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8-K - FORM 8-K - Piedmont Office Realty Trust, Inc.d8k.htm
EX-99.1 - PRESS RELEASE - Piedmont Office Realty Trust, Inc.dex991.htm

Exhibit 99.2

LOGO

Quarterly Supplemental Information

March 31, 2011

 

Corporate Headquarters    Institutional Analyst Contact    Investor Relations

11695 Johns Creek Parkway, Suite 350

Johns Creek, GA 30097

Telephone: 770.418.8800

  

Telephone: 770.418.8592

research.analysts@piedmontreit.com

   Telephone: 866.354.3485

investor.services@piedmontreit.com

www.piedmontreit.com


Piedmont Office Realty Trust, Inc.

Quarterly Supplemental Information

Index

 

 

 

     Page  

Introduction

  

Corporate Data

     3   

Investor Information

     4   

Financial Highlights

     5-7   

Key Performance Indicators

     8   

Financials

  

Balance Sheet

     9   

Income Statements

     10-11   

Funds From Operations / Adjusted Funds From Operations

     12   

Same Store Analysis

     13-14   

Capitalization Analysis

     15   

Debt Summary

     16   

Debt Detail

     17   

Debt Analysis

     18   

Operational & Portfolio Information - Office Investments

  

Tenant Diversification

     19   

Tenant Credit Rating & Lease Distribution Information

     20   

Leasing Activity

     21   

Lease Expiration Schedule

     22   

Annual Lease Expirations

     23   

Capital Expenditures & Commitments

     24   

Contractual Tenant Improvements & Leasing Commissions

     25   

Geographic Diversification

     26   

Industry Diversification

     27   

Property Investment Activity

     28   

Other Investments

  

Other Investments Detail

     29   

Supporting Information

  

Definitions

     30-31   

Research Coverage

     32   

Non-GAAP Reconciliations & Other Detail

     33-36   

Risks, Uncertainties and Limitations

     37   
 

 

Please refer to page 37 for a discussion of important risks related to the business of Piedmont Office Realty Trust, 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 events contained in this supplemental reporting package might not occur.

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.


Piedmont Office Realty Trust, Inc.

Corporate Data

 

 

Piedmont Office Realty Trust, Inc. (“Piedmont” or the “Company”) (NYSE: PDM) is a fully-integrated and self-managed real estate investment trust (“REIT”) specializing in the acquisition, ownership, management, development and disposition of primarily high-quality Class A office buildings located predominantly in large U.S. office markets and leased principally to high-credit-quality tenants. Since its first acquisition in 1998, the Company has acquired $5.8 billion of office and industrial properties (inclusive of joint ventures) through March 31, 2011. Rated as an investment-grade company by Standard & Poor’s and Moody’s, Piedmont has maintained a low-leverage strategy while acquiring its properties. Approximately 83% of our Annualized Lease Revenue (“ALR”)(1) is derived from our office properties located within the ten largest U.S. office markets, including Chicago, Washington, D.C., the New York metropolitan area, Boston and greater Los Angeles.

This data supplements the information provided in our reports filed with the Securities and Exchange Commission.

 

     As of
    March 31, 2011    
     As of
    December 31, 2010    
 

Number of properties (2)

     77         75   

Rentable square footage (in thousands) (2)

     21,516         20,408   

Percent leased (3)

     87.3%         89.2%   

Capitalization (in thousands):

     

Total gross debt - principal amount outstanding

     $1,602,525         $1,402,525   

Equity market capitalization (4)

     $3,351,301         $3,477,342   

Total market capitalization (4)

     $4,953,826         $4,879,867   

Total gross debt / Total market capitalization (4)

     32.3%         28.7%   

Common stock data

     

High closing price during quarter (4)

     $20.55         $20.31   

Low closing price during quarter (4)

     $18.69         $18.25   

Closing price of Class A common stock at period end (4)

     $19.41         $20.14   

Weighted average fully diluted shares outstanding (in thousands) (5) (6)

     172,955         170,967   

Shares of common stock issued and outstanding (in thousands)

     172,658         172,658   

Rating / outlook

     

Standard & Poor’s

     BBB / Stable         BBB / Stable   

Moody’s

     Baa2 / Stable         Baa2 / Stable   

Employees (7)

     111         110   

 

 

(1) 

The definition for Annualized Lease Revenue can be found on page 30.

(2) 

Our office portfolio currently consists of 77 properties (exclusive of our equity interests in seven properties owned through unconsolidated joint ventures and our two industrial properties). During the first quarter of 2011, we acquired a 150,000 square foot building located at 1200 Enclave Parkway in Houston, TX and a 962,000 square foot building located at 500 West Monroe Street in Chicago, IL.

(3) 

Calculated as leased square footage on March 31, 2011 plus square footage associated with executed new leases for currently vacant spaces divided by total rentable square footage, expressed as a percentage. This measure is presented for our 77 office properties and excludes industrial and unconsolidated joint venture properties. Piedmont has completed several acquisitions and one disposition during the previous year; excluding the assets related to such investing activity from the leased percentage analysis, Piedmont’s portfolio was 89.2% leased as of March 31, 2011, as compared to the same store leased percentage of 89.3% in the year earlier period. Please refer to page 21 for additional detail regarding the same store leased percentage comparison to first quarter 2010.

(4) 

As of December 31, 2010, our Class B-3 common stock was not listed on a national securities exchange and there was no established market for such shares. We have used the closing price of the Class A common stock at the relevant period end for the purposes of the calculations regarding market capitalization herein.

(5) 

Weighted average fully diluted shares outstanding are presented on a year-to-date basis for each period.

(6) 

In conjunction with our February 10, 2010 listing on the New York Stock Exchange, we issued 13.8 million additional shares of Class A common stock, the primary reason for the difference in weighted average fully diluted shares outstanding.

(7) 

During the first quarter of 2011, the company hired a regional manager for its New York, NY office. The opening of this office is the reason for the increase in number of employees.

 

3


Piedmont Office Realty Trust, Inc.

Investor Information

 

 

Corporate

 

11695 Johns Creek Parkway, Suite 350, Johns Creek, Georgia 30097

770.418.8800

www.piedmontreit.com

 

Executive and Senior Management
Donald A. Miller, CFA    Robert E. Bowers    Laura P. Moon

Chief Executive Officer, President

and Director

  

Chief Financial Officer, Executive

Vice President, Secretary, and

Treasurer

  

Chief Accounting Officer and

Senior Vice President

Raymond L. Owens    Carroll A. Reddic, IV   

Executive Vice President - Capital

Markets

  

Executive Vice President - Real

Estate Operations, Assistant

Secretary

  
Board of Directors
W. Wayne Woody    Donald A. Miller, CFA    Frank C. McDowell

Director and Chairman of the

Board of Directors

  

Chief Executive Officer, President

and Director

  

Director and Vice Chairman of the

Board of Directors

Wesley E. Cantrell    Michael R. Buchanan    Donald S. Moss

Director and Chairman of

Governance Committee

  

Director and Chairman of Capital

Committee

  

Director and Chairman of

Compensation Committee

Jeffery L. Swope       William H. Keogler, Jr.
Director       Director

 

Transfer Agent

    

Corporate Counsel

Bank of New York Mellon Shareowner Services      King & Spalding
P.O. Box 358010      1180 Peachtree Street, NE
Pittsburgh, PA 15252-8010      Atlanta, GA 30309
Phone: 866.354.3485      Phone: 404.572.4600

 

4


Piedmont Office Realty Trust, Inc.

Financial Highlights

As of March 31, 2011

 

 

On January 22, 2010, we filed an amendment to our charter to effect a recapitalization of our common stock as described further in our Securities and Exchange Commission (“SEC”) filings. Upon the effectiveness of the recapitalization, each share of our outstanding common stock converted automatically into: (a) 1/12th of a share of our Class A common stock; plus (b) 1/12th of a share of our Class B-1 common stock; plus (c) 1/12th of a share of our Class B-2 common stock; plus (d) 1/12th of a share of our Class B-3 common stock. Class B-1 common stock converted automatically into Class A common stock on August 9, 2010; Class B-2 common stock converted automatically into Class A common stock on November 7, 2010; and Class B-3 common stock converted automatically into Class A common stock on January 30, 2011.

 

Financial Results (1)

  
  - Funds from operations (FFO) and core funds from operations (Core FFO) for the quarter ended March 31, 2011 were both $71.3M, or $0.41 per share (diluted), compared to $69.2M, or $0.42 per share (diluted), for both measures for the same quarter in 2010. The increase in FFO and Core FFO for the three months ended March 31, 2011 as compared to the same period in 2010 was primarily due to higher termination income as well as default interest and residual net operating income deferred from prior periods and recognized upon the successful foreclosure of the equity ownership interest of 500 West Monroe Street. Additionally contributing to the increase in FFO and Core FFO was a decreased interest rate on the $250 million term loan resulting in lower interest expense. These positive variances are offset somewhat by lower tenant reimbursements. The decrease in per share amount for both FFO and Core FFO for the three months ended March 31, 2011 as compared to the same period in 2010 was primarily due to the dilutive effect of the 13.8 million shares of Class A common stock issued when the Company listed on the NYSE in February 2010.

 

  - Adjusted funds from operations (AFFO) for the quarter ended March 31, 2011 was $52.0M, or $0.30 per share (diluted), compared to $60.3M, or $0.36 per share (diluted), for the same quarter in 2010. The decrease in AFFO for the three months ended March 31, 2011 as compared to the same period in 2010 was primarily due to increased capital expenditures in 2011 associated with new leasing activity, including $6.6 million in leasing commissions related to the NASA lease renewal at Two Independence Square and $3.6 million in tenant improvements for State Street Bank at 1200 Crown Colony Drive. The per share amount of AFFO was also lower in 2011 as compared to 2010 due to the dilutive effect of the 13.8 million shares of Class A common stock issued when the Company listed on the NYSE in February 2010.

 

  - During the quarter ended March 31, 2011, the Company paid to shareholders a quarterly dividend in the amount of $0.315 per share for its Class A common stock, which represented its only outstanding class of common stock. The Company’s dividend payout percentage for the three months ended March 31, 2011 was 76.3% of Core FFO and 104.6% of AFFO.

 

Operations

  
  - On a same store square footage leased basis, our portfolio was 89.2% leased as of March 31, 2011 as compared to 89.3% leased as of March 31, 2010, reflecting stability in our same store portfolio. On a square footage basis, our office portfolio was 87.3% leased as of March 31, 2011, as compared to 89.2% as of December 31, 2010 and 89.6% as of March 31, 2010. The decrease in the office portfolio leased percentage during the last year is primarily related to the addition to the portfolio of 1.6 million square feet through the acquisition of several properties with existing vacancies, including 500 West Monroe Street in Chicago, IL, 1200 Enclave Parkway in Houston, TX, and Suwanee Gateway One in Suwanee, GA.

 

  -

The weighted average remaining lease term of our portfolio was 6.2 years(2) as of March 31, 2011 as compared to 5.8 years at December 31, 2010.

 

  - During the three months ended March 31, 2011, the Company completed 843,000 square feet of leasing at our 77 consolidated office properties. We executed renewal leases for 616,000 square feet and new tenant leases for 227,000 square feet, with an average committed capital cost of $5.82 per square foot per year of lease term. Average committed capital cost per square foot per year of lease term for renewal leases signed during the quarter was $5.48 and average committed capital cost per square foot per year of lease term for new leases was $7.39. We did not execute any new leases during the quarter for our two industrial properties.

