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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________ 
FORM 10-Q
_______________________________________________________________________________________  
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
For the Quarterly Period Ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
For the Transition Period From                      To                     
Commission file number 001-34626
Piedmont Office Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
 ____________________________________________________ 
Maryland58-2328421
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No   x
Number of shares outstanding of the Registrant’s
common stock, as of April 26, 2022:
123,330,862 shares



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

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

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

Economic, regulatory, socio-economic changes, and/or technology changes (including accounting standards) that impact the real estate market generally, or that could affect patterns of use of commercial office space;
The impact of competition on our efforts to renew existing leases or re-let space on terms similar to existing leases;
Changes in the economies and other conditions affecting the office sector in general and specifically the markets in which we primarily operate where we have high concentrations of our Annualized Lease Revenue ("ALR") (see definition below);
Lease terminations, lease defaults, lease contractions, or changes in the financial condition of our tenants, particularly by one of our large lead tenants;
Adverse market and economic conditions, including any resulting impairment charges on both our long-lived assets or goodwill resulting therefrom;
The success of our real estate strategies and investment objectives, including our ability to identify and consummate suitable acquisitions and divestitures;
The illiquidity of real estate investments, including regulatory restrictions to which real estate investment trusts ("REITs") are subject and the resulting impediment on our ability to quickly respond to adverse changes in the performance of our properties;
The risks and uncertainties associated with our acquisition and disposition of properties, many of which risks and uncertainties may not be known at the time of acquisition or disposition;
Development and construction delays, including the potential of supply chain disruptions, and resultant increased costs and risks;
Our real estate redevelopment and development strategies may not be successful;
Future acts of terrorism, civil unrest, or armed hostilities in any of the major metropolitan areas in which we own properties, or future cybersecurity attacks against any of our properties or our tenants;
Risks related to the occurrence of cyber incidents, or a deficiency in our cybersecurity, which could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships;
Costs of complying with governmental laws and regulations;
Uninsured losses or losses in excess of our insurance coverage, and our inability to obtain adequate insurance coverage at a reasonable cost;
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 interest rates and changes in the method pursuant to which the London Interbank Offered Rate ("LIBOR") rates are determined and the planned phasing out of United States dollar ("USD") LIBOR after June 2023;
Rising interest rates which could affect our return on investments and/or our ability to finance or refinance properties;
3

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The effect of future offerings of debt or equity securities or changes in market interest rates on the value of our common stock;
Additional risks and costs associated with inflation and continuing increases in the rate of inflation;
Uncertainties associated with environmental and other regulatory matters;
Potential changes in the 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 important supply chains and international trade, the termination or threatened termination of existing international trade agreements, or the implementation of tariffs or retaliatory tariffs on imported or exported goods;
The effect of any litigation to which we are, or may become, subject;
Additional risks and costs associated with owning properties occupied by tenants in particular industries, such as oil and gas, hospitality, travel, co-working, etc., including risks of default during start-up and during economic downturns;
Changes in tax laws impacting REITs and real estate in general, as well as our ability to continue to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), or other tax law changes which may adversely affect our stockholders;
The future effectiveness of our internal controls and procedures;
Actual or threatened public health epidemics or outbreaks, such as the ongoing COVID-19 pandemic, as well as governmental and private measures taken to combat such health crises, could have a material adverse effect on our business operations and financial results.
The adequacy of our general reserve related to tenant lease-related assets or the establishment of any other reserve in the future; and
Other factors, including the risk factors discussed under Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2021.

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

Information Regarding Disclosures Presented

ALR is calculated by multiplying (i) current rental payments (defined as base rent plus operating expense reimbursements, if payable by the tenant on a monthly basis under the terms of a lease that has been executed, but excluding (a) rental abatements and (b) rental payments related to executed but not commenced leases for space that was covered by an existing lease), by (ii) 12. In instances in which contractual rents or operating expense reimbursements are collected on an annual, semi-annual, or quarterly basis, such amounts are multiplied by a factor of 1, 2, or 4, respectively, to calculate the annualized figure. For leases that have been executed but not commenced relating to unleased space, ALR is calculated by multiplying (i) the monthly base rental payment (excluding abatements) plus any operating expense reimbursements for the initial month of the lease term, by (ii) 12. Unless stated otherwise, this measure excludes revenues associated with development properties and properties taken out of service for redevelopment, if any.
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PART I.     FINANCIAL INFORMATION

ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS.

