Highlights for the Three Months Ended September30, 2023:
Financial Results:
| Three Months Ended | |||||
| (in 000s other than per share amounts ) | September 30, 2023 | September 30, 2022 | |||
| Net income/(loss) applicable to Piedmont | $ | (17,002 | ) | $ | 3,331 |
| Net income/(loss) per share applicable to common stockholders – diluted | $ | (0.14 | ) | $ | 0.03 |
| Goodwill impairment charge | $ | 10,957 | — | ||
| Interest expense | $ | 27,361 | $ | 17,244 | |
| Loss on early extinguishment of debt | $ | 820 | — | ||
| NAREIT Funds From Operations (“FFO”) applicable to common stock | $ | 51,896 | $ | 61,352 | |
| Core FFO applicable to common stock | $ | 52,716 | $ | 61,352 | |
| NAREIT FFO per diluted share | $ | 0.42 | $ | 0.50 | |
| Core FFO per diluted share | $ | 0.43 | $ | 0.50 | |
| Adjusted FFO applicable to common stock | $ | 39,939 | $ | 43,482 | |
| Dividends Paid to Common Stockholders | $ | 15,462 | $ | 25,913 | |
- Despite a $2.9 million increase in total revenues for the three months ended September30, 2023 as compared to the three months ended September 30, 2022, Piedmont recognized a net loss of $17.0 million, or $0.14 per diluted share, for the third quarter of 2023, which included the following:
- An approximately $11.0 million non-cash impairment charge associated with a partial write down of the Company’s goodwill balance;
- An approximately $10.1 million increase in interest expense driven by higher interest rates on the Company’s debt during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022; and
- An approximately $0.8 million loss on early extinguishment of debt associated with refinancing activity during the three months ended September 30, 2023, as further described below.
- Core FFO, which removes the impact of the impairment loss and loss on extinguishment of debt noted above, as well as depreciation and amortization expense, was $0.43 per diluted share for the third quarter of 2023, as compared to $0.50 per diluted share for the third quarter of 2022. The $0.07 per diluted share decrease was attributable to the $10.1 million, or $0.08 per diluted share, increase in interest expense during the third quarter of 2023, partially offset by continued growth in operating income from the Company’s properties, as compared to the third quarter of 2022.
Leasing (including subsequent events):
| Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | |||
| # of lease transactions | 45 | 140 | ||
| Total leasing sf | 302,217 | 1,426,808 | ||
| New tenant leasing sf | 170,276 | 676,278 | ||
| Cash rent roll up | 11.7 | % | 9.8 | % |
| Accrual rent roll up | 10.3 | % | 13.5 | % |
| Retention ratio | 76.0 | % | ||
| Leased Percentage as of period end | 86.7 | % | ||
- The Company completed approximately 302,000 square feet of leasing transactions during the third quarter, the majority of which, or approximately 170,000 square feet, was for new tenant leasing, which is consistent with pre-COVID leasing levels.
- The largest new lease completed during the quarter was for a financial services tenant for approximately 32,000 square feet at Crescent Ridge II in Minneapolis, MN.
- Cash and accrual basis rents on leases executed during the quarter ended September 30, 2023 for space vacant one year or less increased approximately 12% and 10%, respectively.
- The Company’s leased percentage as of September30, 2023 increased to 86.7% from 86.2% as of June 30, 2023 with scheduled lease expirations for the remainder of 2023 representing approximately 2% of annualized lease revenue.
- Both Same Store NOI – Cash basis and Same Store NOI – Accrual basis increased 5.3% and 1.7%, respectively, for the three months ended September30, 2023, as compared to the same period in the prior year, as new leases commencing or with expiring abatements outweighed expired leases.
- The average size lease executed during the third quarter of 2023 was approximately 13,000 square feet and the weighted average lease term was approximately seven years.
- As of September30, 2023, the Company had approximately 1.1million square feet of executed leases for vacant space yet to commence or under rental abatement, representing approximately $36million of future additional annual cash revenue.