 

  -

During the three months ended March 31, 2011, we retained(3) tenants for 72% of the square footage associated with expiring leases. This result compares to a 72% retention rate for the year ended December 31, 2010.

 

 

(1) FFO, Core FFO and AFFO are supplemental non-GAAP financial measures. See pages 30-31 for definitions of non-GAAP financial measures. See pages 12 and 35 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 March 31, 2011) is weighted based on Annualized Lease Revenue, as defined on page 30.

(3) Piedmont defines a retained tenant to include an existing tenant/occupant signing a lease for the premises it currently occupies or a tenant whose occupancy of a space is structured in a way to eliminate downtime for the space.

 

5


Piedmont Office Realty Trust, Inc.

Financial Highlights

As of March 31, 2011

 

 

 

  - During the three months ended March 31, 2011, we executed six office leases greater than 20,000 square feet. Please see information on those leases listed below.

 

Tenant Name    Property    Property Location    Square Feet
Leased
   Expiration Year    Lease Type

United States of America (NASA)

   Two Independence Square    Washington, D.C.    597,253    2027    Renewal

BSH Home Appliances

Corporation

   1901 Main Street    Irvine, CA    49,781    2019    New

Eide Bailly, LLP

   US Bancorp Center    Minneapolis, MN    40,622    2024    New

First Solar Electric, LLC

   400 Bridgewater Crossing    Bridgewater, NJ    39,096    2018    New

Evraz, Inc.

   Aon Center    Chicago, IL    34,868    2023    New

Faurecia USA Holdings, Inc.

   Auburn Hills Corporate Center    Auburn Hills, MI    21,670    2015    New

 

Leasing Update

  

 

  - As of year-end 2010, a total of six leases were scheduled to expire during the years 2011 and 2012 that contributed greater than 1% of Annualized Lease Revenue. Due to the addition of 500 West Monroe Street to our office portfolio during the first quarter of 2011, there are two additional leases that contribute greater than 1% of Annualized Lease Revenue that are scheduled to expire in 2011 and 2012. Information regarding the leasing status of the spaces associated with those leases is included below:

 

Tenant Name    Property    Property Location    Square
Footage (1)
   Percentage of Current
Quarter Annualized
Lease Revenue (%)
  Expiration (2)    Leasing Status

United States of

America (Comptroller of the Currency)

   One Independence
Square
   Washington, D.C.    322,984    3.0%   Q2 2011    The Company is in discussions with the tenant for a lease renewal of the entire space. The tenant has announced its future intentions to leave the building; therefore, a short-term renewal of the lease for up to 24 months is anticipated.
Zurich American Insurance Company    Windy Point II    Schaumburg, IL    300,034    1.7%   Q3 2011    The space has been substantially sublet by the tenant. The Company is in discussions with sublessees for direct leases and actively marketing the space for lease.
Kirkland & Ellis    Aon Center    Chicago, IL    331,887    1.7%   Q4 2011    Kirkland & Ellis is vacating. KPMG has leased 218,123 SF (beginning in August 2012), all but 3,000 SF of which is space currently leased to Kirkland & Ellis.
Marsh USA    500 West Monroe

Street

   Chicago, IL    173,290    1.2%   Q4 2011    The Company is not actively engaged in discussions with the tenant regarding a lease renewal. It is anticipated that the tenant will vacate at lease expiration.
Sanofi-aventis US    200 Bridgewater

Crossing

   Bridgewater, NJ    297,379    2.0%   Q1 2012    The Company is actively marketing the space for lease. The tenant will be vacating at lease expiration.

United States of

America (NASA)

   Two Independence
Square
   Washington, D.C.    551,907    4.3%   Q3 2027    A 15-year lease was signed with the tenant during the quarter for 597,253 SF, an approximate 8% increase in square footage leased due to a BOMA space remeasurement.

United States of

America (National Park

Service)

   1201 Eye Street    Washington, D.C.    219,750    1.6%   Q3 2012    Preliminary discussions with the tenant have commenced.
GE    500 West Monroe
Street
   Chicago, IL    311,387    1.8%   Q4 2012    The Company is in discussions with the tenant for a long-term lease renewal which includes a reduction in leased square footage.

 

 

(1) Square footage represents the total square footage leased by the tenant expiring during the expiration quarter.

(2) The lease expiration date presented is that of the majority of the space leased to the tenant at the building.

 

6


Piedmont Office Realty Trust, Inc.

Financial Highlights

As of March 31, 2011

 

 

 

Financing and Capital Activity

  
  - As of March 31, 2011, our ratio of gross debt to total market capitalization was 32.3%; our ratio of gross debt to gross real estate assets was 33.4%; and our ratio of gross debt to total gross assets was 29.3%. These debt ratios reflect the inclusion of $185 million of secured debt attributable to 500 West Monroe Street and are based on total principal amount outstanding for our various loans.

 

  - On March 30, 2011, Piedmont completed the purchase of 1200 Enclave Parkway, a 150,000 square foot building located in the prestigious Energy Corridor in Houston, TX. The building was built in 1999 and is 18% leased. Piedmont purchased the building for $18.5 million, or approximately $123 per square foot. The building is located near another property owned by Piedmont, 1430 Enclave Parkway. Given the location, management’s knowledge of the market, the high-quality construction, and the low cost basis, Piedmont expects to create value for its shareholders through the lease-up of this building.

 

  - On March 31, 2011, a UCC foreclosure auction was conducted to sell an equity ownership interest in 500 West Monroe Street that had been pledged as collateral for a defaulted mezzanine loan owned by Piedmont. Piedmont was the winning bidder at that auction and, therefore, became the equity owner of 500 West Monroe Street. The building is a 46-story, 962,000 square foot, Class A, trophy office tower located in Chicago’s West Loop submarket. It was built in 1991 and is currently 67% leased. The two main tenants in the building, GE and Marsh USA, which, combined, lease approximately 50% of the building, have leases with near-term expirations as noted above. Piedmont is committed to stabilizing the occupancy in this well-located, high-quality, amenity-rich building. The building is ideally located between two major transportation centers, Union Station and Ogilvie Transportation Center, in addition to having a 1,330-space parking garage; both of these elements positively impact the leasing potential for this building.

 

  - On January 30, 2011, Piedmont’s 39.7 million shares of Class B-3 common stock converted on a one-for-one basis into Class A common stock.

 

  - On February 24, 2011, the board of directors of Piedmont declared dividends for the first quarter 2011 in the amount of $0.315 per share on its Class A common stock, which represented its only outstanding class of common stock, to stockholders of record as of the close of business on March 7, 2011. The dividends were paid on March 22, 2011.

 

  - Effective January 10, 2011, Bank of New York Mellon became Piedmont’s transfer agent.

 

Subsequent Events

  
  - Piedmont has entered into a binding contract to sell Eastpointe Corporate Center in Issaquah, WA. As of April 21, 2011, the purchaser had completed its due diligence study of the asset and its deposit of 5% of the agreed upon purchase price of $32.0 million became non-refundable. Piedmont anticipates recording a gain upon the sale of the building. The transaction is scheduled to close on July 1, 2011. The building is currently approximately 43% leased and will become 19% leased after the end of the second quarter of 2011 due to the expiration of an additional lease. Through the sale, Piedmont will be able to mitigate the leasing risk associated with this building and further its strategic objective of focusing on select markets. Piedmont has reclassified Eastpointe Corporate Center from real estate assets held-for-use to real estate assets held-for-sale as of April 21, 2011. The results from operations for the asset will be presented in discontinued operations beginning in the second quarter of 2011.

 

  - On April 29, 2011, Piedmont purchased The Dupree Building, a 138,000 square foot building located in Atlanta, GA, for approximately $20.5 million, or $148 per square foot. The building is well-located along the northern arc of I-285, a major bypass expressway encircling Atlanta, with close proximity to GA-400, a major state highway connecting downtown Atlanta with the city’s northern suburbs, as well as executive housing. The building was constructed in 1997, is approximately 83% leased, and is located near Piedmont’s Glenridge Highlands II building. Given the ease of access to the building, Piedmont’s intimate knowledge of the market, the low cost basis, and the long-term nature of the existing leases, Piedmont believes the transaction provides a strong risk-adjusted return for its shareholders.

 

  - On May 4, 2011, the board of directors of Piedmont declared a dividend for the second quarter 2011 in the amount of $0.315 per share on its Class A common stock to stockholders of record as of the close of business on June 1, 2011. The dividend is expected to be paid on June 22, 2011.

 

Guidance for 2011

  
  - The following financial guidance for calendar year 2011 remains unchanged and is based on management’s expectations at this time:

 

     Low      High

Net Income

   $106  - 118 million

Add: Depreciation & Amortization

   $150  - 156 million

Core Funds from Operations

   $256  - 269 million

Core Funds from Operations per diluted share

   $1.48 - 1.56

These estimates reflect management’s view of current market conditions and incorporate certain economic and operational assumptions and projections. These estimates exclude future acquisitions and dispositions which could result in a change in the Company’s 2011 outlook and guidance when they are consummated. Actual results could differ from these estimates. Note that individual quarters may fluctuate on both a cash and an accrual basis due to timing of repairs and maintenance, capital expenditures, capital markets activities 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.

 

7


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, 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 pages 30-31 and reconciliations are provided on pages 33-35.

 

         Three Months Ended  

Selected Operating Data

   3/31/2011      12/31/2010      9/30/2010      6/30/2010      3/31/2010  
  Percent leased (1)      87.3%         89.2%         89.0%         89.8%         89.6%   
  Rental income      $109,830         $110,778         $110,776         $110,623         $110,512   
  Total revenues      $146,554         $151,312         $145,502         $145,181         $146,844   
  Total operating expenses      $100,879         $106,433         $90,447         $100,037         $99,059   
  Real estate operating income      $45,675         $44,879         $55,055         $45,144         $47,785   
  Impairment losses on real estate assets (2)      $0         $0         $53         $9,587         $0   
  Core EBITDA (3)      $88,774         $85,610         $95,612         $85,435         $88,592   
  Core FFO      $71,281         $68,178         $78,229         $66,247         $69,198   
  Core FFO per share - diluted      $0.41         $0.39         $0.45         $0.38         $0.42   
  AFFO (3)      $51,974         $38,086         $61,468         $55,812         $60,291   
  AFFO per share - diluted      $0.30         $0.22         $0.36         $0.32         $0.36   
  Gross dividends      $54,387         $54,388         $54,388         $54,388         $53,777   
  Dividends per share      $0.315         $0.315         $0.315         $0.315         $0.315   

Selected Balance Sheet Data

              
  Total real estate assets      $3,892,087         $3,676,828         $3,689,428         $3,704,757         $3,737,478   
  Total gross real estate assets      $4,804,988         $4,567,326         $4,573,622         $4,560,176         $4,571,837   
  Total assets      $4,563,272         $4,373,480         $4,389,585         $4,405,501         $4,428,410   
  Net debt (4)      $1,529,603         $1,333,332         $1,316,645         $1,312,116         $1,318,958   
  Total liabilities      $1,809,755         $1,600,026         $1,591,653         $1,594,278         $1,584,781   

Ratios

              
  Core EBITDA margin (5)      60.6%         56.2%         65.0%         58.2%         59.7%   
 

Fixed charge coverage ratio (6)

     5.2 x         4.9 x         5.5 x         4.5 x         4.6 x   
 

Net debt to core EBITDA (7)

     4.3 x         3.9 x         3.4 x         3.8 x         3.7 x   

 

 

(1) Please refer to page 21 for additional leased percentage information.