The information presented in the accompanying consolidated balance sheets and related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows reflects all adjustments that are, in management’s opinion, necessary for a fair and consistent presentation of financial position, results of operations, and cash flows in accordance with generally accepted accounting principles ("GAAP").
The accompanying financial statements should be read in conjunction with the notes to Piedmont’s financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report on Form 10-Q and with Piedmont’s Annual Report on Form 10-K for the year ended December 31, 2021. Piedmont’s results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results expected for the full year.
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
(Unaudited)
March 31,
2022
December 31,
2021
Assets:
Real estate assets, at cost:
Land
$521,789 $529,941 
Buildings and improvements, less accumulated depreciation of $863,306 and $861,206 as of March 31, 2022 and December 31, 2021, respectively
2,488,501 2,513,697 
Intangible lease assets, less accumulated amortization of $86,664 and $83,777 as of March 31, 2022 and December 31, 2021, respectively
86,353 94,380 
Construction in progress
50,719 43,406 
Real estate assets held for sale, net 63,887 
Total real estate assets3,147,362 3,245,311 
Cash and cash equivalents7,211 7,419 
Tenant receivables, net of allowance for doubtful accounts of $4,000 as of March 31, 2022 and December 31, 2021
3,095 2,995 
Straight-line rent receivables164,776 162,632 
Notes receivable 118,500 
Restricted cash and escrows1,457 1,441 
Prepaid expenses and other assets21,318 20,485 
Goodwill98,918 98,918 
Deferred lease costs, less accumulated amortization of $210,731 and $205,100 as of March 31, 2022 and December 31, 2021, respectively
255,503 264,571 
Other assets held for sale, net 8,393 
Total assets$3,699,640 $3,930,665 
Liabilities:
Unsecured debt, net of discount and unamortized debt issuance costs of $11,447 and $12,210 as of March 31, 2022 and December 31, 2021, respectively
$1,669,553 $1,877,790 
Accounts payable, accrued expenses and accrued capital expenditures83,609 114,453 
Dividends payable 26,048 
Deferred income79,493 80,686 
Intangible lease liabilities, less accumulated amortization of $37,349 and $35,880 as of March 31, 2022 and December 31, 2021, respectively
36,077 39,341 
Interest rate swaps434 4,924 
Total liabilities1,869,166 2,143,242 
Commitments and Contingencies (Note 6)
  
Stockholders’ Equity:
Shares-in-trust, 150,000,000 shares authorized; none outstanding as of March 31, 2022 or December 31, 2021
  
Preferred stock, no par value, 100,000,000 shares authorized; none outstanding as of March 31, 2022 or December 31, 2021
  
Common stock, $0.01 par value, 750,000,000 shares authorized; 123,330,862 and 123,076,695 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
1,233 1,231 
Additional paid-in capital3,706,207 3,701,798 
Cumulative distributions in excess of earnings(1,865,016)(1,899,081)
Accumulated other comprehensive loss(13,573)(18,154)
Piedmont stockholders’ equity1,828,851 1,785,794 
Noncontrolling interest1,623 1,629 
Total stockholders’ equity1,830,474 1,787,423 
Total liabilities and stockholders’ equity$3,699,640 $3,930,665 
See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except for share and per share amounts)
 
Three Months Ended
 March 31,
 20222021
Revenues:
Rental and tenant reimbursement revenue$131,912 $125,912 
Property management fee revenue651 758 
Other property related income3,586 2,587 
136,149 129,257 
Expenses:
Property operating costs53,622 51,424 
Depreciation31,515 28,103 
Amortization22,252 22,912 
General and administrative
7,595 7,251 
114,984 109,690 
Other income (expense):
Interest expense(13,898)(12,580)
Other income2,024 2,356 
Gain on sale of real estate assets50,673  
38,799 (10,224)
Net income59,964 9,343 
Net loss applicable to noncontrolling interest
 1 
Net income applicable to Piedmont$59,964 $9,344 
Per share information – basic and diluted:
Net income applicable to common stockholders$0.49 $0.08 
Weighted-average common shares outstanding – basic123,225,145 123,945,972 
Weighted-average common shares outstanding – diluted123,509,990 124,449,731 
See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)

Three Months Ended
 March 31,
 20222021
Net income applicable to Piedmont$59,964 $9,344 
Other comprehensive income:
Effective portion of gain on derivative instruments that are designated and qualify as cash flow hedges (See Note 4)
3,876 1,561 
Plus: Reclassification of net loss included in net income (See Note 4)
705 726 
Other comprehensive income4,581 2,287 
Comprehensive income applicable to Piedmont
$64,545 $11,631 

See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(in thousands, except per share amounts)

Common StockAdditional Paid-In CapitalCumulative Distributions in Excess of EarningsAccumulated
Other
Comprehensive
Income/(Loss)
Non- controlling InterestTotal Stockholders’ Equity
SharesAmount
Balance, December 31, 2021123,077 $1,231 $3,701,798 $(1,899,081)$(18,154)$1,629 $1,787,423 
Dividends to common stockholders ($0.21 per share) and stockholders of subsidiaries
   (25,899) (6)(25,905)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax254 2 4,409    4,411 
Net income applicable to Piedmont   59,964   59,964 
Other comprehensive income    4,581  4,581 
Balance, March 31, 2022123,331 $1,233 $3,706,207 $(1,865,016)$(13,573)$1,623 $1,830,474 

