x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 |
Maryland | 58-2328421 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
Large Accelerated filer x | Accelerated filer o | ||
Non-Accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o | ||
Emerging growth company o |
Page No. | |||
PART I. | Financial Statements | ||
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. |
• | Economic, regulatory, and/or socio-economic changes (including accounting standards) that impact the real estate market generally, or that could affect patterns of use of commercial office space; |
• | The impact of competition on our efforts to renew existing leases or re-let space on terms similar to existing leases; |
• | Changes in the economies and other conditions affecting the office sector in general and the specific markets in which we operate, particularly in Washington, D.C., the New York metropolitan area, and Chicago where we have high concentrations of our Annualized Lease Revenue (see definition below); |
• | Lease terminations or lease defaults, particularly by one of our large lead tenants; |
• | The effect on us of adverse market and economic conditions, including any resulting impairment charges on both our long-lived assets or goodwill; |
• | The success of our real estate strategies and investment objectives, including our ability to identify and consummate suitable acquisitions and divestitures; |
• | The illiquidity of real estate investments, including the resulting impediment on our ability to quickly respond to adverse changes in the performance of our properties; |
• | The risks and uncertainties associated with our acquisition of properties, many of which risks and uncertainties may not be known at the time of acquisition; |
• | Development and construction delays and resultant increased costs and risks; |
• | Our real estate development strategies may not be successful; |
• | Future acts of terrorism in any of the major metropolitan areas in which we own properties, or future cybersecurity attacks against us or any of our tenants; |
• | Costs of complying with governmental laws and regulations; |
• | Additional risks and costs associated with directly managing properties occupied by government tenants; |
• | The effect of future offerings of debt or equity securities or changes in market interest rates on the value of our common stock; |
• | Uncertainties associated with environmental and other regulatory matters; |
• | Potential changes in political environment and reduction in federal and/or state funding of our governmental tenants; |
• | Any change in the financial condition of any of our large lead tenants; |
• | The effect of any litigation to which we are, or may become, subject; |
• | Changes in tax laws impacting REITs and real estate in general, as well as our ability to continue to qualify as a REIT under the Internal Revenue Code of 1986 (the “Code”); |
• | The future effectiveness of our internal controls and procedures; and |
• | Other factors, including the risk factors discussed under Item 1A. of our Amended Annual Report on Form 10-K/A for the year ended December 31, 2016. |
ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS |
(Unaudited) | |||||||
September 30, 2017 | December 31, 2016 | ||||||
Assets: | |||||||
Real estate assets, at cost: | |||||||
Land | $ | 614,934 | $ | 617,138 | |||
Buildings and improvements, less accumulated depreciation of $926,105 and $856,254 as of September 30, 2017 and December 31, 2016, respectively | 2,723,163 | 2,754,106 | |||||
Intangible lease assets, less accumulated amortization of $93,265 and $109,152 as of September 30, 2017 and December 31, 2016, respectively | 78,700 | 99,695 | |||||
Construction in progress | 8,957 | 34,814 | |||||
Real estate assets held for sale, net | — | 225,939 | |||||
Total real estate assets | 3,425,754 | 3,731,692 | |||||
Investments in and amounts due from unconsolidated joint ventures | 49 | 7,360 | |||||
Cash and cash equivalents | 36,108 | 6,992 | |||||
Tenant receivables, net of allowance for doubtful accounts of $535 and $197 as of September 30, 2017 and December 31, 2016, respectively | 12,802 | 26,494 | |||||
Straight-line rent receivables | 182,609 | 163,789 | |||||
Restricted cash and escrows | 1,260 | 1,212 | |||||
Prepaid expenses and other assets | 28,232 | 23,201 | |||||
Goodwill | 98,918 | 98,918 | |||||
Interest rate swaps | 34 | — | |||||
Deferred lease costs, less accumulated amortization of $189,469 and $175,643 as of September 30, 2017 and December 31, 2016, respectively | 274,884 | 298,695 | |||||
Other assets held for sale, net | — | 9,815 | |||||
Total assets | $ | 4,060,650 | $ | 4,368,168 | |||
Liabilities: | |||||||
Unsecured debt, net of discount and unamortized debt issuance costs of $8,337 and $10,269 as of September 30, 2017 and December 31, 2016, respectively | $ | 1,511,663 | $ | 1,687,731 | |||
Secured debt, net of premiums and unamortized debt issuance costs of $1,020 and $1,161 as of September 30, 2017 and December 31, 2016, respectively | 191,923 | 332,744 | |||||
Accounts payable, accrued expenses, and accrued capital expenditures | 108,120 | 165,410 | |||||
Deferred income | 29,970 | 28,406 | |||||
Intangible lease liabilities, less accumulated amortization of $54,637 and $49,225 as of September 30, 2017 and December 31, 2016, respectively | 41,064 | 48,005 | |||||
Interest rate swaps | 3,915 | 8,169 | |||||
Total liabilities | 1,886,655 | 2,270,465 | |||||
Commitments and Contingencies | — | — | |||||
Stockholders’ Equity: | |||||||
Shares-in-trust, 150,000,000 shares authorized; none outstanding as of September 30, 2017 or December 31, 2016 | — | — | |||||
Preferred stock, no par value, 100,000,000 shares authorized; none outstanding as of September 30, 2017 or December 31, 2016 | — | — | |||||
Common stock, $.01 par value, 750,000,000 shares authorized; 145,294,845 and 145,235,313 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 1,453 | 1,452 | |||||
Additional paid-in capital | 3,676,706 | 3,673,128 | |||||
Cumulative distributions in excess of earnings | (1,511,428 | ) | (1,580,863 | ) | |||
Other comprehensive income | 5,400 | 2,104 | |||||
Piedmont stockholders’ equity | 2,172,131 | 2,095,821 | |||||
Noncontrolling interest | 1,864 | 1,882 | |||||
Total stockholders’ equity | 2,173,995 | 2,097,703 | |||||
Total liabilities and stockholders’ equity | $ | 4,060,650 | $ | 4,368,168 |
(Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues: | |||||||||||||||
Rental income | $ | 113,350 | $ | 113,821 | $ | 361,048 | $ | 340,326 | |||||||
Tenant reimbursements | 23,796 | 24,163 | 72,340 | 70,000 | |||||||||||
Property management fee revenue | 441 | 501 | 1,341 | 1,478 | |||||||||||
137,587 | 138,485 | 434,729 | 411,804 | ||||||||||||
Expenses: | |||||||||||||||
Property operating costs | 54,090 | 54,867 | 165,253 | 161,438 | |||||||||||
Depreciation | 30,000 | 31,610 | 90,827 | 94,948 | |||||||||||
Amortization | 18,123 | 18,640 | 57,852 | 53,848 | |||||||||||
Impairment loss on real estate assets | — | 22,951 | — | 33,901 | |||||||||||
General and administrative | 6,618 | 7,429 | 23,250 | 23,518 | |||||||||||
108,831 | 135,497 | 337,182 | 367,653 | ||||||||||||
Real estate operating income | 28,756 | 2,988 | 97,547 | 44,151 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense | (16,183 | ) | (15,496 | ) | (52,661 | ) | (48,294 | ) | |||||||
Other income/(expense) | 290 | (720 | ) | 228 | (467 | ) | |||||||||
Net recoveries from casualty events | — | 34 | — | 34 | |||||||||||
Equity in income of unconsolidated joint ventures | 3,754 | 129 | 3,872 | 354 | |||||||||||
(12,139 | ) | (16,053 | ) | (48,561 | ) | (48,373 | ) | ||||||||
Income/(loss) from continuing operations | 16,617 | (13,065 | ) | 48,986 | (4,222 | ) | |||||||||
Discontinued operations: | |||||||||||||||
Operating income | — | 1 | — | — | |||||||||||
Income from discontinued operations | — | 1 | — | — | |||||||||||
Gain/(loss) on sale of real estate assets, net | 109,512 | (57 | ) | 115,951 | 73,758 | ||||||||||
Net income/(loss) | 126,129 | (13,121 | ) | 164,937 | 69,536 | ||||||||||
Plus: Net income applicable to noncontrolling interest | 4 | 14 | 10 | 7 | |||||||||||
Net income/(loss) applicable to Piedmont | $ | 126,133 | $ | (13,107 | ) | $ | 164,947 | $ | 69,543 | ||||||
Per share information – basic and diluted: | |||||||||||||||
Income/(loss) from continuing operations and gain/(loss) on sale of real estate assets | $ | 0.87 | $ | (0.09 | ) | $ | 1.13 | $ | 0.48 | ||||||
Income from discontinued operations | — | — | — | — | |||||||||||
Net income applicable to common stockholders | $ | 0.87 | $ | (0.09 | ) | $ | 1.13 | $ | 0.48 | ||||||
Weighted-average common shares outstanding – basic | 145,415,678 | 145,231,160 | 145,372,182 | 145,228,755 | |||||||||||
Weighted-average common shares outstanding – diluted | 145,719,431 | 145,669,237 | 145,679,582 | 145,601,026 |
(Unaudited) | (Unaudited) | ||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
Net income/(loss) applicable to Piedmont | $ | 126,133 | $ | (13,107 | ) | $ | 164,947 | $ | 69,543 | ||||||||||||||||||
Other comprehensive income/(loss): | |||||||||||||||||||||||||||
Effective portion of gain/(loss) on derivative instruments that are designated and qualify as cash flow hedges (See Note 5) | 175 | 2,847 | 307 | (12,182 | ) | ||||||||||||||||||||||
Plus: Reclassification of previously recorded loss included in net income (See Note 5) | 653 | 1,045 | 2,936 | 3,291 | |||||||||||||||||||||||
Gain on investment in available for sale securities | 25 | 7 | 53 | 19 | |||||||||||||||||||||||
Other comprehensive income/(loss) | 853 | 3,899 | 3,296 | (8,872 | ) | ||||||||||||||||||||||
Comprehensive income/(loss) applicable to Piedmont | $ | 126,986 | $ | (9,208 | ) | $ | 168,243 | $ | 60,671 |
Common Stock | Additional Paid-In Capital | Cumulative Distributions in Excess of Earnings | Other Comprehensive Income/(Loss) | Non- controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||
Balance, December 31, 2015 | 145,512 | $ | 1,455 | $ | 3,669,977 | $ | (1,550,698 | ) | $ | 1,661 | $ | 1,025 | $ | 2,123,420 | ||||||||||||
Share repurchases as part of an announced plan | (462 | ) | (5 | ) | — | (7,938 | ) | — | — | (7,943 | ) | |||||||||||||||
Offering costs | — | — | (342 | ) | — | — | — | (342 | ) | |||||||||||||||||
Noncontrolling interest in consolidated joint venture | — | — | — | — | — | 888 | 888 | |||||||||||||||||||
Dividends to common stockholders ($0.84 per share), dividends to preferred stockholders of subsidiary, and dividends reinvested | — | — | (173 | ) | (121,959 | ) | — | (16 | ) | (122,148 | ) | |||||||||||||||
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax | 185 | 2 | 3,666 | — | — | — | 3,668 | |||||||||||||||||||
Net income applicable to noncontrolling interest | — | — | — | — | — | (15 | ) | (15 | ) | |||||||||||||||||
Net income applicable to Piedmont | — | — | — | 99,732 | — | — | 99,732 | |||||||||||||||||||
Other comprehensive income | — | — | — | — | 443 | — | 443 | |||||||||||||||||||
Balance, December 31, 2016 | 145,235 | 1,452 | 3,673,128 | (1,580,863 | ) | 2,104 | 1,882 | 2,097,703 | ||||||||||||||||||
Share repurchases as part of an announced plan | (195 | ) | (2 | ) | (3,893 | ) | (3,895 | ) | ||||||||||||||||||
Offering costs | (97 | ) | (97 | ) | ||||||||||||||||||||||
Dividends to common stockholders ($0.63 per share), dividends to preferred stockholders of subsidiary, and dividends reinvested | (79 | ) | (91,619 | ) | (8 | ) | (91,706 | ) | ||||||||||||||||||
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax | 255 | 3 | 3,754 | 3,757 | ||||||||||||||||||||||
Net income applicable to noncontrolling interest | (10 | ) | (10 | ) | ||||||||||||||||||||||
Net income applicable to Piedmont | 164,947 | 164,947 | ||||||||||||||||||||||||
Other comprehensive income | 3,296 | 3,296 | ||||||||||||||||||||||||
Balance, September 30, 2017 | 145,295 | $ | 1,453 | $ | 3,676,706 | $ | (1,511,428 | ) | $ | 5,400 | $ | 1,864 | $ | 2,173,995 |
(Unaudited) | |||||||
Nine Months Ended | |||||||
September 30, | |||||||
2017 | 2016 | ||||||
Cash Flows from Operating Activities: | |||||||
Net income | $ | 164,937 | $ | 69,536 | |||
Operating distributions received from unconsolidated joint ventures | — | 579 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation | 90,827 | 94,948 | |||||
Amortization of debt issuance costs | 1,214 | 1,264 | |||||
Other amortization | 57,146 | 53,325 | |||||
Impairment loss on real estate assets | — | 33,901 | |||||
Stock compensation expense | 6,657 | 7,630 | |||||
Equity in income of unconsolidated joint ventures | (3,872 | ) | (354 | ) | |||
Gain on sale of real estate assets, net | (115,951 | ) | (73,758 | ) | |||
Changes in assets and liabilities: | |||||||
Decrease in tenant and straight-line rent receivables, net | (15,040 | ) | (17,393 | ) | |||
(Increase)/decrease in restricted cash and escrows | (656 | ) | 3,451 | ||||
Increase in prepaid expenses and other assets | (4,580 | ) | (3,429 | ) | |||
(Decrease)/increase in accounts payable and accrued expenses | (5,863 | ) | 307 | ||||
Decrease in deferred income | 1,513 | 2,029 | |||||
Net cash provided by operating activities | 176,332 | 172,036 | |||||
Cash Flows from Investing Activities: | |||||||
Acquisition of real estate assets, related intangibles, and cash held in escrow for acquisitions | — | (66,900 | ) | ||||
Capitalized expenditures, net of accruals | (65,407 | ) | (88,391 | ) | |||
Investment in consolidated joint venture | — | (165,848 | ) | ||||
Net sales proceeds from wholly-owned properties | 375,199 | 304,902 | |||||
Net sales proceeds from unconsolidated joint ventures | 12,334 | — | |||||