(2) Impairment losses include losses for both wholly-owned and our proportionate share of unconsolidated joint venture assets.

(3) Core EBITDA and AFFO have been adjusted to exclude impairments on real estate assets as shown on pages 33 and 35.

(4) 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 first quarter of 2011, net debt includes $185 million of secured debt associated with 500 West Monroe Street which was acquired March 31, 2011.

(5) Core EBITDA margin is calculated as Core EBITDA divided by total revenues (including revenues associated with discontinued operations).

(6) Fixed charge coverage is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. We had no capitalized interest, principal amortization or preferred dividends during any of the periods presented.

(7) Core EBITDA is annualized for the purposes of this calculation. As of the first quarter of 2011, net debt includes $185 million of secured debt associated with 500 West Monroe Street which was acquired March 31, 2011.

 

8


Piedmont Office Realty Trust, Inc.

Consolidated Balance Sheets

Unaudited (in thousands)

 

 

      March 31, 2011         December 31, 2010         September 30, 2010         June 30, 2010         March 31, 2010    

Assets:

         

Real estate, at cost:

         

Land assets

    $ 688,103        $ 647,653        $ 652,875        $ 651,876        $ 651,876   

Buildings and improvements

    3,865,239        3,688,751        3,685,956        3,668,859        3,672,594   

Buildings and improvements, accumulated depreciation

    (770,147     (744,756     (739,055     (714,615     (689,117

Intangible lease asset

    238,504        219,770        222,952        224,532        235,022   

Intangible lease asset, accumulated amortization

    (142,754     (145,742     (145,139     (140,804     (145,242

Construction in progress

    13,142        11,152        11,839        14,909        12,345   
                                       

Total real estate assets

    3,892,087        3,676,828        3,689,428        3,704,757        3,737,478   

Investment in unconsolidated joint ventures

    41,759        42,018        42,591        43,005        43,482   

Cash and cash equivalents

    42,151        56,718        67,539        81,066        76,994   

Tenant receivables, net of allowance for doubtful accounts

    29,726        28,849        29,269        30,986        33,152   

Straight line rent receivable

    103,854        105,157        100,751        96,912        95,164   

Notes receivable

    -            61,144        60,671        60,101        59,407   

Due from unconsolidated joint ventures

    594        1,158        1,085        1,124        1,202   

Escrow deposits and restricted cash

    30,771        12,475        18,341        9,343        6,573   

Prepaid expenses and other assets

    11,967        11,249        18,461        15,523        12,027   

Goodwill

    180,097        180,097        180,097        180,097        180,097   

Deferred financing costs, less accumulated amortization

    5,374        5,306        5,878        6,467        6,509   

Deferred lease costs, less accumulated amortization

    224,892        192,481        175,474        176,120        176,325   
                                       

Total assets

    $ 4,563,272        $ 4,373,480        $ 4,389,585        $ 4,405,501        $ 4,428,410   
                                       

Liabilities:

         

Line of credit and notes payable

    $ 1,601,112        $ 1,402,525        $ 1,402,525        $ 1,402,525        $ 1,402,525   

Accounts payable, accrued expenses, and accrued capital expenditures

    122,769        112,648        102,411        102,365        83,172   

Deferred income

    38,990        35,203        33,882        33,916        39,079   

Intangible lease liabilities, less accumulated amortization

    46,517        48,959        51,807        54,730        57,689   

Interest rate swap

    367        691        1,028        742        2,316   
                                       

Total liabilities

    1,809,755        1,600,026        1,591,653        1,594,278        1,584,781   

Stockholders’ equity (1) :

         

Class A common stock

    1,727        1,330        932        536        534   

Class B-1 common stock

    -            -            -            397        397   

Class B-2 common stock

    -            -            397        397        397   

Class B-3 common stock

    -            397        397        397        397   

Additional paid in capital

    3,661,570        3,661,308        3,660,551        3,659,910        3,659,257   

Cumulative distributions in excess of earnings

    (915,543     (895,122     (869,434     (855,631     (820,878

Other comprehensive loss

    (465     (691     (1,028     (742     (2,316
                                       

Piedmont stockholders’ equity

    2,747,289        2,767,222        2,791,815        2,805,264        2,837,788   

Non-controlling interest

    6,228        6,232        6,117        5,959        5,841   
                                       

Total stockholders’ equity

    2,753,517        2,773,454        2,797,932        2,811,223        2,843,629   
                                       

Total liabilities, redeemable common stock and stockholders’ equity

    $ 4,563,272        $ 4,373,480        $ 4,389,585        $ 4,405,501        $ 4,428,410   
                                       

All classes of common stock outstanding at end of period (1)

    172,658        172,658        172,658        172,658        172,517   

 

(1) On January 22, 2010, we filed an amendment to our charter to effect a recapitalization of our common stock as described further in our SEC filings. Upon the effectiveness of the recapitalization, each share of our outstanding common stock converted automatically into: (a) 1/12th of a share of our Class A common stock; plus (b) 1/12th of a share of our Class B-1 common stock; plus (c) 1/12th of a share of our Class B-2 common stock; plus (d) 1/12th of a share of our Class B-3 common stock.

 

9


Piedmont Office Realty Trust, Inc.

Consolidated Statements of Income

Unaudited (in thousands except for per share data)

 

 

 

    Three Months Ended  
       
            3/31/2011                 12/31/2010                 9/30/2010                 6/30/2010                 3/31/2010          
       

Revenues:

         

Rental income

    $ 109,830       $ 110,778       $ 110,776       $ 110,623       $ 110,512      

Tenant reimbursements

    32,490         36,997         29,690         33,374         35,083      

Property management fee revenue

    830         948         806         705         753      

Other rental income

    3,404         2,589         4,230         479         496      
       

      Total revenues

    146,554         151,312         145,502         145,181         146,844      

Operating expenses:

         

Property operating costs

    54,957         60,401         46,612         55,497         55,361      

Depreciation

    27,022         26,685         26,011         25,584         25,691      

Amortization

    12,076         11,523         11,018         11,004         11,387      

General and administrative

    6,824         7,824         6,806         7,952         6,620      
       

      Total operating expenses

    100,879         106,433         90,447         100,037         99,059      
       

Real estate operating income

    45,675         44,879         55,055         45,144         47,785      

Other income (expense):

         

Interest expense

      (17,174)        (17,378)        (17,359)        (18,933)        (19,091)     

Interest and other income

    3,460         491         993         1,036         969      

Equity in income of unconsolidated joint ventures

    209         630         619         647         737      

Gain on consolidation of variable interest entity

    1,920         -            -             -             -          
       

      Total other income (expense)

    (11,585)        (16,257)        (15,747)        (17,250)        (17,385)     
       

Income from continuing operations

    34,090         28,622         39,308         27,894         30,400      

Operating income, excluding impairment loss

    -             1,017         1,434         1,454         1,185      

Impairment loss

    -             -            -             (9,587)        -          

Loss on sale of real estate assets

    -             (817)        -             -             -          
       

      Discontinued operations (1)

    -             200         1,434         (8,133)        1,185      
       

Net income

    34,090         28,822         40,742         19,761         31,585      

Less: Net income attributable to noncontrolling interest

    (123)        (122)        (158)        (125)        (125)     
       

Net income attributable to Piedmont

    $ 33,967       $ 28,700       $ 40,584       $ 19,636       $ 31,460      
       

Weighted average common shares outstanding - diluted

    172,955         172,996         172,885         172,718         165,200      

Net income per share available to common stockholders - diluted

    $ 0.20       $ 0.17       $ 0.23       $ 0.11       $ 0.19      
       

 

 

(1) Reflects operating results for 111 Sylvan Avenue in Englewood Cliffs, NJ, which was sold on December 8, 2010.

 

10


Piedmont Office Realty Trust, Inc.

Consolidated Statements of Income

Unaudited (in thousands except for per share data)

 

 

 

     Three Months Ended  
         3/31/2011             3/31/2010              Change             Change      

Revenues:

         

Rental income

     $ 109,830          $ 110,512           $ (682)         -0.6%    

Tenant reimbursements

     32,490          35,083               (2,593)         -7.4%    

Property management fee revenue

     830          753           77          10.2%    
      Other rental income      3,404          496           2,908          586.3%    
                                 

Total revenues

     146,554          146,844           (290)         -0.2%    

Operating expenses:

         

Property operating costs

     54,957          55,361           404          0.7%    

Depreciation

     27,022          25,691           (1,331)         -5.2%    

Amortization

     12,076          11,387           (689)         -6.1%    

General and administrative

     6,824          6,620           (204)         -3.1%    
                                 

      Total operating expenses

     100,879          99,059           (1,820)         -1.8%    
                                 

Real estate operating income

     45,675          47,785           (2,110)         -4.4%    

Other income (expense):

         

Interest expense

     (17,174)             (19,091)          1,917          10.0%    

Interest and other income

     3,460          969           2,491          257.1%    

Equity in income of unconsolidated joint ventures

     209          737           (528)         -71.6%    

Gain on consolidation of variable interest entity

     1,920          -               1,920          0.0%    
                                 

      Total other income (expense)

         (11,585)         (17,385)          5,800          33.4%    
                                 

Income from continuing operations

     34,090          30,400           3,690          12.1%    

Operating income, excluding impairment loss

     -              1,185           (1,185)         -100.0%    
                                 

      Discontinued operations (1)

     -              1,185           (1,185)         -100.0%    
                                 

Net income

     34,090          31,585           2,505          7.9%    

Less: Net income attributable to noncontrolling interest

     (123)         (125)          2          1.6%    
                                 

Net income attributable to Piedmont

     $ 33,967          $ 31,460           $ 2,507          8.0%    
                                 

Weighted average common shares outstanding - diluted

     172,955          165,200          

Net income per share available to common stockholders - diluted

     $ 0.20          $ 0.19          
                     

 

 

(1) Reflects operating results for 111 Sylvan Avenue in Englewood Cliffs, NJ, which was sold on December 8, 2010.

 

11


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  
         3/31/2011              3/31/2010      

Net income attributable to Piedmont

     $ 33,967           $ 31,460     

      Depreciation (1) (2)

     27,154           26,250     

      Amortization (1)

     12,106           11,488     

      Gain on consolidation of VIE

     (1,920)          -         
                 

Funds from operations

     71,307           69,198     

      Acquisition costs

     (26)          -         
                 

Core funds from operations

     71,281           69,198     

      Depreciation of non real estate assets

     170           178     

      Stock-based and other non-cash compensation expense

     968           653     

      Deferred financing cost amortization

     607           696     

      Straight-line effects of lease revenue (1)

     2,237           1,073     

      Amortization of lease-related intangibles (1)

     (1,362)          (1,426)    

      Income from amortization of discount on purchase of mezzanine loans

     (484)          (668)    

      Acquisition costs

     26           -         

      Non-incremental capital expenditures (3)

     (21,469)          (9,413)    
                 

Adjusted funds from operations

     $ 51,974           $ 60,291     
                 

Weighted average common shares outstanding - diluted

     172,955           165,200     

Funds from operations per share (diluted)

     $ 0.41           $ 0.42     

Core funds from operations per share (diluted)

     $ 0.41           $ 0.42     

Adjusted funds from operations per share (diluted)

     $ 0.30           $ 0.36     

 

 

(1) Includes adjustments for wholly-owned properties and for our proportionate ownership in unconsolidated joint ventures.