Common StockAdditional Paid-In CapitalCumulative Distributions in Excess of EarningsAccumulated
Other
Comprehensive
Income/(Loss)
Non- controlling InterestTotal Stockholders’ Equity
SharesAmount
Balance, December 31, 2020123,839 $1,238 $3,693,996 $(1,774,856)$(24,100)$1,683 $1,897,961 
Dividends to common stockholders ($0.21 per share) and stockholders of subsidiaries
— —  (26,046)— (7)(26,053)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax190 2 3,805 — — — 3,807 
Net loss applicable to noncontrolling interest— — — — — (1)(1)
Net income applicable to Piedmont— — — 9,344 — — 9,344 
Other comprehensive income— — — — 2,287 — 2,287 
Balance, March 31, 2021124,029 $1,240 $3,697,801 $(1,791,558)$(21,813)$1,675 $1,887,345 

See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands) 
Three Months Ended
March 31,
20222021
Cash Flows from Operating Activities:
Net income$59,964 $9,343 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation31,515 28,103 
Amortization of debt issuance costs inclusive of settled interest rate swaps
869 760 
Other amortization20,111 21,132 
General reserve for uncollectible accounts 412 
Stock compensation expense2,814 3,275 
Gain on sale of real estate assets(50,673) 
Changes in assets and liabilities:
Increase in tenant and straight-line rent receivables(3,712)(2,561)
(Increase)/decrease in prepaid expenses and other assets(947)224 
Decrease in accounts payable and accrued expenses(19,066)(15,790)
(Decrease)/increase in deferred income(1,026)1,922 
Net cash provided by operating activities39,849 46,820 
Cash Flows from Investing Activities:
Capitalized expenditures(32,565)(25,759)
Net sales proceeds from wholly-owned properties143,594  
Proceeds from notes receivable 118,500  
Deferred lease costs paid(5,235)(2,054)
Net cash provided by/(used in) investing activities224,294 (27,813)
Cash Flows from Financing Activities:
Debt issuance and other costs paid(15)(21)
Proceeds from debt87,000 91,000 
Repayments of debt(296,000)(52,185)
Value of shares withheld for payment of taxes related to employee stock compensation(3,366)(2,164)
Repurchases of common stock as part of announced plan (685)
Dividends paid(51,954)(51,736)
Net cash used in financing activities(264,335)(15,791)
Net (decrease)/increase in cash, cash equivalents, and restricted cash and escrows(192)3,216 
Cash, cash equivalents, and restricted cash and escrows, beginning of period8,860 9,214 
Cash, cash equivalents, and restricted cash and escrows, end of period$8,668 $12,430 

See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)

1.    Organization
Piedmont Office Realty Trust, Inc. (“Piedmont”) (NYSE: PDM) is a Maryland corporation that operates in a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes and engages in the ownership, management, development, redevelopment, and operation of high-quality, Class A office properties located primarily in the Sunbelt. Piedmont was incorporated in 1997 and commenced operations in 1998. Piedmont conducts business through its wholly-owned subsidiary, Piedmont Operating Partnership, L.P. (“Piedmont OP”), a Delaware limited partnership. Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through various joint ventures which it controls. References to Piedmont herein shall include Piedmont and all of its subsidiaries, including Piedmont OP and its subsidiaries and joint ventures.

As of March 31, 2022, Piedmont owned 52 in-service, Class A office properties and one redevelopment asset, primarily located within the Sunbelt. As of March 31, 2022, the in-service portfolio comprised approximately 16.1 million square feet (unaudited) and was 87.0% leased.

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

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

Piedmont’s consolidated financial statements include the accounts of Piedmont, Piedmont’s wholly-owned subsidiaries, any variable interest entity ("VIE") of which Piedmont or any of its wholly-owned subsidiaries is considered to have the power to direct the activities of the entity and the obligation to absorb losses/right to receive benefits, or any entity in which Piedmont or any of its wholly-owned subsidiaries owns a controlling interest. In determining whether Piedmont or Piedmont OP has a controlling interest, the following factors, among others, are considered: equity ownership, voting rights, protective rights of investors, and participatory rights of investors. For further information, refer to the financial statements and footnotes included in Piedmont’s Annual Report on Form 10-K for the year ended December 31, 2021.

All intercompany balances and transactions have been eliminated upon consolidation.

