EX-99.2 3 pdm93018ex992q32018supplem.htm Q3 2018 SUPPLEMENTAL PACKAGE Exhibit



EXHIBIT 99.2




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Quarterly Supplemental Information
September 30, 2018










Corporate Headquarters
Institutional Analyst Contact
Investor Relations
5565 Glenridge Connector, Suite 450
Telephone: 770.418.8592
Telephone: 866.354.3485
Atlanta, GA 30342
research.analysts@piedmontreit.com
investor.services@piedmontreit.com
Telephone: 770.418.8800
 
www.piedmontreit.com




Piedmont Office Realty Trust, Inc.
Quarterly Supplemental Information
Index

 
Page
 
 
Page
 
 
 
 
 
Introduction
 
 
Other Investments
 
Corporate Data
 
Other Investments Detail
Investor Information
 
Supporting Information
 
Financial Highlights
 
Definitions
Financials
 
 
Research Coverage
Balance Sheets
 
Non-GAAP Reconciliations & Other Detail
Income Statements
 
Property Detail - In-Service Portfolio
Key Performance Indicators
 
Risks, Uncertainties and Limitations
Funds From Operations / Adjusted Funds From Operations
 
 
 
Same Store Analysis
 
 
 
Capitalization Analysis
 
 
 
Debt Summary
 
 
 
Debt Detail
 
 
 
Debt Covenant & Ratio Analysis
 
 
 
Operational & Portfolio Information - Office Investments
 
 
 
 
Tenant Diversification
 
 
 
Tenant Credit Rating & Lease Distribution Information
 
 
 
Leased Percentage Information
 
 
 
Rental Rate Roll Up / Roll Down Analysis
 
 
 
Lease Expiration Schedule
 
 
 
Quarterly Lease Expirations
 
 
 
Annual Lease Expirations
 
 
 
Capital Expenditures & Commitments
 
 
 
Contractual Tenant Improvements & Leasing Commissions
 
 
 
Geographic Diversification
 
 
 
Geographic Diversification by Location Type
 
 
 
Industry Diversification
 
 
 
Property Investment Activity
 
 
 
Notice to Readers:
Please refer to page 46 for a discussion of important risks related to the business of Piedmont Office Realty Trust, Inc., as well as an investment in its securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information. Considering these risks, uncertainties, assumptions, and limitations, the forward-looking statements about leasing, financial operations, leasing prospects, etc. contained in this quarterly supplemental information report may differ from actual results.
Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. In addition, many of the schedules herein contain rounding to the nearest thousands or millions and, therefore, the schedules may not total due to this rounding convention.
To supplement the presentation of the Company’s financial results prepared in accordance with U.S. generally accepted accounting principles (GAAP), this report contains certain financial measures that are not prepared in accordance with GAAP, including FFO, Core FFO, AFFO, Same Store NOI, Property NOI, EBITDAre and Core EBITDA. Definitions and reconciliations of these non-GAAP measures to their most comparable GAAP metrics are included beginning on page 39. Each of the non-GAAP measures included in this report has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of the Company’s results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the Company’s presentation of non-GAAP measures in this report may not be comparable to similarly titled measures disclosed by other companies, including other REITs. The Company may also change the calculation of any of the non-GAAP measures included in this report from time to time in light of its then existing operations.

In certain presentations herein, the Company has provided disaggregated financial and operational data (for example, some pieces of information are displayed by geography, industry, or lease expiration year) for informational purposes for readers; however, regardless of the various presentation approaches taken herein, we continue to evaluate and utilize our consolidated financial results in making operating decisions, allocating resources, and assessing our performance.




Piedmont Office Realty Trust, Inc.
Corporate Data


Piedmont Office Realty Trust, Inc. (also referred to herein as "Piedmont" or the "Company") (NYSE: PDM) is an owner, manager, developer, and operator of high-quality, Class A office properties in select sub-markets located primarily within eight major Eastern U.S. office markets. Its geographically-diversified, almost $5 billion portfolio is comprised of approximately
17 million square feet (as of the date of release of this report). The Company is a fully-integrated, self-managed real estate investment trust ("REIT") with local management offices in each of its major markets and is investment-grade rated by Standard & Poor’s and Moody’s. Piedmont is headquartered in Atlanta, GA.

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

 
 
 
 
 
As of
 
As of
 
September 30, 2018
 
December 31, 2017
Number of consolidated office properties (1)
53
 
67
Rentable square footage (in thousands) (1) (2)
16,179
 
19,061
Percent leased (3)
93.2
%
 
89.7
%
Capitalization (in thousands):
 
 
 
Total debt - principal amount outstanding (excludes premiums, discounts, and deferred financing costs)
$1,725,033
 
$1,733,670
Equity market capitalization (4)
$2,430,071
 
$2,791,659
Total market capitalization (4)
$4,155,104
 
$4,525,329
Total debt / Total market capitalization (4)
41.5
%
 
38.3
%
Average net debt to Core EBITDA
5.8 x

 
5.6 x

Total debt / Total gross assets
37.8
%
 
34.3
%
Common stock data:
 
 
 
High closing price during quarter
$20.40
 
$20.40
Low closing price during quarter
$18.59
 
$19.21
Closing price of common stock at period end
$18.93
 
$19.61
Weighted average fully diluted shares outstanding during quarter (in thousands)
128,819
 
144,503
Shares of common stock issued and outstanding at period end (in thousands)
128,371
 
142,359
Annual regular dividend per share (5)
$0.84
 
$0.84
Special dividend per share declared during calendar year
NA

 
$0.50
Rating / Outlook
 
 
 
Standard & Poor's
BBB / Stable

 
BBB / Stable

Moody's
Baa2 / Stable

 
Baa2 / Stable

Employees
136
 
136




(1)
As of September 30, 2018, our consolidated office portfolio consisted of 53 properties (exclusive of one property that was taken out of service for redevelopment on January 1, 2018, Two Pierce Place in Itasca, IL), whereas it consisted of 67 properties at December 31, 2017. During the first quarter of 2018, the Company sold a 14-property portfolio consisting of 2.6 million square feet (additional details about which can be found on page 37), and we acquired 501 West Church Street, a 182,000 square foot office building located in Orlando, FL. There were no acquisitions or dispositions of office properties completed during the second or third quarters of 2018.
(2)
The figure for September 30, 2018 excluded one property that was taken out of service for redevelopment on January 1, 2018, Two Pierce Place in Itasca, IL, consisting of approximately 487,000 square feet; the Company's total rentable square footage including this property was 16.7 million square feet.
(3)
Calculated as square footage associated with commenced leases plus square footage associated with executed but uncommenced leases for vacant spaces, divided by total rentable square footage, all as of the relevant date, expressed as a percentage. This measure is presented for our consolidated office properties and, since January 1, 2018, it has excluded one out of service property. Please refer to page 27 for additional analyses regarding Piedmont's leased percentage.
(4)
Reflects common stock closing price, shares outstanding and outstanding debt as of the end of the reporting period, as appropriate.
(5)
Total of the regular dividends per share declared over the prior four quarters.

