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 December 31, 2023.
Highlights for the Three Months and Year Ended
December 31, 2023:
Financial Results:
|
Three Months Ended |
|
Year Ended |
(in 000s other than per share
amounts ) |
December 31, 2023 |
December 31, 2022 |
|
December 31, 2023 |
December 31, 2022 |
Net income/(loss) applicable
to Piedmont |
$ |
(28,030 |
) |
$ |
75,569 |
|
$ |
(48,387 |
) |
$ |
146,830 |
Net income/(loss) per share
applicable to common stockholders - diluted |
$ |
(0.23 |
) |
$ |
0.61 |
|
$ |
(0.39 |
) |
$ |
1.19 |
Gain on sale of real estate
assets |
$ |
1,946 |
|
$ |
101,055 |
|
$ |
1,946 |
|
$ |
151,729 |
Interest expense |
$ |
28,431 |
|
$ |
20,739 |
|
$ |
101,258 |
|
$ |
65,656 |
Impairment charges |
$ |
18,489 |
|
$ |
25,981 |
|
$ |
29,446 |
|
$ |
25,981 |
NAREIT Funds From Operations
("FFO") applicable to common stock |
$ |
50,624 |
|
$ |
58,987 |
|
$ |
214,399 |
|
$ |
244,822 |
Core FFO applicable to common
stock |
$ |
50,624 |
|
$ |
61,235 |
|
$ |
215,219 |
|
$ |
247,070 |
NAREIT FFO per diluted
share |
$ |
0.41 |
|
$ |
0.48 |
|
$ |
1.73 |
|
$ |
1.98 |
Core FFO per diluted
share |
$ |
0.41 |
|
$ |
0.50 |
|
$ |
1.74 |
|
$ |
2.00 |
Adjusted FFO applicable to
common stock |
$ |
31,833 |
|
$ |
47,082 |
|
$ |
153,008 |
|
$ |
178,040 |
|
|
|
|
|
|
|
|
|
|
|
|
- Piedmont recognized a net loss of
$28.0 million, or $0.23 per diluted share, for the fourth quarter
of 2023, as compared to net income of $75.6 million, or $0.61 per
diluted share, for the fourth quarter of 2022, with the decrease
primarily attributable to:
- An approximately $99.1 million
decrease in gain on sale of real estate assets;
- An approximately $7.7 million
increase in interest expense driven by higher interest rates on the
Company's debt during the three months ended December 31, 2023 as
compared to the three months ended December 31, 2022;
- Partially offset by, an
approximately $7.5 million decrease in impairment charges.
- Core FFO, which removes the impact
of the gain on sale of real estate assets and impairment charges
above, as well as loss on early extinguishment of debt, prior year
severance costs, and depreciation and amortization expense, was
$0.41 per diluted share for the fourth quarter of 2023, as compared
to $0.50 per diluted share for the fourth quarter of 2022, with the
decrease primarily attributable to the increase in interest expense
during the fourth quarter of 2023 noted above, and lower Property
NOI as a result of the sale of the Cambridge Portfolio during
December of 2022.
Leasing:
|
Three Months Ended December 31, 2023 |
Year Ended December 31, 2023 |
# of lease transactions |
42 |
|
182 |
|
Total leasing sf |
816,494 |
|
2,243,302 |
|
New tenant leasing sf |
154,755 |
|
831,033 |
|
Cash rent roll up |
0.0 |
% |
4.7 |
% |
Accrual rent roll up |
11.3 |
% |
12.4 |
% |
Retention ratio |
84.3 |
% |
|
Leased Percentage as of period
end |
87.1 |
% |
|
|
|
|
|
- The Company
completed approximately 816,000 square feet of leasing during the
fourth quarter, bringing total leasing for the year to 2.2 million
square feet.
- On an annual basis, the Company
completed approximately 831,000 square feet of new tenant leasing,
the largest amount of annual new tenant leasing since 2018.
- The largest new tenant lease
completed during the quarter was with GE Vernova for approximately
77,000 square feet at Galleria 600 in Atlanta, GA through
2036.
- The largest renewal completed during
the quarter was US Bancorp's entire 447,000 square foot
headquarters lease at US Bancorp Center in downtown Minneapolis, MN
through 2034, with no roll down in cash rents and no free rent
concessions.
- Rents on leases executed during the
year ended December 31, 2023 for space vacant one year or less
increased approximately 4.7% and 12.4% on a cash and accrual basis,
respectively.
- The Company's leased percentage as
of December 31, 2023 increased to 87.1%, up from 86.7% a year
earlier.
- Same Store NOI - Cash basis and Same
Store NOI - Accrual basis increased 4.8% and 1.1%, respectively,
for the three months ended December 31, 2023, as compared to
the same period in the prior year, as new leases commencing or with
expiring abatements outweighed expired leases.
- On an annual basis, Same Store NOI -
Cash basis increased 2.2% and Same Store NOI - Accrual basis
decreased 1%.
- Excluding the US Bancorp lease, the
average size lease executed during the fourth quarter of 2023 was
approximately 12,000 square feet and the weighted average lease
term was approximately seven years.
- As of December 31, 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 $35 million of future additional
annual cash rents.
- Thus far during the first quarter of
2024, the Company has executed over 260,000 square feet of total
leasing.