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

Use of Estimates

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

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Income Taxes

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

Operating Leases

Piedmont recognized the following fixed and variable lease payments, which together comprised rental and tenant reimbursement revenue in the accompanying consolidated statements of income for the three months ended March 31, 2022 and 2021, respectively, as follows (in thousands):
Three Months Ended
March 31,
2022
March 31,
2021
Fixed payments$109,732 $105,170 
Variable payments22,180 20,742 
Total Rental and Tenant Reimbursement Revenue
$131,912 $125,912 

Operating leases where Piedmont is the lessee relate primarily to office space in buildings owned by third parties. Piedmont's right of use asset and corresponding lease liability was approximately $40,000 and $60,000 as of March 31, 2022 and December 31, 2021, respectively. The right of use asset is recorded as a component of prepaid expenses and other assets, whereas the corresponding liability is presented as a component of accounts payable, accrued expenses, and accrued capital expenditures in the accompanying consolidated balance sheets. For the three months ended March 31, 2022 and 2021, Piedmont recognized approximately $20,000 of operating lease costs related to these office space leases. As of March 31, 2022, the remaining lease term of Piedmont's right of use asset is approximately six months, and the discount rate is 1.06%.

3.    Debt

The following table summarizes the terms of Piedmont’s indebtedness outstanding as of March 31, 2022 and December 31, 2021 (in thousands):
Facility (1)
Stated Rate
Effective Rate (2)
MaturityAmount Outstanding as of
March 31, 2022December 31, 2021
$500 Million Unsecured 2018 Line of Credit (3)
LIBOR + 0.90%
1.36 %9/30/2022
(4)
$81,000 $290,000 
$350 Million Unsecured Senior Notes due 2023
3.40 %3.43 %6/01/2023350,000 350,000 
$400 Million Unsecured Senior Notes due 2024
4.45 %4.10 %3/15/2024400,000 400,000 
$250 Million Unsecured 2018 Term Loan
LIBOR + 0.95%
2.26 %
(5)
3/31/2025250,000 250,000 
$300 Million Unsecured Senior Notes due 2030
3.15 %3.90 %

8/15/2030300,000 300,000 
$300 Million Unsecured Senior Notes due 2032
2.75 %2.78 %

4/1/2032300,000 300,000 
Discounts and unamortized debt issuance costs
(11,447)(12,210)
Total/Weighted Average (6)
3.22 %$1,669,553 $1,877,790 

(1)All of Piedmont’s outstanding debt as of March 31, 2022 is unsecured and interest-only until maturity.
(2)Effective rate after consideration of settled or in-place interest rate swap agreements and issuance discounts.
(3)On a periodic basis, Piedmont may select from multiple interest rate options, including the prime rate and various-length LIBOR locks on all or a portion of the principal. All LIBOR selections are subject to an additional spread over the selected rate based on Piedmont’s current credit rating.
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(4)Piedmont may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of September 29, 2023) provided Piedmont is not then in default and upon payment of extension fees.
(5)The facility has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of changes to Piedmont's credit rating, $100 million of the principal balance to 3.56% through the maturity date of the loan. For the remaining variable portion of the loan, Piedmont may periodically select from multiple interest rate options, including the prime rate and various-length LIBOR locks on all or a portion of the principal. All LIBOR selections are subject to an additional spread over the selected rate based on Piedmont’s current credit rating. The rate presented is the weighted-average rate for the effectively fixed and variable portions of the debt outstanding as of March 31, 2022 (see Note 4 for more detail).
(6)Weighted average is based on contractual balance of outstanding debt and the stated or effectively fixed interest rates as of March 31, 2022.

Piedmont made interest payments on all debt facilities, including interest rate swap cash settlements, of approximately $15.8 million and $16.5 million for the three months ended March 31, 2022 and 2021, respectively. Also, Piedmont capitalized interest of approximately $1.0 million and $0.8 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, Piedmont believes it was in compliance with all financial covenants associated with its debt instruments.

See Note 5 for a description of Piedmont’s estimated fair value of debt as of March 31, 2022.

4.    Derivative Instruments
Risk Management Objective of Using Derivatives

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

Cash Flow Hedges of Interest Rate Risk

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

The maximum length of time over which Piedmont is hedging its exposure to the variability in future cash flows for forecasted transactions is 36 months. A detail of Piedmont’s interest rate derivatives outstanding as of March 31, 2022 is as follows:

Interest Rate Derivatives:Number of Swap AgreementsAssociated Debt InstrumentTotal Notional Amount
(in millions)
Effective DateMaturity Date
Interest rate swaps2
$250 Million Unsecured 2018 Term Loan
$100 3/29/20183/31/2025

