locations, as well as operations conducted by its taxable REIT subsidiary, POH, which have been provided for in the financial statements.

Operating Leases

Piedmont recognized the following fixed and variable lease payments, which together comprised rental and tenant reimbursement revenue in the accompanying consolidated statements of income for the three and nine months ended September 30, 2020 and 2019, respectively, as follows (in thousands):


Three Months EndedNine Months Ended
September 30,
2020
September 30,
2019
September 30,
2020
September 30,
2019
Fixed payments$108,071 $105,207 $329,281 $311,503 
Variable payments20,209 25,372 62,400 70,710 
Total Rental and Tenant Reimbursement Revenue
$128,280 $130,579 $391,681 $382,213 

Operating leases where Piedmont is the lessee relate primarily to office space in buildings owned by third parties. For both the three and nine months ended September 30, 2020 and 2019, Piedmont recognized approximately $20,000 and $60,000, respectively, of operating lease costs related to these office space leases. As of September 30, 2020, the weighted-average lease term of Piedmont's right of use assets is approximately three years, and the weighted-average discount rate is 3.35%.

Intangible Assets and Liabilities Resulting from Purchasing Real Estate Assets

Upon the acquisition of real properties, Piedmont allocates the purchase price of the properties to tangible assets, consisting of land, building, site improvements, and identified intangible assets and liabilities, including the value of in-place leases, based in each case on Piedmont's estimate of their fair values in accordance with Accounting Standards Codification ("ASC") 820 Fair Value Measurements.

Gross intangible lease assets and liabilities arising from in-place leases, inclusive of amounts classified as real estate assets held for sale, recorded at acquisition as of September 30, 2020 and December 31, 2019, respectively, are as follows (in thousands):

September 30, 2020December 31, 2019
Intangible Lease Assets:
Above-Market In-Place Lease Assets$2,227 $2,082 
In-Place Lease Valuation$159,643 $157,101 
Intangible Lease Origination Costs (included as component of Deferred Lease Costs)$254,856 $256,627 
Intangible Lease Liabilities (Below-Market In-Place Leases)$63,205 $84,292 

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For the three and nine months ended September 30, 2020 and 2019, respectively, Piedmont recognized amortization of intangible lease costs as follows (in thousands):

Three Months EndedNine Months Ended
September 30,
2020
September 30,
2019
September 30,
2020
September 30,
2019
Amortization of Intangible Lease Origination Costs and In-Place Lease Valuation included in amortization expense
$18,522 $15,881 $58,674 $45,057 
Amortization of Above-Market and Below-Market In-Place Lease intangibles as a net increase to rental revenues
$3,147 $1,923 $9,423 $6,009 

Net intangible assets and liabilities as of September 30, 2020 will be amortized as follows (in thousands):

Intangible Lease Assets
Above-Market
In-place
Lease Assets
In-Place Lease Valuation
Intangible Lease
Origination Costs (1)
Below-Market
In-place Lease
Liabilities
For the remainder of 2020$117 $7,576 $10,368 $2,884 
For the years ending December 31:
2021420 27,635 38,743 10,899 
2022300 20,773 30,527 8,422 
2023103 13,923 21,019 5,139 
202470 9,141 14,462 3,238 
20256 5,658 10,069 2,072 
Thereafter18 12,777 24,881 5,670 
$1,034 $97,483 $150,069 $38,324 
Weighted-Average Amortization Period (in years)3565

(1)Included as a component of Deferred Lease Costs in the accompanying consolidated balance sheets.