Investments in unconsolidated joint ventures | (1,162 | ) | — | ||||
Deferred lease costs paid | (19,419 | ) | (15,345 | ) | |||
Net cash provided by/(used in) investing activities | 301,545 | (31,582 | ) | ||||
Cash Flows from Financing Activities: | |||||||
Debt issuance costs paid | (101 | ) | (212 | ) | |||
Proceeds from debt | 147,000 | 552,000 | |||||
Repayments of debt | (466,046 | ) | (589,532 | ) | |||
Costs of issuance of common stock | (97 | ) | (239 | ) | |||
Value of shares withheld to pay tax obligations related to employee stock compensation | (3,385 | ) | (2,328 | ) | |||
Repurchases of common stock as part of announced plan | (3,895 | ) | (7,943 | ) | |||
Dividends paid and discount on dividend reinvestments | (122,237 | ) | (91,609 | ) | |||
Net cash used in financing activities | (448,761 | ) | (139,863 | ) | |||
Net increase in cash and cash equivalents | 29,116 | 591 | |||||
Cash and cash equivalents, beginning of period | 6,992 | 5,441 | |||||
Cash and cash equivalents, end of period | $ | 36,108 | $ | 6,032 | |||
Supplemental Disclosures of Significant Noncash Investing and Financing Activities: | |||||||
Accrued dividends and discount on dividend reinvestments | $ | (30,531 | ) | $ | — | ||
Accrued capital expenditures and deferred lease costs | $ | 8,590 | $ | 24,624 | |||
Investment in consolidated joint venture | $ | 63,026 | $ | — |
Facility (1) | Stated Rate | Effective Rate (2) | Maturity | Amount Outstanding as of | ||||||||||||
September 30, 2017 | December 31, 2016 | |||||||||||||||
Secured (Fixed) | ||||||||||||||||
$140 Million WDC Fixed-Rate Loans | 5.76 | % | 5.76 | % | 11/1/2017 | $ | — | $ | 140,000 | |||||||
$35 Million Fixed-Rate Loan (3) | 5.55 | % | 3.75 | % | 9/1/2021 | 30,903 | 31,583 | |||||||||
$160 Million Fixed-Rate Loan (4) | 3.48 | % | 3.58 | % | 7/5/2022 | 160,000 | 160,000 | |||||||||
Net premium and unamortized debt issuance costs | 1,020 | 1,161 | ||||||||||||||
Subtotal/Weighted Average (5) | 3.82 | % | 191,923 | 332,744 | ||||||||||||
Unsecured (Variable and Fixed) | ||||||||||||||||
$170 Million Unsecured 2015 Term Loan (6) | LIBOR + 1.125% | 2.37 | % | 5/15/2018 | 170,000 | 170,000 | ||||||||||
$300 Million Unsecured 2013 Term Loan | LIBOR + 1.20% | 2.78 | % | (7) | 1/31/2019 | 300,000 | 300,000 | |||||||||
$500 Million Unsecured 2015 Line of Credit (6) | LIBOR + 1.00% | — | % | 6/18/2019 | (8) | — | 178,000 | |||||||||
$300 Million Unsecured 2011 Term Loan | LIBOR + 1.15% | 3.35 | % | (7) | 1/15/2020 | 300,000 | 300,000 | |||||||||
$350 Million Senior Notes | 3.40 | % | 3.43 | % | 6/01/2023 | 350,000 | 350,000 | |||||||||
$400 Million Senior Notes | 4.45 | % | 4.10 | % | 3/15/2024 | 400,000 | 400,000 | |||||||||
Discounts and unamortized debt issuance costs | (8,337) | (10,269) | ||||||||||||||
Subtotal/Weighted Average (5) | 3.43 | % | 1,511,663 | 1,687,731 | ||||||||||||
Total/Weighted Average (5) | 3.47 | % | $ | 1,703,586 | $ | 2,020,475 |
(1) | Other than the $35 Million Fixed-Rate Loan, all of Piedmont’s outstanding debt as of September 30, 2017 and December 31, 2016 is interest-only. |
(2) | Effective rate after consideration of settled or in-place interest rate swap agreements, issuance premiums/discounts, and/or fair market value adjustments upon assumption of debt. |
(3) | Collateralized by the 5 Wall Street building in Burlington, Massachusetts. |
(4) | Collateralized by the 1901 Market Street building in Philadelphia, Pennsylvania. |
(5) | Weighted average is based on contractual balance of outstanding debt and the stated or effectively fixed interest rates in the table as of September 30, 2017. |
(6) | On a periodic basis, Piedmont may select from multiple interest rate options, including the prime rate and various-length LIBOR locks. All LIBOR selections are subject to an additional spread over the selected rate based on Piedmont’s current credit rating. |
(7) | Facility has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of Piedmont's credit rating, the rate shown as the effective rate. |
(8) | Piedmont may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of June 18, 2020) provided Piedmont is not then in default and upon payment of extension fees. |
Entity | Piedmont’s % Ownership of Entity | Related Building | Consolidated/ Unconsolidated | Net Carrying Amount as of September 30, 2017 | Net Carrying Amount as of December 31, 2016 | Primary Beneficiary Considerations | ||||||||||
1201 Eye Street N.W. Associates, LLC | 98.6% | (1) | 1201 Eye Street | Consolidated | $ | 82.1 | $ | (6.7 | ) | In accordance with the partnership’s governing documents, Piedmont currently receives 100% of the cash flow of the entity and has sole discretion in directing the management and leasing activities of the building. | ||||||
1225 Eye Street N.W. Associates, LLC | 98.1% | (1) | 1225 Eye Street | Consolidated | $ | 66.2 | $ | 9.9 | In accordance with the partnership’s governing documents, Piedmont currently receives 100% of the cash flow of the entity and has sole discretion in directing the management and leasing activities of the building. | |||||||
Piedmont 500 W. Monroe Fee, LLC | 100% | 500 W. Monroe | Consolidated | $ | 265.2 | $ | 262.4 | The Omnibus Agreement with the previous owner includes equity participation rights for the previous owner, if certain financial returns are achieved; however, Piedmont has sole decision making authority and is entitled to 100% of the economic benefits of the property until such returns are met. |
Interest Rate Derivatives: | Number of Swap Agreements | Associated Debt Instrument | Total Notional Amount (in millions) | Effective Date | Maturity Date | |||||||
Interest rate swaps | 4 | $300 Million Unsecured 2013 Term Loan | $ | 200 | 1/30/2014 | 1/31/2019 | ||||||
Interest rate swaps | 2 | $300 Million Unsecured 2013 Term Loan | 100 | 8/29/2014 | 1/31/2019 | |||||||
Interest rate swaps | 3 | $300 Million Unsecured 2011 Term Loan | 300 | 11/22/2016 | 1/15/2020 | |||||||
Total | $ | 600 |
Interest rate swaps classified as: | September 30, 2017 | December 31, 2016 | |||||
Gross derivative assets | $ | 34 | $ | — | |||
Gross derivative liabilities | (3,915 | ) | (8,169 | ) | |||
Net derivative asset/(liability) | $ | (3,881 | ) | $ | (8,169 | ) |
Three Months Ended | Nine Months Ended | ||||||||||||||
Interest Rate Swaps in Cash Flow Hedging Relationships | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Amount of gain/(loss) recognized in OCI | $ | 175 | $ | 2,847 | $ | 307 | $ | (12,182 | ) | ||||||
Amount of previously recorded loss reclassified from accumulated OCI into interest expense | $ | 653 | $ | 1,045 | $ | 2,936 | $ | 3,291 |
September 30, 2017 | December 31, 2016 | ||||||||||||||||||
Financial Instrument | Carrying Value | Estimated Fair Value | Level Within Fair Value Hierarchy | Carrying Value | Estimated Fair Value | Level Within Fair Value Hierarchy | |||||||||||||
Assets: | |||||||||||||||||||
Cash and cash equivalents(1) | $ | 36,108 | $ | 36,108 | Level 1 | $ | 6,992 | $ | 6,992 | Level 1 | |||||||||
Tenant receivables, net(1) | $ | 12,802 | $ | 12,802 | Level 1 | $ | 26,494 | $ | 26,494 | Level 1 | |||||||||
Restricted cash and escrows(1) | $ | 1,260 | $ | 1,260 | Level 1 | $ | 1,212 | $ | 1,212 | Level 1 | |||||||||
Interest rate swaps | $ | 34 | $ | 34 | Level 2 | $ | — | $ | — | Level 2 | |||||||||
Liabilities: | |||||||||||||||||||
Accounts payable and accrued expenses(1) | $ | 13,465 | $ | 13,465 | Level 1 | $ | 44,733 | $ | 44,733 | Level 1 | |||||||||
Interest rate swaps | $ | 3,915 | $ | 3,915 | Level 2 | $ | 8,169 | $ | 8,169 | Level 2 | |||||||||
Debt, net | $ | 1,703,586 | $ | 1,731,584 | Level 2 | $ | 2,020,475 | $ | 2,027,436 | Level 2 |
(1) | For the periods presented, the carrying value of these financial instruments approximates estimated fair value due to their short-term maturity. |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||
150 West Jefferson(1) | $ | — | $ | — | $ | — | $ | 8,258 | |||||||
9221 Corporate Boulevard (2) | — | — | — | 2,692 | |||||||||||
9200 and 9211 Corporate Boulevard(3) | — | 22,951 | — | 22,951 | |||||||||||
Total impairment loss on real estate assets(4) | $ | — | $ | 22,951 | $ | — | $ | 33,901 |
(1) | Piedmont recognized an impairment loss on real estate assets based upon the difference between the carrying value of the asset and the anticipated contract sales price, less estimated selling costs. |
(2) | Piedmont, using a probability-weighted model heavily weighted towards the short-term sale of the 9221 Corporate Boulevard building in Rockville, Maryland, determined that the carrying value would not be recovered from the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. As a result, Piedmont recognized a loss on impairment of approximately $2.7 million during the nine months ended September 30, 2016 calculated as the difference between the carrying value of the asset and the anticipated contract sales price, less estimated selling costs. |
(3) | Piedmont elected to sell its remaining two assets and exit the Rockville, Maryland sub-market of Washington, D.C, after selling the 9221 Corporate Boulevard building in July 2016 (mentioned above). Upon management's change in its hold period assumption for the assets from a long-term hold to a near-term sale, Piedmont recognized an impairment loss of approximately $23.0 million. The impairment loss was calculated as the difference between the carrying value of the asset and the anticipated contracted sales price, less estimated selling costs. Piedmont reclassified the properties as held for sale, recognized an impairment loss, entered into a binding contract, and subsequently sold the 9200 and 9211 Corporate Boulevard buildings during the three months ended September 30, 2016. |
(4) | The fair value measurements used in the evaluation of the non-financial assets above are considered to be Level 1 valuations within the fair value hierarchy as defined by GAAP, as there are direct observations and transactions involving the assets by unrelated, third-party purchasers. |
Buildings Sold | Location | Date of Sale | Gain/(Loss) on Sale | Net Sales Proceeds | ||||||||
1055 East Colorado Boulevard | Pasadena, California | April 21, 2016 | $ | 29,461 | $ | 60,076 | ||||||
Fairway Center II | Brea, California | April 28, 2016 | $ | 14,405 | $ | 33,062 | ||||||
1901 Main Street | Irvine, California | May 2, 2016 | $ | 29,964 | $ | 63,149 | ||||||
9221 Corporate Boulevard | Rockville, Maryland | July 27, 2016 | $ | (192 | ) | $ | 12,035 | |||||
150 West Jefferson | Detroit, Michigan | July 29, 2016 | $ | (680 | ) | $ | 77,827 | |||||
9200 and 9211 Corporate Boulevard | Rockville, Maryland | September 28, 2016 | $ | (41 | ) | $ | 12,518 | |||||
Sarasota Commerce Center II | Sarasota, Florida | June 16, 2017 | $ | 6,493 | $ | 23,090 | ||||||
Two Independence Square | Washington, D.C. | July 5, 2017 | $ | 109,516 | $ | 352,180 |
September 30, 2017 | December 31, 2016 | |||||||
Real estate assets held for sale, net: | ||||||||
Land | $ | — | $ | 52,710 | ||||
Building and improvements, less accumulated depreciation of $0 and $88,319 as of September 30, 2017 and December 31, 2016, respectively | — | 173,218 | ||||||
Construction in progress | — | 11 | ||||||
Total real estate assets held for sale, net | $ | — | $ | 225,939 | ||||
Other assets held for sale, net: | ||||||||
Straight-line rent receivables | $ | — | $ | 2,059 | ||||
Prepaid expenses and other assets | — | 454 | ||||||
Deferred lease costs, less accumulated amortization of $0 and $2,825 as of September 30, 2017 and December 31, 2016, respectively | — | 7,302 | ||||||
Total other assets held for sale, net | $ | — | $ | 9,815 |
Shares | Weighted-Average Grant Date Fair Value | |||||
Unvested Stock Awards as of December 31, 2016 | 944,223 | $ | 19.44 | |||
Deferred Stock Awards Granted | 299,251 | $ | 21.38 | |||
Change in Estimated Potential Future Performance Share Awards, net of forfeitures | (7,828 | ) | $ | 23.65 | ||
Performance Stock Awards Vested | (118,446 | ) | $ | 22.00 | ||
Deferred Stock Awards Vested | (302,474 | ) | $ | 19.35 | ||
Deferred Stock Awards Forfeited | (7,200 | ) | $ | 19.79 | ||
Unvested Stock Awards as of September 30, 2017 | 807,526 | $ | 21.39 |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||
Weighted-Average Grant Date Fair Value of Deferred Stock Granted During the Period | $ | — | $ | — | $ | 21.38 | $ | 19.96 | |||||||
Total Grant Date Fair Value of Deferred Stock Vested During the Period | $ | 11 | $ | 108 | $ | 5,852 | $ | 4,766 | |||||||
Share-based Liability Awards Paid During the Period(1) | $ | — | $ | — | $ | 2,877 | $ | 1,127 |
(1) | Amounts reflect the issuance of performance share awards related to the 2014-16 and 2013-15 Performance Share Plans during the nine months ended September 30, 2017 and 2016, respectively. |
Date of grant | Type of Award | Net Shares Granted (1) | Grant Date Fair Value | Vesting Schedule | Unvested Shares as of September 30, 2017 | ||||||||||
January 3, 2014 | Deferred Stock Award | 86,769 | $ | 16.56 | Of the shares granted, 20% vested or will vest on January 3, 2015, 2016, 2017, 2018, and 2019, respectively. | 35,094 | |||||||||
May 1, 2015 | Deferred Stock Award | 216,837 | $ | 17.59 | Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 1, 2016, 2017, and 2018, respectively. | 67,114 | |||||||||
May 1, 2015 | Fiscal Year 2015-2017 Performance Share Program | — | $ | 18.42 | Shares awarded, if any, will vest immediately upon determination of award in 2018. | 143,846 | (2) | ||||||||
May 24, 2016 | Deferred Stock Award | 233,011 | $ | 19.91 | Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 24, 2017, 2018, and 2019, respectively. | 133,092 | |||||||||