- Subsequent to quarter end, the Company has already completed over 600,000 square feet of executed leases including: a new tenant lease with GE Vernova for approximately 77,000 square feet at Galleria 600 in Atlanta, GA through 2036; and the renewal of US Bancorp’s entire 447,000 square foot headquarters lease at US Bancorp Center in downtown Minneapolis, MN through 2034.
Balance Sheet:
| (in 000s except for ratios) | September 30, 2023 | December 31, 2022 | |||||
| Total Real Estate Assets | $ | 3,502,576 | $ | 3,500,624 | |||
| Total Assets | $ | 4,073,778 | $ | 4,085,525 | |||
| Total Debt | $ | 2,050,319 | $ | 1,983,681 | |||
| Weighted Average Cost of Debt | 5.46 | % | 3.89 | % | |||
| Debt-to-Gross Assets Ratio | 38.4 | % | 37.6 | % | |||
| Average Net Debt-to-Core EBITDA (ttm) | 6.4x | 6.0x | |||||
- During the three months ended September30, 2023, the Company’s operating partnership, Piedmont Operating Partnership, LP, issued $400 million aggregate principal amount of 9.25% senior unsecured notes due 2028 (the “2028 Notes”), rated BBB by S&P and Baa2 by Moody’s. Approximately $350 million of the net proceeds from the issuance was used to fund the Company’s tender offer for its outstanding unsecured senior notes due 2024 (the “2024 Notes”), which resulted in the recognition of an approximately $0.8 million loss on early extinguishment of debt during the quarter. The remaining net proceeds from the bond issuance were used to pay down the Company’s line of credit.
ESG and Operations:
- During the three months ended September 30, 2023, the Company received notice that it achieved the highest sustainability rating of “5 Star” and a second consecutive “Green Star” recognition from GRESB® based on 2022 performance.
Commenting on third quarter results, Brent Smith, Piedmont’s President and Chief Executive Officer, said, “The third quarter was productive for Piedmont as we continued to advance on several of our key goals for 2023. First and foremost, we delivered another quarter of solid leasing results – just over 300,000 square feet in total leasing with the majority, or 170,000 square feet, being for new tenant leasing, increasing our overall leased percentage to approximately 86.7% as of the end of the quarter, and reflecting double-digit rollups in both cash and accrual rental rates. Additionally, our previously announced third quarter refinancing activity addressed our upcoming 2024 debt maturities and bolstered our balance sheet as our fixed rate debt now has a weighted average debt tenure of over 5 years at an average rate of approximately 5%.” Continuing, Smith added, “The most exciting leasing activity was completed just after the end of the third quarter, with the execution of over 600,000 square feet of leasing thus far in October, the bulk of which was US Bank’s renewal of its downtown Minneapolis headquarters location at US Bancorp Center, as well as a sizeable new tenant lease with GE Vernova at the Atlanta Galleria. The strong start to fourth quarter leasing reinforces our year end leased goal of 87% and demonstrates the continuing demand for highly-amenitized, well-located office space operated by a sustainability focused and financially stable landlord.”
Fourth Quarter 2023 Dividend
As previously announced, on October 25, 2023, the board of directors of Piedmont declared a dividend for the fourth quarter of 2023 in the amount of $0.125 per share on its common stock to stockholders of record as of the close of business on November 24, 2023, payable on January 2, 2024.
Guidance for 2023
The Company’s previously issued guidance for the year ending December 31, 2023 is as follows:
| (in millions, except per share data) | Low | High | |||||
| Net income/(loss) | $ | (19 | ) | $ | (17 | ) | |
| Add: | |||||||
| Depreciation | 148 | 151 | |||||
| Amortization | 87 | 89 | |||||
| Core FFO applicable to common stock | $ | 216 | $ | 223 | |||
| Core FFO applicable to common stock per diluted share | $ | 1.74 | $ | 1.80 | |||
Due to interest rates remaining at elevated levels longer than originally anticipated, the Company estimates that it will achieve the lower end of the above stated range. This guidance is based on information available to management as of the date of this release and reflects management’s view of current market conditions. No speculative acquisitions or dispositions are included in the above guidance. The Company will adjust guidance if such transactions occur, and if interest rate impacts differ from current assumptions.
