pdm-20201029
0001042776false00010427762020-10-292020-10-29


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):  October 29, 2020
 
Piedmont Office Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
 
Commission File Number:  001-34626
 
Maryland58-2328421
(State or other jurisdiction of(IRS Employer
incorporation)Identification No.)

5565 Glenridge Connector Ste. 450
Atlanta, Georgia 30342

(Address of principal executive offices, including zip code)
 
(770) 418-8800
(Registrant's telephone number, including area code)
 
Not applicable
(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))

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

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 

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 October 29, 2020, Piedmont Office Realty Trust, Inc. (the "Registrant") issued a press release announcing its financial results for the third quarter 2020, and published supplemental information for the third quarter 2020 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
104Cover Page Interactive Data File (embedded within the Inline XBRL document)







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:October 29, 2020By:/s/    Robert E. Bowers
  Robert E. Bowers
  Chief Financial Officer and Executive Vice President




Document

EXHIBIT 99.1
https://cdn.kscope.io/99e42d9a477608b4aaf5b9253693e789-image11b.jpg

Piedmont Office Realty Trust Reports Third Quarter 2020 Results
ATLANTA, October 29, 2020--Piedmont Office Realty Trust, Inc. ("Piedmont" or the "Company") (NYSE:PDM), an owner of Class A office properties located primarily in select sub-markets within seven major Eastern U.S. office markets, today announced its results for the quarter ended September 30, 2020.

Highlights for the Quarter Ended September 30, 2020:

Reported net income applicable to common stockholders of $8.9 million, or $0.07 per diluted share, for the quarter ended September 30, 2020, as compared with $8.4 million, or $0.07 per diluted share, for the quarter ended September 30, 2019;
Reported Core Funds From Operations of $0.48 per diluted share for the quarter ended September 30, 2020 as compared to $0.45 for the quarter ended September 30, 2019;
Completed approximately 229,000 square feet of leasing (excluding a 172,000 square foot back fill lease), with over a third related to new tenants;
Executed leases for the quarter reflected cash rent roll ups of 6.5% and accrual rent increases of 9.1%;
Collected approximately 99% of billed tenant receivables for the third quarter; and
Completed inaugural "green" bond issuance - $300 million in aggregate principal amount of 3.15% Senior Notes due 2030 used to provide long-term financing for the acquisition of the LEED-certified Galleria Office Towers in Dallas, TX.

Subsequent to Quarter End:
Sold a portfolio of the three remaining assets located in NJ: 600 Corporate Drive and 200 and 400 Bridgewater Crossing, for approximately $130 million, or $176 per square foot;
Acquired 222 South Orange Avenue, an approximately 127,000 square foot office building connected to Piedmont's 200 South Orange Avenue office tower located in downtown Orlando, FL for $20 million, or $157 per square foot; and
Declared fourth quarter dividend of $0.21 per share.

Commenting on the third quarter's results, Brent Smith, President and Chief Executive Officer, said, "We continued to experience strong rent collections and stable financial results during the third quarter, thanks in large part to our portfolio of properties located in strong, amenity-rich, growth markets and our well-diversified, credit-worthy tenants. With new leasing and capital transaction activity beginning to slowly recover during the third quarter from COVID-19 restrictions, we are encouraged by the uptick in leasing tours and proposal activity and our growing leasing pipeline. Also, subsequent to the end of the quarter, we closed on the sale of our New Jersey portfolio and purchased 222 South Orange Avenue, bolstering our position in the Orlando market." Continuing, Smith added, "In addition, we were pleased to complete



our inaugural 'green' bond issuance during the third quarter, demonstrating our continued commitment to investing in the highest quality office properties while responsibly managing our impact on the environment."

Results for the Quarter ended September 30, 2020

Piedmont recognized net income applicable to common stockholders for the three months ended September 30, 2020 of $8.9 million, or $0.07 per diluted share, comparable to $8.4 million, or $0.07 per diluted share, for the three months ended September 30, 2019.

Funds From Operations ("FFO") and Core FFO, were both $0.48 per diluted share for the three months ended September 30, 2020 as compared to $0.45 for the three months ended September 30, 2019 with the third quarter of 2020's results reflecting rental rate roll ups across the portfolio over the past twelve months, net acquisition and disposition activity since July 1, 2019, lower property operating costs, and decreased general and administrative and interest expense.
Total revenues and property operating costs were $131.7 million and $53.3 million, respectively, for the three months ended September 30, 2020, compared to $135.4 million and $54.6 million, respectively, for the third quarter of 2019, with both line items in 2020 reflecting the commencement of new leases, lower reimbursable costs from reduced active occupancy, and net transactional activity during the twelve months prior to September 30, 2020. General and administrative expense was $5.5 million for the third quarter of 2020 as compared to $8.0 million for the same period in 2019, with the three months ended September 30, 2020 reflecting decreased accruals for stock based compensation.

Leasing Update

During the three months ended September 30, 2020, Piedmont completed approximately 229,000 square feet of leasing across its portfolio, with over a third of the activity related to new tenant leasing. These results exclude a 172,000 square foot lease with Deluxe Corporation at Glenridge Highlands II, in Atlanta, GA, that is back filling most of the space related to First Data that was acquired by Fiserv in 2019. Deluxe will be investing $10 million into the building to create a technology innovation center for the Southeast. With regard to the 229,000 square feet of leasing executed during the third quarter, the largest new tenant lease executed was with D.C. Department of General Services on behalf of the D.C. Department of Employment Services for approximately 56,000 square feet at 400 Virginia Avenue in Washington, D.C. Leases executed during the third quarter for recently occupied space reflected a 6.5% and 9.1% roll up in cash and accrual rents, respectively.
As of September 30, 2020, the Company's reported leased percentage and weighted average remaining lease term were approximately 87% and 6.3 years, respectively, with approximately 1.2 million square feet of executed leases for vacant space yet to commence or under rental abatement. Taking into account the sale of the New Jersey portfolio that occurred subsequent to quarter end, the Company's proforma leased percentage would have been approximately 87.4% as of September 30, 2020.
Other than the City of New York's 313,000 square foot lease that is currently in holdover status at 60 Broad Street in New York, the Company has no lease expirations greater than 1% of annualized lease revenue during the eighteen month period following September 30, 2020. The Company remains in advanced discussions for the renewal of substantially all of the City of New York's leased square footage.
Same Store Net Operating Income ("Same Store NOI") decreased 5.7% and increased 0.4% on a cash and accrual basis, respectively, for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019. The decrease in cash basis Same Store NOI was primarily attributable



to rental payment deferrals associated with approximately 60 tenant agreements (a majority of which are retail tenants) that the Company has entered into to date as a result of COVID-19 related issues. Such agreements generally rescheduled rent payments from the second or third quarter of 2020 to the fourth quarter of 2020 or into 2021. Details outlining Piedmont's largest upcoming lease commencements and expirations, the status of certain major leasing activity and a schedule of the largest lease abatements can be found in the Company's quarterly supplemental information package available at www.piedmontreit.com.

Financing Update

During the three months ended September 30, 2020, Piedmont issued $300 million in aggregate principal amount of 3.15% Senior Notes due 2030 and used all the proceeds to provide long-term financing for the acquisition of The Galleria Office Towers in Dallas, TX by paying off the interim funding of the acquisition. The Galleria Office Towers are LEED Certified and are considered an "eligible green project". Eligible green projects include the development and acquisition of green buildings, energy efficient building upgrades, installation of sustainable water and wastewater management systems, and the development of renewable energy.

Transactional Update

Subsequent to September 30, 2020, Piedmont sold a portfolio of three assets located in New Jersey: 600 Corporate Drive, located in Lebanon, NJ; and 200 and 400 Bridgewater Crossing, located in Bridgewater, NJ, for approximately $130 million, or $176 per square foot. The sale completed Piedmont's exit from the New Jersey office market.

Also subsequent to September 30, 2020, Piedmont acquired 222 South Orange Avenue, an approximately 127,000 square foot office building connected to Piedmont's 200 South Orange Avenue asset located in downtown Orlando, FL, for $20 million, or $157 per square foot. 222 South Orange Avenue is located along the Orange Avenue entrance to Piedmont's existing 200 South Orange Avenue property, sharing several physical connection points, including an atrium. Piedmont plans to immediately begin a redevelopment of the property to reposition the asset to a standard consistent with 200 South Orange Avenue.

Fourth Quarter 2020 Dividend Declaration

On October 28, 2020, the board of directors of Piedmont declared a dividend for the fourth quarter of 2020 in the amount of $0.21 per share on its common stock to stockholders of record as of the close of business on November 27, 2020, payable on January 4, 2021.