May 24, 2016 | Fiscal Year 2016-2018 Performance Share Program | — | $ | 23.02 | Shares awarded, if any, will vest immediately upon determination of award in 2019. | 103,790 | (2) | ||||||||
May 18, 2017 | Deferred Stock Award-Board of Directors | 26,187 | $ | 21.38 | Of the shares granted, 100% will vest by May 18, 2018. | 26,187 | |||||||||
May 18, 2017 | Deferred Stock Award | 246,740 | $ | 21.38 | Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 18, 2018, 2019, and 2020, respectively. | 200,899 | |||||||||
May 18, 2017 | Fiscal Year 2017-2019 Performance Share Program | — | $ | 30.45 | Shares awarded, if any, will vest immediately upon determination of award in 2020. | 97,504 | (2) | ||||||||
Total | 807,526 |
(1) | Amounts reflect the total grant to employees and independent directors, net of shares surrendered upon vesting to satisfy required minimum tax withholding obligations through September 30, 2017. |
(2) | Estimated based on Piedmont's cumulative TSR for the respective performance period through September 30, 2017. Share estimates are subject to change in future periods based upon Piedmont's relative performance compared to its peers' total stockholder return. |
Three Months Ended | Nine Months Ended | ||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||
Weighted-average common shares – basic | 145,416 | 145,231 | 145,372 | 145,229 | |||
Plus: Incremental weighted-average shares from time-vested deferred and performance stock awards | 303 | 438 | 308 | 372 | |||
Weighted-average common shares – diluted | 145,719 | 145,669 | 145,680 | 145,601 | |||
Common stock issued and outstanding as of period end | 145,295 | 145,234 |
Condensed Consolidated Balance Sheets | |||||||||||||||||||
As of September 30, 2017 | |||||||||||||||||||
(in thousands) | Issuer | Guarantor | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Assets: | |||||||||||||||||||
Real estate assets, at cost: | |||||||||||||||||||
Land | $ | 43,929 | $ | — | $ | 571,005 | $ | — | $ | 614,934 | |||||||||
Buildings and improvements, less accumulated depreciation | 206,700 | — | 2,516,763 | (300 | ) | 2,723,163 | |||||||||||||
Intangible lease assets, less accumulated amortization | 317 | — | 78,383 | — | 78,700 | ||||||||||||||
Construction in progress | 797 | — | 8,160 | — | 8,957 | ||||||||||||||
Total real estate assets | 251,743 | — | 3,174,311 | (300 | ) | 3,425,754 | |||||||||||||
Investments in and amounts due from unconsolidated joint ventures | 49 | — | — | — | 49 | ||||||||||||||
Cash and cash equivalents | 25,884 | 150 | 10,074 | — | 36,108 | ||||||||||||||
Tenant and straight-line rent receivables, net | 17,556 | — | 177,855 | — | 195,411 | ||||||||||||||
Advances to affiliates | 6,257,405 | 1,576,739 | — | (7,834,144 | ) | — | |||||||||||||
Investment in subsidiary | — | 3,538,945 | 177 | (3,539,122 | ) | — | |||||||||||||
Notes receivable | 88,910 | — | 144,500 | (233,410 | ) | — | |||||||||||||
Prepaid expenses, restricted cash, escrows, and other assets | 4,905 | 38 | 25,358 | (809 | ) | 29,492 | |||||||||||||
Goodwill | 98,918 | — | — | — | 98,918 | ||||||||||||||
Interest rate swaps | 34 | — | — | — | 34 | ||||||||||||||
Deferred lease costs, net | 13,927 | — | 260,957 | — | 274,884 | ||||||||||||||
Total assets | $ | 6,759,331 | $ | 5,115,872 | $ | 3,793,232 | $ | (11,607,785 | ) | $ | 4,060,650 | ||||||||
Liabilities: | |||||||||||||||||||
Debt, net | $ | 1,511,587 | $ | — | $ | 425,409 | $ | (233,410 | ) | $ | 1,703,586 | ||||||||
Accounts payable, accrued expenses, and accrued capital expenditures | 16,546 | 652 | 91,731 | (809 | ) | 108,120 | |||||||||||||
Advances from affiliates | 790,748 | 5,226,546 | 1,915,105 | (7,932,399 | ) | — | |||||||||||||
Deferred income | 3,728 | — | 26,242 | — | 29,970 | ||||||||||||||
Intangible lease liabilities, net | — | — | 41,064 | — | 41,064 | ||||||||||||||
Interest rate swaps | 3,915 | — | — | — | 3,915 | ||||||||||||||
Total liabilities | 2,326,524 | 5,227,198 | 2,499,551 | (8,166,618 | ) | 1,886,655 | |||||||||||||
Stockholders’ Equity: | |||||||||||||||||||
Common stock | — | 1,453 | — | — | 1,453 | ||||||||||||||
Additional paid-in capital | 3,534,946 | 3,679,578 | 1,304 | (3,539,122 | ) | 3,676,706 | |||||||||||||
Retained/(cumulative distributions in excess of) earnings | 892,461 | (3,792,357 | ) | 1,290,513 | 97,955 | (1,511,428 | ) | ||||||||||||
Other comprehensive loss | 5,400 | — | — | — | 5,400 | ||||||||||||||
Piedmont stockholders’ equity | 4,432,807 | (111,326 | ) | 1,291,817 | (3,441,167 | ) | 2,172,131 | ||||||||||||
Noncontrolling interest | — | — | 1,864 | — | 1,864 | ||||||||||||||
Total stockholders’ equity | 4,432,807 | (111,326 | ) | 1,293,681 | (3,441,167 | ) | 2,173,995 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 6,759,331 | $ | 5,115,872 | $ | 3,793,232 | $ | (11,607,785 | ) | $ | 4,060,650 |
Condensed Consolidated Balance Sheets | |||||||||||||||||||
As of December 31, 2016 | |||||||||||||||||||
(in thousands) | Issuer | Guarantor | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Assets: | |||||||||||||||||||
Real estate assets, at cost: | |||||||||||||||||||
Land | $ | 46,133 | $ | — | $ | 571,005 | $ | — | $ | 617,138 | |||||||||
Buildings and improvements, less accumulated depreciation | 228,194 | — | 2,526,212 | (300 | ) | 2,754,106 | |||||||||||||
Intangible lease assets, less accumulated amortization | 725 | — | 98,970 | — | 99,695 | ||||||||||||||
Construction in progress | 145 | — | 34,669 | — | 34,814 | ||||||||||||||
Real estate assets held for sale, net | — | — | 225,939 | — | 225,939 | ||||||||||||||
Total real estate assets | 275,197 | — | 3,456,795 | (300 | ) | 3,731,692 | |||||||||||||
Investments in and amounts due from unconsolidated joint ventures | 7,360 | — | — | — | 7,360 | ||||||||||||||
Cash and cash equivalents | 3,674 | 150 | 3,168 | — | 6,992 | ||||||||||||||
Tenant and straight-line rent receivables, net | 20,159 | — | 170,124 | — | 190,283 | ||||||||||||||
Advances to affiliates | 6,464,135 | 1,315,616 | — | (7,779,751 | ) | — | |||||||||||||
Investment in subsidiary | — | 3,630,564 | 181 | (3,630,745 | ) | — | |||||||||||||
Notes receivable | 88,910 | — | 95,790 | (184,700 | ) | — | |||||||||||||
Prepaid expenses, restricted cash, escrows, and other assets | 6,189 | — | 20,121 | (1,897 | ) | 24,413 | |||||||||||||
Goodwill | 98,918 | — | — | — | 98,918 | ||||||||||||||
Deferred lease costs, net | 16,550 | — | 282,145 | — | 298,695 | ||||||||||||||
Other assets held for sale, net | — | — | 9,815 | — | 9,815 | ||||||||||||||
Total assets | $ | 6,981,092 | $ | 4,946,330 | $ | 4,038,139 | $ | (11,597,393 | ) | $ | 4,368,168 | ||||||||
Liabilities: | |||||||||||||||||||
Debt, net | $ | 1,701,933 | $ | — | $ | 503,242 | $ | (184,700 | ) | $ | 2,020,475 | ||||||||
Accounts payable, accrued expenses, and accrued capital expenditures | 17,365 | 31,230 | 118,712 | (1,897 | ) | 165,410 | |||||||||||||
Advances from affiliates | 708,340 | 5,071,521 | 2,098,146 | (7,878,007 | ) | — | |||||||||||||
Deferred income | 5,206 | — | 23,200 | — | 28,406 | ||||||||||||||
Intangible lease liabilities, net | — | — | 48,005 | — | 48,005 | ||||||||||||||
Interest rate swaps | 8,169 | — | — | — | 8,169 | ||||||||||||||
Total liabilities | 2,441,013 | 5,102,751 | 2,791,305 | (8,064,604 | ) | 2,270,465 | |||||||||||||
Stockholders’ Equity: | |||||||||||||||||||
Common stock | — | 1,452 | — | — | 1,452 | ||||||||||||||
Additional paid-in capital | 3,626,564 | 3,676,000 | 1,309 | (3,630,745 | ) | 3,673,128 | |||||||||||||
Retained/(cumulative distributions in excess of) earnings | 911,411 | (3,833,873 | ) | 1,243,643 | 97,956 | (1,580,863 | ) | ||||||||||||
Other comprehensive income | 2,104 | — | — | — | 2,104 | ||||||||||||||
Piedmont stockholders’ equity | 4,540,079 | (156,421 | ) | 1,244,952 | (3,532,789 | ) | 2,095,821 | ||||||||||||
Noncontrolling interest | — | — | 1,882 | — | 1,882 | ||||||||||||||
Total stockholders’ equity | 4,540,079 | (156,421 | ) | 1,246,834 | (3,532,789 | ) | 2,097,703 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 6,981,092 | $ | 4,946,330 | $ | 4,038,139 | $ | (11,597,393 | ) | $ | 4,368,168 |
Condensed Consolidated Statements of Income | |||||||||||||||||||
For the three months ended September 30, 2017 | |||||||||||||||||||
(in thousands) | Issuer | Guarantor | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Revenues: | |||||||||||||||||||
Rental income | $ | 10,232 | $ | — | $ | 103,544 | $ | (426 | ) | $ | 113,350 | ||||||||
Tenant reimbursements | 2,376 | — | 21,562 | (142 | ) | 23,796 | |||||||||||||
Property management fee revenue | — | — | 4,553 | (4,112 | ) | 441 | |||||||||||||
12,608 | — | 129,659 | (4,680 | ) | 137,587 | ||||||||||||||
Expenses: | |||||||||||||||||||
Property operating costs | 5,372 | — | 53,398 | (4,680 | ) | 54,090 | |||||||||||||
Depreciation | 3,199 | — | 26,801 | — | 30,000 | ||||||||||||||
Amortization | 740 | — | 17,383 | — | 18,123 | ||||||||||||||
General and administrative | 1,539 | 77 | 5,002 | — | 6,618 | ||||||||||||||
10,850 | 77 | 102,584 | (4,680 | ) | 108,831 | ||||||||||||||
Real estate operating income/(loss) | 1,758 | (77 | ) | 27,075 | — | 28,756 | |||||||||||||
Other income (expense): | |||||||||||||||||||
Interest expense | (13,795 | ) | — | (6,354 | ) | 3,966 | (16,183 | ) | |||||||||||
Other income/(expense) | 2,404 | — | 1,852 | (3,966 | ) | 290 | |||||||||||||
Equity in income of unconsolidated joint ventures | 3,754 | — | — | — | 3,754 | ||||||||||||||
(7,637 | ) | — | (4,502 | ) | — | (12,139 | ) | ||||||||||||
Income/(loss) from continuing operations | (5,879 | ) | (77 | ) | 22,573 | — | 16,617 | ||||||||||||
Discontinued operations: | |||||||||||||||||||
Operating income | — | — | — | — | — | ||||||||||||||
Income from discontinued operations | — | — | — | — | — | ||||||||||||||
Gain/(loss) on sale of real estate assets, net | (4 | ) | — | 109,516 | — | 109,512 | |||||||||||||
Net income/(loss) | (5,883 | ) | (77 | ) | 132,089 | — | 126,129 | ||||||||||||
Plus: Net income applicable to noncontrolling interest | — | — | 4 | — | 4 | ||||||||||||||
Net income/(loss) applicable to Piedmont | $ | (5,883 | ) | $ | (77 | ) | $ | 132,093 | $ | — | $ | 126,133 |
Condensed Consolidated Statements of Income | |||||||||||||||||||
For the three months ended September 30, 2016 | |||||||||||||||||||
(in thousands) | Issuer | Guarantor | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Revenues: | |||||||||||||||||||
Rental income | $ | 12,862 | $ | — | $ | 101,423 | $ | (464 | ) | $ | 113,821 | ||||||||
Tenant reimbursements | 3,430 | — | 20,970 | (237 | ) | 24,163 | |||||||||||||
Property management fee revenue | — | — | 3,985 | (3,484 | ) | 501 | |||||||||||||
16,292 | — | 126,378 | (4,185 | ) | 138,485 | ||||||||||||||
Expenses: | |||||||||||||||||||
Property operating costs | 7,820 | — | 51,287 | (4,240 | ) | 54,867 | |||||||||||||
Depreciation | 3,617 | — | 27,993 | — | 31,610 | ||||||||||||||
Amortization | 863 | — | 17,777 | — | 18,640 | ||||||||||||||
Impairment loss on real estate assets | — | — | 22,951 | — | 22,951 | ||||||||||||||
General and administrative | 7,187 | 83 | 9,016 | (8,857 | ) | 7,429 | |||||||||||||
19,487 | 83 | 129,024 | (13,097 | ) | 135,497 | ||||||||||||||
Real estate operating income/(loss) | (3,195 | ) | (83 | ) | (2,646 | ) | 8,912 | 2,988 | |||||||||||
Other income (expense): | |||||||||||||||||||
Interest expense | (11,799 | ) | — | (6,949 | ) | 3,252 | (15,496 | ) | |||||||||||
Other income/(expense) | 2,608 | — | (76 | ) | (3,252 | ) | (720 | ) | |||||||||||
Net recoveries from casualty events | — | — | 34 | — | 34 | ||||||||||||||
Equity in income of unconsolidated joint ventures | 129 | — | — | — | 129 | ||||||||||||||
(9,062 | ) | — | (6,991 | ) | — | (16,053 | ) | ||||||||||||
Income/(loss) from continuing operations | (12,257 | ) | (83 | ) | (9,637 | ) | 8,912 | (13,065 | ) | ||||||||||
Discontinued operations: | |||||||||||||||||||
Operating income | — | — | 1 | — | 1 | ||||||||||||||
Income from discontinued operations | — | — | 1 | — | 1 | ||||||||||||||
Gain/(loss) on sale of real estate assets, net | 134 | — | (191 | ) | — | (57 | ) | ||||||||||||
Net income/(loss) | (12,123 | ) | (83 | ) | (9,827 | ) | 8,912 | (13,121 | ) | ||||||||||
Plus: Net income applicable to noncontrolling interest | — | — | 14 | — | 14 | ||||||||||||||
Net income/(loss) applicable to Piedmont | $ | (12,123 | ) | $ | (83 | ) | $ | (9,813 | ) | $ | 8,912 | $ | (13,107 | ) |
Condensed Consolidated Statements of Income | |||||||||||||||||||
For the nine months ended September 30, 2017 | |||||||||||||||||||
(in thousands) | Issuer | Guarantor | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Revenues: | |||||||||||||||||||
Rental income | $ | 32,749 | $ | — | $ | 329,669 | $ | (1,370 | ) | $ | 361,048 | ||||||||
Tenant reimbursements | 8,341 | — | 64,372 | (373 | ) | 72,340 | |||||||||||||
Property management fee revenue | — | — | 13,753 | (12,412 | ) | 1,341 | |||||||||||||
41,090 | — | 407,794 | (14,155 | ) | 434,729 | ||||||||||||||
Expenses: | |||||||||||||||||||
Property operating costs | 17,027 | — | 162,381 | (14,155 | ) | 165,253 | |||||||||||||
Depreciation | 9,943 | — | 80,884 | — | 90,827 | ||||||||||||||
Amortization | 2,399 | — | 55,453 | — | 57,852 | ||||||||||||||
General and administrative | 4,798 | 261 | 18,191 | — | 23,250 | ||||||||||||||
34,167 | 261 | 316,909 | (14,155 | ) | 337,182 | ||||||||||||||
Real estate operating income/(loss) | 6,923 | (261 | ) | 90,885 | — | 97,547 | |||||||||||||
Other income (expense): | |||||||||||||||||||
Interest expense | (43,049 | ) | — | (20,868 | ) | 11,256 | (52,661 | ) | |||||||||||
Other income/(expense) | 6,873 | — | 4,611 | (11,256 | ) | 228 | |||||||||||||