(2) Excludes depreciation of non real estate assets.

(3) Non-incremental capital expenditures are defined on page 31.

 

12


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Cash Basis)

Unaudited (in thousands)

 

 

 

     Three Months Ended  
             3/31/2011                      3/31/2010          

Net income attributable to Piedmont

     $ 33,967           $ 31,460     

Net income attributable to noncontrolling interest

     123           125     

Interest expense

     17,174           19,091     

Depreciation (1)

     27,324           26,428     

Amortization (1)

     12,106           11,488     

Gain on consolidation of VIE

     (1,920)          -         
                 

Core EBITDA

     88,774           88,592     

General & administrative expenses (1)

     6,899           6,696     

Management fee revenue

     (830)          (753)    

Interest and other income

     (3,460)          (969)    

Lease termination income

     (3,404)          (496)    

Lease termination expense - straight line rent & acquisition intangibles write-offs

     436           67     

Straight-line effects of lease revenue (1)

     1,972           1,006     

Net effect of amortization of above/(below) market in-place lease intangibles (1)

     (1,534)          (1,426)    
                 

Core net operating income

     88,853           92,717     

Net operating income from:

     

Acquisitions (2)

     354           -     

Dispositions (3)

     -           (1,681)    

Industrial properties

     (239)          (273)    

Unconsolidated joint ventures

     (658)          (1,268)    
                 

Same Store NOI

     $ 88,310           $ 89,495     
                 

Change period over period

     -1.3%                 N/A         

 

   

Same Store Net Operating Income

Top Seven Markets

 

                                            
          Three Months Ended         
       3/31/2011      3/31/2010     
               $                      %                      $                      %             
                      
 

Chicago (4)

     $ 18,495         20.9         $ 17,748         19.8        
 

Washington, D.C. (5)

     18,024         20.4           18,868         21.1        
 

New York (6)

     13,745         15.6           12,036         13.4        
 

Minneapolis

     5,315         6.0           5,257         5.9        
 

Los Angeles (7)

     3,789         4.3           5,002         5.6        
 

Dallas

     3,821         4.3           3,847         4.3        
 

Boston

     3,877         4.4           3,729         4.2        
 

Other (8)

     21,244         24.1           23,008         25.7        
                      
 

      Total

     $     88,310         100.0           $     89,495         100.0        
                                

(1) Includes amounts attributable to wholly-owned properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures.

(2) Acquisitions consist of Suwanee Gateway One in Suwanee, GA, purchased on September 28, 2010, Meridian Crossings in Richfield, MN, purchased on October 1, 2010, 1200 Enclave Parkway in Houston, TX, purchased on March 30, 2011, and 500 West Monroe Street in Chicago, IL, acquired on March 31, 2011.

(3) Dispositions consists of 111 Sylvan Avenue in Englewood Cliffs, NJ, sold on December 8, 2010.

(4) The increase in Chicago Same Store Net Operating Income for the three months ended March 31, 2011 as compared to the same period in 2010 is primarily due to a rental abatement concession in 2010 associated with a lease renewal at Windy Point I in Schaumburg, IL.

(5) The decrease in Washington, D.C. Same Store Net Operating Income for the three months ended March 31, 2011 as compared to the same period in 2010 is primarily related to a lease termination at 1201 Eye Street in Washington, D.C. resulting in a reduction in revenue of approximately $640,000 as well as a one-time application of supplemental parking receipts during the first quarter of 2010 amounting to approximately $380,000 at 4250 North Fairfax Drive in Arlington, VA.

(6) The increase in New York Same Store Net Operating Income for the three months ended March 31, 2011 as compared to the same period in 2010 is primarily related to a rental abatement in 2010 associated with the lease extension/restructure with the State of New York at 60 Broad Street in New York, NY.

(7) The decrease in Los Angeles Same Store Net Operating Income for the three months ended March 31, 2011 as compared to the same period in 2010 is primarily due to a space contraction at lease renewal effective third quarter 2010 along with a roll down of total revenues per square foot received from that renewing tenant at 800 North Brand Boulevard in Glendale, CA.

(8) The decrease in Other Same Store Net Operating Income for the three months ended March 31, 2011 compared to the same period in 2010 is due to a number of factors, the largest two of which are reduced rental income and operating expense reimbursements due to the expiration of an approximate 87,000 square foot lease during the fourth quarter of 2010 at Eastpointe Corporate Center in Issaquah, WA, and a lease contraction of approximately 91,000 square feet effective third quarter 2010 at Chandler Forum in Chandler, AZ.

 

13


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Accrual Basis)

Unaudited (in thousands)

 

 

 

     Three Months Ended  
             3/31/2011                      3/31/2010          

Net income attributable to Piedmont

     $ 33,967           $ 31,460     

Net income attributable to noncontrolling interest

     123           125     

Interest expense

     17,174           19,091     

Depreciation (1)

     27,324           26,428     

Amortization (1)

     12,106           11,488     

Gain on consolidation of VIE

     (1,920)          -         
                 

Core EBITDA

     88,774           88,592     

General & administrative expenses (1)

     6,899           6,696     

Management fee revenue

     (830)          (753)    

Interest and other income

     (3,460)          (969)    

Lease termination income

     (3,404)          (496)    

Lease termination expense - straight line rent & acquisition intangibles write-offs

     436           67     
                 

Core net operating income

     88,415           93,137     

Net operating income from:

     

Acquisitions (2)

     (819)          -         

Dispositions (3)

     -               (1,584)    

Industrial properties

     (259)          (281)    

Unconsolidated joint ventures

     (616)          (1,252)    
                 

Same Store NOI

     $     86,721           $     90,020     
                 

Change period over period

     -3.7%               N/A         

 

   

 

Same Store Net Operating Income

Top Seven Markets

 

                                            
          Three Months Ended         
       3/31/2011      3/31/2010     
               $                      %                      $                      %             
                      
 

Chicago

     $ 19,174         22.1           $ 19,285         21.4        
 

Washington, D.C. (4)

     18,079         20.8           18,964         21.1        
 

New York

     13,998         16.1           13,822         15.4        
 

Minneapolis

     5,108         5.9           5,078         5.6        
 

Los Angeles (5)

     3,910         4.5           5,119         5.7        
 

Dallas

     4,044         4.7           3,850         4.3        
 

Boston

     3,530         4.1           3,528         3.9        
 

Other (6)

     18,878         21.8           20,374         22.6        
                      
 

      Total

     $     86,721         100.0           $     90,020         100.0          
                              

(1) Includes amounts attributable to wholly-owned properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures.

(2) Acquisitions consist of Suwanee Gateway One in Suwanee, GA, purchased on September 28, 2010, Meridian Crossings in Richfield, MN, purchased on October 1, 2010, 1200 Enclave Parkway in Houston, TX, purchased on March 30, 2011, and 500 West Monroe Street in Chicago, IL, acquired on March 31, 2011.

(3) Dispositions consists of 111 Sylvan Avenue in Englewood Cliffs, NJ, sold on December 8, 2010.

(4) The decrease in Washington, D.C. Same Store Net Operating Income for the three months ended March 31, 2011 as compared to the same period in 2010 is primarily related to a lease termination at 1201 Eye Street in Washington, D.C. resulting in a reduction in revenue of approximately $640,000 as well as a one-time application of supplemental parking receipts during the first quarter of 2010 amounting to approximately $380,000 at 4250 North Fairfax Drive in Arlington, VA.

(5) The decrease in Los Angeles Same Store Net Operating Income for the three months ended March 31, 2011 as compared to the same period in 2010 is primarily due to a space contraction at lease renewal effective third quarter 2010 along with a roll down of total revenues per square foot received from that renewing tenant at 800 North Brand Boulevard in Glendale, CA.

(6) The decrease in Other Same Store Net Operating Income for the three months ended March 31, 2011 compared to the same period in 2010 is due to a number of factors, the largest two of which are reduced rental income and operating expense reimbursements due to the expiration of an approximate 87,000 square foot lease during the fourth quarter of 2010 at Eastpointe Corporate Center in Issaquah, WA, and a lease contraction of approximately 91,000 square feet effective third quarter 2010 at Chandler Forum in Chandler, AZ.

 

14


Piedmont Office Realty Trust, Inc.

Capitalization Analysis

Unaudited ($ and shares in thousands)

 

 

     As of
            March 31, 2011        
     As of
    December 31, 2010    
 
                 

    Common stock price (1)

     $19.41         $20.14   

    Total shares outstanding (2)

     172,658         172,658   

Class A common stock

     172,658         132,956   

Class B-1 common stock

     -             -       

Class B-2 common stock

     -             -       

Class B-3 common stock

     -             39,702   

    Equity market capitalization (3)

     $3,351,301         $3,477,342   

    Total gross debt - principal amount outstanding

     $1,602,525         $1,402,525   

    Total market capitalization (1)

     $4,953,826         $4,879,867   

    Total gross debt / Total market capitalization

     32.3%         28.7%   

    Total gross real estate assets

     $4,804,988         $4,567,326   

    Total gross debt / Total gross real estate assets (4)

     33.4%         30.7%   

    Total gross debt / Total gross assets (5)

     29.3%         26.6%   

 

 

(1) Reflects Class A common stock closing price as of the end of the reporting period.

(2) On January 22, 2010, we filed an amendment to our charter to effect a recapitalization of our common stock as described further in our SEC filings. Upon the effectiveness of the recapitalization, each share of our outstanding common stock converted automatically into: (a) 1/12th of a share of our Class A common stock; plus (b) 1/12th of a share of our Class B-1 common stock; plus (c) 1/12th of a share of our Class B-2 common stock; plus (d) 1/12th of a share of our Class B-3 common stock. The recapitalization had the effect of a one-for-three reverse stock split. Class B-1 common stock converted automatically into Class A common stock on August 9, 2010, Class B-2 common stock converted automatically into Class A common stock on November 7, 2010 and Class B-3 common stock converted automatically into Class A common stock on January 30, 2011.

(3) Market value of common shares is defined as the total number of shares of all classes of our common stock outstanding multiplied by the closing price of our Class A common stock at the end of the reporting period, as further qualified in footnotes (1) and (2) above.

(4) Total debt to total gross real estate assets ratio is defined as total debt divided by gross real estate assets. Gross real estate assets is defined as total real estate assets with the add back of accumulated depreciation and accumulated amortization related to real estate assets.

(5) Total debt to total gross assets ratio is defined as total debt divided by gross assets. Gross assets is defined as total assets with the add back of accumulated depreciation and accumulated amortization related to real estate assets.

 

15


Piedmont Office Realty Trust, Inc.