Note that actual results could differ materially from these estimates and individual quarters may fluctuate on both a cash basis and an accrual basis due to the timing of any future dispositions, significant lease commencements and expirations, abatement periods, repairs and maintenance expenses, capital expenditures, capital markets activities, seasonal general and administrative expenses, accrued potential performance-based compensation expense, one-time revenue or expense events, and other factors discussed under “Forward Looking Statements” below.
Non-GAAP Financial Measures
To supplement the presentation of the Company’s financial results prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), this release and the accompanying quarterly supplemental information as of and for the period ended September30, 2023 contain certain financial measures that are not prepared in accordance with GAAP, including FFO, Core FFO, AFFO, Same Store NOI (cash and accrual basis), Property NOI (cash and accrual basis), EBITDAre, and Core EBITDA. Definitions and reconciliations of each of these non-GAAP measures to their most comparable GAAP metrics are included below and in the accompanying quarterly supplemental information.
Each of the non-GAAP measures included in this release and the accompanying quarterly supplemental financial information has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of the Company’s results calculated in accordance with GAAP. In addition, because not all companies use identical calculations, the Company’s presentation of non-GAAP measures in this release and the accompanying quarterly supplemental information may not be comparable to similarly titled measures disclosed by other companies, including other REITs. The Company may also change the calculation of any of the non-GAAP measures included in this release and the accompanying quarterly supplemental financial information from time to time in light of its then existing operations.
Conference Call Information
Piedmont has scheduled a conference call and an audio web cast for Tuesday, October 31, 2023, at 9:00 A.M. Eastern time. The live, listen-only, audio web cast of the call may be accessed on the Company’s website at http://investor.piedmontreit.com/news-and-events/events-calendar. Dial-in numbers for analysts who plan to actively participate in the call are (888) 506-0062 for participants in the United States and Canada and (973) 528-0011 for international participants. Participant Access Code is 860934. A replay of the conference call will be available through November 14, 2023, and may be accessed by dialing (877) 481-4010 for participants in the United States and Canada and (919) 882-2331 for international participants, followed by conference identification code 49226. A web cast replay will also be available after the conference call in the Investor Relations section of the Company’s website. During the audio web cast and conference call, the Company’s management team will review third quarter 2023 performance, discuss recent events, and conduct a question-and-answer period.
Supplemental Information
Quarterly supplemental information as of and for the period ended September30, 2023 can be accessed on the Company`s website under the Investor Relations section at www.piedmontreit.com.
About Piedmont Office Realty Trust
Piedmont Office Realty Trust, Inc. (NYSE: PDM) is an owner, manager, developer, redeveloper, and operator of high-quality, Class A office properties located primarily in major U.S. Sunbelt markets. Its approximately $5 billion portfolio is currently comprised of approximately 17 million square feet. The Company is a fully integrated, self-managed real estate investment trust (REIT) with local management offices in each of its markets and is investment-grade rated by S&P Global Ratings (BBB) and Moody’s (Baa2). Piedmont is a 2023 ENERGY STAR Partner of the Year. For more information, see www.piedmontreit.com.
Forward-Looking Statements
Certain statements contained in this press release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company intends for all such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such information is subject to certain known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated. Therefore, such statements are not intended to be a guarantee of the Company`s performance in future periods. Such forward-looking statements can generally be identified by the Company’s use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue” or similar words or phrases that indicate predictions of future events or trends or that do not relate solely to historical matters. Examples of such statements in this press release include whether the strong start to fourth quarter leasing will result in the Company achieving its occupancy goal of 87% leased at year end; and the Company’s estimated range of Net Income/(Loss), Depreciation, Amortization, Core FFO and Core FFO per diluted share. These statements are based on beliefs and assumptions of Piedmont’s management, which in turn are based on information available at the time the statements are made.