3



Piedmont Office Realty Trust, Inc.
Investor Information

Corporate
5565 Glenridge Connector, Suite 450
Atlanta, Georgia 30342
770.418.8800
www.piedmontreit.com
Executive Management
 
 
 
 
Donald A. Miller, CFA
Robert E. Bowers
C. Brent Smith
Edward H. Guilbert, III
Chief Executive Officer, President
Chief Financial Officer and Executive
Chief Investment Officer and Executive
Senior Vice President, Finance and
and Director
Vice President
Vice President, Northeast Region
Treasurer - Investor Relations Contact
 
 
 
 
 
 
 
 
Christopher A. Kollme
Laura P. Moon
Joseph H. Pangburn
Thomas R. Prescott
Executive Vice President,
Chief Accounting Officer and
Executive Vice President,
Executive Vice President,
Finance & Strategy
Senior Vice President
Southwest Region
Midwest Region
 
 
 
 
 
 
 
 
Carroll A. Reddic, IV
George Wells
Robert K. Wiberg
 
Executive Vice President,
Executive Vice President,
Executive Vice President,
 
Real Estate Operations and Assistant
Southeast Region
Mid-Atlantic Region and
 
Secretary
 
Head of Development
 
 
 
 
 
Board of Directors
 
 
 
 
Frank C. McDowell
Dale H. Taysom
Kelly H. Barrett
Wesley E. Cantrell
Director, Chairman of the
Director, Vice Chairman of the
Director and Member of the Audit and
Director, Chairman of the Governance
Board of Directors and Chairman
Board of Directors, and Member of the
Governance Committees
Committee, and Member of the
of the Compensation Committee
Audit and Capital Committees
 
Compensation Committee
 
 
 
 
 
 
 
 
Barbara B. Lang
Donald A. Miller, CFA
Raymond G. Milnes, Jr.
Jeffery L. Swope
Director and Member of the Compensation
Chief Executive Officer, President
Director, Chairman of the Audit
Director, Chairman of the Capital
and Governance Committees
and Director
Committee, and Member of the
Committee, and Member of the
 
 
Capital Committee
Compensation Committee
 
 
 
 
 
 
 
 

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


4



Piedmont Office Realty Trust, Inc.
Financial Highlights
As of September 30, 2018


Financial Results (1) 

Net income attributable to Piedmont for the quarter ended September 30, 2018 was $16.1 million, or $0.13 per share (diluted), compared to $126.1 million, or $0.87 per share (diluted), for the same quarter in 2017. Net income attributable to Piedmont for the nine months ended September 30, 2018 was $84.9 million, or $0.65 per share (diluted), compared to $164.9 million, or $1.13 per share (diluted), for the same period in 2017. The decrease in net income attributable to Piedmont for the three months and the nine months ended September 30, 2018 when compared to the same periods in 2017 was primarily due to the recognition of a larger amount of total gains on sales of real estate during 2017 ($119.6 million year-to-date) when compared to 2018 ($45.2 million year-to-date), in addition to a decrease in income from continuing operations in 2018 resulting from the net disposition of approximately $760 million in properties since the beginning of 2017.

Funds from operations (FFO) for the quarter ended September 30, 2018 was $57.6 million, or $0.45 per share (diluted), compared to $60.8 million, or $0.42 per share (diluted), for the same quarter in 2017. FFO for the nine months ended September 30, 2018 was $167.0 million, or $1.27 per share (diluted), compared to $193.5 million, or $1.33 per share (diluted), for the same period in 2017. The decrease in dollar amount of FFO for the three months and the nine months ended September 30, 2018 when compared to the same periods in 2017 was primarily attributable to net disposition activity completed since the beginning of 2017 amounting to approximately $760 million of properties, including the sales of Two Independence Square in Washington, D.C., in July 2017 and a 14-property portfolio in January 2018. In addition to the explanations provided above, the per share results for 2018 were positively influenced by the amount of shares of Company stock repurchased through Piedmont's board-approved stock repurchase program over the trailing twelve month period, amounting to approximately 17.3 million shares, or about $323 million, of repurchases.

Core funds from operations (Core FFO) for the quarter ended September 30, 2018 was $57.6 million, or $0.45 per share (diluted), compared to $60.8 million, or $0.42 per share (diluted), for the same quarter in 2017. Core FFO for the nine months ended September 30, 2018 was $168.7 million, or $1.29 per share (diluted), compared to $193.5 million, or $1.33 per share (diluted), for the same period in 2017. The decrease in dollar amount of Core FFO for the three months and the nine months ended September 30, 2018 when compared to the same periods in 2017 was primarily attributable to the net disposition activity described above for changes in FFO. The per share results for 2018 were positively influenced by the Company's share repurchase activity described above for changes in FFO per share.

Adjusted funds from operations (AFFO) for the quarter ended September 30, 2018 was $45.5 million, compared to $52.4 million for the same quarter in 2017. AFFO for the nine months ended September 30, 2018 was $130.7 million, compared to $157.4 million for the same period in 2017. The decrease in AFFO for the three months and the nine months ended September 30, 2018 when compared to the same periods in 2017 was primarily due to the net disposition activity described above for changes in FFO and Core FFO in addition to an increase in capital expenditures in 2018 attributable to recent leasing activity.

Operations and Leasing

Within its portfolio, Piedmont has 53 office properties located primarily in eight major office markets in the eastern portion of the United States and one re-development property. The Company's redevelopment property is Two Pierce Place, an approximately 487,000 square foot office property located in the Chicago market. Due to its redevelopment status, this property is excluded from Piedmont's in-service operating portfolio for the purposes of statistical reporting throughout this supplemental report. For additional information regarding this redevelopment project, please refer to page 38 of this report.

On a square footage leased basis, our total in-service office portfolio was 93.2% leased as of September 30, 2018, as compared to 89.7% at the beginning of the year and 89.2% a year earlier. Please refer to page 27 for additional leased percentage information.

The weighted average remaining lease term of our in-service portfolio was 6.7 years(2) as of September 30, 2018 as compared to 6.5 years at December 31, 2017. Our weighted average adjusted Annualized Lease Revenue(3) per square foot for our in service portfolio was $35.69 as of September 30, 2018.

(1)
FFO, Core FFO and AFFO are supplemental non-GAAP financial measures. See page 39 for definitions of these non-GAAP financial measures, and pages 15 and 41 for reconciliations of FFO, Core FFO and AFFO to Net Income.
(2)
Remaining lease term (after taking into account leases for vacant spaces which had been executed but not commenced as of September 30, 2018) is weighted based on Annualized Lease Revenue, as defined on page 39.
(3)
Annualized Lease Revenue is adjusted for buildings at which tenants pay operating expenses directly to include such operating expenses as if they were paid by the Company and reimbursed by the tenants as under a typical net lease structure, thereby reflecting the true gross rental rate for those buildings.

5




During the three months ended September 30, 2018, the Company completed approximately 613,000 square feet of total leasing. Of the total leasing activity completed during the quarter, we signed new tenant leases for approximately 475,000 square feet. During the nine months ended September 30, 2018, we completed approximately 1,378,000 square feet of leasing for our consolidated office properties, including approximately 764,000 square feet of new tenant leases. The average committed capital for tenant improvements and leasing commissions per square foot per year of lease term for all leasing activity completed during the nine months ended September 30, 2018 (net of commitment expirations during the period) was $5.61 (see page 33).

Of particular significance during the third quarter of 2018 was the Company's completion of a 301,000 square foot, full-building lease at Enclave Place, Piedmont's 11-story, ground-up development located within a deed-restricted and architecturally-controlled office park in the Energy Corridor of Houston, TX. The approximately 17-year lease with an international energy services company has the potential to commence at the beginning of the third quarter of 2019. See the Development / Redevelopment section below for additional information.