Debt Summary

Unaudited ($ in thousands)

 

 

 

Floating Rate & Fixed Rate Debt

Debt (1)    Principal Amount
Outstanding
       Weighted Average
Stated Interest Rate
       Weighted Average
Maturity
  

 

LOGO

    

Floating Rate

   $200,000 (2)      1.51% (3)      16.4 months   

Fixed Rate (4)

   1,402,525      4.66%      38.3 months   
    

Total

   $1,602,525      4.27%      35.5 months   
    

Unsecured & Secured Debt

Debt (1)   

Principal Amount

Outstanding

       Weighted Average
Stated Interest Rate
       Weighted Average
Maturity
  

 

LOGO

    

Unsecured

   $265,000      2.41% (4)      3.7 months   

Secured

   1,337,525      4.64%      41.8 months   
    

Total

   $1,602,525      4.27%      35.5 months   
    

 

Debt Maturities

Maturity Year    Secured Debt -
Principal Amount
Outstanding (1)
       Unsecured Debt -
Principal Amount
Outstanding (1)
      

Weighted Average
Stated Interest

Rate

  

Percentage of

Total

    
    

 

2011

  

 

$0

    

 

$250,000

    

 

2.36%

  

 

15.6%

  

2012

   230,000 (5)      15,000 (6)      2.19%    15.3%   

2013

   0      0      N/A    N/A   

2014

   695,000      0      4.92%    43.4%   

2015

   105,000      0      5.29%    6.5%   

2016

   167,525      0      5.55%    10.5%   

2017

   140,000      0      5.76%    8.7%   
    

Total

   $1,337,525      $265,000      4.27%    100.0%   
    

(1) All of Piedmont’s outstanding debt as of March 31, 2011 is interest-only debt.

(2) Amount represents the outstanding balance as of March 31, 2011 on the $500 million unsecured line of credit, totaling $15 million, along with the balances on two loans secured by 500 West Monroe Street or equity ownership interests therein, totaling $185 million.

(3) The weighted average interest rate is a weighted average rate for amounts drawn under our $500 million unsecured line of credit and the loans totaling $185 million related to 500 West Monroe Street. Please see the following page for additional details on the interest rate for each loan.

(4) The weighted average interest rate is a weighted average rate for amounts drawn under our $500 million unsecured line of credit and the $250 million unsecured term loan. The $250 million unsecured term loan has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fixed the interest rate on this loan at 2.36% through June 28, 2011.

(5) Amount includes the balances as of March 31, 2011 of the loans related to 500 West Monroe Street, totaling $185 million, which mature in August 2011. Management intends to exercise the one-year extension option available under each loan to extend the maturity dates to August 2012. The payment of a 25 basis point fee will be required to extend each of the loans related to 500 West Monroe Street. Additionally, in order to extend the loans related to 500 West Monroe Street, Piedmont must purchase interest rate caps for the extension period, pay certain reserve amounts to the lender to be held on Piedmont’s behalf to fund potential future expenses, and not then be in default under either loan agreement.

(6) Amount represents the outstanding balance as of March 31, 2011 on the $500 million unsecured line of credit, which matures in August 2011. Management intends to exercise the one-year extension option available under the loan to extend the maturity date to August 2012. The payment of a 15 basis point fee will be required to extend the term of the loan.

 

16


Piedmont Office Realty Trust, Inc.

Debt Detail

Unaudited ($ in thousands)

 

 

Facility    Property    Rate(1)     Maturity     Principal Amount
Outstanding as of
March 31, 2011
 
   

Secured

         

500 West Monroe Mortgage Loan

   500 West Monroe Street      LIBOR + 1.01% (2)        8/9/2011  (3)      $140,000   

500 West Monroe Mezzanine Loan (4)

   500 West Monroe Street      LIBOR + 1.45% (2)        8/9/2011  (3)      45,000   

$45.0 Million Fixed-Rate Loan

   4250 North Fairfax      5.20%        6/1/2012        45,000   

35 West Wacker Building Mortgage Note

   35 West Wacker Drive      5.10%        1/1/2014        120,000   

Aon Center Chicago Mortgage Note

   Aon Center      4.87%        5/1/2014        200,000   

Aon Center Chicago Mortgage Note

   Aon Center      5.70%        5/1/2014        25,000   

Secured Pooled Facility

   Nine Property Collateralized Pool (5)      4.84%        6/7/2014        350,000   

$105.0 Million Fixed-Rate Loan

   US Bancorp Center      5.29%        5/11/2015        105,000   

$125.0 Million Fixed-Rate Loan

   Four Property Collateralized Pool (6)      5.50%        4/1/2016        125,000   

$42.5 Million Fixed-Rate Loan

   Las Colinas Corporate Center I & II      5.70%        10/11/2016        42,525   

WDC Mortgage Notes

   1201 & 1225 Eye Street      5.76%        11/1/2017        140,000   
   

Subtotal / Weighted Average (7)

        4.64%          $1,337,525   

Unsecured

         

$250 Million Unsecured Term Loan (8)

   N/A      LIBOR + 1.50%(8)        6/28/2011        $250,000   

$500 Million Unsecured Facility (9)

   N/A      3.25%(10)        8/30/2011  (11)     15,000   
   

 

Subtotal / Weighted Average (7)

        2.41%          $265,000   
   

Total Gross Debt - Principal Amount Outstanding / Weighted Average Stated Rate (7)

     4.27%          $1,602,525   
   

 

Purchase Accounting Valuation Adjustments (12)

         ($1,413)   
   

Total Debt - GAAP Amount Outstanding / Weighted Average Effective Rate (13)

     4.54%          $1,601,112   
   

(1) All of Piedmont’s outstanding debt as of March 31, 2011 is interest-only debt.

(2) The LIBOR rate effective under this loan on March 31, 2011 was 0.255%. There are interest rate cap agreements in place through August 2011 that limit Piedmont’s LIBOR exposure to 1.00%. Any increases in LIBOR above 1.00% are the responsibility of our counterparty.

(3) Piedmont may extend the term for one additional year provided that Piedmont is not then in default, a 25 basis point extension fee is paid, interest rate caps are purchased for the extension period, and certain reserve amounts are provided to the lender to be held on Piedmont’s behalf to fund potential future expenses of the property.

(4) The principal balance of this loan is $61.5 million. Piedmont owns a $16.5 million junior participation in this loan, which is eliminated upon consolidation.

(5) The nine property collateralized pool includes 1200 Crown Colony Drive, Braker Pointe III, 2 Gatehall Drive, One and Two Independence Square, 2120 West End Avenue, 200 and 400 Bridgewater Crossing, and Fairway Center II.

(6) The four property collateralized pool includes 1430 Enclave Parkway, Windy Point I and II, and 1055 East Colorado Boulevard.

(7) Weighted average is based on the total balance outstanding and interest rate at March 31, 2011.

(8) The $250 million unsecured term loan has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fixed the interest rate on this loan at 2.36% through June 28, 2011.

(9) All of Piedmont’s outstanding debt as of March 31, 2011 is term debt with the exception of the $500 million unsecured line of credit.

(10) The interest rate on the $500 million unsecured line of credit is equal to the weighted-average interest rate on all outstanding draws as of March 31, 2011. Piedmont may select from multiple interest rate options with each draw, including the prime rate and various length LIBOR locks. All LIBOR selections are subject to an additional spread (0.475% as of March 31, 2011) over the selected rate based on Piedmont’s current credit rating.

(11) Piedmont may extend the term for one additional year provided Piedmont is not then in default and upon the payment of a 15 basis point extension fee.

(12) Adjustments relate to the fair market valuation of the debt associated with 500 West Monroe Street upon consolidation. The discounts will be amortized to interest expense over the remaining contractual term of the debt.

(13) Weighted average effective rate reflects the higher effective rate under the 500 West Monroe Street loans as a result of fair market valuation of the debt upon consolidation of 500 West Monroe Street.

 

17


Piedmont Office Realty Trust, Inc.

Debt Analysis

As of March 31, 2011

Unaudited

 

 

 

Debt Covenant Compliance (1)    Required      Actual  

 

Maximum Leverage Ratio

     0.60         0.31           

 

Minimum Fixed Charge Coverage Ratio (2)

     1.50         4.99           

 

Maximum Secured Indebtedness Ratio

     0.40         0.26           

 

Minimum Unencumbered Leverage Ratio

     1.60         8.45           

 

Minimum Unencumbered Interest Coverage Ratio (3)

     1.75         17.30           

 

Maximum Certain Permitted Investments Ratio (4)

     0.35         0.01           
   
                   

 

(1) Debt covenant compliance calculations relate to specific calculations detailed in our term loan and line of credit agreements.

  

 

(2) Defined as EBITDA for the trailing four quarters (including the company’s share of EBITDA from unconsolidated interests), less one-time or non-recurring gains or losses, less a $0.15 per square foot capital reserve, and excluding the impact of straight line rent leveling adjustments and amortization of intangibles divided by the company’s share of fixed charges, as more particularly described in the credit agreements.

    

 

(3) Defined as net operating income for the trailing four quarters for unencumbered assets (including the company’s share of net operating income from unconsolidated interests that are unencumbered) less a $0.15 per square foot capital reserve divided by the company’s share of interest expense associated with unsecured financings only, as more particularly described in the credit agreements.

    

 

(4) Permitted investments are defined as unconsolidated interests, debt investments, unimproved land, and development projects. Investments in permitted investments shall not exceed 35% of total asset value.

 

   

   
   
Other Debt Coverage Ratios    Three months ended
March 31, 2011
     Year ended
        December 31, 2010        
 

 

Net debt / Core EBITDA

     4.3 x             3.8 x   

 

Fixed charge coverage ratio (5)

     5.2 x             4.9 x   

 

Interest coverage ratio (6)

     5.2 x             4.9 x   
   
                   

 

(5) Fixed charge coverage is calculated as Core EBITDA divided by the sum of interest expense, principal amortization, capitalized interest and preferred dividends. We had no capitalized interest, principal amortization or preferred dividends during the periods ended March 31, 2011 and December 31, 2010.

    

 

(6) Interest coverage ratio is calculated as Core EBITDA divided by the sum of interest expense and capitalized interest. We had no capitalized interest during the periods ended March 31, 2011 and December 31, 2010.

 

   

 

18


Piedmont Office Realty Trust, Inc.

Tenant Diversification

As of March 31, 2011

(in thousands)

 

 

 

      Credit Rating (1)   Number of
Properties
  Lease
Expiration(s) (2)
  Annualized Lease
Revenue (3)
  Percentage of
Annualized Lease
Revenue (%)
  Leased Square
Footage
  Percentage of
Leased Square
Footage (%)

U.S. Government

   AAA / Aaa   10   (4)   $75,943   12.5   1,773   9.4

BP (5)

   A / A2   1   2013   32,580   5.4   776   4.1

US Bancorp

   A+ / Aa3   3   2014 / 2023 (6)   29,730   4.9   1,052   5.6

Leo Burnett

   BBB+ / Baa2   2   2019   26,419   4.4   682   3.6

State of New York

   AA / Aa2   1   2019   19,095   3.1   481   2.6

Winston & Strawn

   No rating available (7)   1   2024   18,332   3.0   417   2.2

Sanofi-aventis

   AA- / A2   2   2012   17,736   2.9   454   2.4

Independence Blue Cross

   No rating available   1   2023   14,571   2.4   761   4.1

Nestle

   AA / Aa1   1   2015   13,724   2.3   392   2.1

GE

   AA+ / Aa2   2   2012   12,039   2.0   333   1.8

Zurich American

   AA-   1   2011   10,611   1.7   300   1.6

Kirkland & Ellis

   No rating available (7)   1   2011   10,180   1.7   332   1.8

Shaw

   BBB- / Ba1   1   2018   9,782   1.6   313   1.7

State Street Bank

   AA- / Aa2   1   2021   9,552   1.6   235   1.3

City of New York

   AA / Aa2   1   2020   9,319   1.5   313   1.7

Lockheed Martin

   A- / Baa1   3   2014   9,142   1.5   284   1.5

DDB Needham

   BBB+ / Baa1   1   2018   8,787   1.4   244   1.3

Gallagher

   No rating available   1   2018   7,969   1.3   307   1.6

Marsh USA

   BBB- / Baa2   1   2011   7,326   1.2   173   0.9

Gemini

   A+ / Aa3   1   2013   7,320   1.2   205   1.1

Other

       Various   256,415   42.4   8,946   47.6

Total

               $606,572   100.0   18,773   100.0

LOGO

(1) Credit rating may reflect credit rating of parent or guarantor. When available, both the Standard & Poor’s credit rating and the Moody’s credit rating are provided.

