Piedmont Office Realty Trust(PDM) - 2021 Q1 - Quarterly Report

Part I: Financial Information Item 1. Consolidated Financial Statements Piedmont's unaudited consolidated financial statements for Q1 2021 and 2020 are presented, including key financial statements and notes Consolidated Balance Sheets Total assets slightly decreased to $3.738 billion as of March 31, 2021, with liabilities increasing and equity decreasing Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $3,737,874 | $3,739,810 | | Total real estate assets | $3,061,259 | $3,056,034 | | Cash and cash equivalents | $10,689 | $7,331 | | Total Liabilities | $1,850,529 | $1,841,849 | | Unsecured debt, net | $1,633,819 | $1,594,068 | | Total Stockholders' Equity | $1,887,345 | $1,897,961 | Consolidated Statements of Income Net income increased to $9.3 million in Q1 2021, or $0.08 per diluted share, primarily due to lower interest expense Consolidated Income Statement Highlights (in thousands) | Account | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total Revenues | $129,257 | $137,171 | | Total Expenses | $109,690 | $113,348 | | Interest Expense | $(12,580) | $(15,264) | | Net Income Applicable to Piedmont | $9,344 | $8,709 | | Net Income per Share - diluted | $0.08 | $0.07 | Consolidated Statements of Comprehensive Income/(Loss) Comprehensive income reached $11.6 million in Q1 2021, a turnaround from a $13.2 million loss in Q1 2020, driven by derivative instruments Comprehensive Income/(Loss) (in thousands) | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net income applicable to Piedmont | $9,344 | $8,709 | | Other comprehensive income/(loss) | $2,287 | $(21,943) | | Comprehensive income/(loss) applicable to Piedmont | $11,631 | $(13,234) | Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased to $1.887 billion due to $26.1 million in dividends, partially offset by net income and other comprehensive income - Key changes in stockholders' equity for Q1 2021 included $26.0 million in dividends paid to common stockholders, $9.3 million in net income, and $2.3 million in other comprehensive income[29] Consolidated Statements of Cash Flows Net cash from operations remained stable at $46.8 million in Q1 2021, with investing and financing activities using $27.8 million and $15.8 million respectively Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $46,820 | $46,797 | | Net cash used in investing activities | $(27,813) | $(448,807) | | Net cash (used in)/provided by financing activities | $(15,791) | $396,302 | | Net increase/(decrease) in cash | $3,216 | $(5,708) | Condensed Notes to Consolidated Financial Statements The notes detail Piedmont's organization, accounting policies, debt, derivatives, and commitments, with the company owning 54 properties totaling 16.4 million square feet - As of March 31, 2021, Piedmont owned 54 in-service office properties and one redevelopment asset, comprising approximately 16.4 million square feet, which were 86.0% leased[34] - Total outstanding debt as of March 31, 2021 was approximately $1.66 billion, with a weighted average interest rate of 2.97%[41] - The company has a significant unrecorded tenant allowance commitment of approximately $37.2 million for a 20-year, 520,000 square foot renewal and expansion for the State of New York at 60 Broad Street[53] - On April 28, 2021, the Board declared a Q2 2021 dividend of $0.21 per common share[69] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, liquidity, capital resources, and operations, noting limited COVID-19 impact, increased net income, and non-GAAP measures Liquidity and Capital Resources Piedmont's liquidity relies on cash, operating cash flow, and a $500 million credit line, with capital primarily used for property expenditures and stock repurchases - Primary sources of liquidity include cash from operations and a $500 million line of credit, which had $460 million of capacity available as of the filing date[74] Capital Expenditures (in thousands) | Category | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Capital expenditures for redevelopment/renovations | $11,235 | $8,539 | | Other capital expenditures | $14,524 | $23,779 | | Total capital expenditures | $25,759 | $32,318 | - As of March 31, 2021, the company had approximately $169.3 million of board-authorized capacity remaining for future stock repurchases[80] Results of Operations Net income increased to $9.3 million in Q1 2021, driven by lower interest expense and higher other income, despite decreased rental and property income - Rental and tenant reimbursement revenue decreased by $6.3 million in Q1 2021 compared to Q1 2020, primarily due to capital transaction activity and decreased portfolio occupancy[85] - Interest expense decreased by $2.7 million year-over-year due to debt repayment and lower interest rates[92] - Other income increased by $2.2 million year-over-year, attributable to interest income from notes receivable related to the October 2020 sale of the New Jersey Portfolio[93] Net Operating Income by Geographic Segment Total NOI decreased to $77.7 million in Q1 2021, with Dallas increasing due to acquisitions, offset by decreases in New York, Corporate, and Washington D.C NOI by Geographic Segment (in thousands) | Segment | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Dallas | $16,877 | $12,490 | | Atlanta | $14,996 | $14,912 | | Washington, D.C. | $8,573 | $10,129 | | Minneapolis | $8,155 | $8,699 | | Boston | $10,824 | $10,697 | | Orlando | $10,350 | $8,976 | | New York | $7,296 | $11,114 | | Corporate and other | $587 | $6,785 | | Total NOI | $77,658 | $83,802 | Non-GAAP Financial Measures (FFO, AFFO, NOI) This section defines and reconciles non-GAAP measures, with NAREIT FFO at $60.1 million and Same Store NOI increasing 3.9% on a cash basis FFO Reconciliation (in thousands, except per share) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | GAAP net income | $9,344 | $8,709 | | Depreciation of real estate assets | $27,812 | $27,551 | | Amortization of lease-related costs | $22,900 | $23,618 | | NAREIT FFO | $60,056 | $59,875 | | FFO per diluted share | $0.48 | $0.47 | - Same Store NOI for Q1 2021 increased by 3.9% on a cash basis and decreased by 1.2% on an accrual basis compared to Q1 2020[117][124] Portfolio and Leasing Activity Portfolio leased percentage was 86.0% as of March 31, 2021, with Q1 2021 leases showing a 7.0% accrual rent roll-up and 2.8% cash rent roll-down - The portfolio was 86.0% leased as of March 31, 2021, compared to 86.8% at December 31, 2020[120] - In Q1 2021, new and renewal leases for space vacant one year or less experienced a 7.0% roll-up in accrual rents and a 2.8% roll-down in cash rents[123] - As of March 31, 2021, the company had almost 1 million square feet of executed leases for vacant space that had yet to commence or were under rental abatement[121] Item 3. Quantitative and Qualitative Disclosures About Market Risk The primary market risk is interest rate risk from variable-rate debt, managed through fixed-rate debt and swaps, with $1.2 billion effectively fixed - The company's primary market risk is interest rate risk from its variable-rate debt facilities[131] - The company is monitoring the phase-out of USD LIBOR after June 2023; its credit agreements contain 'fallback' language to establish an alternate interest rate[131] - As of March 31, 2021, a 1.0% increase in variable interest rates would increase annual interest expense by approximately $4.9 million[135] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes in internal control - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective as of the end of the quarter[136] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[137] Part II: Other Information Item 1. Legal Proceedings The company is not subject to any material pending legal proceedings, with routine litigation expected to be covered by insurance - Piedmont is not subject to any material pending legal proceedings[139] Item 1A. Risk Factors No material changes to risk factors were reported from the company's 2020 Annual Report on Form 10-K - No material changes to risk factors were reported from the 2020 Form 10-K[140] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales or common stock repurchases occurred in Q1 2021, with $169.3 million remaining for future repurchases - No common stock repurchases were made in Q1 2021. Approximately $169.3 million remains available under the stock repurchase program[145] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents and required certifications - Lists all exhibits filed with the report, including corporate governance documents, compensation agreements, and required certifications[146]