During the three months ended September 30, 2018, we executed eleven leases greater than 10,000 square feet at our consolidated office properties. Information on those leases is set forth below.
Tenant
Property
Property Location
Square Feet
Leased
Expiration
Year
Lease Type
Transocean Offshore Deepwater Drilling, Inc.
Enclave Place
Houston, TX
300,906
2036
New
Reservoir International, LLC
Arlington Gateway
Arlington, VA
29,379
2023
New
Children's Hospital Los Angeles
800 North Brand Boulevard
Glendale, CA
25,897
2026
Expansion
Morgan Stanley Smith Barney Financing, LLC
Glenridge Highlands Two
Atlanta, GA
18,286
2024
Renewal
R-T Specialty, LLC
Glenridge Highlands Two
Atlanta, GA
17,414
2026
Renewal / Expansion
Rapid7, Inc.
Arlington Gateway
Arlington, VA
16,527
2024
New
Switch Commerce, LLC
6565 North MacArthur Boulevard
Irving, TX
15,492
2024
Renewal
TZ Insurance Solutions, LLC
80 Central Street
Boxborough, MA
15,489
2029
New
Global Connections to Employment, Inc.
3100 Clarendon Boulevard
Arlington, VA
15,267
2028
New
Health Catalyst, Inc.
Crescent Ridge II
Minnetonka, MN
12,796
2024
New
Applied Predictive Technologies, Inc.
4250 North Fairfax Drive
Arlington, VA
12,186
2028
Expansion

At the end of the third quarter of 2018, there was one tenant whose lease individually contributed greater than 1% in Annualized Lease Revenue expiring during the eighteen month period following September 30, 2018. Information regarding the leasing status of the space associated with this tenant's lease is presented below.
Tenant
Property
Property Location
Net
Square
Footage
Expiring
Net Percentage of
Current Quarter
Annualized Lease
Revenue Expiring
(%)
Expiration
Current Leasing Status
State of New York
60 Broad Street
New York, NY
480,708
5.1%
Q1 2019
The Company continues to be in advanced discussions with the tenant regarding a long-term lease renewal and potential modest square footage contraction.






6




Future Lease Commencements and Abatements

As of September 30, 2018, our overall leased percentage was 93.2% and our economic leased percentage was 86.6%. The difference between overall leased percentage and economic leased percentage is attributable to two factors:

1)
leases which have been contractually entered into for currently vacant spaces but have not yet commenced (amounting to 547,197 square feet of leases as of September 30, 2018, or 3.4% of the portfolio); and
2)
leases which have commenced but are within rental abatement periods (amounting to 758,869 square feet of leases as of September 30, 2018, or a 3.2% impact to leased percentage on an economic basis).

The gap between reported leased percentage and economic leased percentage will fluctuate over time as (1) new leases are signed for vacant spaces (with the gap this quarter being heavily influenced by the Transocean lease for 301,000 square feet of vacant space at Enclave Place in Houston, TX, attributable for 1.9% of the 6.6% gap), (2) abatements associated with existing or newly executed leases commence and expire (see page 8 for more detail on existing large leases with abatements), and/or (3) properties are bought and sold. Consequently, the absolute level of economic leased percentage and its growth over time are the primary management metrics and not the spread between reported and economic leased percentages at any one point in time. As additional leasing is completed for vacant space and the overall portfolio leased percentage increases, the economic leased percentage will naturally follow as new leases commence and any related abatement periods expire.

Piedmont has leases with many large corporate office space users. The average size of lease in the Company's portfolio is approximately 20,000 square feet. Due to the large size and length of term of new leases, Piedmont typically signs leases several months in advance of their anticipated lease commencement dates. Presented below is a schedule of uncommenced leases greater than 50,000 square feet and their anticipated commencement dates. Lease renewals are excluded from this schedule.
Tenant
Property
Property Location
Square Feet
Leased
Space Status
Estimated
Commencement
Date
New /
Expansion
Transocean Offshore Deepwater Drilling, Inc.
Enclave Place
Houston, TX
300,906
Vacant
Q3 2019
New
salesforce.com (formerly Demandware, Inc.)
5 Wall Street
Burlington, MA
127,408
Not Vacant
Q4 2019 (75,495 SF)
Q3 2021 (51,913 SF)
New
Children's Hospital Los Angeles
800 North Brand Boulevard
Glendale, CA
76,182
Not Vacant
Q2 2021
New
Schlumberger Technology Corporation
1430 Enclave Parkway
Houston, TX
63,145
Not Vacant
Q1 2019
New (1)
Gartner, Inc.
6011 Connection Drive
Irving, TX
53,952
Vacant
Q3 2019 (27,198 SF)(2) 
Q3 2020 (26,754 SF)
New






(1)
During the second quarter of 2018, Schlumberger signed a 225,726 square foot lease renewal and expansion. The expansion component is comprised of 63,145 square feet and is the portion of the lease presented on this line. Schlumberger currently subleases the 63,145 square feet from Technip. Schlumberger's direct lease for the space will commence on January 1, 2019, immediately following the expiration of Technip's lease.
(2)
The commencement of the Gartner lease occurs in three phases. The first phase of 98,134 square feet commenced during the third quarter of 2018 and is receiving ten months of rental abatements. The other two phases presented in this table have not yet commenced and will not receive any rental abatements. The tenant has options to accelerate the commencement dates for the second and third phases and may choose to do so.
 
 


7



New leases frequently provide rental abatement concessions to tenants and these abatements typically occur at the beginning of the leases. The currently reported cash net operating income and AFFO understate the Company's long-term cash generation ability due to several leases being in abatement periods. Presented below is a schedule of leases with abatements of 50,000 square feet or greater that are either currently under abatement or will be so within the next twelve months. There were no abatements of 50,000 square feet or greater that expired during the third quarter of 2018.

Abatements Expired During Quarter
None of 50,000 square feet or greater.

Current / Future Abatements
Tenant
Property
Property Location
Abated Square Feet
Lease Commencement Date
Remaining Abatement Schedule
Lease Expiration
International Food Policy Research Institute
1201 Eye Street
Washington, DC
101,937
Q2 2017
May 2018 through April 2019
Q2 2029
United States of America
(Social Security Administration Commissioner)
One Independence Square
Washington, DC
52,720
Q2 2018
June 2018 through June 2019 (1)
Q2 2028
Gartner, Inc.
6011 Connection Drive
Irving, TX
98,134
Q3 2018
September 2018 through June 2019
Q2 2034
Norris, McLaughlin & Marcus
400 Bridgewater Crossing
Bridgewater, NJ
61,642
Q4 2016
October through December 2018; November and December 2019
Q4 2029
Holland & Knight, LLP
SunTrust Center
Orlando, FL
50,655
Q4 2018 (2)
December 2018 through February 2019
Q1 2024
Schlumberger Technology Corporation
1430 Enclave Parkway
Houston, TX
225,726
Q1 2019
January through June 2019
Q4 2028
District of Columbia
(Department of Disability Services)
One Independence Square
Washington, DC
101,982
Q2 2016
June 2019 and June 2020
Q1 2028
Transocean Offshore Deepwater Drilling, Inc.
Enclave Place
Houston, TX
300,906
Q3 2019
July 2019 through April 2021 *
Q2 2036

* The tenant's existing lease at another building in Houston terminates in 2021. The tenant desired to have access to its new space at Enclave Place on an accelerated basis without duplicative rental charges. Piedmont was able to negotiate into the lease other economic and credit-supporting terms as a result of this longer potential free rent period.


Financing and Capital Activity

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

Dispositions
On August 31, 2018, Piedmont entered into a binding contract to sell 800 North Brand Boulevard, a 21-story, 90% leased, 527,000 square foot office building located in Glendale, CA. The sale price is $160.0 million, or approximately $303 per square foot. The sale is scheduled to close during the fourth quarter of 2018 and will allow the Company to:
reduce the number of projects owned outside of its eight strategic operating markets to two; and
dispose of its last remaining West Coast property.
The two remaining projects that Piedmont owns outside of its eight strategic markets currently have a combined leased percentage of 100% and a weighted average lease term remaining of over 13 years.

(1)
The rental abatement commenced on an estimated date of June 19, 2018 and will continue for a period of one year.
(2)
Represents the commencement date of the renewal term.
 
 
 
 


8



Acquisitions
There were no acquisitions completed during the quarter ended September 30, 2018.