Piedmont presents its interest rate derivatives on its consolidated balance sheets on a gross basis as interest rate swap assets and interest rate swap liabilities. A detail of Piedmont’s interest rate derivatives on a gross and net basis as of March 31, 2022 and December 31, 2021, respectively, is as follows (in thousands):
Interest rate swaps classified as:March 31,
2022
December 31,
2021
Gross derivative assets$ $ 
Gross derivative liabilities(434)(4,924)
Net derivative liability$(434)$(4,924)

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The gain/(loss) on Piedmont's interest rate derivatives, including previously settled forward swaps, that was recorded in other comprehensive income ("OCI") and the accompanying consolidated statements of income as a component of interest expense for the three months ended March 31, 2022 and 2021, respectively, is as follows (in thousands):

 Three Months Ended
Interest Rate Swaps in Cash Flow Hedging RelationshipsMarch 31,
2022
March 31,
2021
Amount of gain recognized in OCI$3,876 $1,561 
Amount of previously recorded loss reclassified from OCI into interest expense
$(705)$(726)
Total amount of interest expense presented in the consolidated statements of income
$(13,898)$(12,580)

Piedmont estimates that approximately $1.2 million will be reclassified from OCI as an increase in interest expense over the next twelve months. Piedmont recognized no hedge ineffectiveness on its cash flow hedges during the three months ended March 31, 2022 and 2021, respectively.

Additionally, see Note 5 for fair value disclosures of Piedmont's derivative instruments.

Credit-risk-related Contingent Features

Piedmont has agreements with its derivative counterparties that contain a provision whereby if Piedmont defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Piedmont could also be declared in default on its derivative obligations. If Piedmont were to breach any of the contractual provisions of the derivative contracts, it could be required to settle its liability obligations under the agreements at their termination value of the estimated fair values plus accrued interest, or approximately $0.5 million as of March 31, 2022. Additionally, Piedmont has rights of set-off under certain of its derivative agreements related to potential termination fees and amounts payable under the agreements, if a termination were to occur.

5.    Fair Value Measurement of Financial Instruments
Piedmont considers its cash and cash equivalents, tenant receivables, notes receivable, restricted cash and escrows, accounts payable and accrued expenses, interest rate swap agreements, and debt to meet the definition of financial instruments. The following table sets forth the carrying and estimated fair value for each of Piedmont’s financial instruments, as well as its level within the GAAP fair value hierarchy, as of March 31, 2022 and December 31, 2021, respectively (in thousands):

 March 31, 2022December 31, 2021
Financial InstrumentCarrying ValueEstimated
Fair Value
Level Within Fair Value HierarchyCarrying ValueEstimated
Fair Value
Level Within Fair Value Hierarchy
Assets:
Cash and cash equivalents (1)
$7,211 $7,211 Level 1$7,419 $7,419 Level 1
Tenant receivables, net (1)
$3,095 $3,095 Level 1$2,995 $2,995 Level 1
Notes receivable
$ $ $118,500 $120,075 Level 2
Restricted cash and escrows (1)
$1,457 $1,457 Level 1$1,441 $1,441 Level 1
Liabilities:
Accounts payable and accrued expenses (1)
$10,977 $10,977 Level 1$45,065 $45,065 Level 1
Interest rate swaps$434 $434 Level 2$4,924 $4,924 Level 2
Debt, net$1,669,553 $1,645,698 Level 2$1,877,790 $1,938,563 Level 2

(1)For the periods presented, the carrying value of these financial instruments, net of applicable allowance, approximates estimated fair value due to their short-term maturity.

Piedmont's debt were carried at book value as of March 31, 2022 and December 31, 2021, and its notes receivable was carried at book value as of December 31, 2021; however, Piedmont's estimate of the fair value of each of these financial instruments as of each period end is disclosed in the table above. Piedmont uses widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of its notes receivables and debt, including the period to maturity of each note
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receivable and debt facility, and uses observable market-based inputs for similar loan and debt facilities which have transacted recently in the market. Scaling adjustments are made to these inputs to make them applicable to the remaining life of Piedmont's notes receivables and outstanding debt. Consequently, the estimated fair values of the notes receivable and debt as of December 31, 2021 and the estimated fair value of debt as of March 31, 2022 are considered to be based on significant other observable inputs (Level 2). Piedmont has not changed its valuation technique for estimating the fair value of its notes receivable or debt.