Guidance for 2020

The longer-term consequences on the economy and our tenants as a result of the COVID-19 pandemic continue to be unknown. Notwithstanding the economic backdrop, Piedmont has a strong, diversified tenant base, a majority of which is investment grade quality. During the third quarter of 2020, the Company collected approximately 99% of billed tenant receivables, net of approximately $2.0 million of tenant rental billings that have been deferred until later in 2020 or 2021. Year to date, the Company has entered into approximately 60 agreements with various tenants that primarily defer approximately $6.7 million of 2020 rent payments until either the fourth quarter of 2020 or into 2021. The Company has a strong balance sheet with excellent liquidity, including approximately $24 million of cash and full availability under its $500 million line of credit as of September 30, 2020, as well as no debt maturities



until late 2021. Additionally, the Company has recorded a $4.8 million general reserve against billed and straight-line rent tenant receivables.

Additional information regarding the Company's year-to-date performance, identified trends, and current expectations related to the pandemic's impact on 2020 annual performance as compared to the Company's original expectations for the year are as follows:

While the Company has experienced an uptick in leasing tours and proposals during the third and early fourth quarter, overall “new tenant” leasing for 2020 will be less than originally expected, modestly lowering 2020 net operating income (“NOI”) by approximately $5 million.
Piedmont’s transient parking income is estimated to be lower by approximately $2 to $3 million for the year.
Overall retail NOI, which comprises approximately 1% of the Company’s total 2020 revenues, is estimated to be lower by approximately $2 million for the year.
During the nine months ended September 30, 2020, the Company has taken approximately $2.6 million in bad debt charges against rental revenue in recognition of an increase in collectibility risk. The Company also has recorded a $4.8 million general reserve against billed and straight-line rent tenant receivables.
Reduced operating expenses (net of tenants' share) at the Company's buildings during 2020 are anticipated to be $3 to $4 million for the year.
The Company anticipates $5 million lower interest expense for 2020 due to lower prevailing interest rates.
The Company anticipates $1 to $2 million in lower general and administrative expenses for the year.

The above identified impacts of the COVID-19 pandemic on NOI during 2020 equate to a net reduction of approximately $6 to $8 million from our original expectations for the year.

Based on management's current expectations, the Company is reinstating guidance for the year ending December 31, 2020, which represents an approximately 6% increase over 2019 results, as follows:
(in millions, except per share data)LowHigh
Net Income$217-$218
Add:
Depreciation110 -111
Amortization93 -94
Less: Gain on Sale of Real Estate Assets(191)-(192)
NAREIT FFO applicable to common stock$229-$231
NAREIT FFO per diluted share$1.81-$1.83
Less: Loss on Early Extinguishment of Debt9-9
Core FFO applicable to common stock$238-$240
Core FFO per diluted share$1.88-$1.90

These estimates reflect management's view of current market conditions and incorporate the impacts and trends noted above as well as the effects of the fourth quarter acquisition and disposition activity noted above. The above guidance is based on information available to management as of the date of this release. Actual results could differ materially from these estimates based on a variety of factors as discussed under "Forward Looking Statements" below.




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 September 30, 2020 contain certain financial measures that are not prepared in accordance with GAAP, including FFO, Core FFO, AFFO, Same Store NOI (cash and accrual basis), Property NOI (cash and accrual 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.

Conference Call Information

Piedmont has scheduled a conference call and an audio web cast for Friday, October 30, 2020 at 10:00 A.M. Eastern daylight time. The live, listen-only, audio web cast of the call may be accessed on the Company's website at http://investor.piedmontreit.com/news-and-events/events-calendar. Dial-in numbers for analysts who plan to actively participate in the call are (844) 369-8770 for participants in the United States and Canada and (862) 298-0840 for international participants. A replay of the conference call will be available through 10:00 A.M. Eastern time on November 13, 2020, 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 38220. A web cast replay will also be available after the conference call in the Investor Relations section of the Company's website. During the audio web cast and conference call, the Company's management team will review third quarter 2020 performance, discuss recent events, and conduct a question-and-answer period.

Supplemental Information

Quarterly supplemental information as of and for the period ended September 30, 2020 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, redeveloper, and operator of high-quality, Class A office properties located primarily in select sub-markets within seven major Eastern U.S. office markets, with the majority of its revenue being generated from the Sunbelt. Its geographically-diversified, approximately $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 markets and is investment-grade rated by S&P Global Ratings (BBB) and Moody’s (Baa2). At the end of the third quarter, approximately 63% of the company’s portfolio was ENERGY STAR certified and approximately 41% was LEED certified. 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 substantially all of the statements contained in the section labeled "Guidance for 2020" (including all statements regarding our expected results of operations for the current fiscal year).
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: 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 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 special reserve in the future; economic, regulatory, socioeconomic 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; 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 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 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 potential 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; 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 co-working tenants, 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 or otherwise adversely affect our stockholders; the future effectiveness of our internal controls and procedures; and other factors, including the risk factors discussed under Item 1A. of Piedmont’s Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Reports on Form 10-Q for the three months ended March 31, 2020, June 30, 2020, and September 30, 2020.

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

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

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



Piedmont Office Realty Trust, Inc.
Consolidated Balance Sheets (Unaudited)
 (in thousands)
September 30, 2020December 31, 2019
Assets:
Real estate assets, at cost:
Land
$505,228 $485,560 
Buildings and improvements
3,283,980 2,943,685 
Buildings and improvements, accumulated depreciation
(803,160)(730,750)
Intangible lease assets
161,870 125,171 
Intangible lease assets, accumulated amortization
(63,353)(50,766)
Construction in progress
56,393 29,920 
Real estate assets held for sale, gross— 233,951 
Real estate assets held for sale, accumulated depreciation and amortization
— (94,261)
Total real estate assets
3,140,958 2,942,510 
Cash and cash equivalents
23,958 13,545 
Tenant receivables
11,301 8,226 
Straight line rent receivables
154,620 132,342 
Restricted cash and escrows
1,781 1,841 
Prepaid expenses and other assets
28,074 25,427 
Goodwill
98,918 98,918 
Deferred lease costs, gross
463,447 413,071 
Deferred lease costs, accumulated depreciation
(169,975)(147,324)
Other assets held for sale, gross
— 63,158 
Other assets held for sale, accumulated depreciation
— (34,957)
Total assets$3,753,082 $3,516,757 
Liabilities:
Unsecured debt, net of discount and unamortized debt issuance costs
$1,588,411 $1,292,374 
Secured debt, inclusive of premium and unamortized debt issuance costs
28,424 189,030 
Accounts payable, accrued expenses, and accrued capital expenditures
120,763 117,496 
Dividends payable
— 26,427 
Deferred income
36,613 34,609 
Intangible lease liabilities, less accumulated amortization
38,324 25,069 
Interest rate swaps
10,618 5,121 
Other liabilities held for sale
— 7,657 
Total liabilities1,823,153 1,697,783 
Stockholders' equity:
Common stock
1,260 1,258 
Additional paid in capital
3,692,634 3,686,398 
Cumulative distributions in excess of earnings
(1,740,670)(1,871,375)
Other comprehensive income
(24,993)967 
Piedmont stockholders' equity1,928,231 1,817,248 
Non-controlling interest
1,698 1,726 
Total stockholders' equity1,929,929 1,818,974 
Total liabilities and stockholders' equity$3,753,082 $3,516,757 
Number of shares of common stock outstanding as of end of period126,029 125,783 




Piedmont Office Realty Trust, Inc.
Consolidated Statements of Income
Unaudited (in thousands, except for per share data)
Three Months EndedNine Months Ended
9/30/20209/30/20199/30/20209/30/2019
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 
Total revenues
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 administrative5,469 7,950 20,049 29,736 
Total operating expenses
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 
Total other income (expense)
(12,746)(15,850)140,571 (6,088)
Net income8,940 8,419 210,077 66,780 
Net loss applicable to noncontrolling interest
Net income applicable to Piedmont$8,943 $8,422 $210,079 $66,783 
Weighted average common shares outstanding - diluted126,385 126,240 126,302 126,190 
Net income per share applicable to common stockholders - diluted$0.07 $0.07 $1.66 $0.53 












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 EndedNine Months Ended
9/30/20209/30/20199/30/20209/30/2019
GAAP net income applicable to common stock$8,943 $8,422 $210,079 $66,783 
Depreciation of real estate assets(1)
27,960 26,909 82,384 79,346 
Amortization of lease-related costs
22,976 19,491 70,930 55,622 
Impairment loss on real estate assets
— 1,953 — 1,953 
(Gain)/loss on sale of real estate assets
340 (32)(191,032)(39,370)
NAREIT Funds From Operations applicable to common stock*
60,219 56,743 172,361 164,334 
Retirement and separation expenses associated with senior management transition in June 2019
— — — 3,175 
Loss on early extinguishment of debt
— — 9,336 — 
Core Funds From Operations applicable to common stock*60,219 56,743 181,697 167,509 
Amortization of debt issuance costs, fair market adjustments on notes payable, and discounts on debt
931 526 2,180 1,574 
Depreciation of non real estate assets
286 214 930 634 
Straight-line effects of lease revenue
(6,315)(1,531)(20,378)(7,437)
Stock-based compensation adjustments
1,336 (3,015)4,281 1,949 
Net effect of amortization of above/below-market in-place lease intangibles
(3,240)(1,923)(9,517)(6,009)
Non-incremental capital expenditures(2)
(15,611)(14,352)(58,062)(3)(27,410)
Adjusted Funds From Operations applicable to common stock*$37,606 $36,662 $101,131 $130,810 
Weighted average common shares outstanding - diluted126,385 126,240 126,302 126,190 
Funds From Operations per share (diluted)$0.48 $0.45 $1.36 $1.30 
Core Funds From Operations per share (diluted)$0.48 $0.45 $1.44 $1.33 

(1)Excludes depreciation of non real estate assets.