Equity in income of unconsolidated joint ventures | 3,872 | — | — | — | 3,872 | ||||||||||||||
(32,304 | ) | — | (16,257 | ) | — | (48,561 | ) | ||||||||||||
Income/(loss) from continuing operations | (25,381 | ) | (261 | ) | 74,628 | — | 48,986 | ||||||||||||
Discontinued operations: | |||||||||||||||||||
Operating income | — | — | — | — | — | ||||||||||||||
Income from discontinued operations | — | — | — | — | — | ||||||||||||||
Gain on sale of real estate assets, net | 6,430 | — | 109,521 | — | 115,951 | ||||||||||||||
Net income/(loss) | (18,951 | ) | (261 | ) | 184,149 | — | 164,937 | ||||||||||||
Plus: Net income applicable to noncontrolling interest | — | — | 10 | — | 10 | ||||||||||||||
Net income/(loss) applicable to Piedmont | $ | (18,951 | ) | $ | (261 | ) | $ | 184,159 | $ | — | $ | 164,947 |
Condensed Consolidated Statements of Income | |||||||||||||||||||
For the nine months ended September 30, 2016 | |||||||||||||||||||
(in thousands) | Issuer | Guarantor | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Revenues: | |||||||||||||||||||
Rental income | $ | 42,990 | $ | — | $ | 299,319 | $ | (1,983 | ) | $ | 340,326 | ||||||||
Tenant reimbursements | 10,455 | — | 59,950 | (405 | ) | 70,000 | |||||||||||||
Property management fee revenue | — | — | 12,480 | (11,002 | ) | 1,478 | |||||||||||||
53,445 | — | 371,749 | (13,390 | ) | 411,804 | ||||||||||||||
Expenses: | |||||||||||||||||||
Property operating costs | 24,583 | — | 150,369 | (13,514 | ) | 161,438 | |||||||||||||
Depreciation | 12,993 | — | 81,955 | — | 94,948 | ||||||||||||||
Amortization | 2,854 | — | 50,994 | — | 53,848 | ||||||||||||||
Impairment loss of real estate assets | 8,259 | — | 25,642 | — | 33,901 | ||||||||||||||
General and administrative | 22,802 | 251 | 28,881 | (28,416 | ) | 23,518 | |||||||||||||
71,491 | 251 | 337,841 | (41,930 | ) | 367,653 | ||||||||||||||
Real estate operating income/(loss) | (18,046 | ) | (251 | ) | 33,908 | 28,540 | 44,151 | ||||||||||||
Other income (expense): | |||||||||||||||||||
Interest expense | (36,159 | ) | — | (20,354 | ) | 8,219 | (48,294 | ) | |||||||||||
Other income/(expense) | 7,008 | 282 | 462 | (8,219 | ) | (467 | ) | ||||||||||||
Net recoveries from casualty events | — | — | 34 | — | 34 | ||||||||||||||
Equity in income of unconsolidated joint ventures | 354 | — | — | — | 354 | ||||||||||||||
(28,797 | ) | 282 | (19,858 | ) | — | (48,373 | ) | ||||||||||||
Net income/(loss) | (46,843 | ) | 31 | 14,050 | 28,540 | (4,222 | ) | ||||||||||||
Discontinued operations: | |||||||||||||||||||
Operating income | — | — | — | — | — | ||||||||||||||
Income from discontinued operations | — | — | — | — | — | ||||||||||||||
Gain on sale of real estate assets, net | 30,096 | — | 43,662 | — | 73,758 | ||||||||||||||
Net income/(loss) | (16,747 | ) | 31 | 57,712 | 28,540 | 69,536 | |||||||||||||
Plus: Net income applicable to noncontrolling interest | — | — | 7 | — | 7 | ||||||||||||||
Net income/(loss) applicable to Piedmont | $ | (16,747 | ) | $ | 31 | $ | 57,719 | $ | 28,540 | $ | 69,543 |
Condensed Consolidated Statements of Cash Flows | |||||||||||||||||||
For the nine months ended September 30, 2017 | |||||||||||||||||||
(in thousands) | Issuer | Guarantor | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Net Cash Provided by/(Used in) Operating Activities | $ | (15,467 | ) | $ | 4,335 | $ | 187,464 | $ | — | $ | 176,332 | ||||||||
Cash Flows from Investing Activities: | |||||||||||||||||||
Investment in real estate assets and real estate related intangibles, net of accruals | (793 | ) | — | (64,614 | ) | — | (65,407 | ) | |||||||||||
Intercompany note receivable | — | — | (48,710 | ) | 48,710 | — | |||||||||||||
Net sales proceeds from wholly-owned properties | 23,028 | — | 352,171 | — | 375,199 | ||||||||||||||
Net sales proceeds received from unconsolidated joint ventures | 12,334 | — | — | — | 12,334 | ||||||||||||||
Investments in unconsolidated joint ventures | (1,162 | ) | — | — | — | (1,162 | ) | ||||||||||||
Deferred lease costs paid | (858 | ) | — | (18,561 | ) | — | (19,419 | ) | |||||||||||
Net cash provided by investing activities | 32,549 | — | 220,286 | 48,710 | 301,545 | ||||||||||||||
Cash Flows from Financing Activities: | |||||||||||||||||||
Debt issuance costs paid | (102 | ) | — | 1 | — | (101 | ) | ||||||||||||
Proceeds from debt | 147,000 | — | — | — | 147,000 | ||||||||||||||
Repayments of debt | (325,000 | ) | — | (141,046 | ) | — | (466,046 | ) | |||||||||||
Intercompany note payable | (14,289 | ) | — | 62,999 | (48,710 | ) | — | ||||||||||||
Costs of issuance of common stock | — | (97 | ) | — | — | (97 | ) | ||||||||||||
Value of shares withheld to pay tax obligations related to employee stock compensation | — | (3,385 | ) | — | — | (3,385 | ) | ||||||||||||
Repurchases of common stock as part of announced plan | — | (3,895 | ) | — | — | (3,895 | ) | ||||||||||||
(Distributions to)/repayments from affiliates | 197,519 | 125,271 | (322,790 | ) | — | — | |||||||||||||
Dividends paid and discount on dividend reinvestments | — | (122,229 | ) | (8 | ) | — | (122,237 | ) | |||||||||||
Net cash used in financing activities | 5,128 | (4,335 | ) | (400,844 | ) | (48,710 | ) | (448,761 | ) | ||||||||||
Net increase in cash and cash equivalents | 22,210 | — | 6,906 | — | 29,116 | ||||||||||||||
Cash and cash equivalents, beginning of period | 3,674 | 150 | 3,168 | — | 6,992 | ||||||||||||||
Cash and cash equivalents, end of period | $ | 25,884 | $ | 150 | $ | 10,074 | $ | — | $ | 36,108 |
Condensed Consolidated Statements of Cash Flows | |||||||||||||||||||
For the nine months ended September 30, 2016 | |||||||||||||||||||
(in thousands) | Issuer | Guarantor | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
Net Cash Provided by/(Used in) Operating Activities | $ | (18,977 | ) | $ | 4,121 | $ | 158,352 | $ | 28,540 | $ | 172,036 | ||||||||
Cash Flows from Investing Activities: | |||||||||||||||||||
Investment in real estate assets, consolidated joint venture, and real estate related intangibles, net of accruals | (24,255 | ) | — | (296,884 | ) | — | (321,139 | ) | |||||||||||
Intercompany note receivable | 440 | — | (71,900 | ) | 71,460 | — | |||||||||||||
Net sales proceeds from wholly-owned properties | 187,192 | — | 117,710 | — | 304,902 | ||||||||||||||
Deferred lease costs paid | (2,021 | ) | — | (13,324 | ) | — | (15,345 | ) | |||||||||||
Net cash provided by/(used in) investing activities | 161,356 | — | (264,398 | ) | 71,460 | (31,582 | ) | ||||||||||||
Cash Flows from Financing Activities: | |||||||||||||||||||
Debt issuance costs paid | (212 | ) | — | — | — | (212 | ) | ||||||||||||
Proceeds from debt | 552,000 | — | — | — | 552,000 | ||||||||||||||
Repayments of debt | (421,000 | ) | — | (168,532 | ) | — | (589,532 | ) | |||||||||||
Intercompany note payable | (9,600 | ) | — | 81,060 | (71,460 | ) | — | ||||||||||||
Costs of issuance of common stock | — | (239 | ) | — | — | (239 | ) | ||||||||||||
Value of shares withheld to pay tax obligations related to employee stock compensation | — | (2,328 | ) | — | — | (2,328 | ) | ||||||||||||
Repurchases of common stock as part of announced plan | — | (7,943 | ) | — | — | (7,943 | ) | ||||||||||||
(Distributions to)/repayments from affiliates | (262,150 | ) | 97,990 | 192,700 | (28,540 | ) | — | ||||||||||||
Dividends paid and discount on dividend reinvestments | — | (91,601 | ) | (8 | ) | — | (91,609 | ) | |||||||||||
Net cash provided by/(used in) financing activities | (140,962 | ) | (4,121 | ) | 105,220 | (100,000 | ) | (139,863 | ) | ||||||||||
Net increase/(decrease) in cash and cash equivalents | 1,417 | — | (826 | ) | — | 591 | |||||||||||||
Cash and cash equivalents, beginning of period | 2,174 | 150 | 3,117 | — | 5,441 | ||||||||||||||
Cash and cash equivalents, end of period | $ | 3,591 | $ | 150 | $ | 2,291 | $ | — | $ | 6,032 |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Nine Months Ended | |||||||
September 30, 2017 | September 30, 2016 | ||||||
Capital expenditures for new development | $ | 4,794 | $ | 13,116 | |||
Capital expenditures for redevelopment/renovations | 714 | 7,344 | |||||
Other capital expenditures, including tenant improvements | 59,899 | 67,931 | |||||
Total capital expenditures(1) | $ | 65,407 | $ | 88,391 |
(1) | Of the total amounts paid, approximately $0.2 million and $5.1 million relates to soft costs such as capitalized interest, payroll, and other general and administrative expenses for the nine months ended September 30, 2017 and 2016, respectively. |
September 30, 2017 | % of Revenues | September 30, 2016 | % of Revenues | Variance | |||||||||||||
Revenue: | |||||||||||||||||
Rental income | $ | 113.4 | $ | 113.8 | $ | (0.4 | ) | ||||||||||
Tenant reimbursements | 23.8 | 24.2 | (0.4 | ) | |||||||||||||
Property management fee revenue | 0.4 | 0.5 | (0.1 | ) | |||||||||||||
Total revenues | 137.6 | 100 | % | 138.5 | 100 | % | (0.9 | ) | |||||||||
Expense: | |||||||||||||||||
Property operating costs | 54.1 | 39 | % | 54.9 | 40 | % | (0.8 | ) | |||||||||
Depreciation | 30.0 | 22 | % | 31.6 | 23 | % | (1.6 | ) | |||||||||
Amortization | 18.1 | 13 | % | 18.6 | 13 | % | (0.5 | ) | |||||||||
Impairment loss on real estate assets | — | — | % | 23.0 | 17 | % | (23.0 | ) | |||||||||
General and administrative | 6.6 | 5 | % | 7.4 | 5 | % | (0.8 | ) | |||||||||
Real estate operating income | 28.8 | 21 | % | 3.0 | 2 | % | 25.8 | ||||||||||
Other income (expense): | |||||||||||||||||
Interest expense | (16.2 | ) | 12 | % | (15.5 | ) | 11 | % | (0.7 | ) | |||||||
Other income/(expense) | 0.3 | — | % | (0.7 | ) | — | % | 1.0 | |||||||||
Equity in income of unconsolidated joint ventures | 3.7 | 3 | % | 0.1 | — | % | 3.6 | ||||||||||
Income/(loss) from continuing operations | $ | 16.6 | 12 | % | $ | (13.1 | ) | 9 | % | $ | 29.7 | ||||||
Gain/(loss) on sale of real estate assets, net | $ | 109.5 | $ | (0.1 | ) | $ | 109.6 |
September 30, 2017 | % of Revenues | September 30, 2016 | % of Revenues | Variance | |||||||||||||
Revenue: | |||||||||||||||||
Rental income | $ | 361.0 | $ | 340.3 | $ | 20.7 | |||||||||||
Tenant reimbursements | 72.3 | 70.0 | 2.3 | ||||||||||||||
Property management fee revenue | 1.4 | 1.5 | (0.1 | ) | |||||||||||||
Total revenues | 434.7 | 100 | % | 411.8 | 100 | % | 22.9 | ||||||||||
Expense: | |||||||||||||||||
Property operating costs | 165.3 | 39 | % | 161.4 | 39 | % | 3.9 | ||||||||||
Depreciation | 90.8 | 21 | % | 94.9 | 23 | % | (4.1 | ) | |||||||||
Amortization | 57.8 | 13 | % | 53.9 | 13 | % | 3.9 | ||||||||||
Impairment loss on real estate assets | — | — | % | 33.9 | 8 | % | (33.9 | ) | |||||||||
General and administrative | 23.3 | 5 | % | 23.5 | 6 | % | (0.2 | ) | |||||||||
Real estate operating income | 97.5 | 22 | % | 44.2 | 11 | % | 53.3 | ||||||||||
Other income (expense): | |||||||||||||||||
Interest expense | (52.6 | ) | 12 | % | (48.3 | ) | 12 | % | (4.3 | ) | |||||||
Other income/(expense) | 0.2 | — | % | (0.5 | ) | — | % | 0.7 | |||||||||
Equity in income of unconsolidated joint ventures | 3.9 | 1 | % | 0.4 | — | % | 3.5 | ||||||||||
Income/(loss) from continuing operations | $ | 49.0 | 11 | % | $ | (4.2 | ) | 1 | % | $ | 53.2 | ||||||
Gain on sale of real estate assets, net | $ | 116.0 | $ | 73.8 | $ | 42.2 |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||
September 30, 2017 | Per Share(1) | September 30, 2016 | Per Share(1) | September 30, 2017 | Per Share(1) | September 30, 2016 | Per Share(1) | ||||||||||||||||||||||||
GAAP net income applicable to common stock | $ | 126,133 | $ | 0.87 | $ | (13,107 | ) | $ | (0.09 | ) | $ | 164,947 | $ | 1.13 | $ | 69,543 | $ | 0.48 | |||||||||||||
Depreciation of real estate assets(2) | 29,774 | 0.20 | 31,451 | 0.21 | 90,335 | 0.62 | 94,532 | 0.65 | |||||||||||||||||||||||
Amortization of lease-related costs(2) | 18,107 | 0.12 | 18,640 | 0.13 | 57,828 | 0.40 | 53,880 | 0.37 | |||||||||||||||||||||||
Impairment loss on real estate assets | — | — | 22,951 | 0.16 | — | — | 33,901 | 0.23 | |||||||||||||||||||||||
(Gain)/loss on sale - wholly-owned properties, net | (109,512 | ) | (0.75 | ) | 57 | — | (115,951 | ) | (0.80 | ) | (73,758 | ) | (0.51 | ) | |||||||||||||||||
Gain on sale- unconsolidated partnership | (3,683 | ) | (0.02 | ) | — | — | (3,683 | ) | (0.02 | ) | — | — | |||||||||||||||||||
NAREIT Funds From Operations applicable to common stock | $ | 60,819 | $ | 0.42 | $ | 59,992 | $ | 0.41 | $ | 193,476 | $ | 1.33 | $ | 178,098 | $ | 1.22 | |||||||||||||||
Adjustments: | |||||||||||||||||||||||||||||||
Acquisition costs | — | — | 955 | 0.01 | 6 | — | 972 | 0.01 | |||||||||||||||||||||||
Net recoveries from casualty events | — | — | (34 | ) | — | — | — | (34 | ) | — | |||||||||||||||||||||
Core Funds From Operations applicable to common stock | $ | 60,819 | $ | 0.42 | $ | 60,913 | $ | 0.42 | $ | 193,482 | $ | 1.33 | $ | 179,036 | $ | 1.23 | |||||||||||||||
Adjustments: | |||||||||||||||||||||||||||||||
Amortization of debt issuance costs, fair market value adjustments on notes payable, and discount on debt | 634 | 653 | 1,892 | 1,943 | |||||||||||||||||||||||||||
Depreciation of non real estate assets | 218 | 216 | 597 | 595 | |||||||||||||||||||||||||||
Straight-line effects of lease revenue (2) | (3,602 | ) | (4,140 | ) | (15,939 | ) | (15,115 | ) | |||||||||||||||||||||||
Stock-based and other non-cash compensation | 1,250 | 1,931 | 4,202 | 5,336 | |||||||||||||||||||||||||||
Net effect of amortization of above and below-market in-place lease intangibles | (1,720 | ) | (1,152 | ) | (4,890 | ) | (3,680 | ) | |||||||||||||||||||||||
Acquisition costs | — | (955 | ) | (6 | ) | (972 | ) | ||||||||||||||||||||||||
Non-incremental capital expenditures (3) | (5,229 | ) | (6,982 | ) | (21,974 | ) | (23,433 | ) | |||||||||||||||||||||||