Information regarding property transaction activity effected after the end of the third quarter of 2018 can be found under the Subsequent Events heading below. For additional information on acquisitions and dispositions completed over the previous eighteen months, please refer to page 37.

Development / Redevelopment
The Company had no ground-up developments underway as of September 30, 2018. During the third quarter of 2018, the Company continued a nearly $14 million redevelopment (with approximately $13.4 million already spent) at Two Pierce Place in Itasca, IL. The project includes a renovation of the property's lobby and exterior plaza, an elevator modernization, the enhancement and addition of building amenities, and the acquisition and improving of additional land to increase the building's parking ratio.

As recently announced, Piedmont completed a 301,000 square foot, full-building lease at the newly constructed Enclave Place in Houston, TX, during the third quarter of 2018. The nearly 17-year lease was signed with an international energy services company and the location will function as the tenant’s US headquarters. The estimated cash and GAAP returns on cost after all lease-related obligations are funded are in the low 7% range. While the yields on cost achieved are less than that originally underwritten as a result of the recent challenging leasing conditions in Houston, the strengthening of oil market fundamentals in 2018 has led to increased office market activity - and allowed the company to complete the long-term lease with an internationally-known tenant at positive economics relative to recent expectations.
Additional detail on the Company's developable land parcels, all of which are located adjacent to existing Piedmont properties, as well as information on the current redevelopment project, can be found on page 38.

Finance
On September 28, 2018, Piedmont closed on a new $500 million unsecured line of credit. The new revolver replaced the Company's prior credit facility of equal size providing an extended term and a reduced credit spread (thereby, reducing the all-in interest rate under the new facility relative to the prior facility). The new revolver has a term of four years, with two six-month extension options, for a total potential term of five years; the initial maturity date of September 30, 2022, is approximately three and one-quarter years beyond that of the prior facility. The unsecured line of credit has the option to bear interest at varying levels based on (i) the London Interbank Offered Rate (“LIBOR”), or (ii) the Base Rate, defined as the greater of the prime rate, the federal funds rate plus 0.5%, or LIBOR for a one-month period plus one percent. The interest rate for LIBOR-based loans is LIBOR + 90.0 basis points and the annual facility fee is 20.0 basis points. The facility is structured to allow for an increase in size up to a total commitment of $1.0 billion at the election of Piedmont; however, no existing bank has an obligation to participate in any such increase. The loan syndicate consists of a total of 13 major banks. The Company's previous revolver was terminated concurrently with the closing of the new facility.

On September 28, 2018, Piedmont closed on an extension of the $300 million unsecured term loan that was originally put in place in 2011 and amended and extended in 2014. The maturity date of the loan was extended approximately 22 months from January 15, 2020 to November 30, 2021. Other than extending the Company's next significant debt maturity, a key reason for the extension was to enable Piedmont to maximize available future refinancing options under its current debt maturity schedule, allowing for the consideration of 5-, 7-, or 10-year debt structures when the loan matures in 2021 all while maintaining a laddered debt maturity profile. In addition to the extension of the maturity date, the applicable credit spread was reduced by 15 basis points (thereby, reducing the all-in interest rate under the facility relative to the prior structure). The interest rate options available under the credit facility are all floating interest rates. However, the previously existing interest rate swap agreements will continue to be applied to this loan, resulting in an effective interest rate of 3.20% through the termination date of the swaps on January 15, 2020, assuming no credit rating change for the Company. No additional funds were borrowed under the facility through this transaction.

As of September 30, 2018, our ratio of debt to total gross assets was 37.8%. This debt ratio is based on total principal amount outstanding for our various loans at September 30, 2018.

As of September 30, 2018, our average net debt to Core EBITDA ratio was 5.8 x, and the same measure at December 31, 2017 was 5.6 x.
Stock Repurchase Program
No common stock repurchases were made during the third quarter of 2018. Since the stock repurchase program began in December 2011, the Company has repurchased approximately 45.8 million shares at an average price of $17.74 per share, or approximately $812.7 million in aggregate (before the consideration of transaction costs). As of quarter end, Board-approved capacity remaining for additional repurchases totaled approximately $123.5 million under the stock repurchase plan. Repurchases of stock under the program will be made at the Company's discretion and will depend on market conditions, other investment opportunities and other factors that the Company deems relevant.

9




Dividend
On August 1, 2018, the Board of Directors of Piedmont declared a dividend for the third quarter of 2018 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on August 31, 2018. The dividend was paid on September 21, 2018. The Company's dividend payout percentage (for dividends declared) for the nine months ended September 30, 2018 was 49% of Core FFO and 63% of AFFO.

Subsequent Events

On October 25, 2018, Piedmont completed the purchase of 9320 Excelsior Boulevard, a 268,000 square foot, 100% leased, seven-story, Class AA office building with a three-level parking structure (offering 4.6 spaces per 1,000 square feet of space), located in Hopkins, MN, for $49.4 million, or approximately $184 per square foot. The 2010-vintage building is currently leased and occupied by an investment-grade tenant through 2023; however, the investment offers upside potential as the sole tenant desires to rationalize its space usage, yet it has no contractual rights to do so. This situation provides Piedmont with time to consider various restructuring alternatives to find a solution that will work for both the Company and the tenant and that will provide a compelling risk-adjusted return for investors. The property is situated within a park-like office development at the northeast corner of Highway 169 and Excelsior Boulevard, between the prominent suburbs of Minnetonka and Edina, with easy accessibility to Interstates 394 and 494, offering excellent connectivity to the entire Minneapolis metropolitan area. The asset complements the Company's existing Minneapolis portfolio in terms of physical quality and location, allowing both marketing and operating synergies. The acquisition was completed at an estimated discount to replacement cost of almost 50% and estimated GAAP and cash yields of approximately 10%.

On October 30, 2018, the Board of Directors of Piedmont declared a dividend for the fourth quarter of 2018 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on November 30, 2018. The dividend is expected to be paid on January 3, 2019.

Guidance for 2018

The following financial guidance for calendar year 2018 has been narrowed and is based upon year-to-date results and management's expectations at this time, inclusive of the $160 million sale of 800 North Brand Boulevard in Glendale, CA, as well as the acquisition of 9320 Excelsior Boulevard in Hopkins, MN.
 
Low
 
High
 
 
 
 
Net Income
$95 million
to
$97 million
Add:
 
 
 
         Depreciation
109 million
to
111 million
         Amortization
61 million
to
62 million
Less:
 
 
 
         Gain on Sale of Real Estate Assets
(45) million
to
(46) million
NAREIT Funds from Operations applicable to Common Stock
$220 million
 
$224 million
NAREIT Funds from Operations per diluted share
$1.68
to
$1.71
 
 
 
 
Less:
 
 
 
         Loss on Extinguishment of Debt
$2 million
to
$2 million
Core Funds From Operations
$222 million
to
$226 million
Core Funds from Operations per diluted share
$1.70
to
$1.73

These estimates reflect management’s view of current market conditions and incorporate certain economic and operational assumptions and projections. Actual results could differ from these estimates. Note that individual quarters may fluctuate on both a cash basis and an accrual basis due to the timing of lease commencements and expirations, abatement periods, repairs and maintenance, capital expenditures, capital markets activities, seasonal general and administrative expenses, accrued potential performance-based compensation expenses, and one-time revenue or expense events. In addition, the Company’s guidance is based on information available to management as of the date of this supplemental report.