(2)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.

(3)Includes the leasing commission for the approximately 20-year, 520,000-square-foot renewal and expansion of the State of New York's lease at our 60 Broad Street building in New York City that was executed during the fourth quarter of 2019.






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 BasisAccrual Basis
Three Months EndedThree Months Ended
9/30/20209/30/20199/30/20209/30/2019
Net income applicable to Piedmont (GAAP)$8,943 $8,422 $8,943 $8,422 
Net loss applicable to non-controlling interest
(3)(3)(3)(3)
Interest expense
12,725 16,145 12,725 16,145 
Depreciation
28,247 27,124 28,247 27,124 
Amortization
22,976 19,491 22,976 19,491 
Impairment loss on real estate assets
— 1,953 — 1,953 
(Gain)/Loss on sale of real estate assets
340 (32)340 (32)
EBITDAre and Core EBITDA*
73,228 73,100 73,228 73,100 
General & administrative expenses
5,469 7,950 5,469 7,950 
Management fee revenue
(422)(203)(422)(203)
Other income
(104)(47)(104)(47)
       Non-cash general reserve for uncollectible accounts(33)— 
Straight line effects of lease revenue
(6,315)(1,531)
Amortization of lease-related intangibles
(3,240)(1,923)
Property NOI*68,583 77,346 78,171 80,800 
Net operating income from:
Acquisitions
(10,165)(2,771)(14,222)(3,627)
Dispositions
(56)(11,800)(56)(12,740)
Other investments(1)
18 (896)(80)(889)
Same Store NOI*$58,380 $61,879 $63,813 $63,544 
Change period over period in Same Store NOI(5.7)%N/A0.4 %N/A

(1)Other investments consist of our investments in 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 Two Pierce Place in Itasca, IL are included in this line item.




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 BasisAccrual Basis
Nine Months EndedNine Months Ended
9/30/20209/30/20199/30/20209/30/2019
Net income applicable to Piedmont (GAAP)$210,079 $66,783 $210,079 $66,783 
Net income applicable to noncontrolling interest(2)(3)(2)(3)
Interest expense41,942 46,750 41,942 46,750 
Depreciation83,315 79,982 83,315 79,982 
Amortization70,930 55,622 70,930 55,622 
 Impairment loss on real estate assets— 1,953 — 1,953 
Gain on sale of real estate assets(191,032)(39,370)(191,032)(39,370)
EBITDAre*215,232 211,717 215,232 211,717 
Loss on early extinguishment of debt9,336 — 9,336 — 
Retirement and separation expenses associated with senior management transition— 3,175 — 3,175 
Core EBITDA*224,568 214,892 224,568 214,892 
General & administrative expenses20,049 26,561 20,049 26,561 
Management fee revenue(1,098)(2,226)(1,098)(2,226)
Other income(170)(165)(170)(165)
Non-cash general reserve for uncollectible accounts4,831 — 
Straight line effects of lease revenue(20,378)(7,437)
Amortization of lease-related intangibles(9,517)(6,009)
Property NOI*218,285 225,616 243,349 239,062 
Net operating income from:
Acquisitions(28,379)(3,691)(38,008)(4,782)
Dispositions(9,035)(38,977)(10,711)(40,566)
Other investments(1)
(288)(1,181)(319)(1,158)
Same Store NOI *$180,583 $181,767 $194,311 $192,556 
Change period over period in Same Store NOI(0.7)%N/A0.9 %N/A


(1)Other investments consist of our investments in 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 Two Pierce Place in Itasca, IL are included in this line item.



*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 (that are not capitalized) 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 (that are not capitalized) 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.

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.

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 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.


Document


EXHIBIT 99.2




https://cdn.kscope.io/99e42d9a477608b4aaf5b9253693e789-image11a.jpg



Quarterly Supplemental Information
September 30, 2020











Corporate HeadquartersInstitutional Analyst ContactInvestor Relations
5565 Glenridge Connector, Suite 450Telephone: 770.418.8592Telephone: 866.354.3485
Atlanta, GA 30342research.analysts@piedmontreit.cominvestor.services@piedmontreit.com
Telephone: 770.418.8800www.piedmontreit.com




Piedmont Office Realty Trust, Inc.
Quarterly Supplemental Information
Index


PagePage
IntroductionOther Investments
Corporate DataOther Investments Detail
Investor InformationSupporting Information
Financial HighlightsDefinitions
FinancialsResearch Coverage
Balance SheetsNon-GAAP Reconciliations
Income StatementsProperty Detail - In-Service Portfolio
Key Performance IndicatorsRisks, Uncertainties and Limitations
Funds From Operations / Adjusted Funds From Operations
Same Store Analysis
Capitalization Analysis
Debt Summary
Debt Detail
Debt Covenant & Ratio Analysis
Operational & Portfolio Information - Office Investments
Tenant Diversification
Tenant Credit Rating & Lease Distribution Information
Leased Percentage Information
Rental Rate Roll Up / Roll Down Analysis
Lease Expiration Schedule
Quarterly Lease Expirations
Annual Lease Expirations
Capital Expenditures
Contractual Tenant Improvements & Leasing Commissions
Geographic Diversification
Geographic Diversification by Location Type
Industry Diversification
Property Investment Activity
Notice to Readers:
Please refer to page 45 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, acquisitions, dispositions, 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.
In certain presentations herein, the Company has provided disaggregated financial and operational data (for example, some pieces of information are displayed by geography, industry, or lease expiration year) for informational purposes for readers; however, regardless of the various presentation approaches taken herein, we continue to evaluate and utilize our consolidated financial results in making operating decisions, allocating resources, and assessing our performance.




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, redeveloper and operator of high-quality, Class A office properties in select sub-markets located primarily within seven major Eastern U.S. office markets, with approximately half of its revenue generated from the Sunbelt. Its geographically-diversified, approximately $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 markets and is investment-grade rated by Standard & Poor’s and Moody’s. At the end of the third quarter of 2020, approximately 63% of the Company's portfolio was Energy Star certified and approximately 41% was LEED certified. Piedmont is headquartered in Atlanta, GA.

This data supplements the information provided in our reports filed with the Securities and Exchange Commission and should be reviewed in conjunction with such filings.

As ofAs of
September 30, 2020December 31, 2019
Number of consolidated office properties (1) (2)
5755
Rentable square footage (in thousands) (1) (2)
17,16516,533
Percent leased (2) (3)
86.9 %89.7 %
Percent leased after New Jersey portfolio sale (4)
87.4 %N/A
Capitalization (in thousands):
Total debt - principal amount outstanding (excludes premiums, discounts, and deferred financing costs)$1,627,976$1,488,687
Equity market capitalization (5)
$1,710,210$2,797,423
Total market capitalization (5)
$3,338,186$4,286,110
Total debt / Total market capitalization (5)
48.8 %34.7 %
Average net debt to Core EBITDA5.5 x5.4 x
Total debt / Total gross assets34.0 %32.5 %
Common stock data:
High closing price during quarter$16.83$22.44
Low closing price during quarter$13.41$20.32
Closing price of common stock at period end$13.57$22.24
Weighted average fully diluted shares outstanding during quarter (in thousands)126,385126,359
Shares of common stock issued and outstanding at period end (in thousands)126,029125,783
Annual regular dividend per share (6)
$0.84$0.84
Rating / Outlook:
Standard & Poor'sBBB / StableBBB / Stable
Moody'sBaa2 / StableBaa2 / Stable
Employees136134

(1)As of September 30, 2020, our consolidated office portfolio consisted of 57 properties. During the first quarter of 2020, we acquired One Galleria Tower, Two Galleria Tower and Three Galleria Tower, three office buildings comprised of 1,435,000 square feet in total, along with a 1.9 acre developable land parcel, located in Dallas, TX. During the second quarter of 2020, we sold 1901 Market Street, an 801,000 square foot office building located in Philadelphia, PA. There were no acquisitions or dispositions of office properties completed during the third quarter of 2020.
(2)
This measure is presented for our consolidated office properties, and the metric for December 31, 2019, has been restated to include one redevelopment property that was placed back into service on January 1, 2020. The redevelopment property is Two Pierce Place, a 485,000 square foot office building located in Itasca, IL.
(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. Please refer to page 27 for additional analyses regarding Piedmont's leased percentage.
(4)Subsequent to quarter end, on October 28, 2020, Piedmont closed on the sale of its three remaining New Jersey properties for a total sale price of $130 million. The leased percentage as of September 30, 2020 updated to remove the sold New Jersey properties is 87.4% and the total rentable square footage for the Company after the portfolio disposition is 16,426,000 square feet.
(5)Reflects common stock closing price, shares outstanding and outstanding debt as of the end of the reporting period, as appropriate.
(6)Total of the regular dividends per share for which record dates occurred over the prior four quarters.