Accounting Pronouncements and Amendments Adopted during the Nine Months Ended September 30, 2020

Reference Rate Reform Relief

Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848) ("ASU 2020-04"), was issued in March 2020. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the nine months ended September 30, 2020, Piedmont elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. Piedmont continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

Financial Instruments- Credit Loss Amendments

On January 1, 2020, Piedmont adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, as well as ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and ASU No. 2019-05, Financial Instruments- Credit Losses: Targeted Transition Relief (collectively the "Credit Loss Amendments"). The provisions of the Credit Loss Amendments replace the "incurred loss" approach with an "expected loss" model for impairing trade and other receivables, held-to-maturity debt securities, net investment in leases, and off-balance-sheet credit exposures, which will generally result in earlier recognition of allowances for credit losses. However, the Financial Accounting Standards Board (the "FASB") also issued ASU No. 2018-19 Codification Improvements to Topic 326, Financial Instruments - Credit
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Losses, which is effective concurrent with the Credit Loss Amendments, and excludes receivables arising from operating leases from the scope of the Credit Loss Amendments and affirms that such receivables should be evaluated for collectibility as prescribed by ASC 842 Leases. As substantially all of Piedmont's receivables are operating lease receivables there was no material impact to Piedmont's accompanying consolidated financial statements or disclosures as a result of adoption of the Credit Loss Amendments.

During the nine months ended September 30, 2020, the FASB issued a Staff Q&A on Topic 842 and Topic 840 (lease accounting guidance): Accounting for lease concessions related to the effects of the COVID-19 pandemic. Generally, changes to payment terms not contemplated by the lease contract should be accounted for under Topic 842 as a lease modification. The FASB staff has provided relief from this modification guidance through an accounting policy election, provided that changes to the payment terms do not result in a substantial increase in the rights of either the lessee or the lessor under the lease. Piedmont has elected not to apply the relief provided by the FASB Staff, and has instead accounted for all rent relief agreements as result of COVID-19 as lease modifications. See further details concerning rent relief agreements with Piedmont's tenants in Note 7 below.

Reclassifications

Certain prior period amounts presented in the accompanying consolidated balance sheets have been reclassified as of December 31, 2019 to conform to the current period financial statement presentation related to the 1901 Market Street building, which was classified as held for sale as of March 31, 2020, and sold on June 25, 2020. (see Note 8).

3.    Acquisitions

During the nine months ended September 30, 2020, Piedmont acquired three properties and adjacent developable land (collectively the "Dallas Galleria Office Towers") using cash on hand and available funds from the $500 Million Unsecured 2018 Line of Credit, as noted below:

PropertyMetropolitan Statistical AreaDate of AcquisitionOwnership Percentage AcquiredRentable Square FeetPercentage Leased as of Acquisition
Net Contractual Purchase Price(1)(in millions)
Dallas Galleria Office Towers Dallas, TexasFebruary 12, 2020100%1,435,46695%$396.2

(1)Price includes the purchase of an adjacent parcel of approximately 1.9 acres of developable land.

The purchase price of the Dallas Galleria Office Towers and undeveloped land, inclusive of approximately $0.6 million of closing costs, was allocated as follows:


Dallas Galleria Office Towers and Undeveloped Land
Land$19,674 
Building and improvements293,760 
Intangible lease assets (1)
49,177 
Lease acquisition costs, net of tenant credits received from seller (1)
1,344 
Intangible lease origination costs (1)
55,060 
Intangible lease liabilities (1)
(22,169)
Total purchase price
$396,846 

(1)Amortization of in-place lease intangibles and lease acquisition costs are recognized using the straight-line method over approximately 5.2 years, the average remaining life of in-place leases.

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4.    Debt

During the three months ended September 30, 2020, Piedmont issued, through its wholly owned operating partnership, Piedmont OP, $300 million in aggregate principal amount of 3.15% Senior Notes due 2030 (the “$300 Million Unsecured Senior Notes”), which mature on August 15, 2030. Upon issuance of the $300 Million Unsecured Senior Notes, Piedmont OP received proceeds of approximately $297.7 million, reflecting a discount of approximately $2.3 million which will be amortized as interest expense under the effective interest method over the ten-year term of the $300 Million Unsecured Senior Notes. In addition, in conjunction with the issuance, Piedmont settled four forward starting rate swaps, consisting of notional amounts of $200 million. These swaps were settled at a loss of approximately $19.9 million that was recorded as accumulated other comprehensive income and is being amortized as an increase in interest expense over the ten-year term of the $300 Million Unsecured Senior Notes. See Note 5 for further detail. The proceeds from the $300 Million Unsecured Senior Notes were used to fully repay the $300 Million Unsecured 2020 Term Loan that was obtained for the purchase of the Dallas Galleria Office Towers.