Piedmont’s interest rate swap agreements presented above, and as further discussed in Note 4, are classified as “Interest rate swap” liabilities in the accompanying consolidated balance sheets and were carried at estimated fair value as of March 31, 2022 and December 31, 2021. The valuation of these derivative instruments was determined using widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of the derivatives, including the period to maturity of each instrument, and uses observable market-based inputs, including interest rate curves and implied volatilities. Therefore, the estimated fair values determined are considered to be based on significant other observable inputs (Level 2). In addition, Piedmont considered both its own and the respective counterparties’ risk of nonperformance in determining the estimated fair value of its derivative financial instruments by estimating the current and potential future exposure under the derivative financial instruments that both Piedmont and the counterparties were at risk for as of the valuation date. The credit risk of Piedmont and its counterparties was factored into the calculation of the estimated fair value of the interest rate swaps; however, as of March 31, 2022 and December 31, 2021, this credit valuation adjustment did not comprise a material portion of the estimated fair value. Therefore, Piedmont believes that any unobservable inputs used to determine the estimated fair values of its derivative financial instruments are not significant to the fair value measurements in their entirety, and does not consider any of its derivative financial instruments to be Level 3 liabilities.

6.    Commitments and Contingencies

Commitments Under Existing Lease Agreements

As a recurring part of its business, Piedmont is typically required under its executed lease agreements to fund tenant improvements, leasing commissions, and building improvements. In addition, certain agreements contain provisions that require Piedmont to issue corporate or property guarantees to provide funding for capital improvements or other financial obligations. As of March 31, 2022, Piedmont had one individually significant unrecorded tenant allowance commitment of approximately $15.1 million for the approximately 20-year, 520,000 square foot renewal and expansion on behalf of Piedmont's largest tenant, the State of New York at the 60 Broad Street building in New York City. This commitment will be accrued and capitalized as the related expenditures are incurred.

Contingencies Related to Tenant Audits/Disputes

Certain lease agreements include provisions that grant tenants the right to engage independent auditors to audit their annual operating expense reconciliations. Such audits may result in different interpretations of language in the lease agreements from that made by Piedmont, which could result in requests for refunds of previously recognized tenant reimbursement revenues, resulting in financial loss to Piedmont. There were no reductions in rental and reimbursement revenues related to such tenant audits/disputes during the three months ended March 31, 2022 or 2021.

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7.    Property Dispositions

The following properties were sold during the three months ended March 31, 2022 (in thousands):
Buildings SoldLocation / Reportable SegmentDate of SaleGain on Sale of Real Estate AssetsNet Sales Proceeds
Two Pierce PlaceItasca, Illinois / OtherJanuary 25, 2022$1,741 $24,271 
225 and 235 Presidential Way Boston, Massachusetts / BostonJanuary 28, 2022$48,932 $119,323 
Total$50,673 $143,594 

The 225 and 235 Presidential Way assets met the criteria to be presented in the accompanying consolidated balance sheet as held for sale assets as of December 31, 2021. Details of such amounts as of December 31, 2021 are as follows (in thousands):

December 31, 2021
Real estate assets held for sale, net:
Land
$7,750 
Building and improvements, less accumulated depreciation of $16,699 as of December 31, 2021
55,110 
Construction in progress
1,027 
Total real estate assets held for sale, net
$63,887 
Other assets held for sale, net:
Straight-line rent receivables
$2,966 
Deferred lease costs, less accumulated amortization of $996 as of December 31, 2021
5,427 
Total other assets held for sale, net
$8,393 

Also during the three months ended March 31, 2022, Piedmont received $118.5 million in proceeds from the payoff of two notes receivable that the Company had received in late 2020 from the buyer of its remaining New Jersey properties. The proceeds were used to pay down the Company’s $500 million line of credit.

8.    Stock Based Compensation
The Compensation Committee of Piedmont's Board of Directors has granted deferred stock award units to eligible employees at its discretion based upon the previous year's financial results measured against various board approved performance metrics. Most employee awards vest ratably over three years. In addition, Piedmont's independent directors receive an annual grant of deferred stock award units for services rendered and such awards vest over a one year service period.

Certain management employees' long-term equity incentive program is split equally between the deferred stock award units described above and a multi-year performance share program whereby actual awards are contingent upon Piedmont's total stockholder return ("TSR") performance relative to the TSR of a peer group of office REITs. The target incentives for these certain employees, as well as the peer group to be used for comparative purposes, are predetermined by the board of directors, advised by an outside compensation consultant. None of the shares potentially earned are awarded until the end of the multi-year performance period (or upon termination) and vest upon award and are pro-rated if certain terminations occur before the end of the multi-year period. The grant date fair value of the multi-year performance share awards is estimated using the Monte Carlo valuation method.