3


Piedmont Office Realty Trust, Inc.
Investor Information
Corporate
5565 Glenridge Connector, Suite 450
Atlanta, Georgia 30342
770.418.8800
www.piedmontreit.com

Executive Management
C. Brent SmithRobert E. BowersEdward H. Guilbert, IIIChristopher A. Kollme
Chief Executive Officer, PresidentChief Financial and Administrative OfficerExecutive Vice President, Finance,Executive Vice President,
and Directorand Executive Vice PresidentAssistant Secretary and TreasurerFinance & Strategy
Investor Relations Contact
Laura P. MoonJoseph H. PangburnThomas R. PrescottAlex Valente
Chief Accounting Officer andExecutive Vice President,Executive Vice President,Executive Vice President,
Senior Vice PresidentSouthwest RegionMidwest RegionSoutheast Region
George WellsRobert K. Wiberg
Executive Vice President,Executive Vice President,
Real Estate OperationsNortheast Region and Head of Development
Board of Directors
Frank C. McDowellDale H. TaysomKelly H. BarrettWesley E. Cantrell
Director, Chairman of the Board of Directors,Director, Vice Chairman of the Director, Chair of the Audit Committee, Director, Chair of the Governance
Chair of the Compensation Committee, andBoard of Directors, and Member of theand Member of the Governance CommitteeCommittee, and Member of the
Member of the Audit and Governance CommitteesAudit and Capital CommitteesCompensation Committee
Glenn G. CohenBarbara B. LangC. Brent SmithJeffery L. Swope
Director and Member of the Audit CommitteeDirector and Member of the CompensationChief Executive Officer, PresidentDirector, Chair of the Capital
and Governance Committeesand DirectorCommittee, and Member of the
Compensation Committee

Transfer AgentCorporate Counsel
ComputershareKing & Spalding
P.O. Box 301701180 Peachtree Street, NE
College Station, TX 77842-3170Atlanta, GA 30309
Phone: 866.354.3485Phone: 404.572.4600

4


Piedmont Office Realty Trust, Inc.
Financial Highlights
As of September 30, 2020

Financial Results (1)

Net income attributable to Piedmont for the quarter ended September 30, 2020 was $8.9 million, or $0.07 per share (diluted), compared to $8.4 million, or $0.07 per share (diluted), for the same quarter in 2019. Net income attributable to Piedmont for the nine months ended September 30, 2020 was $210.1 million, or $1.66 per share (diluted), compared to $66.8 million, or $0.53 per share (diluted), for the same period in 2019. The increase in net income attributable to Piedmont for the nine months ended September 30, 2020 when compared to the same period in 2019 was principally due to the larger amount of net gains recorded in 2020 when compared to 2019 attributable to real estate asset and related debt transactions completed during the respective periods. In addition, 2020 net income results increased due to: 1) higher revenues in 2020 when compared to 2019 related to accrual basis rental rate increases associated with recent leasing activity across the portfolio; 2) accretive capital recycling activities over the prior year; 3) lower general and administrative expenses as a result of the Company's recent stock price performance relative to peers; and 4) lower interest expense as a result of lower prevailing interest rates. Partially offsetting the increase in net income attributable to Piedmont in 2020 were higher amortization and depreciation expenses in 2020 when compared to 2019 attributable to over $720 million of acquisitions completed since the beginning of 2019.

Funds from operations (FFO) for the quarter ended September 30, 2020 was $60.2 million, or $0.48 per share (diluted), compared to $56.7 million, or $0.45 per share (diluted), for the same quarter in 2019. FFO for the nine months ended September 30, 2020 was $172.4 million, or $1.36 per share (diluted), compared to $164.3 million, or $1.30 per share (diluted), for the same period in 2019. The increase in FFO for the three months and the nine months ended September 30, 2020 when compared to the same periods in 2019 was principally the result of growth in revenue attributable to accrual basis rental rate increases associated with recent leasing activity across the portfolio, accretive capital recycling activities over the prior year, lower general and administrative expenses, and lower interest expense, partially offset by a loss on the early extinguishment of debt recorded in 2020 as a result of the sale of 1901 Market Street in Philadelphia, PA and the early repayment of the associated mortgage.

Core funds from operations (Core FFO) for the quarter ended September 30, 2020 was $60.2 million, or $0.48 per share (diluted), compared to $56.7 million, or $0.45 per share (diluted), for the same quarter in 2019. Core FFO for the nine months ended September 30, 2020 was $181.7 million, or $1.44 per share (diluted), compared to $167.5 million, or $1.33 per share (diluted), for the same period in 2019. The increase in Core FFO for the three months and the nine months ended September 30, 2020 when compared to the same periods in 2019 was primarily attributable to accrual basis rental rate increases associated with recent leasing activity across the portfolio, accretive capital recycling activities over the prior year, lower general and administrative expenses, and lower interest expense.

Adjusted funds from operations (AFFO) for the quarter ended September 30, 2020 was $37.6 million, compared to $36.7 million for the same quarter in 2019. AFFO for the nine months ended September 30, 2020 was $101.1 million, compared to $130.8 million for the same period in 2019. The decrease in AFFO for the nine months ended September 30, 2020 when compared to the same period in 2019 was primarily due to a greater amount of non-incremental capital expenditures during the first quarter of 2020 related to the large amount of recently executed new and renewal leases in our portfolio, including the 20-year lease renewal with the State of New York at 60 Broad Street in New York, NY, for which leasing commissions totaling $16.1 million were paid during the first quarter.

Update Related to COVID-19

During the third quarter of 2020, our buildings remained open and fully operational for our tenants, with a slowly increasing number of tenants' employees returning to work in our buildings. As of September 2020, tenant physical occupancy per building varied greatly among our buildings, ranging from 10% to nearly 100% occupancy. Average occupancy was approximately one quarter of our normal tenant population on any given day. The highest space utilization rate continued to be observed at our properties located in Sunbelt markets and at mission-critical government-related locations.

We feel fortunate to have duration and durability in the cash flow generated by our tenant base. The majority of our tenants are of investment grade quality, and our in place leases have a weighted average lease term remaining of over 6 years. Approximately 1% of our revenues are related to retail tenants and approximately 2% of our 2020 budgeted revenues are associated with the co-working sector, both of which have been particularly hard hit by the economic effects of the pandemic. Additionally, only approximately 1% of our annual revenues comes from transient parking, income from which has decreased with the decline in our average daily physical occupancy.




(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.
5



As a result of our diversification, limited exposure to the sectors of the economy most impacted by the pandemic and strong tenant credit profile, we have collected approximately 99% of the billed rents that were due for July, August and September based on contractual lease terms. However, our tenant base is not immune from the economic effects of the pandemic. During the quarter, we received a few additional new tenant requests for some type of rent relief along with a few requests for extensions of existing rent relief. To date, of the approximately 1,000 leases in our portfolio, we have entered into rent relief agreements with approximately 60 tenants, of which approximately 10 were entered into during the third quarter, predominately with tenants operating in the retail, hospitality, travel, consulting and co-working sectors. These approximately 60 rent relief agreements represent tenants occupying less than 5% of the square footage in our portfolio. A total of approximately $6.7 million of rental obligations were primarily deferred ($2.0 million of which was related to billings originally due in the third quarter). The typical deferral periods are between 3 and 4 months with repayment occurring late in 2020 or in 2021 with interest.

Similar to last quarter and as a result of COVID-19's impact on our tenants' operations, Piedmont undertook a review of all outstanding tenant receivables, including assessing the collectibility risk associated with existing accounts receivable and existing straight line rent receivables. During the third quarter of 2020, as a result of the review, there was no material change to the approximately $5 million general reserve for bad debts established by the Company in the second quarter of 2020 and no material income statement impact. The general reserve approximates 1% of the Company's Annualized Lease Revenue; the Company will continue to reassess tenant receivables and the reserve, and make adjustments as it deems appropriate.

Regarding Piedmont’s liquidity and capitalization, management believes the Company has sufficient liquidity and capital capacity to withstand the effects of the economic slowdown associated with COVID-19 and will be able to meet all of its financial obligations, including the servicing of its debt, as well as to meet all of its debt covenants, each with a significant buffer to the relevant threshold. Piedmont is in a strong balance sheet position, with approximately $24 million in cash and full availability under our $500 million line of credit at the end of the third quarter. As of September 30, 2020, our debt to gross assets ratio was approximately 34%, unchanged from the prior quarter end.