(2) Represents the expiration year of the majority of the square footage leased by the tenant.

(3) Please refer to page 30 for the definition of Annualized Lease Revenue.

(4) There are several leases with several different agencies of the U.S. Government with expiration years ranging from 2011 to 2027.

(5) Majority of space is subleased to Aon Corporation.

(6) US Bank’s lease at One & Two Meridian Crossings, representing approximately 337,000 square feet and $8.1 million of Annualized Lease Revenue, expires in 2023. Of US Bancorp’s lease at US Bancorp Center for 715,000 square feet, representing $21.6 million of Annualized Lease Revenue, approximately 635,000 square feet, representing $18.8 million of Annualized Lease Revenue, expires in 2014, with the balance of approximately 80,000 square feet, representing $2.8 million of Annualized Lease Revenue, expiring during the second quarter of 2011.

(7) While no ratings are available for Winston & Strawn and Kirkland & Ellis, these tenants are ranked #34 and #6, respectively, in the 2011 AmLaw 100 ranking (based on 2010 financial data), a publication of The American Lawyer Magazine, which annually ranks the top-grossing and most profitable law firms.

 

19


Piedmont Office Realty Trust, Inc.

Tenant Credit Rating & Lease Distribution Information

As of March 31, 2011

 

 

 

       
    Tenant Credit Rating (1)    Annualized Lease
Revenue ($’s in
thousands)
     Percentage of
    Annualized Lease    
Revenue (%)
       

 

    AAA / Aaa

     $83,427       13.7     

    AA / Aa

     152,003       25.1     

    A / A

     101,906       16.8     

    BBB / Baa

     99,560       16.4     

    BB / Ba

     5,471       0.9     

    B / B

     20,025       3.3     

    Below

     0       0.0     

    Not rated (2)

     144,180       23.8     
                    

    Total

     $606,572       100.0     
                        

Lease Distribution

As of March 31, 2011

 

 

 

        Number of Leases           Percentage of    
Leases (%)
  Annualized
    Lease Revenue    
(in thousands)
    Percentage of
    Annualized Lease    
Revenue (%)
      Leased Square    
Footage (in
thousands)
  Percentage of
    Leased Square    
Footage (%)
   

2,500 or Less

  170   34.4     $16,013      2.6   136   0.7

2,501 - 10,000

  127   25.7     22,969      3.8   659   3.5

10,001 - 20,000

  58   11.8     26,346      4.3   840   4.5

20,001 - 40,000

  52   10.5     46,064      7.7   1,478   7.9

40,001 - 100,000

  31   6.3     57,799      9.5   1,950   10.4

Greater than 100,000

  56   11.3     437,381      72.1   13,710   73.0
 

Total

  494   100.0     $606,572      100.0   18,773   100.0
   

 

 

(1) Credit rating may reflect credit rating of parent or guarantor. Where differences exist between the Standard & Poor’s credit rating for a tenant and the Moody’s credit rating for a tenant, the higher credit rating is selected for this analysis.

(2) The classification of a tenant as “not rated” does not indicate that the tenant is of poor credit quality, but rather that the tenant or the tenant’s debt, if any, is not rated. Included in this category are such tenants as Winston & Strawn, Independence Blue Cross, McKinsey & Company and KPMG.

 

20


Piedmont Office Realty Trust, Inc.

Office Leasing Activity

(in thousands)

 

 

 

     Three Months Ended March 31, 2011               Three Months Ended March 31, 2010  
     Leased Square
Footage
     Rentable Square
Footage
     Percent Leased (1)               Leased Square
Footage
     Rentable Square
Footage
     Percent Leased (1)  
                      

As of December 31, 2010

     18,214          20,408          89.2%        

As of December 31, 2009

     18,221          20,229          90.1%   

New leases

     796               

New leases

     151          

Expired leases

     (904)              

Expired leases

     (255)         

Other

     (1)         (4)           

Other

     (1)              
                      

Subtotal

     18,105          20,404          88.7%        

Subtotal

     18,116          20,230          89.6%   

Acquisitions during period

     668          1,112            

Acquisitions during period

     -              -           

Dispositions during period

     -              -                

Dispositions during period

     -              -           

As of March 31, 2011 (2) (3)

     18,773          21,516          87.3%        

As of March 31, 2010 (2)

     18,116          20,230          89.6%   
                      

Less Acquisitions

             

Less Dispositions

        

Acquisitions after March 31, 2010

     (1,036)         (1,638)           

Dispositions after March 31, 2010

     (410)         (410)      

Same Store Total

     17,737          19,878          89.2%        

Same Store Total

     17,706          19,820          89.3%   
                      

Rental Rate Roll Up / Roll Down (4) (5)

 

 

 

    Three Months Ended March 31, 2011  
    Square Feet     % of Total Signed
During Period
    % of Rentable
Square Footage
    % Change Cash
Rents
    % Change Accrual
Rents (6)
 
       
New, renewal, and expansion leases executed for spaces vacant less than one year     724        86%        3.4%        8.1%        12.1%   
Leases executed for spaces excluded from analysis (7)     119        14%         

 

 

(1) Calculated as leased square footage as of period end with the addition of square footage associated with uncommenced leases for spaces vacant as of period end, divided by total rentable square footage as of period end, expressed as a percentage.

(2) The square footage associated with leases with end of period expiration dates is included in the end of the period leased square footage. End of period leased square footage includes short-term space leased on behalf of NASA in accordance with requirements stipulated under its lease to allow it to restructure its space at Two Independence Square in Washington, DC. As of March 31, 2011, total short-term space amounts to approximately 58,000 square feet and it will be occupied until an estimated date of June 30, 2013.

(3) Excluding executed but not commenced leases for currently vacant spaces, comprising approximately 466,000 square feet, and leases for which no rental income is being recognized due to rental abatement concessions, comprising approximately 203,000 square feet, Piedmont’s economic occupancy as of March 31, 2011 was 84.1%.

(4) The population analyzed consists of office leases executed during the period (retail leases as well as leases associated with storage spaces, management offices, industrial properties and unconsolidated joint venture assets were excluded from this analysis). For spaces that had been vacant for less than one year, the rents last in effect for the previous lease were compared to the initial rents of the new lease. Spaces that had been vacant for greater than one year were excluded from this analysis.

(5) For leases under which a tenant may use, at its discretion, a portion of its tenant improvement allowance for expenses other than those related to improvements to its space, an assumption is made that the tenant elects to use any such portion of its tenant improvement allowance for improvements to its space prior to the commencement of its lease. This assumption is made based upon the historical tenant improvement allowance usage patterns of the Company’s tenants.

(6) For newly signed leases which have variations in straight line rent calculations, whether for known future expansions, contractions, lease expense recovery structure changes, or other similar reasons, the weighted average of such straight line rent calculations is used for the purposes of this analysis.

(7) Represents leases signed at our consolidated office assets that do not qualify for inclusion in the analysis primarily because the space for which the new lease was signed had been vacant for greater than one year. Leases signed with Piedmont entities are excluded from the analysis.

 

21


Piedmont Office Realty Trust, Inc.

Lease Expiration Schedule

As of March 31, 2011

(in thousands)

 

 

 

   

OFFICE PORTFOLIO

      

GOVERNMENTAL ENTITIES

    Annualized Lease
Revenue (1)
 

Percentage of

Annualized Lease
Revenue (%)

  Rentable Square
Footage
  Percentage of
Rentable Square
Footage (%)
       Annualized Lease
Revenue (1)
  Percentage of
Annualized Lease
Revenue (%)
  Percentage of
Current Year
Total Annualized
Lease Revenue
Expiring (%)
          

 

Vacant

  $0   0.0   2,743   12.7      $0   0.0   N/A

2011 (2)

  70,595   11.6   1,892   8.8      18,498   3.1   26.2

2012 (3)

  59,947   9.9   1,821   8.5      7,459   1.2   12.4

2013

  59,332   9.8   1,640   7.6      1,598   0.3   2.7

2014

  55,054   9.1   1,697   7.9      3,517   0.6   6.4

2015

  44,155   7.3   1,586   7.4      0   0.0   0.0

2016

  33,285   5.5   1,191   5.5      1,389   0.2   4.2

2017

  22,232   3.7   648   3.0      1,251   0.2   5.6

2018

  47,650   7.9   1,605   7.5      8,647   1.4   18.1

2019

  54,644   9.0   1,486   6.9      19,095   3.1   34.9

2020

  31,442   5.2   1,140   5.3      11,944   2.0   38.0

2021

  15,081   2.5   536   2.5      1,025   0.2   6.8

2022

  18,279   3.0   699   3.2      0   0.0   0.0

2023

  25,697   4.2   1,183   5.5      0   0.0   0.0

2024

  25,765   4.2   576   2.7      0   0.0   0.0

Thereafter

  43,414   7.1   1,073   5.0      30,276   5.0   69.7
          

 

Total / Weighted Average

  $606,572   100.0   21,516   100.0      $104,699   17.3  
          

LOGO

 

 

(1) Annualized Lease Revenue for purposes of this schedule includes the revenue effects of leases executed but not commenced as of March 31, 2011.

(2) Includes leases with an expiration date of March 31, 2011 aggregating 7,502 square feet and Annualized Lease Revenue of $284,617.

(3) Leases and other revenue-producing agreements on a month-to-month basis, aggregating 15,822 square feet and Annualized Lease Revenue of $428,115, are assigned a lease expiration date of a year and a day beyond the period end date.

 

22


Piedmont Office Realty Trust, Inc.