10



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

 
September 30, 2018

June 30, 2018

March 31, 2018

December 31, 2017

September 30, 2017
Assets:

 
 
 
 
 
 
 
 
Real estate, at cost:

 
 
 
 
 
 
 
 
Land assets
$
523,994

 
$
523,994

 
$
523,994

 
$
521,186

 
$
516,828

Buildings and improvements
3,107,025

 
3,090,727

 
3,086,441

 
3,053,416

 
3,028,371

Buildings and improvements, accumulated depreciation
(797,222
)
 
(772,106
)
 
(753,445
)
 
(728,134
)
 
(702,968
)
Intangible lease asset
149,795

 
150,205

 
158,338

 
176,950

 
171,965

Intangible lease asset, accumulated amortization
(84,268
)
 
(79,934
)
 
(83,063
)
 
(99,145
)
 
(93,265
)
Construction in progress
22,753

 
17,802

 
15,197

 
11,681

 
7,560

Real estate assets held for sale, gross
174,352

 
174,351

 
173,526

 
674,976

 
720,400

Real estate assets held for sale, accumulated depreciation & amortization
(60,434
)
 
(59,586
)
 
(58,315
)
 
(226,188
)
 
(223,137
)
Total real estate assets
3,035,995

 
3,045,453

 
3,062,673

 
3,384,742

 
3,425,754

Investments in and amounts due from unconsolidated joint ventures

 

 
10

 
10

 
49

Cash and cash equivalents
6,807

 
8,944

 
6,729

 
7,382

 
36,108

Tenant receivables, net of allowance for doubtful accounts
10,522

 
9,323

 
12,040

 
12,139

 
12,802

Straight line rent receivable
168,745

 
164,237

 
159,289

 
154,384

 
148,071

Notes receivable
3,200

 
3,200

 
3,200

 

 

Escrow deposits and restricted cash
1,374

 
1,415

 
1,464

 
1,373

 
1,260

Prepaid expenses and other assets
31,470

 
27,978

 
23,779

 
21,222

 
26,551

Goodwill
98,918

 
98,918

 
98,918

 
98,918

 
98,918

Interest rate swap
4,069

 
2,679

 
725

 
688

 
34

Deferred lease costs, less accumulated amortization
250,038

 
248,853

 
253,460

 
257,916

 
249,362

Other assets held for sale
12,752

 
12,990

 
13,403

 
61,193

 
61,741

Total assets
$
3,623,890

 
$
3,623,990

 
$
3,635,690

 
$
3,999,967

 
$
4,060,650

Liabilities:
 
 
 
 
 
 
 
 
 
Unsecured debt, net of discount
$
1,524,618

 
$
1,529,856

 
$
1,498,339

 
$
1,535,311

 
$
1,511,663

Secured debt
190,753

 
190,990

 
191,305

 
191,616

 
191,923

Accounts payable, accrued expenses, and accrued capital expenditures
109,087

 
94,215

 
83,786

 
216,653

 
108,120

Deferred income
27,450

 
25,532

 
29,751

 
29,582

 
29,970

Intangible lease liabilities, less accumulated amortization
37,986

 
40,341

 
42,699

 
38,458

 
40,662

Interest rate swaps

 

 
222

 
1,478

 
3,915

Other liabilities held for sale

 

 

 
380

 
402

Total liabilities
$
1,889,894

 
$
1,880,934

 
$
1,846,102

 
$
2,013,478

 
$
1,886,655

Stockholders' equity:
 
 
 
 
 
 
 
 
 
Common stock
1,284

 
1,284

 
1,300

 
1,424

 
1,453

Additional paid in capital
3,682,209

 
3,681,127

 
3,680,241

 
3,677,360

 
3,676,706

Cumulative distributions in excess of earnings
(1,964,135
)
 
(1,953,291
)
 
(1,904,404
)
 
(1,702,281
)
 
(1,511,428
)
Other comprehensive loss
12,851

 
12,141

 
10,639

 
8,164

 
5,400

Piedmont stockholders' equity
1,732,209

 
1,741,261

 
1,787,776

 
1,984,667

 
2,172,131

Non-controlling interest
1,787

 
1,795

 
1,812

 
1,822

 
1,864

Total stockholders' equity
1,733,996

 
1,743,056

 
1,789,588

 
1,986,489

 
2,173,995

Total liabilities, redeemable common stock and stockholders' equity
$
3,623,890

 
$
3,623,990

 
$
3,635,690

 
$
3,999,967

 
$
4,060,650

Common stock outstanding at end of period
128,371

 
128,371

 
130,025

 
142,359

 
145,295



11



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

 
 
Three Months Ended
 
 
9/30/2018
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
Revenues:
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
101,348

 
$
101,478

 
$
101,454

 
$
109,726

 
$
108,868

Tenant reimbursements
 
23,170

 
22,047

 
22,994

 
24,764

 
24,253

Property management fee revenue
 
368

 
382

 
309

 
356

 
454

Other property related income
 
4,822

 
5,267

 
5,143

 
4,598

 
4,012

 
 
129,708

 
129,174

 
129,900

 
139,444

 
137,587

Expenses:
 
 
 
 
 
 
 
 
 
 
Property operating costs
 
49,679

 
52,637

 
51,859

 
55,806

 
54,518

Depreciation
 
26,852

 
27,115

 
27,145

 
28,461

 
30,000

Amortization
 
14,840

 
15,245

 
16,733

 
17,515

 
18,123

Impairment loss on real estate assets (1)
 

 

 

 
46,461

 

General and administrative
 
6,677

 
8,258

 
6,552

 
7,451

 
6,190

 
 
98,048

 
103,255

 
102,289

 
155,694

 
108,831

Real estate operating income
 
31,660

 
25,919

 
27,611

 
(16,250
)
 
28,756

Other income / (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(15,849
)
 
(15,687
)
 
(13,758
)
 
(15,463
)
 
(16,183
)
Other income / (expense)
 
303

 
731

 
446

 
429

 
290

Equity in income / (loss) of unconsolidated joint ventures
 

 

 

 
(27
)
 
3,754

Gain / (loss) on extinguishment of debt
 

 

 
(1,680
)
 

 

 
 
(15,546
)
 
(14,956
)
 
(14,992
)
 
(15,061
)
 
(12,139
)
Income from continuing operations
 
16,114

 
10,963

 
12,619

 
(31,311
)
 
16,617

Discontinued operations:
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss
 

 

 

 

 

Gain / (loss) on sale of properties
 

 

 

 

 

Income / (loss) from discontinued operations
 

 

 

 

 

Gain / (loss) on sale of real estate (2)
 

 
(23
)
 
45,209

 
(77
)
 
109,512

Net income
 
16,114

 
10,940

 
57,828

 
(31,388
)
 
126,129

Less: Net (income) / loss attributable to noncontrolling interest
 

 
2

 
2

 
5

 
4

Net income attributable to Piedmont
 
$
16,114

 
$
10,942

 
$
57,830

 
$
(31,383
)
 
$
126,133

Weighted average common shares outstanding - diluted
 
128,819

 
128,701

 
136,183

 
144,503

 
145,719

Net income per share available to common stockholders - diluted
 
$
0.13

 
$
0.09

 
$
0.42

 
$
(0.21
)
 
$
0.87

Common stock outstanding at end of period
 
128,371

 
128,371

 
130,025

 
142,359

 
145,295

(1)
The impairment loss on real estate assets recorded in the fourth quarter of 2017 was related to certain properties within the 14-property portfolio disposition that closed at the beginning of 2018. Accounting standards require that any anticipated loss from an asset sale be recorded as an impairment charge when the likelihood of a sale becomes probable. Conversely, any gain on the sale of an asset is not recorded until the sale transaction closes. Therefore, during the fourth quarter of 2017, Piedmont recorded impairment losses associated with the 14-property portfolio disposition totaling $46.5 million; however, it recorded a nearly equal amount of gains relating to other properties within the same transaction totaling $45.2 million during the first quarter of 2018.
(2)
The gain on sale of real estate reflected in the first quarter of 2018 was related to certain assets within the 14-property portfolio sale on which the company recorded a total of $45.2 million in gains. The gain on sale of real estate reflected in the third quarter of 2017 was related to the sale of Two Independence Square in Washington, DC, on which the Company recorded a $109.5 million gain.