The COVID-19 pandemic had only a limited impact on the Company’s overall results year-to-date in 2020. However, we do expect the coronavirus pandemic will continue to impact our tenants' operations and financial results and their ability to pay their lease obligations during the fourth quarter and potentially beyond. The short-term financial impacts caused by the pandemic on our financial results are yet to be fully realized and will depend upon how long the economic disruption associated with the pandemic lasts. Leasing activity did slow down during the second and third quarters of 2020 and will delay some of the expected growth in the portfolio into 2021. The Company has re-issued guidance for 2020 under the Guidance for 2020 section below. The Company expects to achieve Core FFO in the range of $1.88 to $1.90 per share, an approximately 6% increase over the per share results for 2019. The Company will issue 2021 financial guidance with the financial results for the fourth quarter of 2020.

Operations and Leasing

As of September 30, 2020, Piedmont had 57 in-service office properties located primarily in seven major office markets in the eastern portion of the United States, with approximately half of our revenue coming from Sunbelt markets. On a square footage leased basis, our total in-service office portfolio was 87.4% leased after the sale of the New Jersey portfolio and 86.9% leased as of September 30, 2020, as compared to 89.7% at December 31, 2019 (restated to include one out-of-service asset, Two Pierce Place in Itasca, IL, which was placed back into service on January 1, 2020). A main contributor to the reduction in leased percentage from December 31, 2019 to September 30, 2020 was the sale of the 100% leased 1901 Market Street in Philadelphia, PA, during the second quarter of 2020. Please refer to page 27 for additional leased percentage information.

The weighted average remaining lease term of our in-service portfolio was 6.3 years(1) as of September 30, 2020 as compared to 7.0 years at December 31, 2019. A contributor to the reduction in weighted average remaining lease term was the sale of 1901 Market Street in Philadelphia, PA, an 801,000 square foot, fully-leased building with approximately 13 years of lease term remaining. Our weighted average adjusted Annualized Lease Revenue(2) per square foot for our in-service portfolio was $36.48 as of September 30, 2020.

During the three months ended September 30, 2020, the Company completed approximately 229,000 square feet of leasing activity, exclusive of an approximately 172,000 square foot back-fill lease executed by Deluxe Corporation at Glenridge Highlands Two in Atlanta, GA. Of the total leasing activity completed during the quarter, we signed new tenant leases for approximately 78,000 square feet. During the nine months ended September 30, 2020, the Company completed approximately 917,000 square feet of leasing activity, of which approximately 210,000 square feet was related to new tenant leases. The average committed capital for tenant improvements and leasing commissions per square foot per year of lease term for all leasing activity completed during the nine months ended September 30, 2020 (net of commitment expirations during the period) was $5.90 (see page 33).


(1)
Remaining lease term (after taking into account leases for vacant spaces which had been executed but not commenced as of September 30, 2020) is weighted based on Annualized Lease Revenue, as defined on page 39.
(2)Annualized Lease Revenue is adjusted for buildings at which tenants pay operating expenses directly to include such operating expenses as if they were paid by the Company and reimbursed by the tenants as under a typical net lease structure, thereby incorporating the effective gross rental rate for those buildings.
6


Of the 229,000 square feet of leases executed during the three months ended September 30, 2020, three leases were greater than 10,000 square feet at our office properties. Information on those leases is set forth below.
TenantPropertyMarketSquare Feet
Leased
Expiration
Year
Lease Type
The Ultimate Software Group, Inc.Galleria 400Atlanta73,7582030Renewal
District of Columbia Department of General Services400 Virginia AvenueWashington, DC56,0422032New
Fors Marsh Group, LLC4250 North Fairfax DriveWashington, DC15,1212022New

At the end of the third quarter of 2020, there was one tenant whose lease individually contributed greater than 1% in Annualized Lease Revenue expiring during the eighteen month period following September 30, 2020. Information regarding the leasing status of the space associated with this tenant's lease is presented below.
TenantPropertyProperty LocationNet
Square
Footage
Expiring
Net Percentage of
Current Quarter
Annualized Lease
Revenue Expiring
(%)
ExpirationCurrent Leasing Status
City of New York60 Broad StreetNew York, NY313,0222.9%In HoldoverThe tenant is currently in holdover. The Company is in advanced discussions with the tenant regarding a lease renewal.


Future Lease Commencements and Abatements

As of September 30, 2020, our overall leased percentage was 86.9% and our economic leased percentage was 80.7%. 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 313,811 square feet of leases as of September 30, 2020, or 1.8% of the portfolio); and
2)leases which have commenced but are within rental abatement or deferral periods (amounting to 893,117 square feet of leases as of September 30, 2020, or a 4.4% impact to leased percentage on an economic basis).

The gap between reported leased percentage and economic leased percentage will fluctuate over time as (1) new leases are signed for vacant spaces, (2) abatements and deferrals associated with existing or newly executed leases commence and expire, and/or (3) properties are bought and sold. See below for more detail on existing large leases with abatements and deferrals. The gap this quarter between reported leased percentage and economic leased percentage included COVID-related rent relief (primarily rent deferrals; with a typical duration of between three and four months) representing an approximately 0.8% impact to leased percentage.

Piedmont has leases with many large corporate office space users. The average size of lease in the Company's portfolio is approximately 15,000 square feet. Due to the large size and length of term of new leases, Piedmont typically signs leases several months in advance of their anticipated lease commencement dates. Presented below is a schedule of uncommenced leases greater than 50,000 square feet and their anticipated commencement dates. Lease renewals are excluded from this schedule.
TenantPropertyProperty LocationSquare Feet
Leased
Space StatusEstimated
Commencement
Date
New /
Expansion
Amazon.com Services LLCOne Galleria TowerDallas, TX81,628Vacant
Q4 2020 (1)
New
WeWork Companies Inc.200 South Orange AvenueOrlando, FL71,344Vacant
Late 2021 (2)
New
District of Columbia Department of General Services400 Virginia AvenueWashington, DC56,04243,000 SF VacantQ1 2022New
salesforce.com5 Wall StreetBurlington, MA51,913Not VacantQ3 2021New

(1)GAAP revenue recognition is anticipated to commence in Q4 2020, conditioned upon the substantial completion of the tenant's improvements to the space. The contractual lease period began in Q3 2020.
(2)In the construction permitting process, the tenant has been required by the local government to make modifications to its space plans resulting in a delay of the receipt of construction permits.
7


New leases frequently provide rental abatement concessions to tenants and these abatements typically occur at the beginning of the leases. Additionally, the Company has recently entered into rent deferral agreements with some tenants as a result of COVID-19's impact on their financial operations. The currently reported cash net operating income and AFFO understate the Company's long-term cash generation ability from existing signed leases due to some leases being in abatement or deferral periods. Presented below is a schedule of leases with abatements or deferrals of 50,000 square feet or greater that are either currently under abatement or deferral or will be so within the next twelve months. (1)

Abatements
TenantPropertyProperty LocationAbated Square FeetLease Commencement DateRemaining Abatement ScheduleLease Expiration
Transocean Offshore Deepwater Drilling, Inc.Enclave PlaceHouston, TX300,906
Q4 2019
Commencement through April 2021
Q2 2036
Advanced Micro Devices, Inc.90 Central StreetBoxborough, MA107,244Q1 2021January through March 2021Q1 2028


COVID-19 - Related Rent Deferrals

There were no leases of 50,000 square feet or greater that were under deferral or will be so within the next twelve months as of September 30, 2020.



Financing and Capital Activity

Among Piedmont's stated strategic objectives is to harvest capital through the disposition of non-core assets, such as the three-property New Jersey portfolio sale noted in the Subsequent Events section, and assets in which the Company believes the value potential during its ownership has been reached and to use the sale proceeds to:
invest in real estate assets with higher overall return prospects and/or strategic merits in one of our identified operating markets where we have a significant operating presence with a competitive operating advantage and that otherwise meet our strategic criteria;
reduce leverage levels by repaying outstanding debt; and/or
repurchase Company stock when it is believed to be trading at a significant discount to NAV.
Information on the Company's recent accomplishments in furtherance of its strategic objectives is presented below.

Dispositions
There were no dispositions completed during the quarter ended September 30, 2020.

Acquisitions
There were no acquisitions completed during the quarter ended September 30, 2020.

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

Development / Redevelopment
During the fourth quarter of 2019, Piedmont commenced an approximately $18.5 million redevelopment of 200 South Orange Avenue in Orlando, FL. The project will allow the Company to reposition the property, creating a premier environment for downtown office tenants. The redevelopment plan includes a redesigned lobby and entry experience, an energized outdoor park, the addition of new food and beverage options, an upgraded conference center, a tenant lounge, and a new crown lighting system. As of September 30, 2020, the project remained on schedule and within budget.