Adjusted Funds From Operations applicable to common stock | $ | 52,370 | $ | 50,484 | $ | 157,364 | $ | 143,710 | |||||||||||||||||||||||
Weighted-average shares outstanding – diluted | 145,719 | 145,669 | 145,680 | 145,601 |
(1) | Based on weighted average shares outstanding – diluted. |
(2) | Includes amounts for wholly-owned properties, as well as such amounts for our proportionate ownership in unconsolidated joint ventures. |
(3) | We define non-incremental capital expenditures as capital expenditures of a recurring nature related to tenant improvements, leasing commissions, and building capital 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 either enhance the rental rates of a building or change the property's underlying classification, such as from a Class B to a Class A property, are excluded from this measure. |
Cash Basis | Accrual Basis | ||||||||||||||
Three Months Ended | Three Months Ended | ||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||
Net income/(loss) applicable to Piedmont (GAAP basis) | $ | 126,133 | $ | (13,107 | ) | $ | 126,133 | $ | (13,107 | ) | |||||
Net income applicable to noncontrolling interest | (4 | ) | (14 | ) | (4 | ) | (14 | ) | |||||||
Interest expense | 16,183 | 15,496 | 16,183 | 15,496 | |||||||||||
Depreciation (1) | 29,993 | 31,667 | 29,993 | 31,667 | |||||||||||
Amortization (1) | 18,107 | 18,640 | 18,107 | 18,640 | |||||||||||
Acquisition costs | — | 955 | — | 955 | |||||||||||
Impairment loss on real estate assets (1) | — | 22,951 | — | 22,951 | |||||||||||
Net (recoveries)/loss from casualty events | 25 | (34 | ) | 25 | (34 | ) | |||||||||
(Gain)/loss on sale of real estate assets, net (1) | (113,195 | ) | 57 | (113,195 | ) | 57 | |||||||||
General & administrative expenses(1) | 6,631 | 7,437 | 6,631 | 7,437 | |||||||||||
Management fee revenue | (241 | ) | (295 | ) | (241 | ) | (295 | ) | |||||||
Other income(1) | (315 | ) | (235 | ) | (315 | ) | (235 | ) | |||||||
Straight-line rent effects of lease revenue(1) | (3,602 | ) | (4,140 | ) | |||||||||||
Amortization of lease-related intangibles(1) | (1,720 | ) | (1,152 | ) | |||||||||||
Property NOI | $ | 77,995 | $ | 78,226 | $ | 83,317 | $ | 83,518 | |||||||
Net operating income from: | |||||||||||||||
Acquisitions(2) | (4,584 | ) | (2,485 | ) | (7,512 | ) | (2,779 | ) | |||||||
Dispositions(3) | (9 | ) | (5,724 | ) | (12 | ) | (5,905 | ) | |||||||
Other investments(4) | (99 | ) | (332 | ) | (764 | ) | (651 | ) | |||||||
Same Store NOI | $ | 73,303 | $ | 69,685 | $ | 75,029 | $ | 74,183 | |||||||
Change period over period in Same Store NOI | 5.2 | % | N/A | 1.1 | % | N/A |
(1) | Includes amounts applicable to consolidated properties and our proportionate share of amounts applicable to unconsolidated joint ventures. |
(2) | Acquisitions consist of CNL Center I and CNL Center II in Orlando, Florida, purchased on August 1, 2016; One Wayside Road in Burlington, Massachusetts, purchased on August 10, 2016; Galleria 200 in Atlanta, Georgia, purchased on October 7, 2016; and 750 West John Carpenter Freeway in Irving, Texas, purchased on November 30, 2016. |
(3) | Dispositions consist of 1055 East Colorado Boulevard in Pasadena, California, sold on April 21, 2016; Fairway Center II in Brea, California, sold on April 28, 2016; 1901 Main Street in Irvine, California, sold on May 2, 2016; 9221 Corporate Boulevard in Rockville, Maryland, sold on July 27, 2016; 150 West Jefferson in Detroit, Michigan, sold on July 29, 2016; 9200 and 9211 Corporate Boulevard in Rockville, Maryland, sold on September 28, 2016; 11695 Johns Creek Parkway in Johns Creek, Georgia, sold on December 22, 2016; Braker Pointe III in Austin, Texas, sold on December 29, 2016; Sarasota Commerce Center II in Sarasota, Florida, sold on June 16, 2017; and Two Independence Square in Washington, D.C., sold on July 5, 2017. |
(4) | Other investments consist of our investments in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. The operating results from 3100 Clarendon Boulevard in Arlington, Virginia, Enclave Place in Houston, Texas, and 500 TownPark in Lake Mary, Florida, are included in this line item. |
Cash Basis | Accrual Basis | ||||||||||||||
Nine Months Ended | Nine Months Ended | ||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||
Net income applicable to Piedmont (GAAP basis) | $ | 164,947 | $ | 69,543 | $ | 164,947 | $ | 69,543 | |||||||
Net income applicable to noncontrolling interest | (10 | ) | (7 | ) | (10 | ) | (7 | ) | |||||||
Interest expense | 52,661 | 48,294 | 52,661 | 48,294 | |||||||||||
Depreciation (1) | 90,933 | 95,127 | 90,933 | 95,127 | |||||||||||
Amortization (1) | 57,828 | 53,880 | 57,828 | 53,880 | |||||||||||
Acquisition costs | 6 | 972 | 6 | 972 | |||||||||||
Impairment loss on real estate assets (1) | — | 33,901 | — | 33,901 | |||||||||||
Net (recoveries)/loss from casualty events | 57 | (34 | ) | 57 | (34 | ) | |||||||||
Gain on sale of real estate assets, net (1) | (119,634 | ) | (73,758 | ) | (119,634 | ) | (73,758 | ) | |||||||
General & administrative expenses(1) | 23,291 | 23,565 | 23,291 | 23,565 | |||||||||||
Management fee revenue | (724 | ) | (810 | ) | (724 | ) | (810 | ) | |||||||
Other (income)/expense(1) | (291 | ) | 1 | (291 | ) | 1 | |||||||||
Straight-line rent effects of lease revenue(1) | (15,939 | ) | (15,115 | ) | |||||||||||
Amortization of lease-related intangibles(1) | (4,890 | ) | (3,680 | ) | |||||||||||
Property NOI | $ | 248,235 | $ | 231,879 | $ | 269,064 | $ | 250,674 | |||||||
Net operating loss/(income) from: | |||||||||||||||
Acquisitions(2) | (13,201 | ) | (2,485 | ) | (22,160 | ) | (2,779 | ) | |||||||
Dispositions(3) | (11,403 | ) | (27,023 | ) | (11,462 | ) | (28,042 | ) | |||||||
Other investments(4) | 521 | (362 | ) | (1,852 | ) | (874 | ) | ||||||||
Same Store NOI | $ | 224,152 | $ | 202,009 | $ | 233,590 | $ | 218,979 | |||||||
Change period over period in Same Store NOI | 11.0 | % | N/A | 6.7 | % | N/A |
(1) | Includes amounts applicable to consolidated properties and our proportionate share of amounts applicable to unconsolidated joint ventures. |
(2) | Acquisitions consist of CNL Center I and CNL Center II in Orlando, Florida, purchased on August 1, 2016; One Wayside Road in Burlington, Massachusetts, purchased on August 10, 2016; Galleria 200 in Atlanta, Georgia, purchased on October 7, 2016; and 750 West John Carpenter Freeway in Irving, Texas, purchased on November 30, 2016. |
(3) | Dispositions consist of 1055 East Colorado Boulevard in Pasadena, California, sold on April 21, 2016; Fairway Center II in Brea, California, sold on April 28, 2016; 1901 Main Street in Irvine, California, sold on May 2, 2016; 9221 Corporate Boulevard in Rockville, Maryland, sold on July 27, 2016; 150 West Jefferson in Detroit, Michigan, sold on July 29, 2016; 9200 and 9211 Corporate Boulevard in Rockville, Maryland, sold on September 28, 2016; 11695 Johns Creek Parkway in Johns Creek, Georgia, sold on December 22, 2016; Braker Pointe III in Austin, Texas, sold on December 29, 2016; Sarasota Commerce Center II in Sarasota, Florida, sold on June 16, 2017; and Two Independence Square in Washington, D.C., sold on July 5, 2017. |
(4) | Other investments consist of our investments in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. The operating results from 3100 Clarendon Boulevard in Arlington, Virginia, Enclave Place in Houston, Texas, and 500 TownPark in Lake Mary, Florida, are included in this line item. |
Buildings | 40 years |
Building improvements | 5-25 years |
Land improvements | 20-25 years |
Tenant allowances | Lease term |
Furniture, fixtures, and equipment | 3-5 years |
Intangible lease assets | Lease term |
Payments Due by Period | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Long-term debt (1) | $ | 1,710,903 | $ | 170,869 | $ | 602,058 | (2)(3) | $ | 187,976 | $ | 750,000 | |||||||||
Operating lease obligations (4) | 2,834 | 93 | 186 | 187 | 2,368 | |||||||||||||||
Total | $ | 1,713,737 | $ | 170,962 | $ | 602,244 | $ | 188,163 | $ | 752,368 |
(1) | Amounts include principal payments only and balances outstanding as of September 30, 2017, not including unamortized issuance discounts, debt issuance costs paid to lenders, or estimated fair value adjustments. We made interest payments, including payments under our interest rate swaps, of approximately $54.0 million during the nine months ended September 30, 2017, and expect to pay interest in future periods on outstanding debt obligations based on the rates and terms disclosed herein and in Note 3 of our accompanying consolidated financial statements. |
(2) | Includes the $300 Million Unsecured 2013 Term Loan which has a stated variable rate; however, we have entered into interest rate swap agreements which effectively fix, exclusive of changes to our credit rating, the rate on this facility to 2.78% through maturity. As such, we estimate incurring, exclusive of changes to our credit rating, approximately $8.3 million per annum in total interest (comprised of combination of variable contractual rate and settlements under interest rate swap agreements) through maturity in January 2019. |
(3) | Includes the $300 Million Unsecured 2011 Term Loan which has a stated variable rate; however, we have entered into interest rate swap agreements which effectively fix, exclusive of changes to our credit rating, the rate on this facility to 3.35% through maturity. As such, we estimate incurring, exclusive of changes to our credit rating, approximately $10.1 million per annum in total interest (comprised of combination of variable contractual rate and settlements under interest rate swap agreements) through maturity in January 2020. |
(4) | The 2001 NW 64th Street building in Ft. Lauderdale, Florida is subject to a ground lease with an expiration date in 2048. The aggregate remaining payments required under the terms of this operating lease as of September 30, 2017 are presented above. |
• | Commitments Under Existing Lease Agreements; and |
• | Contingencies Related to Tenant Audits/Disputes. |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
(a) | There were no unregistered sales of equity securities during the third quarter 2017. |
(b) | Not applicable. |
(c) | During the three months ended September 30, 2017, we repurchased shares of our common stock in the open market in order to reissue such shares under our dividend reinvestment plan (the "DRP"), as well as repurchasing and retiring shares as part of our stock repurchase plan. |
Period | Total Number of Shares Purchased (in 000’s) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan (in 000’s) (1) | Maximum Approximate Dollar Value of Shares Available That May Yet Be Purchased Under the Plan (in 000’s) | ||||||||||
July 1, 2017 to July 31, 2017 | — | $ | — | — | $ | 250,000 | ||||||||
August 1, 2017 to August 31, 2017 | 195 | $ | 19.92 | 195 | $ | 246,105 | ||||||||
September 1, 2017 to September 30, 2017(2) | 58 | $ | 19.89 | — | $ | 246,105 | (1) | |||||||
Total | 253 | $ | 19.89 | 195 |
(1) | Amounts available for purchase relate only to our stock repurchase plan, which was authorized on May 2, 2017. Our Board of Directors authorized the repurchase of up to $250 million of shares of our common stock pursuant to the stock repurchase plan between May 2, 2017 and May 2, 2019. The share repurchase plan is separate from shares purchased for DRP issuance. |
(2) | Under our amended and restated DRP, as set forth in a Current Report on Form 8-K filed February 24, 2011, we have the option to either issue shares that we purchase in the open market or issue shares directly from Piedmont from authorized but unissued shares. Such election will take place at the settlement of each quarterly dividend in which there are participants in our DRP, and may change from quarter to quarter based on our judgment of the best use of proceeds for Piedmont. |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
ITEM 6. | EXHIBITS |
Exhibit Number | Description of Document | ||
3.1 | |||
3.2 | |||
3.3 | |||
3.4 | |||
3.5 | |||
31.1 | |||
31.2 | |||
32.1 | |||
32.2 | |||
101.INS | XBRL Instance Document | ||
101.SCH | XBRL Taxonomy Extension Schema | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
PIEDMONT OFFICE REALTY TRUST, INC. | |||
(Registrant) | |||
Dated: | November 1, 2017 | By: | /s/ Robert E. Bowers |
Robert E. Bowers | |||
Chief Financial Officer and Executive Vice President | |||
(Principal Financial Officer and Duly Authorized Officer) |
1. | I have reviewed this Form 10-Q for the quarter ended September 30, 2017 of Piedmont Office Realty Trust, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By: | /s/ Donald A. Miller, CFA | |
Donald A. Miller, CFA | ||
Chief Executive Officer and President (Principal Executive Officer) |
1. | I have reviewed this Form 10-Q for the quarter ended September 30, 2017 of Piedmont Office Realty Trust, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By: | /s/ Robert E. Bowers | |
Robert E. Bowers | ||
Chief Financial Officer and Executive Vice President (Principal Financial Officer) |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
By: | /s/ Donald A. Miller, CFA | |
Donald A. Miller, CFA | ||
Chief Executive Officer and President | ||
November 1, 2017 |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
By: | /s/ Robert E. Bowers | |
Robert E. Bowers | ||
Chief Financial Officer and Executive Vice President | ||
November 1, 2017 |
Document and Entity Information - shares |
9 Months Ended | |
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Sep. 30, 2017 |
Oct. 31, 2017 |
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Document and Entity Information [Abstract] | ||