Additionally, during the nine months ended September 30, 2020, Piedmont amended the $250 Million Unsecured 2018 Term Loan to reduce the applicable interest rate spread from LIBOR plus 160 basis points to LIBOR plus 95 basis points, based on Piedmont's current credit rating.

Interest on the $300 Million Unsecured Senior Notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2021. The $300 Million Unsecured Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by Piedmont. Piedmont OP may, at its option, redeem the $300 Million Unsecured Senior Notes, in whole or in part, prior to May 15, 2030, at a redemption price equal to the greater of (i) 100% of the principal amount of the $300 Million Unsecured Senior Notes to be redeemed and (ii) a “make-whole” amount, plus any unpaid accrued interest. In addition, at any time on or after May 15, 2030, Piedmont OP may, at its option, redeem the $300 Million Unsecured Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the $300 Million Unsecured Senior Notes to be redeemed plus unpaid accrued interest. The $300 Million Unsecured Senior Notes are subject to certain typical covenants that, subject to certain exceptions: (a) limit the ability of Piedmont and Piedmont OP to, among other things, incur additional secured and unsecured indebtedness; (b) limit the ability of Piedmont and Piedmont OP to merge, consolidate, sell, lease or otherwise dispose of their properties and assets substantially as an entirety; and (c) require Piedmont to maintain a pool of unencumbered assets. The $300 Million Unsecured Senior Notes are also subject to customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the $300 Million Unsecured Senior Notes to become or to be declared due and payable.

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Finally, during the nine months ended September 30, 2020, Piedmont sold the 1901 Market Street building (see Note 8 for further details) and used the majority of the net sale proceeds to repay the $160 Million Fixed-Rate Loan that was secured by the property and all remaining outstanding borrowings under the $500 Million Unsecured 2018 Line of Credit. As a result of repaying the $160 Million Fixed-Rate Loan in advance of its stated maturity, Piedmont recognized a $9.3 million loss on early extinguishment of debt comprised of a prepayment penalty and unamortized deferred financing costs.

The following table summarizes the terms of Piedmont’s indebtedness outstanding as of September 30, 2020 and December 31, 2019 (in thousands):

Facility (1)
Stated Rate
Effective Rate (2)
MaturityAmount Outstanding as of
September 30, 2020December 31, 2019
Secured (Fixed)
$35 Million Fixed-Rate Loan (3)
5.55 %3.75 %9/1/2021$27,976 $28,687 
$160 Million Fixed-Rate Loan (4)
3.48 %3.58 %7/5/2022 160,000 
Net premium and unamortized debt issuance costs
448 343 
Subtotal/Weighted Average (5)
5.55 %28,424 189,030 
Unsecured (Variable and Fixed)
Amended and Restated $300 Million Unsecured 2011 Term Loan (6)
LIBOR +  1.00%
1.16 %11/30/2021300,000 300,000 
$500 Million Unsecured 2018 Line of Credit (6)
LIBOR + 0.90%
 %9/30/2022
(7)
  
$350 Million Unsecured Senior Notes
3.40 %3.43 %6/01/2023350,000 350,000 
$400 Million Unsecured Senior Notes
4.45 %4.10 %3/15/2024400,000 400,000 
$250 Million Unsecured 2018 Term Loan
LIBOR + 0.95%
2.08 %
(8)
3/31/2025250,000 250,000 
$300 Million Unsecured Senior Notes
3.15 %3.90 %
(9)
8/15/2030300,000  
Discounts and unamortized debt issuance costs
(11,589)(7,626)
Subtotal/Weighted Average (5)
2.99 %1,588,411 1,292,374 
Total/Weighted Average (5)
3.03 %$1,616,835 $1,481,404 