Details on the Company's developable land parcels, all of which are located adjacent to existing Piedmont properties, can be found on page 38.



(1)The State of New York lease does not contain any rental abatement provisions. The tenant's space will be reconstructed over a period of approximately four years. During the construction period, the tenant will not be required to pay rental charges for certain spaces that are under construction and not usable by the tenant. The amount of space for which the tenant will not be required to pay rent will vary over time and is expected to average approximately 80,000 square feet over the construction time period.


8


Finance
On August 12, 2020, Piedmont completed its inaugural green bond offering for $300 million in aggregate principal amount. The 10-year, 3.15% senior unsecured notes are due August 15, 2030 and were offered at 99.236% of the principal amount. The Company used the net proceeds from the sale of the notes to repay the $300 million unsecured term loan that was scheduled to mature on March 11, 2022. The completion of the notes offering allowed the Company to further its objectives of lengthening and staggering its debt maturity schedule; the Company intends to continue this liability management program with similar debt issuances over the next several years to refinance its near- and intermediate-term debt maturities.

The net proceeds from green bonds must be allocated to Eligible Green Projects ("EGPs"). EGPs are defined as investments in:
Buildings, developments, redevelopments, existing building renovations, and tenant improvements, in each case, that have received, or are expected to receive, a LEED Certified, Silver, Gold or Platinum certification (or similar BREEAM standards);
Increased energy efficiency;
Increased water efficiency; and
Renewable energy.
For additional information, please refer to the Company's Green Bond Framework, available on the Company's website in the Sustainability and Recognition section, or the Prospectus Supplement dated August 5, 2020. The Company allocated the entire amount of net proceeds from the green bond issuance to the acquisition of the LEED-certified Galleria Office Towers in Dallas, TX, that closed in February 2020.

As of September 30, 2020, our ratio of total debt to total gross assets was 34.0%, and the same measure at December 31, 2019 was 32.5%. This debt ratio is based on total principal amount outstanding for our various loans as of the relevant measurement date.

As of September 30, 2020, our average net debt to Core EBITDA ratio was 5.5 x, and the same measure at December 31, 2019 was 5.4 x.

Stock Repurchase Program
No repurchases of the Company's common stock were completed during the first three quarters of 2020. As of quarter end, Board-approved capacity available for repurchases totaled $200 million under the stock repurchase plan. Repurchases of stock under the program are made at the Company's discretion and are dependent on market conditions, the discount to estimated net asset value, other investment opportunities and other factors that the Company deems relevant.

Dividend
On July 29, 2020, the Board of Directors of Piedmont declared a dividend for the third quarter of 2020 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on August 28, 2020. The dividend was paid on September 18, 2020.

Subsequent Events
On October 28, 2020, Piedmont completed a portfolio sale consisting of its three remaining New Jersey properties, 200 and 400 Bridgewater Crossing in Bridgewater, NJ and 600 Corporate Drive in Lebanon, NJ. The 75% leased portfolio was sold for a total of $130.0 million, or $176 per square foot.

On October 29, 2020, Piedmont completed the acquisition of 222 South Orange Avenue, a 127,000 square foot, 10-story, vacant office building, located in Orlando, FL, for $20,000,000, or $157 per square foot. The building adjoins Piedmont's 200 South Orange Avenue property, sharing several key connection points and systems, including an atrium, a loading dock, building mechanical systems, several interconnected floor plates and parking. Additionally, the acquisition of 222 South Orange Avenue provides Piedmont's existing office tower with direct frontage on Orange Avenue, the de facto Main Street in Orlando's central business district. Piedmont plans to immediately begin a redevelopment of the property to upgrade and reposition it to a Class A standard consistent with Piedmont's existing assets in downtown Orlando. Upon completion of the upgrades at 222 South Orange Avenue, and in combination with the substantial renovations currently underway at 200 South Orange Avenue, Piedmont's downtown Orlando portfolio will represent a preeminent destination for the market.

On October 28, 2020, the Board of Directors of Piedmont declared a dividend for the fourth quarter of 2020 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on November 27, 2020. The dividend is expected to be paid on January 4, 2021.


9


Guidance for 2020

The longer-term consequences on the economy and our tenants as a result of the COVID-19 pandemic continue to be unknown. Notwithstanding the economic backdrop, Piedmont has a strong, diversified tenant base, a majority of which is investment grade quality. During the third quarter of 2020, the Company collected approximately 99% of billed tenant receivables, net of approximately $2.0 million of tenant rental billings that have been deferred until later in 2020 or 2021. Year to date, the Company has entered into approximately 60 agreements with various tenants that primarily defer approximately $6.7 million of 2020 rent payments until either later in 2020 or into 2021. The Company has a prudent balance sheet with excellent liquidity, including approximately $24 million of cash and full availability under its $500 million line of credit as of September 30, 2020, as well as no debt maturities until late 2021. Additionally, the Company has recorded a $4.8 million general reserve against billed and straight-line rent tenant receivables.

Additional information regarding the Company's year-to-date performance, identified trends, and current expectations related to the pandemic's impact on 2020 annual performance as compared to the Company's original expectations for the year are as follows:

While the Company has experienced an uptick in leasing tours and proposals during the third and early fourth quarters, overall “new tenant” leasing for 2020 will be less than originally expected, modestly lowering 2020 net operating income (“NOI”) by approximately $5 million.
Piedmont’s transient parking income is estimated to be lower by approximately $2 to $3 million for the year.
Overall retail NOI, which comprises approximately 1% of the Company’s total 2020 revenues, is estimated to be lower by approximately $2 million for the year.
During the nine months ended September 30, 2020, the Company has taken approximately $2.6 million in bad debt charges against rental revenue in recognition of an increase in collectibility risk. The Company also has recorded a $4.8 million general reserve against billed and straight-line rent tenant receivables.
Reduced operating expenses (net of tenants' share) at its buildings during 2020 is anticipated to be $3 to $4 million for the year.
The Company anticipates $5 million lower interest expense for 2020 due to lower prevailing interest rates.
The Company anticipates $1 to $2 million in lower general and administrative expenses for the year.

The above identified impacts of the COVID-19 pandemic on NOI during 2020 equate to a net reduction of approximately $6 to $8 million from our original expectations for the year.

Based on management's current expectations, the Company is reinstating guidance for the year ending December 31, 2020, which represents an approximately 6% increase over 2019 results, as follows:
(in millions, except per share data)LowHigh
Net Income$217-$218
Add:
Depreciation110 -111
Amortization93 -94
Less: Gain on Sale of Real Estate Assets(191)-(192)
NAREIT FFO applicable to common stock$229-$231
NAREIT FFO per diluted share$1.81-$1.83
Less: Loss on Early Extinguishment of Debt9-9
Core FFO applicable to common stock$238-$240
Core FFO per diluted share$1.88-$1.90

These estimates reflect management's view of current market conditions and incorporate the impacts and trends noted above as well as the effects of the fourth quarter acquisition and disposition activity noted above. The above guidance is based on information available to management as of the date of this supplemental report. Actual results could differ materially from these estimates based on a variety of factors as discussed on page 45.

