What changed in this filing

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Item 1. Business

2022-02-17 compared with 2021-02-17 · 61 added, 61 removed, 79 unchanged (61% of the section changed)

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(“Piedmont," "we," "our," or "us") (NYSE:

PDM) is a Maryland corporation that operates in a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes and engages in the ownership, management, development, redevelopment, and operation of high-quality, Class A office properties located primarily in select sub-markets within seven major Eastern U.S.

office markets, with a majority of our annualized lease revenue ("ALR") being generated from the Sunbelt.

office markets, with a majority of its revenue being generated from Sunbelt markets.

Piedmont was incorporated in 1997 and commenced operations in 1998.

Piedmont conducts business primarily through Piedmont Operating Partnership, L.P.

(“Piedmont OP”), a Delaware limited partnership, as well as performing the management of our buildings through two wholly-owned subsidiaries, Piedmont Government Services, LLC and Piedmont Office Management, LLC.

Piedmont owns 99.9% of, and is the sole general partner of, Piedmont OP and as such, possesses full legal control and authority over the operations of Piedmont OP.

The remaining 0.1% ownership interest of Piedmont OP is held indirectly by Piedmont through our wholly-owned subsidiary, Piedmont Office Holdings, Inc.

("POH"), the sole limited partner of Piedmont OP.

Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through various joint ventures which we control.

Piedmont conducts business through its wholly-owned subsidiary, Piedmont Operating Partnership, L.P.

(“Piedmont OP”), a Delaware limited partnership.

Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through various joint ventures which it controls.

References to Piedmont herein shall include Piedmont and all of its subsidiaries, including Piedmont OP and its subsidiaries and joint ventures.

Operating Objectives and Strategy

As of December 31, 2020, we owned and operated 54 in-service office properties comprised of approximately 16.4 million square feet of primarily Class A office space which was 86.8% leased.

As of December 31, 2021, we owned and operated 55 in-service office properties comprised of approximately 17.1 million square feet of primarily Class A office space which were approximately 86% leased.

Additionally, we have one redevelopment asset comprising 127,000 square feet in Orlando, Florida.

Collectively, approximately 96% of our ALR is generated primarily in select sub-markets within seven major Eastern U.S.

Collectively, approximately 96% of our ALR is generated from our properties located in select sub-markets within seven major U.S.

office markets:

Dallas, Atlanta, Washington, D.C., Minneapolis, Boston, Orlando, and New York, with a majority of our ALR generated from our Sunbelt markets.

As we typically lease to larger, credit-worthy corporate tenants, our average lease size is between 15,000 and 20,000 square feet with an average lease term remaining of six years.

Atlanta, Dallas, Washington, D.C., Minneapolis, Boston, Orlando, and New York, with over 60% produced by our Sunbelt markets.

We lease space to a mixture of tenants, including credit-worthy corporate tenants, and our average lease size is approximately 15,000 square feet with an average lease term remaining of six years.

Our diversified tenant base is primarily comprised of investment grade or nationally recognized corporations or governmental agencies, with the majority of our ALR derived from such tenants.

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BOMA 360 is a program that evaluates six major areas of building operations and management and benchmarks a building's performance against industry standards.

As of December 31, 2020, approximately 81% of our portfolio (based on square footage) has achieved such a designation, recognizing excellence in building operations and management.

We also have focused on environmental sustainability initiatives at our properties, and 64% of our portfolio (based on square footage) has achieved and maintains "Energy Star" certification (a designation for the top 25% of similar buildings in energy consumption efficiency) as of December 31, 2020.

In addition to operational excellence, we focus on fostering long-term relationships with our high-credit quality, diverse tenant base as evidenced by our approximately 67% tenant retention rate over the past ten years.

Our primary objectives are to maximize the risk-adjusted return to our stockholders by increasing cash flow from operations, by achieving sustainable growth in Funds From Operations, and by growing net asset value by realizing long-term capital appreciation.

As of December 31, 2021, approximately 87% of our portfolio (based on ALR) has achieved such a designation, recognizing excellence in building operations and management.