12



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

 
Three Months Ended
 
Nine Months Ended
 
9/30/2018
9/30/2017
 
Change ($)
Change (%)
 
9/30/2018
9/30/2017
 
Change ($)
Change (%)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
101,348

$
108,868

 
$
(7,520
)
(6.9
)%
 
$
304,280

$
345,399

 
$
(41,119
)
(11.9
)%
Tenant reimbursements
23,170

24,253

 
(1,083
)
(4.5
)%
 
68,211

73,375

 
(5,164
)
(7.0
)%
Property management fee revenue
368

454

 
(86
)
(18.9
)%
 
1,059

1,379

 
(320
)
(23.2
)%
Other property related income
4,822

4,012

 
810

20.2
 %
 
15,232

14,576

 
656

4.5
 %
 
129,708

137,587

 
(7,879
)
(5.7
)%
 
388,782

434,729

 
(45,947
)
(10.6
)%
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Property operating costs
49,679

54,518

 
4,839

8.9
 %
 
154,175

166,635

 
12,460

7.5
 %
Depreciation
26,852

30,000

 
3,148

10.5
 %
 
81,112

90,827

 
9,715

10.7
 %
Amortization
14,840

18,123

 
3,283

18.1
 %
 
46,818

57,852

 
11,034

19.1
 %
General and administrative
6,677

6,190

 
(487
)
(7.9
)%
 
21,487

21,868

 
381

1.7
 %
 
98,048

108,831

 
10,783

9.9
 %
 
303,592

337,182

 
33,590

10.0
 %
Real estate operating income
31,660

28,756

 
2,904

10.1
 %
 
85,190

97,547

 
(12,357
)
(12.7
)%
Other income / (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(15,849
)
(16,183
)
 
334

2.1
 %
 
(45,294
)
(52,661
)
 
7,367

14.0
 %
Other income / (expense)
303

290

 
13

4.5
 %
 
1,480

228

 
1,252

549.1
 %
Equity in income / (loss) of unconsolidated joint ventures

3,754

 
(3,754
)
(100.0
)%
 

3,872

 
(3,872
)
(100.0
)%
Gain / (loss) on extinguishment of debt


 



 
(1,680
)

 
(1,680
)
(100.0
)%
 
(15,546
)
(12,139
)
 
(3,407
)
(28.1
)%
 
(45,494
)
(48,561
)
 
3,067

6.3
 %
Income from continuing operations
16,114

16,617

 
(503
)
(3.0
)%
 
39,696

48,986

 
(9,290
)
(19.0
)%
Discontinued operations:
 
 
 
 
 
 
 
 
 
 
 
Operating income, excluding impairment loss


 



 


 



Gain / (loss) on sale of properties


 



 


 



Income / (loss) from discontinued operations


 



 


 



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

109,512

 
(109,512
)
(100.0
)%
 
45,186

115,951

 
(70,765
)
(61.0
)%
Net income
16,114

126,129

 
(110,015
)
(87.2
)%
 
84,882

164,937

 
(80,055
)
(48.5
)%
Less: Net (income) / loss attributable to noncontrolling interest

4

 
(4
)
(100.0
)%
 
4

10

 
(6
)
(60.0
)%
Net income attributable to Piedmont
$
16,114

$
126,133

 
$
(110,019
)
(87.2
)%
 
$
84,886

$
164,947

 
$
(80,061
)
(48.5
)%
Weighted average common shares outstanding - diluted
128,819

145,719

 
 
 
 
131,187

145,680

 
 
 
Net income per share available to common stockholders - diluted
$
0.13

$
0.87

 
 
 
 
$
0.65

$
1.13

 
 
 
Common stock outstanding at end of period
128,371

145,295

 
 
 
 
128,371

145,295

 
 
 
(1)
The gain on sale of real estate for the nine months ended September 30, 2018 was primarily related to certain assets within the 14-property portfolio sale on which the Company recorded a total of $45.2 million in gains. The gain on sale of real estate for the three months and the nine months ended September 30, 2017 was primarily related to the sale of Two Independence Square in Washington, DC, on which the Company recorded a $109.5 million gain.

13



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

This section of our supplemental report includes non-GAAP financial measures, including, but not limited to, Earnings Before Interest, Taxes, Depreciation, and Amortization for real estate (EBITDAre), Core Earnings Before Interest, Taxes, Depreciation, and Amortization (Core EBITDA), Funds from Operations (FFO), Core Funds from Operations (Core FFO), and Adjusted Funds from Operations (AFFO). Definitions of these non-GAAP measures are provided on page 39 and reconciliations are provided beginning on page 41.
 
Three Months Ended
Selected Operating Data
9/30/2018
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
 
 
 
 
 
 
 
 
 
 
Percent leased (1)
93.2
%
 
90.6
%
 
91.3
%
 
89.7
%
 
89.2
%
 
Percent leased - economic (1) (2)
86.6
%
 
85.7
%
 
85.9
%
 
82.1
%
 
83.4
%
 
Rental income
$101,348
 
$101,478
 
$101,454
 
$109,726
 
$108,868
 
Total revenues
$129,708
 
$129,174
 
$129,900
 
$139,444
 
$137,587
 
Total operating expenses
$98,048
 
$103,255
 
$102,289
 
$155,694
 
$108,831
 
Core EBITDA
$73,635

$68,986

$71,912

$76,509

$77,242
 
Core FFO applicable to common stock
$57,610

$53,088

$57,986

$60,896

$60,819
 
Core FFO per share - diluted
$0.45

$0.41

$0.43

$0.42

$0.42
 
AFFO applicable to common stock
$45,505

$39,388

$45,840

$42,948

$52,370
 
Gross regular dividends (3)
$26,958
 
$26,950
 
$28,284
 
$30,276
 
$30,549
 
Regular dividends per share
$0.21
 
$0.21
 
$0.21
 
$0.21
 
$0.21
 
Gross special dividends (3) (4)
$0
 
$0
 
$0
 
$71,367
 
$0
 
Special dividends per share
NA

 
NA

 
NA
 
$0.50
 
NA

 
Selected Balance Sheet Data
 
 
 
 
 
 
 
 
 
 
Total real estate assets, net
$3,035,995

$3,045,453

$3,062,673

$3,384,742

$3,425,754
 
Total assets
$3,623,890

$3,623,990

$3,635,690

$3,999,967

$4,060,650
 
Total liabilities
$1,889,894

$1,880,934

$1,846,102

$2,013,478

$1,886,655
 
Ratios & Information for Debt Holders
 
 
 
 
 
 
 
 
 