Entity Registrant Name | Piedmont Office Realty Trust, Inc. | |
Entity Central Index Key | 0001042776 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 144,371,942 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Statement of Comprehensive Income [Abstract] | ||||
Net income/(loss) applicable to Piedmont | $ 126,133 | $ (13,107) | $ 164,947 | $ 69,543 |
Other comprehensive income/(loss): | ||||
Effective portion of gain/(loss) on derivative instruments that are designated and qualify as cash flow hedges (See Note 5) | 175 | 2,847 | 307 | (12,182) |
Plus: Reclassification of previously recorded loss included in net income (See Note 5) | 653 | 1,045 | 2,936 | 3,291 |
Gain on investment in available for sale securities | 25 | 7 | 53 | 19 |
Other comprehensive income/(loss) | 853 | 3,899 | 3,296 | (8,872) |
Comprehensive income/(loss) applicable to Piedmont | $ 126,986 | $ (9,208) | $ 168,243 | $ 60,671 |
Consolidated Statements of Stockholders' Equity (Unaudited) (Parenthetical) - $ / shares |
9 Months Ended | 12 Months Ended |
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Sep. 30, 2017 |
Dec. 31, 2016 |
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Statement of Stockholders' Equity [Abstract] | ||
Dividends to common stockholders per share (in USD per share) | $ 0.63 | $ 0.84 |
Organization |
9 Months Ended |
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Sep. 30, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | Organization Piedmont Office Realty Trust, Inc. (“Piedmont”) (NYSE: PDM) is a Maryland corporation that operates in a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes and engages in the acquisition, development, management, and ownership of commercial real estate properties throughout the United States, including properties that are under construction, are newly constructed, or have operating histories. Piedmont was incorporated in 1997 and commenced operations in 1998. Piedmont conducts business primarily through Piedmont Operating Partnership, L.P. (“Piedmont OP”), a Delaware limited partnership, as well as performing the management of its buildings through two wholly-owned subsidiaries, Piedmont Government Services, LLC and Piedmont Office Management, LLC. Piedmont owns 99.9% of, and is the sole general partner of, Piedmont OP and as such, possesses full legal control and authority over the operations of Piedmont OP. The remaining 0.1% ownership interest of Piedmont OP is held indirectly by Piedmont through its wholly-owned subsidiary, Piedmont Office Holdings, Inc. ("POH"), the sole limited partner of Piedmont OP. Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through consolidated joint ventures. References to Piedmont herein shall include Piedmont and all of its subsidiaries, including Piedmont OP and its subsidiaries and joint ventures. As of September 30, 2017, Piedmont owned 66 in-service office properties. Piedmont's total consolidated portfolio consists of approximately 19 million square feet of primarily Class A commercial office space, and was 89.2% leased as of September 30, 2017. As of September 30, 2017, approximately 88% of Piedmont's ALR was generated from select sub-markets located primarily within eight major office markets located in the Eastern-half of the United States: Atlanta, Boston, Chicago, Dallas, Minneapolis, New York, Orlando, and Washington, D.C. Piedmont internally evaluates all of its real estate assets as one operating segment, and accordingly, does not report segment information. |
Summary of Significant Accounting Policies |
9 Months Ended |
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Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The consolidated financial statements of Piedmont have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of a full year’s results. Piedmont’s consolidated financial statements include the accounts of Piedmont, Piedmont’s wholly-owned subsidiaries, any variable interest entity ("VIE") for which Piedmont or any of its wholly-owned subsidiaries is considered to have the power to direct the activities of the entity and the obligation to absorb losses/right to receive benefits, or any entity in which Piedmont or any of its wholly-owned subsidiaries owns a controlling interest. In determining whether Piedmont or Piedmont OP has a controlling interest, the following factors, among others, are considered: equity ownership, voting rights, protective rights of investors, and participatory rights of investors. For further information, refer to the financial statements and footnotes included in Piedmont’s Amended Annual Report on Form 10-K/A for the year ended December 31, 2016. 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. Actual results could differ from those estimates. Income Taxes Piedmont has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and has operated as such, beginning with its taxable year ended December 31, 1998. To qualify as a REIT, Piedmont must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income. As a REIT, Piedmont is generally not subject to federal income taxes, subject to fulfilling, among other things, this distribution requirement. Piedmont is subject to certain taxes related to the operations of properties in certain locations, as well as operations conducted by its taxable REIT subsidiary, POH, which have been provided for in the financial statements. Reclassifications Certain prior period amounts presented in Piedmont's Amended Annual Report on Form 10-K/A for the year ended December 31, 2016 have been reclassified to conform to the current period financial statement presentation. The reclassifications relate to the Two Independence Square building, located in Washington, D.C., which was first classified as held for sale as of March 31, 2017, and was sold on July 5, 2017. Applicable balances related to the same asset remain classified as held for sale as of December 31, 2016. Recent Accounting Pronouncements The Financial Accounting Standards Board (the "FASB") has issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") and Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08"). The amendments in ASU 2014-09, which are further clarified in ASU 2016-08, as well as Accounting Standards Update 2016-10, Accounting Standards Update 2016-12, and Accounting Standards Update 2016-20 (collectively the "Revenue Recognition Amendments"), change the criteria for the recognition of certain revenue streams to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services using a five-step determination process. Steps 1 through 5 involve (i) identifying contracts with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations, and (v) recognizing revenue as an entity satisfies a performance obligation. The revenues impacted by the Revenue Recognition Amendments include a portion of Piedmont's tenant reimbursement revenues and property management fee revenues. Lease contracts and reimbursement revenues associated with property taxes and insurance are specifically excluded from the Revenue Recognition Amendments. The Revenue Recognition Amendments are effective in the first quarter of 2018 for Piedmont. Management has substantially completed its initial assessment of the impact of adoption of the Revenue Recognition Amendments. Approximately 90% of Piedmont's total revenues are derived from either long-term leases with its tenants or reimbursement of property tax and insurance expenses, which are excluded from the scope of the Revenue Recognition Amendments. In addition, based on management's assessment to date, Piedmont does not expect the timing of the recognition of reimbursement revenue and revenue from management agreements to change as a result of the new guidance, though certain classifications will change between rental revenue and tenant reimbursements. Finally, management has determined, and the FASB has confirmed, that the evaluation of non-lease components under the new Revenue Recognition Amendments will not be effective until Accounting Standards Update No. 2016-02, Leases (Topic 842), ("ASU 2016-02") becomes effective (see further discussion below), which will be first quarter of 2019 for Piedmont. Although management continues to evaluate the guidance and disclosures required by the Revenue Recognition Amendments, Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption. The FASB has issued Accounting Standards Update No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"). The provisions of ASU 2017-05 define the term "in substance nonfinancial asset" as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) is concentrated in nonfinancial assets. Further, it states that nonfinancial assets should be derecognized once the counterparty obtains control. Finally, the amendments provide clarification for partial sales of nonfinancial assets. ASU 2017-05 is effective concurrent with the Revenue Recognition Amendments (detailed above), which will be the first quarter of 2018 for Piedmont. Although management continues to evaluate the guidance and disclosures required by ASU 2017-05, Piedmont does not anticipate a material change in how it recognizes, measures, and classifies the gain or loss on the disposition of real estate in its consolidated financial statements as a result of adoption. The FASB has issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). The amendments in ASU 2016-01 require equity investments, except those accounted for under the equity method of accounting, to be measured at estimated fair value with changes in fair value recognized in net income. Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments, and eliminates certain disclosure requirements. The amendments in ASU 2016-01 are effective in the first quarter of 2018, and Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption. The FASB has issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash (a consensus of the FASB Emerging Issues Task Force) ("ASU 2016-18"). The provisions of ASU 2016-18 require entities to show changes in restricted cash and cash equivalents in addition to cash and cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between restricted and unrestricted cash in the statement of cash flows. Disclosures are required to reconcile the amount presented on the statement of cash flows to the balance sheet, as well as disclosing the nature of restriction on the restricted cash balances. ASU 2016-18 is effective for Piedmont in the first quarter of 2018, with early adoption permitted. Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption. The FASB has issued ASU 2016-02, which fundamentally changes the definition of a lease, as well as the accounting for operating leases by requiring lessees to recognize assets and liabilities which arise from the lease, consisting of a liability to make lease payments (the lease liability) and a right-of-use asset, representing the right to use the leased asset over the term of the lease. Accounting for leases by lessors is substantially unchanged from prior practice as lessors will continue to recognize lease revenue on a straight-line basis; however, ASU 2016-02 defines certain tenant reimbursements as non-lease components which will be subject to the guidance under ASU 2014-09. The amendments in ASU 2016-02 are effective in the first quarter of 2019, and Piedmont is currently evaluating the potential impact of adoption. The FASB has issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The provisions of ASU 2016-13 replace the "incurred loss" approach with an "expected loss" model for impairing trade and other receivables, held-to-maturity debt securities, net investment in leases, and off-balance-sheet credit exposures, which will generally result in earlier recognition of allowances for credit losses. Additionally, the provisions change the classification of credit losses related to available-for-sale securities to an allowance, rather than a direct reduction of the amortized cost of the securities. ASU 2016-13 is effective in the first quarter of 2020, with early adoption permitted as of January 1, 2019. Piedmont is currently evaluating the potential impact of adoption. The FASB has issued Accounting Standards Update No. 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). The provisions of ASU 2017-04 simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test, which is generally performed annually unless events or circumstances arise which would necessitate evaluating the carrying value for impairment in the interim. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a entity’s goodwill with the carrying amount of that goodwill by determining the fair value of its assets and liabilities (including unrecognized assets and liabilities) following the procedures that would be required in a business combination. Under the provisions of ASU 2017-04, an entity would instead recognize an impairment charge for the amount by which the carrying amount exceeds the entity’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that entity. ASU 2017-04 is effective in the first quarter of 2020, with early adoption permitted as of the first interim or annual impairment test of goodwill after January 1, 2017. Piedmont is currently evaluating the potential impact of adoption. |
Debt |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | Debt During the three months ended September 30, 2017, Piedmont fully repaid the $140 Million WDC Fixed-Rate Loans prior to the maturity date without penalty and repaid the outstanding balance of the $500 Million Unsecured 2015 Line of Credit, using a portion of the net proceeds from the sale of the Two Independence Square building (see Note 9). The following table summarizes the terms of Piedmont’s indebtedness outstanding as of September 30, 2017 and December 31, 2016 (in thousands):