10


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

September 30, 2020June 30, 2020March 31, 2020December 31, 2019September 30, 2019
Assets:
Real estate, at cost:
Land assets$505,228 $505,228 $505,234 $485,560 $485,610 
Buildings and improvements3,283,980 3,258,713 3,249,947 2,943,685 2,920,067 
Buildings and improvements, accumulated depreciation(803,160)(776,870)(755,152)(730,750)(706,774)
Intangible lease asset161,870 164,145 167,972 125,171 131,843 
Intangible lease asset, accumulated amortization(63,353)(58,148)(52,538)(50,766)(50,474)
Construction in progress56,393 51,045 42,028 29,920 13,866 
Real estate assets held for sale, gross— — 233,951 233,951 508,624 
Real estate assets held for sale, accumulated depreciation & amortization— — (96,164)(94,261)(153,936)
Total real estate assets3,140,958 3,144,113 3,295,278 2,942,510 3,148,826 
Cash and cash equivalents23,958 36,469 7,920 13,545 10,284 
Tenant receivables, net of allowance for doubtful accounts11,301 8,494 10,596 8,226 10,091 
Straight line rent receivable154,620 147,418 139,617 132,342 128,786 
Escrow deposits and restricted cash1,781 1,769 1,758 1,841 1,820 
Prepaid expenses and other assets28,074 33,017 23,933 25,427 27,143 
Goodwill98,918 98,918 98,918 98,918 98,918 
Deferred lease costs, gross463,447 459,398 463,760 413,071 396,724 
Deferred lease costs, accumulated amortization(169,975)(159,883)(148,972)(147,324)(139,092)
Other assets held for sale, gross— — 63,524 63,158 111,661 
Other assets held for sale, accumulated amortization— — (35,516)(34,957)(43,230)
Total assets$3,753,082 $3,769,713 $3,920,816 $3,516,757 $3,751,931 
Liabilities:
Unsecured debt, net of discount$1,588,411 $1,592,693 $1,743,905 $1,292,374 $1,689,793 
Secured debt28,424 28,784 188,779 189,030 189,451 
Accounts payable, accrued expenses, and accrued capital expenditures120,763 95,419 90,459 143,923 114,812 
Deferred income36,613 35,226 35,443 34,609 27,985 
Intangible lease liabilities, less accumulated amortization38,324 41,179 44,646 25,069 26,814 
Interest rate swaps10,618 28,575 26,709 5,121 6,862 
Other liabilities held for sale— — 7,158 7,657 15,431 
Total liabilities$1,823,153 $1,821,876 $2,137,099 $1,697,783 $2,071,148 
Stockholders' equity:
Common stock1,260 1,260 1,259 1,258 1,258 
Additional paid in capital3,692,634 3,691,377 3,690,821 3,686,398 3,685,504 
Cumulative distributions in excess of earnings(1,740,670)(1,723,147)(1,889,109)(1,871,375)(2,007,438)
Other comprehensive loss(24,993)(23,360)(20,976)967 (283)
Piedmont stockholders' equity1,928,231 1,946,130 1,781,995 1,817,248 1,679,041 
Non-controlling interest1,698 1,707 1,722 1,726 1,742 
Total stockholders' equity1,929,929 1,947,837 1,783,717 1,818,974 1,680,783 
Total liabilities, redeemable common stock and stockholders' equity$3,753,082 $3,769,713 $3,920,816 $3,516,757 $3,751,931 
Common stock outstanding at end of period126,029 126,025 125,921 125,783 125,783 

11


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

Three Months Ended
9/30/20206/30/20203/31/202012/31/20199/30/2019
Revenues:
Rental income (1)
$108,071 $109,714 $111,496 $106,742 $105,207 
Tenant reimbursements (1)
20,209 21,533 20,658 22,950 25,372 
Property management fee revenue751 622 773 579 405 
Other property related income2,662 2,762 4,244 3,882 4,437 
131,693 134,631 137,171 134,153 135,421 
Expenses:
Property operating costs53,293 53,148 53,190 52,582 54,613 
Depreciation28,255 27,200 27,884 26,011 27,131 
Amortization22,990 24,349 23,631 21,000 19,505 
Impairment loss on real estate assets— — — 7,000 1,953 
General and administrative5,469 5,937 8,643 8,159 7,950 
110,007 110,634 113,348 114,752 111,152 
Other income / (expense):
Interest expense(12,725)(13,953)(15,264)(14,844)(16,145)
Other income / (expense)319 349 149 279 263 
Gain / (loss) on extinguishment of debt— (9,336)— — — 
Gain / (loss) on sale of real estate (2)
(340)191,369 157,640 32 
Net income8,940 192,426 8,711 162,476 8,419 
Less: Net (income) / loss attributable to noncontrolling interest(2)
Net income attributable to Piedmont$8,943 $192,427 $8,709 $162,478 $8,422 
Weighted average common shares outstanding - diluted126,385 126,500 126,360 126,359 126,240 
Net income per share available to common stockholders - diluted$0.07 $1.52 $0.07 $1.29 $0.07 
Common stock outstanding at end of period126,029 126,025 125,921 125,783 125,783 







(1)The presentation method used for this line is not in conformance with GAAP. To be in conformance with the current GAAP standard, the Company would need to combine amounts presented on the rental income line with amounts presented on the tenant reimbursements line and present that aggregated figure on one line entitled "rental and tenant reimbursement income." The amounts presented on this line were determined based upon the Company's interpretation of the rental charges and billing method provisions in each of the Company's lease documents.
(2)The gain on sale of real estate reflected in the second quarter of 2020 was primarily related to the sale of 1901 Market Street in Philadelphia, PA. The gain on sale of real estate reflected in the fourth quarter of 2019 was nearly all related to the sale of 500 West Monroe Street in Chicago, IL.
12


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

Three Months EndedNine Months Ended
9/30/20209/30/2019Change ($)Change (%)9/30/20209/30/2019Change ($)Change (%)
Revenues:
Rental income (1)
$108,071 $105,207 $2,864 2.7 %$329,281 $311,503 $17,778 5.7 %
Tenant reimbursements (1)
20,209 25,372 (5,163)(20.3)%62,400 70,710 (8,310)(11.8)%
Property management fee revenue751 405 346 85.4 %2,146 2,819 (673)(23.9)%
Other property related income2,662 4,437 (1,775)(40.0)%9,668 13,993 (4,325)(30.9)%
131,693 135,421 (3,728)(2.8)%403,495 399,025 4,470 1.1 %
Expenses:
Property operating costs53,293 54,613 1,320 2.4 %159,631 158,798 (833)(0.5)%
Depreciation28,255 27,131 (1,124)(4.1)%83,339 80,004 (3,335)(4.2)%
Amortization22,990 19,505 (3,485)(17.9)%70,970 55,666 (15,304)(27.5)%
Impairment loss on real estate assets— 1,953 1,953 100.0 %— 1,953 1,953 100.0 %
General and administrative5,469 7,950 2,481 31.2 %20,049 29,736 9,687 32.6 %
110,007 111,152 1,145 1.0 %333,989 326,157 (7,832)(2.4)%
Other income / (expense):
Interest expense(12,725)(16,145)3,420 21.2 %(41,942)(46,750)4,808 10.3 %
Other income / (expense)319 263 56 21.3 %817 1,292 (475)(36.8)%
Gain / (loss) on extinguishment of debt— — — (9,336)— (9,336)(100.0)%
Gain / (loss) on sale of real estate (2)
(340)32 (372)(1,162.5)%191,032 39,370 151,662 385.2 %
Net income8,940 8,419 521 6.2 %210,077 66,780 143,297 214.6 %
Less: Net (income) / loss attributable to noncontrolling interest— — %(1)(33.3)%
Net income attributable to Piedmont$8,943 $8,422 $521 6.2 %$210,079 $66,783 $143,296 214.6 %
Weighted average common shares outstanding - diluted126,385 126,240 126,302 126,190 
Net income per share available to common stockholders - diluted$0.07 $0.07 $1.66 $0.53 
Common stock outstanding at end of period126,029 125,783 126,029 125,783 







(1)The presentation method used for this line is not in conformance with GAAP. To be in conformance with the current GAAP standard, the Company would need to combine amounts presented on the rental income line with amounts presented on the tenant reimbursements line and present that aggregated figure on one line entitled "rental and tenant reimbursement income." The amounts presented on this line were determined based upon the Company's interpretation of the rental charges and billing method provisions in each of the Company's lease documents.
(2)The gain on sale of real estate for the nine months ended September 30, 2020 was primarily related to the sale of 1901 Market Street in Philadelphia, PA. The gain on sale of real estate for the nine months ended September 30, 2019 was primarily related to the sale of One Independence Square in Washington, DC, on which the Company recorded a total gain of $33.2 million.

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.

For comparison purposes, on January 1, 2020, Piedmont placed back into service one redevelopment property, Two Pierce Place in Itasca, IL. The building was approximately 42% leased at the time it was placed back into service. No other properties were placed back into service during any of the periods presented.
Three Months Ended
Selected Operating Data9/30/20206/30/20203/31/202012/31/20199/30/2019
Percent leased (1)
86.9 %88.6 %89.6 %91.2 %91.9 %
Percent leased - excluding NJ portfolio sale assets (1)
87.4 %
Percent leased - economic (1) (2)
80.7 %81.1 %84.0 %85.5 %86.4 %
Total revenues$131,693$134,631$137,171$134,153$135,421
Net income attributable to Piedmont$8,943$192,427$8,709$162,478$8,422
Core EBITDA$73,228$75,874$75,467$73,671$73,100
Core FFO applicable to common stock$60,219$61,603$59,875$58,591$56,743
Core FFO per share - diluted$0.48$0.49$0.47$0.46$0.45
AFFO applicable to common stock$37,606$44,968$18,557$34,906$36,662
Gross regular dividends (3)
$26,466$26,465$26,443$26,415$26,415
Regular dividends per share (3)
$0.21$0.21$0.21$0.21$0.21
Selected Balance Sheet Data
Total real estate assets, net$3,140,958$3,144,113$3,295,278$2,942,510$3,148,826
Total assets$3,753,082$3,769,713$3,920,816$3,516,757$3,751,931
Total liabilities$1,823,153$1,821,876$2,137,099$1,697,783$2,071,148
Ratios & Information for Debt Holders
Core EBITDA margin (4)
55.6 %56.4 %55.0 %54.9 %54.0 %
Fixed charge coverage ratio (5)
5.5 x5.3 x4.8 x4.7 x4.3 x
Average net debt to Core EBITDA (6)
5.5 x6.2 x5.7 x5.4 x6.0 x
Total gross real estate assets$4,007,471$3,979,131$4,199,132$3,818,287$4,060,010
Net debt (7)
$1,602,237$1,590,007$1,930,834$1,473,301$1,874,929