 
Core EBITDA margin (5)
56.8
%
 
53.4
%
 
55.4
%
 
54.9
%
 
56.1
%
 
Fixed charge coverage ratio (6)
4.5 x

 
4.2 x

 
5.1 x

 
4.9 x

 
4.7 x

 
Average net debt to Core EBITDA (7)
5.8 x

 
6.2 x

 
5.4 x

 
5.6 x

 
5.6 x

 
Total gross real estate assets
$3,977,919
 
$3,957,079
 
$3,957,496
 
$4,438,209
 
$4,445,124
 
Net debt (8)
$1,716,852
 
$1,717,836
 
$1,689,241
 
$1,724,915
 
$1,673,535
 
(1)
Please refer to page 27 for additional leased percentage information.
(2)
Economic leased percentage excludes the square footage associated with executed but not commenced leases for currently vacant spaces and the square footage associated with tenants receiving rental abatements (after proportional adjustments for tenants receiving only partial rental abatements). Due to variations in rental abatement structures whereby some abatements are provided for the first few months of each lease year as opposed to being provided entirely at the beginning of the lease, there will be variability to the economic leased percentage over time as abatements commence and expire. Please see the Future Lease Commencements and Abatements section of Financial Highlights for details on near-term abatements for large leases.
(3)
Dividends are reflected in the quarter in which they were declared.
(4)
On December 13, 2017, the Board of Directors of Piedmont declared a special dividend in the amount of $0.50 per common share outstanding to stockholders of record as of the close of business on December 26, 2017 as a result of taxable gains realized on property sales occurring during 2017.
(5)
Core EBITDA margin is calculated as Core EBITDA divided by total revenues (including revenues associated with discontinued operations).
(6)
The fixed charge coverage ratio is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. The Company had no preferred dividends during any of the periods presented; the Company had capitalized interest of $374,868 for the quarter ended September 30, 2018, $346,488 for the quarter ended June 30, 2018, $106,873 for the quarter ended March 31, 2018, $37,908 for the quarter ended December 31, 2017, and $37,259 for the quarter ended September 30, 2017; the Company had principal amortization of $161,405 for the quarter ended September 30, 2018, $239,331 for the quarter ended June 30, 2018, $236,041 for the quarter ended March 31, 2018, $232,796 for the quarter ended December 31, 2017, and $229,596 for the quarter ended September 30, 2017.
(7)
For the purposes of this calculation, we annualize the period's Core EBITDA and use the average daily balance of debt outstanding during the period, less cash and cash equivalents and escrow deposits and restricted cash as of the end of the period.
(8)
Net debt is calculated as the total principal amount of debt outstanding minus cash and cash equivalents and escrow deposits and restricted cash as of the end of the period.

14



Piedmont Office Realty Trust, Inc.
Funds From Operations, Core Funds From Operations and Adjusted Funds From Operations
Unaudited (in thousands except for per share data)


 
 
Three Months Ended
 
Nine Months Ended
 
 
9/30/2018

9/30/2017
 
9/30/2018
 
9/30/2017
 
 
 
 
 
 
 
 
 
GAAP net income applicable to common stock
 
$
16,114

 
$
126,133

 
$
84,886

 
$
164,947

Depreciation (1) (2)
 
26,668

 
29,774

 
80,531

 
90,335

Amortization (1)
 
14,828

 
18,107

 
46,773

 
57,828

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

 
(113,195
)
 
(45,186
)
 
(119,634
)
NAREIT funds from operations applicable to common stock
 
57,610

 
60,819

 
167,004

 
193,476

Adjustments:
 
 
 
 
 
 
 
 
Acquisition costs
 

 

 

 
6

Loss / (gain) on extinguishment of debt
 

 

 
1,680

 

Core funds from operations applicable to common stock
 
57,610

 
60,819

 
168,684

 
193,482

Adjustments:
 
 
 
 
 
 
 
 
Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on senior notes
 
550

 
634

 
1,561

 
1,892

Depreciation of non real estate assets
 
176

 
218

 
558

 
597

Straight-line effects of lease revenue (1)
 
(3,210
)
 
(3,602
)
 
(11,489
)
 
(15,939
)
Stock-based and other non-cash compensation expense
 
1,661

 
1,250

 
4,462

 
4,202

Amortization of lease-related intangibles (1)
 
(2,006
)
 
(1,720
)
 
(5,636
)
 
(4,890
)
Acquisition costs
 

 

 

 
(6
)
Non-incremental capital expenditures (3)
 
(9,276
)
 
(5,229
)
 
(27,407
)
 
(21,974
)
Adjusted funds from operations applicable to common stock
 
$
45,505

 
$
52,370

 
$
130,733

 
$
157,364

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
 
128,819

 
145,719

 
131,187

 
145,680

 
 
 
 
 
 
 
 
 
Funds from operations per share (diluted)
 
$
0.45

 
$
0.42

 
$
1.27

 
$
1.33

Core funds from operations per share (diluted)
 
$
0.45

 
$
0.42

 
$
1.29

 
$
1.33

 
 
 
 
 
 
 
 
 
Common stock outstanding at end of period
 
128,371


145,295

 
128,371

 
145,295


(1)
Includes our proportionate share of amounts attributable to consolidated properties and unconsolidated joint ventures.
(2)
Excludes depreciation of non real estate assets.
(3)
Non-incremental capital expenditures are defined on page 39.

15



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

 
Three Months Ended
 
Nine Months Ended
 
9/30/2018
 
9/30/2017
 
9/30/2018
 
9/30/2017
Net income attributable to Piedmont
$
16,114

 
$
126,133

 
$
84,886

 
$
164,947

Net income / (loss) attributable to noncontrolling interest

 
(4
)
 
(4
)
 
(10
)
Interest expense (1)
15,849

 
16,183

 
45,294

 
52,661

Depreciation (1)
26,844

 
29,993

 
81,090

 
90,933

Amortization (1)
14,828

 
18,107

 
46,773

 
57,828

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

 
(113,195
)
 
(45,186
)
 
(119,634
)
EBITDAre
73,635

 
77,217

 
212,853

 
246,725

(Gain) / loss on extinguishment of debt

 

 
1,680

 

Acquisition costs

 

 

 
6

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

 
25

 

 
57

Core EBITDA
73,635

 
77,242

 
214,533

 
246,788

General & administrative expenses (1)
6,677

 
6,202

 
21,487

 
21,907

Management fee revenue (2)
(181
)
 
(253
)
 
(531
)
 
(762
)
Other (income) / expense (1) (3)
(87
)
 
(171
)
 
(475
)
 
(146
)
Straight-line effects of lease revenue (1)
(3,210
)
 
(3,602
)
 
(11,489
)
 
(15,939
)
Amortization of lease-related intangibles (1)
(2,006
)
 
(1,720
)
 
(5,636
)
 
(4,890
)
Property net operating income (cash basis)
74,828

 
77,698

 
217,889

 
246,958

 

 

 
 
 
 
Deduct net operating (income) / loss from:

 

 
 
 
 
Acquisitions (4)
(958
)
 

 
(2,540
)
 

Dispositions (5)
(122
)
 
(8,001
)
 
(509
)
 
(39,077
)
Other investments (6)
(659
)
 
(2,339
)
 
(3,096
)
 
(6,277
)
Same store net operating income (cash basis)
$
73,089

 
$
67,358

 
$
211,744

 
$
201,604

Change period over period
8.5
%
 
N/A

 
5.0
%
 
N/A








(1)
Includes our proportionate share of amounts attributable to consolidated properties and unconsolidated joint ventures.
(2)
Presented net of related operating expenses incurred to earn the revenue; therefore, the information presented on this line will not tie to the data presented on the income statements.
(3)
Figures presented on this line may not tie back to the relevant sources as some activity is attributable to property operations and is, therefore, presented in property net operating income. Certain prior period amounts may have been reclassified to conform to the current period financial statement presentation.
(4)
Acquisitions consist of Norman Pointe I in Bloomington, MN, purchased on December 28, 2017; and 501 West Church Street in Orlando, FL, purchased on February 23, 2018.
(5)
Dispositions consist of Sarasota Commerce Center II in Sarasota, FL, sold on June 16, 2017; Two Independence Square in Washington, DC, sold on July 5, 2017; and the 14-property portfolio sold on January 4, 2018 (comprised of 2300 Cabot Drive in Lisle, IL; Windy Point I and II in Schaumburg, IL; Suwanee Gateway One and land in Suwanee, GA; 1200 Crown Colony Drive in Quincy, MA; Piedmont Pointe I and II in Bethesda, MD; 1075 West Entrance Drive and Auburn Hills Corporate Center in Auburn Hills, MI; 5601 Hiatus Road in Tamarac, FL; 2001 NW 64th Street in Ft. Lauderdale, FL; Desert Canyon 300 in Phoenix, AZ; 5301 Maryland Way in Brentwood, TN; and 2120 West End Avenue in Nashville, TN).
(6)
Other investments consist of our interests in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. Additional information on our land holdings can be found on page #SectionPage#. The operating results from 500 TownPark in Lake Mary, FL, and Two Pierce Place in Itasca, IL, are included in this line item.