Piedmont made interest payments on all debt facilities, including interest rate swap cash settlements, of approximately $18.0 million and $18.5 million for the three months ended September 30, 2017 and 2016, respectively, and approximately $54.0 million and $53.2 million for the nine months ended September 30, 2017 and 2016, respectively. Also, Piedmont capitalized interest of approximately $37,000 and $1.5 million for the three months ended September 30, 2017 and 2016, respectively, and approximately $0.2 million and $3.4 million for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, Piedmont believes it was in compliance with all financial covenants associated with its debt instruments. See Note 6 for a description of Piedmont’s estimated fair value of debt as of September 30, 2017. |
Variable Interest Entities |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable Interest Entities | Variable Interest Entities Variable interest holders who have the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and have the obligation to absorb the majority of losses of the entity or the right to receive significant benefits of the entity must consolidate the VIE. Each of the following VIEs has the sole purpose of holding land and office buildings and their resulting operations, and are classified in the accompanying consolidated balance sheets in the same manner as Piedmont’s wholly-owned properties. A summary of Piedmont’s interests in, and consolidation treatment of, its VIEs and their related carrying values as of September 30, 2017 and December 31, 2016 is as follows (net carrying amount in millions):
(1) During the three months ended September 30, 2017, Piedmont repaid a $140 million mortgage secured by the 1201 and 1225 Eye Street properties located in Washington, D.C., and recapitalized the 1201 and 1225 Eye Street N.W. Associates, LLCs, increasing Piedmont's ownership from 49.5% in each of the LLCs to the amounts stated above. |
Derivative Instruments |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments | 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 changing the underlying notional amount. As of September 30, 2017, Piedmont was party to various interest rate swap agreements, all of which are designated as effective cash flow hedges and fully hedge the variable cash flows covering the entire outstanding balances of the $300 Million Unsecured 2011 Term Loan and the $300 Million Unsecured 2013 Term Loan. The maximum length of time over which Piedmont is hedging its exposure to the variability in future cash flows for forecasted transactions is 27 months. A detail of Piedmont’s interest rate derivatives outstanding as of September 30, 2017 is as follows:
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 September 30, 2017 and December 31, 2016, respectively, is as follows (in thousands):
The effective portion of Piedmont's interest rate derivatives, including the gain/(loss) on previously settled forward swaps, that was recorded in the accompanying consolidated statements of income for the three and nine months ended September 30, 2017 and 2016, respectively, was as follows (in thousands):
Piedmont estimates that approximately $1.2 million will be reclassified from accumulated other comprehensive loss to interest expense over the next twelve months. Piedmont recognized no loss related to hedge ineffectiveness of its cash flow hedges during the three and nine months ended September 30, 2017 and 2016, respectively. Additionally, see Note 6 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 obligations under the agreements at their termination value of the estimated fair values plus accrued interest, or approximately $4.0 million as of September 30, 2017. 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. |
Fair Value Measurement of Financial Instruments |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurement of Financial Instruments | Fair Value Measurement of Financial Instruments Piedmont considers its cash and cash equivalents, tenant receivables, 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 September 30, 2017 and December 31, 2016, respectively (in thousands):
Piedmont's debt was carried at book value as of September 30, 2017 and December 31, 2016; however, Piedmont's estimate of its estimated fair value is disclosed in the table above. Piedmont uses widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of the debt facilities, including the period to maturity of each instrument, and uses observable market-based inputs for similar debt facilities which have transacted recently in the market. Therefore, the estimated fair values determined are considered to be based on significant other observable inputs (Level 2). Scaling adjustments are made to these inputs to make them applicable to the remaining life of Piedmont's outstanding debt. Piedmont has not changed its valuation technique for estimating the fair value of its debt. Piedmont’s interest rate swap and forward starting interest rate swap agreements presented above, and further discussed in Note 5, are classified as “Interest rate swap” assets and liabilities in the accompanying consolidated balance sheets and were carried at estimated fair value as of September 30, 2017 and December 31, 2016. 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 were factored into the calculation of the estimated fair value of the interest rate swaps; however, as of September 30, 2017 and December 31, 2016, 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 assets or liabilities. |
Impairment Loss on Real Estate Assets |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment Loss on Real Estate Assets | Impairment Loss on Real Estate Assets Piedmont recorded impairment loss on real estate assets for the three and nine months ended September 30, 2017 and 2016, respectively, as follows (in thousands):
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Commitments and Contingencies |
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Sep. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Commitments Under Existing Lease Agreements Under its existing lease agreements, Piedmont may be required to fund significant 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. Piedmont classifies its capital improvements into two categories: (i) improvements which maintain the building's existing asset value and its revenue generating capacity (“non-incremental capital expenditures”) and (ii) improvements which incrementally enhance the building's asset value by expanding its revenue generating capacity (“incremental capital expenditures”). As of September 30, 2017, commitments to fund potential non-incremental capital expenditures over the next five years for tenant improvements totaled approximately $32.1 million related to Piedmont's existing lease portfolio over the respective lease terms, the majority of which Piedmont estimates may be required to be funded over the next three years based on when the underlying leases commence. For most of Piedmont’s leases, the timing of the actual funding of these tenant improvements is largely dependent upon tenant requests for reimbursement. In some cases, these obligations may expire with the leases without further recourse to Piedmont. As of September 30, 2017, commitments for incremental capital expenditures for tenant improvements associated with executed leases totaled approximately $15.2 million. 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 the re-interpretation of language in the lease agreements which could result in the refund of previously recognized tenant reimbursement revenues, resulting in financial loss to Piedmont. Piedmont recorded no such reductions in reimbursement revenues related to such tenant audits/disputes during the three months ended September 30, 2017 and 2016, respectively, and $0.3 million and $0 of such reductions in reimbursement revenues related to such tenant audits/disputes during the nine months ended September 30, 2017 and 2016, respectively. |
Property Dispositions and Assets Held for Sale |
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Property Dispositions and Assets Held for Sale | Property Dispositions and Assets Held for Sale Properties sold during the nine months ended September 30, 2017 and 2016 did not meet the criteria to be reported as discontinued operations. The operational results for these properties prior to their sale dates are presented as continuing operations in the accompanying consolidated statements of income, and the gain/(loss) on sale is presented separately on the face of the income statement. Details of such properties sold are presented below (in thousands):
Sale of the 8560 Upland Drive building During the three months ended September 30, 2017, Piedmont sold its 72% interest in the 8560 Upland Drive building in Denver, Colorado for approximately $12.7 million which resulted in net sales proceeds of $12.3 million and a gain on sale of approximately $3.7 million, which is included in income from unconsolidated joint ventures in the accompanying consolidated statements of income. Assets Held for Sale In February 2017, Piedmont reclassified the Two Independence Square building from real estate assets held for use to real estate assets held for sale as a result of entering into a binding agreement to sell the property. The sale of the Two Independence Square building closed on July 5, 2017. Details of assets held for sale as of September 30, 2017 and December 31, 2016 are presented below (in thousands):
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Stock Based Compensation |
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Stock Based Compensation | Stock Based Compensation The Compensation Committee of Piedmont's Board of Directors has periodically granted deferred stock awards to all of Piedmont's employees and independent directors. Employee awards typically vest ratably over a multi-year period and independent director awards vest over one year. Certain employees' long-term equity incentive program is split equally between the time-vested awards described above and a multi-year performance share program whereby awards may be earned based upon Piedmont's total stockholder return ("TSR") relative to a peer group's TSR. The peer group is predetermined by the Board of Directors. Any shares earned are awarded at the end of the multi-year performance period and vest upon award. A rollforward of Piedmont's equity based award activity for the nine months ended September 30, 2017 is as follows:
The following table provides additional information regarding stock award activity during the three and nine months ended September 30, 2017 and 2016, respectively (in thousands, except per share amounts):
A detail of Piedmont’s outstanding stock awards as of September 30, 2017 is as follows:
During the three months ended September 30, 2017 and 2016, Piedmont recognized approximately $1.3 million and $2.0 million of compensation expense related to stock awards, all of which is related to the amortization of unvested shares. During the nine months ended September 30, 2017 and 2016, Piedmont recognized approximately $7.0 million and $7.7 million of compensation expense related to stock awards, of which $5.2 million and $6.2 million related to the amortization of unvested shares, respectively. During the nine months ended September 30, 2017, a net total of 254,873 shares were issued to employees and independent directors. As of September 30, 2017, approximately $5.1 million of unrecognized compensation cost related to unvested deferred stock awards remained, which Piedmont will record in its consolidated statements of income over a weighted-average vesting period of approximately one year. |
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Earnings Per Share | Earnings Per Share There are no adjustments to “Net income applicable to Piedmont” for the diluted earnings per share computations. Adjustments to the carrying amount of non-controlling interest as a result of the measurement of a redeemable equity participation do not impact net income or comprehensive income; rather such adjustments are treated as the repurchase of a non-controlling interest. 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 deferred stock awards vested and resulted in additional common shares outstanding. Unvested deferred stock awards which are determined to be anti-dilutive are not included in the calculation of diluted weighted average common shares. 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 and nine months ended September 30, 2017 and 2016, respectively (in thousands):
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Guarantor and Non-Guarantor Financial Information |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Guarantor and Non-Guarantor Financial Information | Guarantor and Non-Guarantor Financial Information The following condensed consolidating financial information for Piedmont Operating Partnership, L.P. (the "Issuer"), Piedmont Office Realty Trust, Inc. (the "Guarantor"), and the other directly and indirectly owned subsidiaries of the Guarantor (the "Non-Guarantor Subsidiaries") is provided pursuant to the requirements of Rule 3-10 of Regulation S-X regarding financial statements of guarantors and issuers of guaranteed registered securities. The Issuer is a wholly-owned subsidiary of the Guarantor, and all guarantees by the Guarantor of securities issued by the Issuer are full and unconditional. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Non-Guarantor Subsidiaries.