Annual Lease Expirations

As of March 31, 2011

(in thousands)

 

 

 

    12/31/2011 (1)   12/31/2012   12/31/2013   12/31/2014   12/31/2015
                   
    Expiring
Square
  Footage  
 

Expiring Lease  

Revenue (2)

  Expiring
Square
  Footage  
 

Expiring Lease  

Revenue (2)

  Expiring
Square
  Footage  
 

Expiring Lease  

Revenue (2)

  Expiring
Square
  Footage  
 

Expiring Lease  

Revenue (2)

  Expiring
Square
  Footage  
 

Expiring Lease  

Revenue (2)

                   

Atlanta

  82   $2,019   34   $620   29   $728   28   $576   0   $0

Austin

  0   0   0   0   0   0   0   0   0   0

Boston

  0   0   7   336   0   29   27   1,884   133   2,610

Central & South Florida

  134   3,034   4   107   8   215   17   438   6   134

Chicago

  614   24,181   386   14,080   801   32,491   34   3,962   202   5,569

Cleveland

  0   0   112   1,890   14   335   0   0   0   0

Dallas

  42   957   87   2,220   10   245   41   997   284   6,131

Denver

  0   0   0   0   0   0   0   0   0   0

Detroit

  225   3,637   84   2,233   136   1,984   12   217   131   3,866

Houston

  15   355   11   346   0   0   0   0   0   0

Los Angeles

  74   2,812   46   1,719   70   2,528   5   211   424   14,690

Minneapolis

  176   5,780   32   1,062   45   1,438   808   22,915   98   3,358

Nashville

  0   0   0   0   0   0   0   0   0   0

New York

  3   296   546   19,282   232   8,421   98   4,155   66   2,416

Philadelphia

  0   0   0   0   0   0   0   0   0   0

Phoenix

  45   903   0   0   0   0   0   0   194   3,798

Portland

  105   1,501   147   2,023   0   0   74   1,079   0   0

Seattle

  38   1,625   0   0   0   0   0   0   22   534

Washington, D.C.

  339   19,011   325   14,958   295   10,321   553   18,703   26   1,065
                   

Total / Weighted Average (3)

  1,892   $66,111   1,821   $60,876   1,640   $58,735   1,697   $55,137   1,586   $44,171
                   

 

 

 

(1) Includes leases with an expiration date of March 31, 2011 aggregating 7,502 square feet.

(2) Expiring lease revenue is calculated as expiring square footage multiplied by the gross rent per square foot of the tenant currently leasing the space.

(3) Total expiring lease revenue in any given year will not tie to the expiring Annualized Lease Revenue presented on the Lease Expiration Schedule as the Lease Expiration Schedule accounts for revenue effects of newly signed leases. Expirations in the Lease Expiration Schedule reflect rental rates of newly executed leases, effectively incorporating known roll ups and roll downs.

 

23


Piedmont Office Realty Trust, Inc.

Capital Expenditures by Type

For the quarter ended March 31, 2011

Unaudited ($ in thousands)

 

 

 

     For the Three Months Ended       
           
     3/31/2011      12/31/2010      9/30/2010      6/30/2010      3/31/2010     
           

Non-incremental (1)

                 

Bldg / construction / dev

     $1,734         $3,082                     $2,293                     $3,607          $2,637       

Tenant improvements

     10,266         17,197         6,088         2,333          4,039       

Leasing costs

     9,469         6,315         4,948         3,029          2,737       
           

Total non-incremental

     21,469         26,594         13,329         8,969          9,413       

 

Incremental (1)

                 

Bldg / construction / dev

     923         1,174         417         439          250       

Tenant improvements

     1,053         6         0                      

Leasing costs

     75         2,531         0                      
           

Total incremental

 

     2,051         3,711         417         439          250       
           

Total capital expenditures

                 $23,520                     $30,305         $13,746         $9,408                      $9,663       
           
                 
             
                     

Tenant improvement commitments (2)

  

        

 

Tenant improvement commitments outstanding as of December 31, 2010

  

        $111,390       

New tenant improvement commitments related to leases executed during period

  

        24,717       

  Tenant improvement expenditures

  

     (11,319)         

  Less: Tenant improvement expenditures fulfilled through accrued liabilities already presented on Piedmont’s balance sheet, expired commitments or other adjustments

   

     6,629          

Tenant improvement commitments fulfilled, expired or other adjustments

  

        (4,690)      
                         

Total as of March 31, 2011

  

                $131,417       
                           
                                                   

 

 

NOTE: The information presented on this page is for all consolidated assets, inclusive of our industrial properties.

(1) Definitions for non-incremental and incremental capital expenditures can be found on pages 30 and 31.

(2) Commitments are unexpired contractual tenant improvement obligations for leases executed in current and prior periods that have not yet been incurred and have not otherwise been presented on Piedmont’s financial statements. The four largest commitments total approximately $73.9 million, or 56% of total outstanding commitments.

 

24


Piedmont Office Realty Trust, Inc.

Contractual Tenant Improvements and Leasing Commissions

 

 

 

                For the Year Ended  
       

For the Three Months

Ended March 31, 2011

     2010      2009      2008  
   

Renewal Leases

                                  
   

Number of leases

    8         37         34         34   
   

Square feet

    615,793         1,241,481         1,568,895         967,959   
   

 

Tenant improvements per square foot (1)

    $64.47         $14.40         $12.01         $8.28   
   

Leasing commissions per square foot

    $16.09         $8.40         $5.51         $7.17   
   

Total per square foot

    $80.56         $22.80         $17.52         $15.45   
     
   

Tenant improvements per square foot per year of lease term

    $4.39         $1.74         $1.44         $1.39   
   

Leasing commissions per square foot per year of lease term

    $1.09         $1.02         $0.66         $1.20   
   

Total per square foot per year of lease term

    $5.48         $2.76         $2.10         $2.59   
   

New Leases

                                  
   

Number of leases

    16         56         28         37   
   

Square feet

    226,931         866,212         700,295         747,919   
   

Tenant improvements per square foot (1)

    $48.16         $32.65         $45.04         $30.59   
   

Leasing commissions per square foot

    $15.93         $11.28         $17.12         $15.95   
   

Total per square foot

    $64.09         $43.93         $62.16         $46.54   
     
   

Tenant improvements per square foot per year of lease term

    $5.55         $4.16         $4.05         $3.24   
   

Leasing commissions per square foot per year of lease term

    $1.84         $1.44         $1.54         $1.69   
   

Total per square foot per year of lease term

    $7.39         $5.60         $5.59         $4.93   
   

Total

                                  
   

Number of leases

    24         93         62         71   
   

Square feet

    842,724         2,107,693         2,269,190         1,715,878   
   

Tenant improvements per square foot (1)

    $60.07         $21.90         $22.21         $18.01   
   

Leasing commissions per square foot

    $16.04         $9.59         $9.09         $11.00   
   

Total per square foot

    $76.11         $31.49         $31.30         $29.01   
     
   

Tenant improvements per square foot per year of lease term

    $4.59         $2.70         $2.42         $2.41   
   

Leasing commissions per square foot per year of lease term

    $1.23         $1.18         $0.99         $1.47   
   

Total per square foot per year of lease term

    $5.82         $3.88         $3.41         $3.88   

NOTE: This information is presented for our consolidated office assets only. Short-term leases (leases for a term of less than one year) are excluded from this information.

(1) For leases under which a tenant may use, at its discretion, a portion of its tenant improvement allowance for expenses other than those related to improvements to its space, an assumption is made that the tenant elects to use any such portion of its tenant improvement allowance for improvements to its space prior to the commencement of its lease. This assumption is made based upon the historical tenant improvement allowance usage patterns of the Company’s tenants.

 

25


Piedmont Office Realty Trust, Inc.

Geographic Diversification

As of March 31, 2011

 

 

 

Location   Number of
Properties
 

Annualized Lease

Revenue ($’s in

thousands)

 

Percentage of

Annualized Lease

Revenue (%)

 

Rentable Square

Footage (in

Thousands)

 

Percentage of

Rentable Square

Footage (%)

 

Leased Square

Footage (in

thousands)

 

Percent Leased

(%)

 

Chicago

  7   $180,078   29.7   5,850   27.2   4,918   84.1

Washington, D.C.

  14   116,792   19.3   3,045   14.2   2,744   90.1

New York

  8   92,354   15.2   2,920   13.6   2,746   94.0

Minneapolis

  4   46,054   7.6   1,612   7.5   1,576   97.8

Los Angeles

  5   30,812   5.1   1,144   5.3   964   84.3

Boston

  4   24,239   4.0   583   2.7   562   96.4

Dallas

  7   24,049   4.0   1,275   5.9   1,079   84.6

Detroit

  4   18,197   3.0   929   4.2   809   87.1

Philadelphia

  1   14,571   2.4   761   3.5   761   100.0

Atlanta

  4   10,930   1.8   750   3.5   446   59.5

Houston

  2   10,521   1.7   463   2.2   341   73.7

Nashville

  1   6,975   1.1   312   1.5   312   100.0

Phoenix

  4   6,785   1.1   554   2.6   344   62.1

Central & South Florida

  3   5,867   1.0   299   1.4   253   84.6

Austin

  1   5,482   0.9   195   0.9   195   100.0

Portland

  4   4,603   0.8   325   1.5   325   100.0

Cleveland

  2   3,235   0.5   187   0.9   175   93.6

Denver

  1   2,712   0.4   156   0.7   156   100.0

Seattle

  1   2,316   0.4   156   0.7   67   42.9
 

Total / Weighted Average

  77   $606,572   100.0   21,516   100.0   18,773   87.3
   

LOGO

 

26


Piedmont Office Realty Trust, Inc.

Industry Diversification

As of March 31, 2011

 

 

 

Industry Diversification   Number of
Tenants
  Percentage of
Total Tenants
(%)
  Annualized Lease
Revenue ($’s in
thousands)
  Percentage of
Annualized Lease
Revenue (%)
  Leased Square
Footage (in
thousands)
  Percentage of    
Leased Square    
Footage (%)    

Governmental Entity

  6   1.4   $104,699   17.3   2,574   13.7

Business Services

  63   15.1   68,641   11.3   2,210   11.8

Depository Institutions

  14   3.4   57,225   9.4   1,790   9.5

Legal Services

  10   2.4   36,423   6.0   1,019   5.4

Insurance Carriers

  20   4.8   36,322   6.0   1,495   8.0

Petroleum Refining & Related Industries

  1   0.2   32,580   5.4   776   4.1

Nondepository Credit Institutions

  12   2.9   32,336   5.3   1,076   5.7

Chemicals & Allied Products

  7   1.7   23,550   3.9   700   3.7

Insurance Agents, Brokers & Services

  9   2.2   18,914   3.1   598   3.2

Engineering, Accounting, Research, Management

& Related Services

  26   6.2   18,774   3.1   572   3.0

Communications

  36   8.6   17,544   2.9   595   3.2

Security & Commodity Brokers, Dealers,

Exchanges & Services

  21   5.0   15,250   2.5   548   2.9

Food & Kindred Products

  4   1.0   14,507   2.4   423   2.3

Educational Services

  7   1.7   12,011   2.0   276   1.5

Transportation Equipment

  4   1.0   11,275   1.9   346   1.8

Other

  177   42.4   106,521   17.5   3,775   20.2

Total

  417   100.0   $606,572   100.0   18,773   100.0
   

LOGO

 

27


Piedmont Office Realty Trust, Inc.