The following are some of the factors that could cause the Company’s actual results and its expectations to differ materially from those described in the Company’s forward-looking statements:
- Economic, regulatory, socio-economic (including work from home), technological (e.g. Metaverse, Zoom, etc), and other changes that impact the real estate market generally, the office sector or the patterns of use of commercial office space in general, or the markets where we primarily operate or have high concentrations of Annualized Lease Revenue;
- The impact of competition on our efforts to renew existing leases or re-let space on terms similar to existing leases;
- Lease terminations, lease defaults, lease contractions, or changes in the financial condition of our tenants, particularly by one of our large lead tenants;
- Impairment charges on our long-lived assets or goodwill resulting therefrom;
- The success of our real estate strategies and investment objectives, including our ability to implement successful redevelopment and development strategies or identify and consummate suitable acquisitions and divestitures;
- The illiquidity of real estate investments, including economic changes, such as rising interest rates, which could impact the number of buyers/sellers of our target properties, and regulatory restrictions to which real estate investment trusts (“REITs”) are subject and the resulting impediment on our ability to quickly respond to adverse changes in the performance of our properties;
- The risks and uncertainties associated with our acquisition and disposition of properties, many of which risks and uncertainties may not be known at the time of acquisition or disposition;
- Development and construction delays, including the potential of supply chain disruptions, and resultant increased costs and risks;
- Future acts of terrorism, civil unrest, or armed hostilities in any of the major metropolitan areas in which we own properties, or future cybersecurity attacks against any of our properties or our tenants;
- Risks related to the occurrence of cybersecurity incidents, including cybersecurity incidents against us or any of our properties or tenants, or a deficiency in our identification, assessment or management of cybersecurity threats impacting our operations;
- Costs of complying with governmental laws and regulations, including environmental standards imposed on office building owners;
- Uninsured losses or losses in excess of our insurance coverage, and our inability to obtain adequate insurance coverage at a reasonable cost;
- Additional risks and costs associated with directly managing properties occupied by government tenants, such as potential changes in the political environment, a reduction in federal or state funding of our governmental tenants, or an increased risk of default by government tenants during periods in which state or federal governments are shut down or on furlough;
- Significant price and volume fluctuations in the public markets, including on the exchange which we listed our common stock;
- Risks associated with incurring mortgage and other indebtedness, including changing capital reserve requirements on our lenders and rapidly rising interest rates for new debt financings;
- A downgrade in our credit rating, which could, among other effects, trigger an increase in the stated rate of one or more of our unsecured debt instruments;
- The effect of future offerings of debt or equity securities on the value of our common stock;
- Additional risks and costs associated with inflation and continuing increases in the rate of inflation, including the impact of a possible recession;
- Uncertainties associated with environmental and regulatory matters;
- Changes in the financial condition of our tenants directly or indirectly resulting from geopolitical developments that could negatively affect important supply chains and international trade, the termination or threatened termination of existing international trade agreements, or the implementation of tariffs or retaliatory tariffs on imported or exported goods;
- The effect of any litigation to which we are, or may become, subject;
- Additional risks and costs associated with owning properties occupied by tenants in particular industries, such as oil and gas, hospitality, travel, co-working, etc., including risks of default during start-up and during economic downturns;
- Changes in tax laws impacting REITs and real estate in general, as well as our ability to continue to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), or other tax law changes which may adversely affect our stockholders;
- The future effectiveness of our internal controls and procedures;
- Actual or threatened public health epidemics or outbreaks, such as the COVID-19 pandemic, as well as governmental and private measures taken to combat such health crises; and
- Other factors, including the risk factors described in Item 1A. Risk Factors of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023, June 30, 2023, and September 30, 2023, as well as the risk factors discussed under Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2022.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company cannot guarantee the accuracy of any such forward-looking statements contained in this press release, and the Company does not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Research Analysts/ Institutional Investors Contact:
770-418-8592
research.analysts@piedmontreit.com
Shareholder Services/Transfer Agent Services Contact:
Computershare, Inc.
866-354-3485
investor.services@piedmontreit.com
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