Piedmont Office Realty Trust, Inc. ("Piedmont" or the "Company")
(NYSE:PDM), an owner of Class A office properties located primarily
in major U.S. Sunbelt markets, today announced its results for the
quarter ended September 30, 2023.
Highlights for the Three Months Ended September 30,
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 September 30, 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 September 30, 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 September 30, 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 September 30, 2023, the
Company had approximately 1.1 million square feet of executed
leases for vacant space yet to commence or under rental abatement,
representing approximately $36 million 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 September 30, 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
September 30, 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 September 30, 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:770-418-8592research.analysts@piedmontreit.com
Shareholder Services/Transfer Agent Services
Contact:Computershare,
Inc.866-354-3485investor.services@piedmontreit.com
- PDM 9 30 23 Q3 2023 EARNINGS RELEASE Financials
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