16



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


Same Store Net Operating Income (Cash Basis)
 
 
 
 
 
 
 
 
 
 
 
Contributions from Strategic Operating Markets
Three Months Ended
 
Nine Months Ended
 
9/30/2018
 
9/30/2017
 
9/30/2018
 
9/30/2017
 
$
%
 
$
%
 
$
%
 
$
%
New York (1)
$
10,914

14.9

 
$
10,611

15.7

 
$
33,783

15.9

 
$
30,771

15.3

Atlanta (2)
9,225

12.6

 
8,301

12.3

 
25,759

12.2

 
24,230

12.0

Boston
8,115

11.1

 
7,516

11.2

 
24,474

11.6

 
24,030

11.9

Washington, D.C. (3)
9,283

12.7

 
5,364

8.0

 
22,197

10.5

 
20,822

10.3

Minneapolis (4)
7,501

10.3

 
6,654

9.9

 
21,457

10.1

 
19,673

9.8

Orlando (5)
7,038

9.6

 
6,469

9.6

 
20,522

9.7

 
18,838

9.4

Dallas (6)
6,478

8.9

 
8,243

12.2

 
20,106

9.5

 
23,057

11.4

Chicago (7)
6,127

8.4

 
5,782

8.6

 
18,328

8.6

 
14,908

7.4

Other
8,408

11.5

 
8,418

12.5

 
25,118

11.9

 
25,275

12.5

Total
$
73,089

100.0

 
$
67,358

100.0

 
$
211,744

100.0

 
$
201,604

100.0

 
 
 
 
 
 
 
 
 
 
 
 










NOTE:
The Company has provided disaggregated financial data for informational purposes for readers; however, regardless of the presentation approach used, we continue to evaluate and utilize our consolidated financial results in making operating decisions, allocating resources, and assessing our performance.
(1)
The increase in metropolitan New York Same Store Net Operating Income for the nine months ended September 30, 2018 as compared to the same period in 2017 was primarily related to increased economic occupancy at 200 and 400 Bridgewater Crossing in Bridgewater, NJ.
(2)
The increase in Atlanta Same Store Net Operating Income for the three months and the nine months ended September 30, 2018 as compared to the same periods in 2017 was primarily related to increased economic occupancy at Galleria 200 and Glenridge Highlands One in Atlanta, GA.
(3)
The increase in Washington, D.C. Same Store Net Operating Income for the three months and the nine months ended September 30, 2018 as compared to the same periods in 2017 was primarily due to successful property tax appeals and increased economic occupancy at One Independence Square in Washington, D.C., in addition to increased economic occupancy at 3100 Clarendon Boulevard and 4250 North Fairfax Drive, both in Arlington, VA. Partially offsetting these favorable results was decreased economic occupancy associated with lease expirations at 1201 Eye Street in Washington, D.C., and Arlington Gateway in Arlington, VA.
(4)
The increase in Minneapolis Same Store Net Operating Income for the three months and the nine months ended September 30, 2018 as compared to the same periods in 2017 was primarily attributable to increased economic occupancy at US Bancorp Center in Minneapolis, MN.
(5)
The increase in Orlando Same Store Net Operating Income for the nine months ended September 30, 2018 as compared to the same period in 2017 was primarily attributable to increased economic occupancy at CNL Center II in Orlando, FL.
(6)
The decrease in Dallas Same Store Net Operating Income for the three months and the nine months ended September 30, 2018 as compared to the same periods in 2017 was primarily due to the downtime between the expiration of a whole-building lease and the commencement of the replacement whole-building lease at 6011 Connection Drive, as well as lease expirations at 6031 Connection Drive, both in Irving, TX.
(7)
The increase in Chicago Same Store Net Operating Income for the nine months ended September 30, 2018 as compared to the same period in 2017 was primarily a result of increased economic occupancy at 500 West Monroe Street in Chicago, IL.
 
 
 
 

17



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

 
Three Months Ended
 
Nine Months Ended
 
9/30/2018
 
9/30/2017
 
9/30/2018
 
9/30/2017
Net income attributable to Piedmont
$
16,114

 
$
126,133

 
$
84,886

 
$
164,947

Net income / (loss) attributable to noncontrolling interest

 
(4
)
 
(4
)
 
(10
)
Interest expense (1)
15,849

 
16,183

 
45,294

 
52,661

Depreciation (1)
26,844

 
29,993

 
81,090

 
90,933

Amortization (1)
14,828

 
18,107

 
46,773

 
57,828

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

 
(113,195
)
 
(45,186
)
 
(119,634
)
EBITDAre
73,635

 
77,217

 
212,853

 
246,725

(Gain) / loss on extinguishment of debt

 

 
1,680

 

Acquisition costs

 

 

 
6

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

 
25

 

 
57

Core EBITDA
73,635

 
77,242

 
214,533

 
246,788

General & administrative expenses (1)
6,677

 
6,202

 
21,487

 
21,907

Management fee revenue (2)
(181
)
 
(253
)
 
(531
)
 
(762
)
Other (income) / expense (1) (3)
(87
)
 
(171
)
 
(475
)
 
(146
)
Property net operating income (accrual basis)
80,044

 
83,020

 
235,014

 
267,787

 
 
 
 
 

 
 
Deduct net operating (income) / loss from:
 
 
 
 

 
 
Acquisitions (4)
(1,292
)
 

 
(3,424
)
 

Dispositions (5)
(122
)
 
(7,675
)
 
(500
)
 
(36,331
)
Other investments (6)
(827
)
 
(2,301
)
 
(3,309
)
 
(7,079
)
Same store net operating income (accrual basis)
$
77,803

 
$
73,044

 
$
227,781

 
$
224,377

Change period over period
6.5
%
 
N/A

 
1.5
%
 
N/A








(1)
Includes our proportionate share of amounts attributable to consolidated properties and unconsolidated joint ventures.
(2)
Presented net of related operating expenses incurred to earn the revenue; therefore, the information presented on this line will not tie to the data presented on the income statements.
(3)
Figures presented on this line may not tie back to the relevant sources as some activity is attributable to property operations and is, therefore, presented in property net operating income. Certain prior period amounts may have been reclassified to conform to the current period financial statement presentation.
(4)
Acquisitions consist of Norman Pointe I in Bloomington, MN, purchased on December 28, 2017; and 501 West Church Street in Orlando, FL, purchased on February 23, 2018.
(5)
Dispositions consist of Sarasota Commerce Center II in Sarasota, FL, sold on June 16, 2017; Two Independence Square in Washington, DC, sold on July 5, 2017; and the 14-property portfolio sold on January 4, 2018 (comprised of 2300 Cabot Drive in Lisle, IL; Windy Point I and II in Schaumburg, IL; Suwanee Gateway One and land in Suwanee, GA; 1200 Crown Colony Drive in Quincy, MA; Piedmont Pointe I and II in Bethesda, MD; 1075 West Entrance Drive and Auburn Hills Corporate Center in Auburn Hills, MI; 5601 Hiatus Road in Tamarac, FL; 2001 NW 64th Street in Ft. Lauderdale, FL; Desert Canyon 300 in Phoenix, AZ; 5301 Maryland Way in Brentwood, TN; and 2120 West End Avenue in Nashville, TN).
(6)
Other investments consist of our interests in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. Additional information on our land holdings can be found on page 38. The operating results from 500 TownPark in Lake Mary, FL, and Two Pierce Place in Itasca, IL, are included in this line item.


18



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



Same Store Net Operating Income (Accrual Basis)