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Subsequent Events |
9 Months Ended |
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Sep. 30, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events Fourth Quarter Dividend Declaration On October 31, 2017, the Board of Directors of Piedmont declared dividends for the fourth quarter 2017 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on November 24, 2017. Such dividends are to be paid on January 4, 2018. |
Summary of Significant Accounting Policies (Policies) |
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Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Basis of Presentation | 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. |
Principles of Consolidation | Piedmont’s consolidated financial statements include the accounts of Piedmont, Piedmont’s wholly-owned subsidiaries, any variable interest entity ("VIE") for which Piedmont or any of its wholly-owned subsidiaries is considered to have the power to direct the activities of the entity and the obligation to absorb losses/right to receive benefits, or any entity in which Piedmont or any of its wholly-owned subsidiaries owns a controlling interest. In determining whether Piedmont or Piedmont OP has a controlling interest, the following factors, among others, are considered: equity ownership, voting rights, protective rights of investors, and participatory rights of investors. For further information, refer to the financial statements and footnotes included in Piedmont’s Amended Annual Report on Form 10-K/A for the year ended December 31, 2016. 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 | 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. Actual results could differ from those estimates. |
Income Taxes | 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, this distribution requirement. Piedmont is subject to certain taxes related to the operations of properties in certain locations, as well as operations conducted by its taxable REIT subsidiary, POH, which have been provided for in the financial statements. |
Reclassifications | Reclassifications Certain prior period amounts presented in Piedmont's Amended Annual Report on Form 10-K/A for the year ended December 31, 2016 have been reclassified to conform to the current period financial statement presentation. The reclassifications relate to the Two Independence Square building, located in Washington, D.C., which was first classified as held for sale as of March 31, 2017, and was sold on July 5, 2017. Applicable balances related to the same asset remain classified as held for sale as of December 31, 2016. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements The Financial Accounting Standards Board (the "FASB") has issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") and Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08"). The amendments in ASU 2014-09, which are further clarified in ASU 2016-08, as well as Accounting Standards Update 2016-10, Accounting Standards Update 2016-12, and Accounting Standards Update 2016-20 (collectively the "Revenue Recognition Amendments"), change the criteria for the recognition of certain revenue streams to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services using a five-step determination process. Steps 1 through 5 involve (i) identifying contracts with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations, and (v) recognizing revenue as an entity satisfies a performance obligation. The revenues impacted by the Revenue Recognition Amendments include a portion of Piedmont's tenant reimbursement revenues and property management fee revenues. Lease contracts and reimbursement revenues associated with property taxes and insurance are specifically excluded from the Revenue Recognition Amendments. The Revenue Recognition Amendments are effective in the first quarter of 2018 for Piedmont. Management has substantially completed its initial assessment of the impact of adoption of the Revenue Recognition Amendments. Approximately 90% of Piedmont's total revenues are derived from either long-term leases with its tenants or reimbursement of property tax and insurance expenses, which are excluded from the scope of the Revenue Recognition Amendments. In addition, based on management's assessment to date, Piedmont does not expect the timing of the recognition of reimbursement revenue and revenue from management agreements to change as a result of the new guidance, though certain classifications will change between rental revenue and tenant reimbursements. Finally, management has determined, and the FASB has confirmed, that the evaluation of non-lease components under the new Revenue Recognition Amendments will not be effective until Accounting Standards Update No. 2016-02, Leases (Topic 842), ("ASU 2016-02") becomes effective (see further discussion below), which will be first quarter of 2019 for Piedmont. Although management continues to evaluate the guidance and disclosures required by the Revenue Recognition Amendments, Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption. The FASB has issued Accounting Standards Update No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"). The provisions of ASU 2017-05 define the term "in substance nonfinancial asset" as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) is concentrated in nonfinancial assets. Further, it states that nonfinancial assets should be derecognized once the counterparty obtains control. Finally, the amendments provide clarification for partial sales of nonfinancial assets. ASU 2017-05 is effective concurrent with the Revenue Recognition Amendments (detailed above), which will be the first quarter of 2018 for Piedmont. Although management continues to evaluate the guidance and disclosures required by ASU 2017-05, Piedmont does not anticipate a material change in how it recognizes, measures, and classifies the gain or loss on the disposition of real estate in its consolidated financial statements as a result of adoption. The FASB has issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). The amendments in ASU 2016-01 require equity investments, except those accounted for under the equity method of accounting, to be measured at estimated fair value with changes in fair value recognized in net income. Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments, and eliminates certain disclosure requirements. The amendments in ASU 2016-01 are effective in the first quarter of 2018, and Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption. The FASB has issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash (a consensus of the FASB Emerging Issues Task Force) ("ASU 2016-18"). The provisions of ASU 2016-18 require entities to show changes in restricted cash and cash equivalents in addition to cash and cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between restricted and unrestricted cash in the statement of cash flows. Disclosures are required to reconcile the amount presented on the statement of cash flows to the balance sheet, as well as disclosing the nature of restriction on the restricted cash balances. ASU 2016-18 is effective for Piedmont in the first quarter of 2018, with early adoption permitted. Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption. The FASB has issued ASU 2016-02, which fundamentally changes the definition of a lease, as well as the accounting for operating leases by requiring lessees to recognize assets and liabilities which arise from the lease, consisting of a liability to make lease payments (the lease liability) and a right-of-use asset, representing the right to use the leased asset over the term of the lease. Accounting for leases by lessors is substantially unchanged from prior practice as lessors will continue to recognize lease revenue on a straight-line basis; however, ASU 2016-02 defines certain tenant reimbursements as non-lease components which will be subject to the guidance under ASU 2014-09. The amendments in ASU 2016-02 are effective in the first quarter of 2019, and Piedmont is currently evaluating the potential impact of adoption. The FASB has issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The provisions of ASU 2016-13 replace the "incurred loss" approach with an "expected loss" model for impairing trade and other receivables, held-to-maturity debt securities, net investment in leases, and off-balance-sheet credit exposures, which will generally result in earlier recognition of allowances for credit losses. Additionally, the provisions change the classification of credit losses related to available-for-sale securities to an allowance, rather than a direct reduction of the amortized cost of the securities. ASU 2016-13 is effective in the first quarter of 2020, with early adoption permitted as of January 1, 2019. Piedmont is currently evaluating the potential impact of adoption. The FASB has issued Accounting Standards Update No. 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). The provisions of ASU 2017-04 simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test, which is generally performed annually unless events or circumstances arise which would necessitate evaluating the carrying value for impairment in the interim. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a entity’s goodwill with the carrying amount of that goodwill by determining the fair value of its assets and liabilities (including unrecognized assets and liabilities) following the procedures that would be required in a business combination. Under the provisions of ASU 2017-04, an entity would instead recognize an impairment charge for the amount by which the carrying amount exceeds the entity’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that entity. ASU 2017-04 is effective in the first quarter of 2020, with early adoption permitted as of the first interim or annual impairment test of goodwill after January 1, 2017. Piedmont is currently evaluating the potential impact of adoption. |
Risk Management Objective of Using Derivatives | 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. |
Debt (Tables) |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Debt | The following table summarizes the terms of Piedmont’s indebtedness outstanding as of September 30, 2017 and December 31, 2016 (in thousands):
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Variable Interest Entities (Tables) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Variable Interest Entities | A summary of Piedmont’s interests in, and consolidation treatment of, its VIEs and their related carrying values as of September 30, 2017 and December 31, 2016 is as follows (net carrying amount in millions):
(1) During the three months ended September 30, 2017, Piedmont repaid a $140 million mortgage secured by the 1201 and 1225 Eye Street properties located in Washington, D.C., and recapitalized the 1201 and 1225 Eye Street N.W. Associates, LLCs, increasing Piedmont's ownership from 49.5% in each of the LLCs to the amounts stated above. |
Derivative Instruments (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Notional Amounts of Outstanding Derivative Positions | A detail of Piedmont’s interest rate derivatives outstanding as of September 30, 2017 is as follows:
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Schedule of Interest Rate Derivatives | A detail of Piedmont’s interest rate derivatives on a gross and net basis as of September 30, 2017 and December 31, 2016, respectively, is as follows (in thousands):
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Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss) | The effective portion of Piedmont's interest rate derivatives, including the gain/(loss) on previously settled forward swaps, that was recorded in the accompanying consolidated statements of income for the three and nine months ended September 30, 2017 and 2016, respectively, was as follows (in thousands):
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Fair Value Measurement of Financial Instruments (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, by Balance Sheet Grouping | 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 September 30, 2017 and December 31, 2016, respectively (in thousands):
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Impairment Loss on Real Estate Assets (Tables) |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Details of Impairment of Long-Lived Assets Held and Used by Asset | Piedmont recorded impairment loss on real estate assets for the three and nine months ended September 30, 2017 and 2016, respectively, as follows (in thousands):
Details of assets held for sale as of September 30, 2017 and December 31, 2016 are presented below (in thousands):
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Property Dispositions and Assets Held for Sale (Tables) |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures | Details of such properties sold are presented below (in thousands):
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Details of Impairment of Long-Lived Assets Held and Used by Asset | Piedmont recorded impairment loss on real estate assets for the three and nine months ended September 30, 2017 and 2016, respectively, as follows (in thousands):
Details of assets held for sale as of September 30, 2017 and December 31, 2016 are presented below (in thousands):
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Stock Based Compensation (Tables) |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Nonvested Share Activity | A rollforward of Piedmont's equity based award activity for the nine months ended September 30, 2017 is as follows:
The following table provides additional information regarding stock award activity during the three and nine months ended September 30, 2017 and 2016, respectively (in thousands, except per share amounts):
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Schedule of Outstanding Employee Stock Awards | A detail of Piedmont’s outstanding stock awards as of September 30, 2017 is as follows:
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Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Weighted Average Number of Shares | 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 and nine months ended September 30, 2017 and 2016, respectively (in thousands):
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Guarantor and Non-Guarantor Financial Information (Tables) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Consolidated Balance Sheets |
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Condensed Consolidated Statements of Income |
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Condensed Consolidated Statements of Cash Flows |
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Organization (Details) ft² in Millions |
9 Months Ended |
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Sep. 30, 2017
ft²
segment
property
subsidiary
market
| |
Real Estate Properties [Line Items] | |
Number of wholly-owned subsidiaries | subsidiary | 2 |
Percentage ownership by sole general partner | 99.90% |
Percentage ownership by sole limited partner | 0.10% |
Percentage of annualized lease revenue | 88.00% |
Number of operating segments | segment | 1 |
U.S. | |
Real Estate Properties [Line Items] | |
Number of major U.S. office markets | market | 8 |
In Service Office Properties | |
Real Estate Properties [Line Items] | |
Number of real estate properties | property | 66 |
Square footage of real estate property | ft² | 19 |
Percentage leased | 89.20% |
Summary of Significant Accounting Policies (Details) |
9 Months Ended |
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Sep. 30, 2017 | |
Total Revenues Derived from Long Term Leases to Tenants or Reimbursement of Property Tax and Insurance Expenses | Sales Revenue, Net | |
Concentration Risk [Line Items] | |
Percentage of total revenues | 90.00% |
Debt (Narrative) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Debt Disclosure [Abstract] | ||||
Interest payments on debt facilities | $ 18,000 | $ 18,500 | $ 54,000 | $ 53,200 |
Capitalized interest | $ 37 | $ 1,500 | $ 200 | $ 3,400 |
Commitments and Contingencies (Details) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017
USD ($)
category
|
Sep. 30, 2016
USD ($)
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Sep. 30, 2017
USD ($)
category
|
Sep. 30, 2016
USD ($)
|
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Loss Contingencies [Line Items] | ||||
Number of tenant and building improvement categories | category | 2 | 2 | ||
Collectibility of Tenant Reimbursements | ||||
Loss Contingencies [Line Items] | ||||
Reductions in reimbursement revenues | $ 0 | $ 0 | $ 300,000 | $ 0 |
Non-Incremental Capital Expenditures | ||||
Loss Contingencies [Line Items] | ||||
Period for commitments for funding non-incremental capital expenditures | 5 years | |||
Potential obligations for tenant improvements | 32,100,000 | $ 32,100,000 | ||
Non-Incremental Capital Expenditures | Maximum | ||||
Loss Contingencies [Line Items] | ||||
Period for commitments for funding non-incremental capital expenditures | 3 years | |||
Incremental Capital Expenditures | ||||
Loss Contingencies [Line Items] | ||||
Potential obligations for tenant improvements | $ 15,200,000 | $ 15,200,000 |
Property Dispositions and Assets Held for Sale (Narrative) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Net sales proceeds from equity method investment | $ 12,334 | $ 0 | |
8560 Upland Drive building | Disposal Group, Disposed of by Sale, Not Discontinued Operations | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Percent of interest sold | 72.00% | 72.00% | |
Amount of investment sold | $ 12,700 | ||
Net sales proceeds from equity method investment | 12,300 | ||
Gain on sale of equity method investment | $ 3,700 |
Stock Based Compensation (Narrative) (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Compensation expense related to stock awards | $ 1.3 | $ 2.0 | $ 7.0 | $ 7.7 |
Amortization of unvested shares | $ 5.2 | $ 6.2 | ||
Total shares issued to employees, directors, and officers (in shares) | 254,873 | |||
Unrecognized compensation cost related to nonvested | $ 5.1 | $ 5.1 | ||
Weighted Average | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Unrecognized compensation cost related to nonvested, weighted-average vesting period | 1 year | |||
Stock Awards | Board of Directors | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Vesting period | 1 year |
Stock Based Compensation (Additional Information Regarding Stock Award Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Deferred Stock Awards | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Weighted-Average Grant Date Fair Value of Deferred Stock Granted During the Period (in dollars per share) | $ 0.00 | $ 0.00 | $ 21.38 | $ 19.96 |
Total Grant Date Fair Value of Deferred Stock Vested During the Period | $ 11 | $ 108 | $ 5,852 | $ 4,766 |
Performance Share Awards | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Share-based Liability Awards Paid During the Period | $ 0 | $ 0 | $ 2,877 | $ 1,127 |
Earnings Per Share (Details) - shares |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
|
Earnings Per Share [Abstract] | |||||
Weighted-average common shares outstanding – basic (in shares) | 145,415,678 | 145,231,160 | 145,372,182 | 145,228,755 | |
Plus: Incremental weighted-average shares from time-vested deferred and performance stock awards (in shares) | 303,000 | 438,000 | 308,000 | 372,000 | |
Weighted-average common shares outstanding – diluted (in shares) | 145,719,431 | 145,669,237 | 145,679,582 | 145,601,026 | |
Common stock, shares issued (in shares) | 145,294,845 | 145,234,000 | 145,294,845 | 145,234,000 | 145,235,313 |
Common stock, shares outstanding (in shares) | 145,294,845 | 145,234,000 | 145,294,845 | 145,234,000 | 145,235,313 |
Subsequent Events (Details) |
Oct. 31, 2017
$ / shares
|
---|---|
Subsequent Event | |
Subsequent Event [Line Items] | |
Dividends declared (in dollars per share) | $ 0.21 |
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