Our focus on operational excellence and fostering long-term relationships with our high-credit quality, diverse tenant base, who have been attracted to our high-quality, modernized, amenity-rich environments, has resulted in an approximate 67% tenant retention rate over the past ten years.

In addition to operational excellence, we also focus on environmental sustainability initiatives at our properties as further detailed below.

Approximately 80% and 45% of our portfolio (based on ALR) has achieved and maintains Energy Star or Leadership in Energy and Environmental Design ("LEED") certification, respectively, and the entire portfolio has been awarded the WELL Health-Safety Rating through the International WELL Building Institute (IWBI).

During 2021, we were one of only 69 U.S.

companies selected, and the only REIT headquartered in the Southeast, to be named a 2021 Energy Star Partner of the Year.

Our primary operating objectives are to maximize the risk-adjusted return to our stockholders by increasing cash flow from operations, by achieving sustainable growth in Funds From Operations, and by growing net asset value by realizing long-term capital appreciation.

We manage risk by owning almost exclusively Class A, geographically diverse, office properties which are among the most desirable in their respective office sub-markets.

In addition to the creditworthiness of our tenants, we strive to ensure our tenants represent a broad spectrum of industry types with lease expirations that are laddered over many years.

Operationally, we maintain a low leverage structure, utilizing almost exclusively unsecured financing facilities with laddered maturities.

We utilize a national buying platform of property management support services to ensure optimal pricing for landlord and tenant services, as well as to consistently implement best practices and achieve sustainability standards.

Operationally, we maintain a low leverage structure, utilizing unsecured financing facilities with laddered maturities.

We utilize a national buying platform for property management support services to ensure optimal pricing for landlord and tenant services, as well as to consistently implement best practices and achieve sustainability standards.

The strategies we intend to execute to achieve these objectives include:

Index to Financial Statements

Capitalizing on Acquisition/Investment Opportunities

Our overall acquisition/investment strategy focuses on properties located in select sub-markets within seven major Eastern U.S.

office markets that were identified based on their positive economic and demographic growth trends so as to position our investments for long-term appreciation.

Recycling Capital Efficiently

We use our proven, disciplined capital recycling capabilities to maximize total return to our stockholders by selectively disposing of non-core assets and assets for which we believe full value potential during our ownership has been achieved, and redeploying the proceeds of those dispositions into new investment opportunities with higher overall return prospects.

Our investment strategy focuses on properties located in select sub-markets within seven major U.S.

office markets, with a particular focus on the Sunbelt markets, that were identified based on their positive economic and demographic growth trends so as to position our investments for long-term appreciation.

We believe these sub-markets are generally characterized by their strong amenity base, desired location for large corporate users, above-average job and rental rate growth, proximity to robust housing options, market-leading transportation access and infrastructure, and limited competitive REIT ownership.

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Our proactive approach to asset and property management encompasses a number of operating initiatives designed to maximize occupancy and rental rates, including the following:

devoting significant resources to building and cultivating our relationships with commercial real estate executives;

maintaining local management offices in markets in which we have a significant presence;

demonstrating our commitment to our tenants and being socially-responsible in our local communities while maintaining the environmentally-friendly, high quality of our properties;

and driving a significant volume of leasing transactions in a manner that provides optimal returns by using creative approaches, including early extensions, lease wrap-arounds and restructurings.

offering, or being located near, superior amenities that help our tenants attract and retain their employees;

demonstrating our commitment to our tenants and being socially-responsible in our local communities while maintaining the environmentally-friendly, high quality nature of our properties;

renovating our buildings to keep them modern, in superior operating condition, devoting resources to building and cultivating our relationships with commercial real estate executives;

and to meet and exceed the needs of today's discerning tenants, as well as driving a significant volume of leasing transactions in a manner that provides optimal returns by using creative approaches, including early extensions, lease wrap-arounds and restructurings.

We manage portfolio risk by structuring lease expirations to avoid, among other things, having multiple leases expire in the same market in a relatively short period of time;

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and using our purchasing power and market knowledge to reduce our operating costs and those of our tenants.