Balance Sheet:
(in 000s except for
ratios) |
December 31, 2023 |
|
December 31, 2022 |
Total Real Estate Assets |
$ |
3,512,527 |
|
|
$ |
3,500,624 |
|
Total Assets |
$ |
4,057,082 |
|
|
$ |
4,085,525 |
|
Total Debt |
$ |
2,054,596 |
|
|
$ |
1,983,681 |
|
Weighted Average Cost of
Debt |
|
5.82 |
% |
|
|
3.89 |
% |
Debt-to-Gross Assets
Ratio |
|
38.2 |
% |
|
|
37.6 |
% |
Average Net Debt-to-Core
EBITDA (ttm) |
|
6.4x |
|
|
|
6.0x |
|
|
|
|
|
|
|
|
|
- During the three months ended
December 31, 2023, the Company's operating partnership,
Piedmont Operating Partnership, LP, issued an additional $200
million aggregate principal amount of 9.25% senior unsecured notes
at a premium (effective rate 8.75%) due 2028, with the net proceeds
used to pay down bank term debt and the Company's revolving credit
facility.
- Subsequent to December 31, 2023, the
Company entered into a new, three year, $200 million unsecured
syndicated bank term loan. The Company used the net proceeds and
its revolving line of credit to pay off a $100 million bank term
loan that was scheduled to mature in December of 2024, and to repay
$190 million of a $215 million unsecured term loan that was
scheduled to mature on January 31, 2024. The remaining $25 million
of the $215 million unsecured term loan was extended to January 31,
2025.
- As a result of the above refinancing activity, the Company
currently has:
- approximately $325 million of debt with final maturities over
the next three years as follows:
- $50 million in unsecured notes that mature in March of 2024;
and,
- $275 million in unsecured bank term loans that mature in the
first quarter of 2025.
- approximately $400 million of capacity on its line of
credit.
ESG and Operations:
- During the fourth quarter, GRESB®
announced that the Company achieved the highest sustainability
rating of "5 Star" and a second consecutive "Green Star"
recognition based on 2022 performance.
- The Exchange at 200 South Orange
Avenue in downtown Orlando, FL and 400 & 500 TownPark in Lake
Mary, FL all won TOBY awards during the fourth quarter. The annual
Outstanding Building of the Year ("TOBY") Awards are the most
prestigious awards of their kind in the commercial real estate
industry, recognizing excellence in office building management in
fourteen different categories based on size and facility type.
- One and Two Meridian Crossings in Minneapolis, MN were
certified LEED Gold.
Commenting on fourth quarter and annual results, Brent Smith,
Piedmont's President and Chief Executive Officer, said, "Fourth
quarter leasing activity remained robust at over 800,000 square
feet, including the renewal of our largest tenant and approximately
155,000 square feet of new tenant leasing. Annual leasing for 2023
totaled 2.2 million square feet, including 831,000 square feet of
new tenant leasing, the largest amount of new tenant leasing we've
experienced in the past 5 years, driving positive absorption in the
portfolio for the year at attractive economics." Continuing Smith
added, "Further, despite a difficult credit environment in 2023, we
made big strides in addressing the majority of our '24 and '25 debt
maturities, thus improving the liquidity of the company and
demonstrating our continued access to the capital markets. Since
the onset of the pandemic, we have leased approximately 50% of the
portfolio with no material change in occupancy levels. Our current
leasing pipeline remains strong, and we believe our portfolio of
differentiated, reimagined, professional environments, as well as
our balance sheet, are well positioned to continue to drive further
leasing success in 2024."
First Quarter 2024 Dividend
As previously announced, on February 1, 2024, the board of
directors of Piedmont declared a dividend for the first quarter of
2024 in the amount of $0.125 per share on its common stock to
stockholders of record as of the close of business on February 23,
2024, payable on March 15, 2024.
Guidance for 2024
The Company is introducing guidance for the year ending December
31, 2024 (inclusive of the effects of the refinancing activity
completed in January 2024 mentioned above) as follows:
(in millions, except per share
data) |
Low |
|
High |
Net loss |
$ |
(47) |
|
|
$ |
(41) |
|
Add: |
|
|
|
Depreciation |
|
148 |
|
|
|
151 |
|
Amortization |
|
81 |
|
|
|
84 |
|
Core FFO applicable to common
stock |
$ |
182 |
|
|
$ |
194 |
|
Core FFO applicable to common
stock per diluted share |
$ |
1.46 |
|
|
$ |
1.56 |
|
|
|
|
|
|
|
|
|
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, including the following specific
assumptions and projections:
- Executed leasing activity in the range of 1.5 - 2 million
square feet with year-end leased percentage for the Company's
in-service portfolio anticipated to be approximately 87-88%, before
the impacts of any acquisition or disposition activity;
- Same Store NOI flat to 2% increase on both a cash and accrual
basis, as the Company will experience some downtime between certain
lease expirations and new lease commencements during 2024;
- Interest expense of approximately $119-121 million, reflecting
a full year of higher interest rates as a result of refinancing
activity completed by the Company during the latter half of 2023
and early 2024 and utilizing the latest forward yield curve
projections; and,
- General and administrative expense will remain relatively flat
at approximately $29-30 million;
No speculative acquisitions, dispositions, or refinancings are
included in the above guidance. The Company will adjust guidance if
such transactions occur.
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, 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
December 31, 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 Thursday, February 8, 2024, 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 935915. A replay of the conference call
will be available through February 22, 2024, 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 49714. 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
fourth quarter and annual 2023 performance, discuss recent events,
and conduct a question-and-answer period.
Supplemental Information
Quarterly supplemental information as of and for the period
ended December 31, 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
(Baa3). 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 Company's portfolio of differentiated,
reimagined, professional environments, as well as balance sheet,
will drive further leasing success in 2024; 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 and available financing,
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 and the public's reaction to reported cybersecurity
incidents;
- 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 12 31 23 Q4 2023 Financials
Piedmont Office Realty (NYSE:PDM)
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