Property Investment Activity

 

 

 

Acquisitions
 
Property Name        Location    Acquisition
Date
     Percent
Ownership
(%)
     Year Built      Purchase
Price ($’s in
thousands)
   Rentable
Square
Footage (in
thousands)
   Percent
Leased at
Acquisition
(%)
 

Suwanee Gateway One

   Suwanee, GA      9/28/2010         100           2008       $7,875    142    0

Meridian Crossings

   Richfield, MN      10/1/2010         100           1997-1998       65,611    384    96

1200 Enclave Parkway

   Houston, TX      3/30/2011         100           1999       18,500    150    18

500 West Monroe Street (1)

   Chicago, IL      3/31/2011         100           1991       227,500    962    67
                
               $319,486    1,638    63
                
Dispositions
 
Property Name        Location    Disposition
Date
     Percent
Ownership
(%)
     Year Built      Sale Price
($’s in
thousands)
   Rentable
Square
Footage (in
thousands)
   Percent
Leased at
Disposition
(%)
 

111 Sylvan Avenue (2)

   Englewood Cliffs, NJ      12/8/2010         100           1953-1967       $55,000    410   

100 

14400 Hertz Quail Springs Parkway

   Oklahoma City, OK      10/15/2010         4           1997       5,300    57    100
                
               $60,300    467    100
                
Acquisitions Subsequent to Quarter End
Property Name        Location    Acquisition
Date
     Percent
Ownership
(%)
     Year Built      Purchase
Price ($’s in
thousands)
   Rentable
Square
Footage (in
thousands)
   Percent
Leased at
Acquisition
(%)

The Dupree Building

   Atlanta, GA      4/29/2011         100           1997       $20,450    138    83

(1) Investment in this property was converted from a structured finance investment to an owned real estate asset through a UCC foreclosure of the equity ownership interest on March 31, 2011. The purchase price presented equates to the book basis for the real estate assets comprising the property.

(2) Property was to become vacant within six months of disposition.

 

28


Piedmont Office Realty Trust, Inc.

Other Investments

As of March 31, 2011

 

 

Industrial Properties    Location    Percent
Ownership
(%)
     Year Built            

Real Estate

Net Book
Value ($’s in
thousands)

     Rentable Square
Footage (in
thousands)
   Percent
Leased (%)
 
   

 112 Hidden Lake Circle

   Duncan, SC      100           1987            $9,780       313.4      100.0   

 110 Hidden Lake Circle

   Duncan, SC      100           1987            13,162       473.4      36.8   
                    
                 $22,942       786.8      61.9   
                    
Unconsolidated Joint Venture Properties    Location    Percent
Ownership
(%)
     Year Built      Piedmont
Share of Real
Estate Net
Book Value
($’s in
thousands)
     Real Estate
Net Book
Value ($’s in
thousands)
     Rentable Square
Footage (in
thousands)
   Percent
Leased (%)
 
   

 360 Interlocken Boulevard

   Broomfield, CO      4           1996         $244         $6,601       51.7      100.0   

 47300 Kato Road

   Fremont, CA      78           1982         2,659         3,430       58.4      0.0   

 20/20 Building

   Leawood, KS      57           1992         2,558         4,508       68.3      90.8   

 4685 Investment Drive

   Troy, MI      55           2000         5,136         9,337       77.1      100.0   

 5301 Maryland Way

   Brentwood, TN      55           1989         11,001         19,997       201.2      100.0   

 8560 Upland Drive

   Parker, CO      72           2001         7,635         10,621       148.2      100.0   

 Two Park Center

   Hoffman Estates, IL      72           1999         11,488         15,980       193.7      38.6   
                 
              $40,721         $70,474       798.6      77.0   
                 
Land Parcels    Location                                Acres       
   

  Portland Land Parcels

   Beaverton, OR                18.2   

  Enclave Parkway

   Houston, TX                4.5   

  Durham Avenue

   South Plainfield, NJ                8.9   

  Corporate Court

   Holtsville, NY                10.0   

  State Highway 161

   Irving, TX                4.5   
                      
                  46.1   
                      

 

29


Piedmont Office Realty Trust, Inc.

Supplemental Definitions

 

Included in this section are management’s statements regarding certain non-GAAP financial measures provided in this supplemental report and reasons why management believes that these measures provide useful information to investors about the Company’s financial condition and results of operations. Reconciliations of these non-GAAP measures are included within pages 33-36.

 

Adjusted Funds From Operations (“AFFO”): AFFO is calculated by deducting from Core FFO non-incremental capital expenditures and adding back non-cash items including non-real estate depreciation, straight lined rents and fair value lease revenue, non-cash components of interest expense and compensation expense, and by making similar adjustments for unconsolidated partnerships and joint ventures. Although AFFO may not be comparable to that of other REITs, we believe it provides a meaningful indicator of our ability to fund cash needs and to make cash distributions to equity owners. AFFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income, as an alternative to net cash flows from operating activities or as a measure of our liquidity.

 

Annualized Lease Revenue (“ALR”): ALR is calculated by multiplying (i) rental payments (defined as base rent plus operating expense reimbursements, if payable by the tenant on a monthly basis under the terms of a lease that have been executed, but excluding a) rental abatements and b) rental payments related to executed but not commenced leases for space that was covered by an existing lease), by (ii) 12. In instances in which contractual rents or operating expense reimbursements are collected on an annual, semi-annual, or quarterly basis, such amounts are multiplied by a factor of 1, 2, or 4, respectively, to calculate the annualized figure. For leases that have been executed but not commenced relating to un-leased space, ALR is calculated by multiplying (i) the monthly base rental payment (excluding abatements) plus any operating expense reimbursements for the initial month of the lease term, by (ii) 12. Unless stated otherwise, this measure excludes our industrial properties and unconsolidated joint venture interests.

 

Core EBITDA: Core EBITDA is defined as net income before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property, or other extraordinary items. We do not include impairment losses in this measure because we feel these types of losses create volatility in our earnings and make it difficult to determine the earnings generated by our ongoing business. We believe Core EBITDA is a reasonable measure of our liquidity. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative measurement of cash flows from operating activities or other GAAP basis liquidity measures. Other REITs may calculate Core EBITDA differently and our calculation should not be compared to that of other REITs.

 

Core Funds From Operations (“Core FFO”): We calculate Core FFO by starting with FFO, as defined by NAREIT, and adjusting for certain non-recurring items such as impairment losses and other extraordinary items. Such items create significant earnings volatility. We believe Core FFO provides a meaningful measure of our operating performance and more predictability regarding future earnings potential. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income; therefore, it should not be compared to other REITs’ equivalent to Core FFO.

 

Core Net Operating Income (“Core NOI”): Core NOI is defined as real estate operating income with the add-back of corporate general and administrative expense, depreciation and amortization, and casualty and impairment losses and the deduction of income and expense associated with lease terminations and income associated with property management performed by Piedmont for other organizations. We present this measure on an accrual basis and a cash basis, which eliminates the effects of straight lined rents and fair value lease revenue. The company uses this measure to assess its operating results and believes it is important in assessing operating performance. Core NOI is a non-GAAP measure which does not have any standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies.

 

EBITDA: EBITDA is defined as net income before interest, taxes, depreciation and amortization. We believe EBITDA is an appropriate measure of our ability to incur and service debt. EBITDA should not be considered as an alternative to cash flows from operating activities, as a measure of our liquidity or as an alternative to net income as an indicator of our operating activities. Other REITs may calculate EBITDA differently and our calculation should not be compared to that of other REITs.

 

Funds From Operations (“FFO”): FFO is calculated in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines FFO as net income (computed in accordance with GAAP), excluding gains or losses from sales of property, adding back depreciation and amortization on real estate assets, and after the same adjustments for unconsolidated partnerships and joint ventures. Such factors can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. FFO may provide valuable comparisons of operating performance between periods and with other REITs. FFO is a non-GAAP financial measure and should not be viewed as an alternative measurement of our operating performance to net income. We believe that FFO is a beneficial indicator of the performance of an equity REIT. However, other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than we do; therefore, our computation of FFO may not be comparable to that of such other REITs.

 

Incremental Capital Expenditures: Incremental Capital Expenditures are defined as capital expenditures of a non-recurring nature that incrementally enhance the underlying assets’ income generating capacity. Tenant improvements, leasing commissions, building capital and deferred lease incentives incurred to lease space that was dark at acquisition, improvements associated with the expansion of a building and renovations that change the underlying classification of a building are included in this measure.

 

30


 

Piedmont Office Realty Trust, Inc.

Supplemental Definitions

 

 

 

 

NOI from Unconsolidated Joint Ventures: NOI from Unconsolidated Joint Ventures is defined as Core NOI attributable to our interests in eight properties owned through unconsolidated partnerships. We present this measure on an accrual basis and a cash basis, which eliminates the effects of straight lined rents and fair value lease revenue. NOI from Unconsolidated Joint Ventures is a non-GAAP measure and therefore may not be comparable to similarly defined data provided by other REITs.

 

Non-Incremental Capital Expenditures: Non-Incremental Capital Expenditures are defined as capital expenditures of a recurring nature related to tenant improvements and leasing commissions that do not incrementally enhance the underlying assets’ income generating capacity. We exclude first generation tenant improvements and leasing commissions from this measure.

 

Same Store Net Operating Income (“Same Store NOI”): Same Store NOI is calculated as the Core NOI attributable to the properties owned or placed in service during the entire span of the current and prior year reporting periods. Same Store NOI excludes amounts attributable to industrial properties and unconsolidated joint venture assets. We present this measure on an accrual basis and a cash basis, which eliminates the effects of straight lined rents and fair value lease revenue. We believe Same Store NOI is an important measure of comparison of our stabilized properties’ operating performance. Other REITs may calculate Same Store NOI differently and our calculation should not be compared to that of other REITs.

 

Same Store Properties: Same Store Properties is defined as properties owned or placed in service during the entire span of the current and prior year reporting periods. Same Store Properties excludes industrial properties and unconsolidated joint venture assets. We believe Same Store Properties is an important measure of comparison of our stabilized portfolio performance.

 

31


Piedmont Office Realty Trust, Inc.

Research Coverage

 

Paul E. Adornato, CFA    John W. Guinee, III    Brendon Maiorana
BMO Capital Markets    Stifel, Nicolaus & Company    Wells Fargo

3 Time Square

   One South Street    7 St. Paul Street

New York, NY 10036

   16th Floor    MAC R1230-011

Phone: (212) 885-4170

   Baltimore, MD 21202    Baltimore, MD 21202
   Phone: (443) 224-1307    Phone: (443) 263-6516

Anthony Paolone, CFA

  

David B. Rodgers, CFA

  

John J. Stewart, CFA

JP Morgan

  

RBC Capital Markets

  

Green Street Advisors

277 Park Avenue

  

Arbor Court

  

660 Newport Center Drive, Suite 800

New York, NY 10172

  

30575 Bainbridge Road, Suite 250

  

Newport Beach, CA 92660

Phone: (212) 622-6682

  

Solon, OH 44139

  

Phone: (949) 640-8780

   Phone: (440) 715-2647   
   Stephen C. Swett   
   Morgan Keegan & Co.   
   535 Madison Avenue   
   10th Floor   
   New York, NY 10022   
   Phone: (212) 508-7585   

 

 

 

32


Piedmont Office Realty Trust, Inc.

Same Store Net Operating Income (Cash Basis)

Unaudited (in thousands)

 

 

 

    Three Months Ended  
     3/31/2011       12/31/2010       9/30/2010       6/30/2010       3/31/2010   

Net income attributable to Piedmont

  $ 33,967        $ 28,700        $ 40,584        $ 19,636        $ 31,460     

Net income attributable to noncontrolling interest

    123          122          158          125          125     

Interest expense

    17,174          17,378          17,359          18,933          19,091     

Depreciation

    27,324          26,995          26,339          26,050          26,428     

Amortization

    12,106          11,623          11,119          11,104          11,488     

Impairment loss on real estate assets

    -              -              53          9,587          -         

Loss on sale of property

    -              792          -              -              -         

Gain on consolidation of VIE

    (1,920)         -              -              -              -         
                                       

Core EBITDA

    88,774          85,610          95,612          85,435          88,592