Recycling Capital Efficiently

Financing Strategy

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As circumstances warrant, we may redevelop or reposition properties within our portfolio, including the creation of additional amenities for our tenants to increase both occupancy and rental rates and thereby improve returns on our invested capital, as well as to maintain and enhance the competitive positioning of our properties in their respective marketplaces.

Sustainability

We are dedicated to environmentally sustainable practices that enhance our commitment to provide the highest quality office properties and produce an annual ESG report, available on our website.

Operating our Properties in an Environmentally Responsible Manner

We are dedicated to enhancing the communities in which we operate.

We strive to own and manage workplaces that are environmentally conscious, productive, and healthy for our tenants, employees, and local communities by:

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• leveraging industry partnerships with BOMA, Energy Star, and U.S.

Green Building Council, to confirm and advance the energy and sustainability performance of our assets;

Green Building Council, to verify and advance the environmental performance of our assets;

• implementing programs that continually improve our environmental performance and manage our climate change risk;

Index to Financial Statements

• implementing processes that continually improve our environmental performance.

Further details concerning Piedmont's environmental, social, and governance policies and initiatives, as well as its 2019 sustainability report, can be found on Piedmont's website, www.piedmontreit.com under the "ESG" section.

• setting performance targets that demonstrate our commitment to sustainable practices.

To combat the risk that increased pricing of electricity, natural gas, off-site energy sources, water rates, and insurance rates could increase the operating costs of our properties and to mitigate the transitional and physical risks associated with climate change (See Item 1A.

Risk Factors below for more information), we have set goals to reduce property energy and water consumption and greenhouse gas emissions and improve landfill diversion rates.

To reduce the risk that increasing stringent building and energy codes could increase construction, capital, and maintenance costs, we continue to update our buildings with energy efficient equipment to stay ahead of future code changes in both landlord and tenant-controlled spaces.

We also closely engage with our tenants regarding our environmental initiatives and encourage them to reduce energy use within their leased spaces.

Additionally, we periodically incorporate the issuance of green bonds to acquire, develop, redevelop, and renovate buildings to reduce operating costs, meet recognized sustainable development standards, and reduce our environmental impact.

As our environmental programs have been ongoing for several years under the coordinated supervision of our National Director of Sustainability, we currently do not anticipate incurring any unusually large or material capital expenditures within any given year in order to meet these goals.

Further details concerning Piedmont's environmental and climate risk management strategy and programs can be found in our annual ESG report located on our website, www.piedmontreit.com under the "ESG" section.

The information contained on our website is not incorporated herein by reference.

Social Responsibility

• Promotion of Equity :

As the public discussion surrounding equality in our country continues, so do Piedmont’s efforts to end prejudice and discrimination.

Piedmont is committed to demonstrating fairness, equality, and respect to all individuals that we interact with in our communities to bring about positive change.

Our commitment includes regularly monitoring and making any necessary changes to our own policies, conduct, and actions, as well as promoting anti-prejudice causes in our communities.

In an effort to underscore and promote these values, Piedmont has made financial commitments to the Anti-defamation League, the NAACP, The National Association of Criminal Defense Lawyers, and the Brennan Center for Justice.

• Contribution to Local Communities :

In addition to financial contributions through the Piedmont Wayne Woody Foundation, a foundation created to honor of our late Chairman of the Board, W.

Wayne Woody, Piedmont recognizes the value and benefit of employee volunteerism and fully appreciates its positive impact on the community, the employees, and ultimately, Piedmont by promoting team building, collaboration, and unity.

• Scholarships to Support Diversity and Equity Efforts :

Piedmont invests in the education and the career development of scholars from two Historically Black Colleges and Universities (HBCUs) including Morehouse College (Atlanta, GA) and Howard University (Washington, DC) through the need-based Piedmont Office Realty Trust Scholarship Program.

The program provides scholastic support to rising sophomore students seeking an Economic, Finance, Accounting, Engineering, or real estate specific degree with a renewable scholarship for three years (for the Piedmont Scholars’ Sophomore, Junior and Senior years).

The scholarship also offers each student the opportunity to intern with Piedmont and acquire a firsthand experience in commercial real estate.