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A rollforward of Piedmont's equity based award activity for the three months ended March 31, 2022 is as follows:
SharesWeighted-Average Grant Date Fair Value
Unvested and Potential Stock Awards as of December 31, 2021
1,099,181 $23.97 
Deferred Stock Awards Granted
258,288 $16.85 
Decrease in Estimated Potential Share Awards based on TSR Performance
(224,220)$24.59 
Performance Stock Awards Vested
(267,744)$29.43 
Deferred Stock Awards Vested
(176,196)$18.84 
Deferred Stock Awards Forfeited
(2,144)$18.20 
Unvested and Potential Stock Awards as of March 31, 2022
687,165 $20.30 

The following table provides additional information regarding stock award activity during the three months ended March 31, 2022 and 2021, respectively (in thousands, except per share amounts):

Three Months Ended
March 31,
2022
March 31,
2021
Weighted-Average Grant Date Fair Value per share of Deferred Stock Granted During the Period
$16.85 $17.15 
Total Grant Date Fair Value of Deferred Stock Vested During the Period
$3,319 $2,452 
Share-based Liability Awards Paid During the Period (1)
$5,481 $3,610 

(1)Reflects the value of stock earned pursuant to the 2019-21 and 2018-20 Performance Share Plans during the three months ended March 31, 2022 and 2021, respectively.

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A detail of Piedmont’s outstanding stock awards and programs as of March 31, 2022 is as follows:
Date of grantType of Award
Net Shares
Granted (1)
Grant
Date Fair
Value
Vesting ScheduleUnvested Shares
May 3, 2019Deferred Stock Award250,556 $21.04 
Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 3, 2020, 2021, and 2022, respectively.
71,693 
February 19, 2020Deferred Stock Award142,185 $24.41 
Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on February 19, 2021, 2022, and 2023, respectively.
42,513 
March 19, 2020Fiscal Year 2020-2022 Performance Share Program $25.83 Shares awarded, if any, will vest immediately upon determination of award in 2023.124,759 
(2)
February 17, 2021Deferred Stock Award239,795 $17.15 
Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on February 17, 2022, 2023, and 2024, respectively.
131,465 
February 18, 2021Fiscal Year 2021-2023 Performance Share Program $23.04 Shares awarded, if any, will vest immediately upon determination of award in 2024.88,405 
(2)
May 11, 2021Deferred Stock Award-Board of Directors35,077 $17.96 
Of the shares granted, 100% will vest on May 11, 2022.
35,077 
February 10, 2022Deferred Stock Award232,407 $16.85 
Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on February 10, 2023, 2024, and 2025, respectively.
193,253 
February 17, 2022Fiscal Year 2022-2024 Performance Share Program $17.77 Shares awarded, if any, will vest immediately upon determination of award in 2025. 
(2)
Total687,165 

(1)Amounts reflect the total original grant to employees and independent directors, net of shares surrendered upon vesting to satisfy required minimum tax withholding obligations through March 31, 2022.
(2)Estimated based on Piedmont's cumulative TSR for the respective performance period through March 31, 2022. Share estimates are subject to change in future periods based upon Piedmont's relative TSR performance compared to its peer group of office REITs.

During the three months ended March 31, 2022 and 2021, Piedmont recognized approximately $2.8 million and $3.3 million, respectively, of compensation expense related to stock awards, of which $1.7 million and $2.0 million is related to the amortization of unvested and potential stock awards and fair value adjustment for liability awards. During the three months ended March 31, 2022, 254,167 shares (net of shares surrendered upon vesting to satisfy required minimum tax withholding obligations) were issued to employees and independent directors. As of March 31, 2022, approximately $11.6 million of unrecognized compensation cost related to unvested and potential stock awards remained, which Piedmont will record in its consolidated statements of income of operations over a weighted-average vesting period of approximately one year.

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9.    Supplemental Disclosures for the Statement of Consolidated Cash Flows

Certain non-cash investing and financing activities for the three months ended March 31, 2022 and 2021 (in thousands) are outlined below:
Three Months Ended
March 31,
2022
March 31,
2021
Accrued capital expenditures and deferred lease costs$15,557 $19,974 
Change in accrued dividends
$(26,048)$(25,683)
Change in accrued share repurchases as part of an announced plan$ $(685)
Accrued deferred financing costs$ $5 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash and escrows as presented in the accompanying consolidated statements of cash flows for the three months ended March 31, 2022 and 2021, to the consolidated balance sheets for the respective period (in thousands):
20222021
Cash and cash equivalents, beginning of period$7,419 $7,331 
Restricted cash and escrows, beginning of period1,441 1,883 
Total cash, cash equivalents, and restricted cash and escrows as presented in the accompanying consolidated statement of cash flows, beginning of period$8,860 $9,214 
Cash and cash equivalents, end of period$7,211 $10,689 
Restricted cash and escrows, end of period1,457 1,741 
Total cash, cash equivalents, and restricted cash and escrows as presented in the accompanying consolidated statement of cash flows, end of period$8,668 $12,430 

Amounts in restricted cash and escrows typically represent: escrow accounts required for future property repairs; escrow accounts for the payment of real estate taxes as required under certain of Piedmont's debt agreements; earnest money deposited by a buyer to secure the purchase of one of Piedmont's properties; or security or utility deposits held for tenants as a condition of their lease agreement.