(1)
Please refer to page 27 for additional leased percentage information.
(2)Economic leased percentage excludes the square footage associated with executed but not commenced leases for currently vacant spaces and the square footage associated with tenants receiving rental abatements (after proportional adjustments for tenants receiving only partial rental abatements). Due to variations in rental abatement structures whereby some abatements are provided for the first few months of each lease year as opposed to being provided entirely at the beginning of the lease, there will be variability to the economic leased percentage over time as abatements commence and expire. Please see the Future Lease Commencements and Abatements section of Financial Highlights for details on near-term abatements for large leases.
(3)Dividends are reflected in the quarter in which the record date occurred.
(4)Core EBITDA margin is calculated as Core EBITDA divided by total revenues.
(5)The fixed charge coverage ratio is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. The Company had no preferred dividends during any of the periods presented; the Company had capitalized interest of $236,290 for the quarter ended September 30, 2020, $183,846 for the quarter ended June 30, 2020, $176,040 for the quarter ended March 31, 2020, $502,646 for the quarter ended December 31, 2019, and $542,505 for the quarter ended September 30, 2019; the Company had principal amortization of $269,838 for the quarter ended September 30, 2020, $266,128 for the quarter ended June 30, 2020, $175,383 for the quarter ended March 31, 2020, $345,948 for the quarter ended December 31, 2019, and $255,303 for the quarter ended September 30, 2019.
(6)For the purposes of this calculation, we annualize the period's Core EBITDA and use the average daily balance of debt outstanding during the period, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the period.
(7)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.

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 EndedNine Months Ended
9/30/20209/30/20199/30/20209/30/2019
GAAP net income applicable to common stock$8,943 $8,422 $210,079 $66,783 
Depreciation (1) (2)
27,960 26,909 82,384 79,346 
Amortization (1)
22,976 19,491 70,930 55,622 
Impairment loss
— 1,953 — 1,953 
Loss / (gain) on sale of properties
340 (32)(191,032)(39,370)
NAREIT funds from operations applicable to common stock60,219 56,743 172,361 164,334 
Adjustments:
Retirement and separation expenses associated with senior management transition— — — 3,175 
Loss / (gain) on extinguishment of debt— — 9,336 — 
Core funds from operations applicable to common stock60,219 56,743 181,697 167,509 
Adjustments:
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on senior notes931 526 2,180 1,574 
Depreciation of non real estate assets286 214 930 634 
Straight-line effects of lease revenue (1)
(6,315)(1,531)(20,378)(7,437)
Stock-based compensation adjustments1,336 (3,015)4,281 1,949 
Amortization of lease-related intangibles (1)
(3,240)(1,923)(9,517)(6,009)
Non-incremental capital expenditures (3)
(15,611)(14,352)(58,062)(27,410)
Adjusted funds from operations applicable to common stock$37,606 $36,662 $101,131 $130,810 
Weighted average common shares outstanding - diluted126,385 126,240 126,302 126,190 
Funds from operations per share (diluted)$0.48 $0.45 $1.36 $1.30 
Core funds from operations per share (diluted)$0.48 $0.45 $1.44 $1.33 
Common stock outstanding at end of period126,029 125,783 126,029 125,783 





(1)Includes our proportionate share of amounts attributable to consolidated properties.
(2)Excludes depreciation of non real estate assets.
(3)
Non-incremental capital expenditures are defined on page 39. Non-incremental capital expenditures for the nine months ended September 30, 2020 include approximately $20.4 million of leasing commissions, with the largest contributor to that amount being the leasing commissions related to the 20-year, approximately 500,000 square foot lease renewal with the State of New York at 60 Broad Street in New York, NY.

15


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

Three Months EndedNine Months Ended
9/30/20209/30/20199/30/20209/30/2019
Net income attributable to Piedmont$8,943 $8,422 $210,079 $66,783 
Net income / (loss) attributable to noncontrolling interest(3)(3)(2)(3)
Interest expense
12,725 16,145 41,942 46,750 
Depreciation (1)
28,247 27,124 83,315 79,982 
Amortization (1)
22,976 19,491 70,930 55,622 
Impairment loss
— 1,953 — 1,953 
Loss / (gain) on sale of properties
340 (32)(191,032)(39,370)
EBITDAre73,228 73,100 215,232 211,717 
Retirement and separation expenses associated with senior management transition— — — 3,175 
(Gain) / loss on extinguishment of debt— — 9,336 — 
Core EBITDA (2)
73,228 73,100 224,568 214,892 
General & administrative expenses
5,469 7,950 20,049 26,561 
Non-cash general reserve for uncollectible accounts (3)
(33)— 4,831 — 
Management fee revenue (4)
(422)(203)(1,098)(2,226)
Other (income) / expense (1) (5)
(104)(47)(170)(165)
Straight-line effects of lease revenue (1)
(6,315)(1,531)(20,378)(7,437)
Amortization of lease-related intangibles (1)
(3,240)(1,923)(9,517)(6,009)
Property net operating income (cash basis)68,583 77,346 218,285 225,616 
Deduct net operating (income) / loss from:
Acquisitions (6)
(10,165)(2,771)(28,379)(3,691)
Dispositions (7)
(56)(11,800)(9,035)(38,977)
Other investments (8)
18 (896)(288)(1,181)
Same store net operating income (cash basis) (9)
$58,380 $61,879 $180,583 $181,767 
Change period over period(5.7)%N/A(0.7)%N/A

(1)Includes our proportionate share of amounts attributable to consolidated properties.
(2)The Company has historically recognized approximately $2 to $3 million of termination income on an annual basis (over the last 5 years). Given the size of its asset base and the number of tenants with which it conducts business, Piedmont considers termination income of that magnitude to be a normal part of its operations and a recurring part of its revenue stream; however, the recognition of termination income is typically variable between quarters and throughout any given year and is dependent upon when during the year the Company receives termination notices from tenants. During the three months ended September 30, 2020, Piedmont recognized $0.8 million in termination income, as compared with none during the same period in 2019. During the nine months ended September 30, 2020, Piedmont recognized $1.9 million in termination income, as compared with $2.3 million during the same period in 2019. During the calendar year 2019, Piedmont recognized a total of $2.8 million in termination income.
(3)As a result of COVID-19 and as a precautionary measure, during the second quarter of 2020, the Company established a general reserve for potential future losses amounting to $4.9 million. A small reduction to the general reserve of $33,000 was made during the third quarter of 2020. The general reserve is non-cash in nature and, therefore, any changes in the reserve are removed from the calculation of cash basis same store net operating income. No such reserves were made in any periods prior to the second quarter of 2020.
(4)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.
(5)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.
(6)Acquisitions consist of Galleria 100 in Atlanta, GA, purchased on May 6, 2019; Galleria 400 and Galleria 600 in Atlanta, GA, purchased on August 23, 2019; and One Galleria Tower, Two Galleria Tower and Three Galleria Tower in Dallas, TX, purchased on February 12, 2020.
(7)Dispositions consist of One Independence Square in Washington, D.C., sold on February 28, 2019; The Dupree in Atlanta, GA, sold on September 4, 2019; 500 West Monroe Street in Chicago, IL, sold on October 28, 2019; and 1901 Market Street in Philadelphia, PA, sold on June 25, 2020.
(8)
Other investments consist of active out-of-service 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 Two Pierce Place in Itasca, IL, are included in this line item.
(9)For the three months ended and the nine months ended September 30, 2020, amounts reflect a decrease in cash collections of approximately $2.0 million and $5.9 million, respectively, of primarily rent deferrals as a result of COVID-19 rent relief agreements.
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 MarketsThree Months EndedNine Months Ended
9/30/20209/30/20199/30/20209/30/2019
$%$%$%$%
Boston (1)
$10,421 17.9 $9,980 16.1 $30,678 17.0 $29,865 16.4 
Washington, D.C. (2)
9,650 16.5 8,591 13.9 29,270 16.2 25,238 13.9 
Minneapolis (3)
8,962 15.4 9,482 15.3 27,192 15.1 28,239 15.6 
New York (4)
7,538 12.9 11,117 18.0 25,334 14.0 33,690 18.5 
Atlanta
8,657 14.8 8,219 13.3 25,192 14.0 25,850 14.2 
Orlando (5)
6,724 11.5 8,159 13.2 22,435 12.4 24,823 13.7 
Dallas (6)
6,856 11.7 7,129 11.5 22,384 12.4 19,791 10.9 
Other (7)
(428)(0.7)(798)(1.3)(1,902)(1.1)(5,729)(3.2)
Total$58,380 100.0