(1)Other than one mortgage, the $35 Million Fixed-Rate Loan, all of Piedmont’s outstanding debt as of September 30, 2020 and December 31, 2019 is interest-only until maturity.
(2)Effective rate after consideration of settled or in-place interest rate swap agreements, issuance premiums/discounts, and/or fair market value adjustments upon assumption of debt.
(3)Collateralized by the 5 Wall Street building in Burlington, Massachusetts.
(4)Previously collateralized by the 1901 Market Street building in Philadelphia, Pennsylvania.
(5)Weighted average is based on contractual balance of outstanding debt and the stated or effectively fixed interest rates as of September 30, 2020.
(6)On a periodic basis, Piedmont may select from multiple interest rate options, including the prime rate and various-length LIBOR locks on all or a portion of the principal. All LIBOR selections are subject to an additional spread over the selected rate based on Piedmont’s current credit rating.
(7)Piedmont may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of September 29, 2023) provided Piedmont is not then in default and upon payment of extension fees.
(8)The facility has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of changes to Piedmont's credit rating, $100 million of the principal balance to 3.56% through the maturity date of the loan. For the remaining variable portion of the loan, Piedmont may periodically select from multiple interest rate options, including the prime rate and various-length LIBOR locks on all or a portion of the principal. All LIBOR selections are subject to an additional spread over the selected rate based on Piedmont’s current credit rating. The rate presented is the weighted-average rate for the effectively fixed and variable portions of the debt outstanding as of September 30, 2020 (see Note 5 for more detail).
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(9)The $300 Million Unsecured Senior Notes have a fixed coupon rate of 3.15%, however, as a result of the issuance of the notes at a discount, Piedmont recognizes an effective interest rate on this debt issuance of 3.24%. After consideration of the impact of settled interest rate swap agreements, in addition to the issuance discount, the effective interest rate on this debt is 3.90%.

Piedmont made interest payments on all debt facilities, including interest rate swap cash settlements, of approximately $12.8 million and $17.8 million for the three months ended September 30, 2020 and 2019, respectively, and approximately $41.8 million and $49.7 million for the nine months ended September 30, 2020 and 2019, respectively. Also, Piedmont capitalized interest of approximately $0.2 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively, and approximately $0.6 million and $1.6 million for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, Piedmont believes it was in compliance with all financial covenants associated with its debt instruments.

See Note 6 for a description of Piedmont’s estimated fair value of debt as of September 30, 2020.

5.    Derivative Instruments
Risk Management Objective of Using Derivatives

In addition to operational risks which arise in the normal course of business, Piedmont is exposed to economic risks such as interest rate, liquidity, and credit risk. In certain situations, Piedmont has entered into derivative financial instruments such as interest rate swap agreements and other similar agreements to manage interest rate risk exposure arising from current or future variable rate debt transactions. Interest rate swap agreements involve the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Piedmont’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for Piedmont making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

During the nine months ended September 30, 2020, Piedmont entered into four forward starting interest rate swap agreements with a total notional value of $200 million to hedge the risk of changes in the interest-related cash flows associated with an expected issuance of long-term debt. In conjunction with the issuance of the $300 Million Unsecured Senior Notes (see Note 4), Piedmont settled these forward starting swap agreements for a loss of approximately $19.9 million. The loss was recorded as accumulated other comprehensive income and is being amortized as additional interest expense over the ten-year term of the $300 Million Unsecured Senior Notes. Further, as of September 30, 2020, Piedmont was party to two other interest rate swap agreements, which are designated as effective cash flow hedges and hedge the variable cash flows covering $100 million of the $250 Million Unsecured 2018 Term Loan. The maximum length of time over which Piedmont is hedging its exposure to the variability in future cash flows for forecasted transactions is 54 months.

A detail of Piedmont’s interest rate derivatives outstanding as of September 30, 2020 is as follows:

Interest Rate Derivatives:Number of Swap AgreementsAssociated Debt InstrumentTotal Notional Amount
(in millions)
Effective DateMaturity Date