10.    Earnings Per Share

There are no adjustments to “Net income applicable to Piedmont” for the diluted earnings per share computations.

Net income per share-basic is calculated as net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Net income per share-diluted is calculated as net income available to common stockholders divided by the diluted weighted average number of common shares outstanding during the period, including unvested deferred stock awards. Diluted weighted average number of common shares reflects the potential dilution under the treasury stock method that would occur if the remaining unvested and potential stock awards vested and resulted in additional common shares outstanding. Unvested and potential stock awards which are determined to be anti-dilutive are not included in the calculation of diluted weighted average common shares. For the three months ended March 31, 2022 and 2021, Piedmont calculated and excluded weighted average outstanding anti-dilutive shares of 195,837 and 182,745, respectively.
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The following table reconciles the denominator for the basic and diluted earnings per share computations shown on the consolidated statements of income for the three months ended March 31, 2022 and 2021, respectively (in thousands):

 Three Months Ended
 March 31, 2022March 31, 2021
Weighted-average common shares – basic123,225123,946
Plus: Incremental weighted-average shares from time-vested deferred and performance stock awards
285504
Weighted-average common shares – diluted123,510124,450

11.    Segment Information

Piedmont's President and Chief Executive Officer has been identified as Piedmont's chief operating decision maker ("CODM"), as defined by GAAP. The CODM evaluates Piedmont's portfolio and assesses the ongoing operations and performance of its properties utilizing the following geographic segments: Dallas, Atlanta, Boston, Washington, D.C., Minneapolis, Orlando, and New York. These operating segments are also Piedmont’s reportable segments. As of March 31, 2022, Piedmont also owned two properties in Houston that do not meet the definition of an operating or reportable segment as the CODM does not regularly review these properties for purposes of allocating resources or assessing performance. Further, Piedmont does not maintain a significant presence or anticipate further investment in this market. These two properties are the primary contributors to accrual-based net operating income ("NOI") included in "Other" below. During the periods presented, there have been no material inter segment transactions. The accounting policies of the reportable segments are the same as Piedmont's accounting policies.

NOI by geographic segment is the primary performance measure reviewed by Piedmont's CODM to assess operating performance and consists only of revenues and expenses directly related to real estate rental operations. NOI is calculated by deducting property operating costs from lease revenues and other property related income. NOI reflects property acquisitions and dispositions, occupancy levels, rental rate increases or decreases, and the recoverability of operating expenses. Piedmont's calculation of NOI may not be directly comparable to similarly titled measures calculated by other REITs.

Asset value information and capital expenditures by segment are not reported because the CODM does not use these measures to assess performance.

The following table presents accrual-based lease revenue and other property related income included in NOI by geographic reportable segment (in thousands):

Three Months Ended
March 31, 2022March 31, 2021
Dallas$27,085 $27,494 
Atlanta29,268 22,705 
Boston15,365 15,509 
Washington, D.C.15,606 14,313 
Minneapolis15,109 15,265 
Orlando13,906 15,477 
New York13,875 13,188 
Total reportable segments130,214 123,951 
Other5,935 5,306 
Total Revenues$136,149 $129,257 

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The following table presents NOI by geographic reportable segment (in thousands):
Three Months Ended
March 31, 2022March 31, 2021
Dallas$16,099 $16,877 
Atlanta18,555 14,996 
Boston10,473 10,824 
Washington, D.C.10,047 8,573 
Minneapolis7,914 8,155 
Orlando8,499 10,350 
New York7,757 7,296 
Total reportable segments79,344 77,071 
Other3,037 587 
Total NOI$82,381 $77,658 

A reconciliation of Net income applicable to Piedmont to NOI is presented below (in thousands):
Three Months Ended
March 31, 2022March 31, 2021
Net income applicable to Piedmont$59,964 $9,344 
Management fee revenue (1)
(362)(390)
Depreciation and amortization53,767 51,015 
General and administrative expenses7,595 7,251 
Interest expense13,898 12,580 
Other income(1,808)(2,141)
Gain on sale of real estate assets(50,673) 
Net loss applicable to noncontrolling interests (1)
NOI$82,381 $77,658 

(1)Presented net of related operating expenses incurred to earn such management fee revenue. Such operating expenses are a component of property operating costs in the accompanying consolidated statements of income.

12.    Subsequent Event

Second Quarter Dividend Declaration

On April 27, 2022, the board of directors of Piedmont declared a dividend for the second quarter of 2022 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on May 27, 2022. Such dividend will be paid on June 17, 2022.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto of Piedmont Office Realty Trust, Inc. (“Piedmont,” "we," "our," or "us"). See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I, as well as the consolidated financial statements and accompanying notes thereto and Management’s Discussion and Anal