We believe that developing a diverse, talented, and skilled pipeline of future candidates for Piedmont and the commercial real estate industry begins with supporting the education and career paths of students today.

Our hope is the Program provides career success and an expanded knowledge of commercial real estate for participating students.

Information Regarding Disclosures Presented

ALR, a non-GAAP measure, is calculated by multiplying (i) current 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 has 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 unleased 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 revenues associated with development properties and properties taken out of service for redevelopment, if any.

Index to Financial Statements

Human Capital Resources

Human Capital and Social Involvement

As of December 31, 2021, we had 134 employees, with 47 of our employees working in our corporate office located in Atlanta, Georgia.

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We encourage all employees, tenants, and vendors to mutually respect one another's diversity in order to maintain a cohesive work environment that values fairness and equal treatment.

In 2020, our employees, managers, and the majority of our contractors received professional training on workplace harassment and cybersecurity.

In addition our employees received diversity and inclusion, ethics, pandemic health, and safety training.

In 2021, we continued our training programs for our employees, managers, and contractors including professional training on workplace harassment and cybersecurity.

In addition, employees received diversity and inclusion, ethics, and pandemic health training.

Select managers also received individual management development.

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We apply this policy to all of our employees, suppliers, and vendors, regardless of their geographic location.

For more information on how we manage our workforce, please refer to our website:

www.piedmontreit.com under the "ESG" section.

Piedmont has established the Piedmont Wayne Woody ("PWW") Foundation, a foundation created in honor of our late Chairman of the Board, W.

Wayne Woody, to distribute charitable contributions to nonprofit organizations that fit our charitable giving criteria and demonstrate fiscal and administrative stability and are not discriminatory or political.

During 2021 through the PWW Foundation, Piedmont established the "Piedmont Office Realty Trust Scholarship Program" in partnership with two Historically Black Colleges and Universities to provide need-based, scholastic support to selected rising sophomores interested in pursuing a career related to the real estate industry.

In addition to financial contributions through the PWW Foundation, Piedmont recognizes the value and benefit of employee volunteerism and fully appreciates its positive impact on the community, its employees, and ultimately, Piedmont by promoting team building, collaboration, and unity.

Our employees have partnered with Piedmont to donate thousands of dollars and hours annually to numerous organizations.

Further details concerning Piedmont's workforce and social and community involvement initiatives can be found in our annual ESG report located on our website, www.piedmontreit.com under the "ESG" section.

The information contained on our website is not incorporated herein by reference.

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leasing, asset management, property management, and construction management services.

As the competition for high-credit-quality tenants is intense, we may be required to provide rent abatements, incur charges for tenant improvements and other concessions, or we may not be able to lease vacant space timely, all of which may impact our results of operations.

We also compete with other buyers who may be interested in properties we wish to acquire, which may affect the amount that we are required to pay for such properties or may ultimately result in our decision not to acquire such properties.

Further, we may compete with sellers of similar properties when we sell properties, which may affect the amount of proceeds we receive from the disposal, or which may result in our inability to dispose of such properties due to the lack of an acceptable amount of proceeds offered by interested buyers.

We also face significant competition for attractive investment opportunities from a large number of other real estate

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investors, including investors with significant capital resources such as domestic and foreign corporations and financial institutions, publicly traded and privately held REITs, private institutional investment funds, investment banking firms, life insurance companies and pension funds.

In each market where we operate, we face competition from other office providers.

However, we do not face the same competitors in every market.

This competition, along with market-specific vacancy rates and the condition of available, leasable square footage, affects the rental rates and concessions that we negotiate with our tenants.

Our competitors, along with these other market factors, also influence the price we pay to acquire properties, and the proceeds we receive when we dispose of a building.

Government Regulations

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Risk Factors for further discussion of the risks associated with compliance with regulations and environmental concerns.

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Segment Information

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Risk Factors for further discussion of the risks associated with these contracts.

Information Regarding Disclosures Presented

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calculate the annualized figure.

Unless stated otherwise, this measure excludes revenues associated with development properties and properties taken out of service for redevelopment, if any.

Website Address

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business