What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-17 compared with 2021-02-17 · 136 added, 197 removed, 247 unchanged (57% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with Item 6, Selected Financial Data , above and our audited consolidated financial statements and notes thereto as of December 31, 2020 and 2019, and for the years ended December 31, 2020, 2019, and 2018, included elsewhere in this Annual Report on Form 10-K.

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto as of December 31, 2021 and 2020, and for the years ended December 31, 2021, 2020, and 2019, included elsewhere in this Annual Report on Form 10-K.

See also “ Cautionary Note Regarding Forward-Looking Statements ” preceding Part I of this report and “ Risk Factors " set forth in Item 1A.

of this report.

During 2020, all of our properties remained open and fully operational for tenants to utilize as they deemed appropriate.

Given our low-leverage operating model of long-term leases to creditworthy tenants, to date the COVID-19 pandemic has not materially impacted our financial condition or results of operations, our overall liquidity position and outlook, or caused material impairments in our portfolio of operating properties.

Our revenues increased year over year;

several capital transactions were successfully completed;

and our Core Funds From Operations increased approximately 6% in 2020 compared to the prior year.

In response to the COVID-19 pandemic, we have completed stress testing of our various financial covenants assuming decreases in rental and parking income as appropriate and determined that we still have significant capacity with respect to all our covenant ratios.

During the fourth quarter of 2020, we collected approximately 99% of our billed contractual rents on a monthly basis.

We continued to experience the repercussions of the COVID-19 pandemic during the fourth quarter of 2020, including the residual effect of forced closures and other restrictions that have had a material adverse effect on the global economy and the regional U.S.

economies in which Piedmont operates.

Specifically, the pandemic and its impact on the U.S., as well as the global economy, has negatively impacted the trading price of Piedmont's common stock and some of Piedmont's tenants' ability to pay their rent.

As of the date of this filing, we have entered into approximately 70 agreements with various tenants that primarily deferred approximately $7.1 million of 2020 rent payments into fourth quarter of 2020 or the year ending December 31, 2021.

The vast majority of tenants in repayment periods for prior deferrals have been performing well, with approximately $1.3 million of the $7.1 million already collected.

Nonetheless, Piedmont has established an approximately $4.6 million general reserve for potential collectibility issues.

There can be no assurances that this amount will be sufficient to cover any future losses of rental income should these tenants be unable to pay back deferred rents when such rents become due.

The long-term impacts of the COVID-19 pandemic remain unknown.

A prolonged economic downturn or recession resulting from the pandemic could adversely affect many of Piedmont's tenants which could, in turn, adversely impact Piedmont's business, financial condition and results of operations.

Piedmont will continue to work closely with its tenants and address their concerns on a case-by-case basis, seeking solutions that address immediate cash flow interruptions while maintaining long term lease obligations.

Given our low-leverage operating model of long-term leases targeted toward creditworthy tenants, the COVID-19 pandemic has not materially impacted our financial condition, overall liquidity position and outlook, or caused material impairments in our portfolio of operating properties;

however, the pandemic-related slowdown of leasing activity, particularly leasing of vacant space to new tenants, during 2020 and the first half of 2021 has moderated earnings growth and negatively impacted our occupancy levels and rental rate growth.

The pandemic has had an ongoing impact on a few of our small, primarily retail, tenants and the long-term repercussions on our tenant's operations, future leasing decisions, and the global economy remains unclear.

Liquidity and Capital Resources

We intend to use cash on hand, cash flows generated from the operation of our properties, net proceeds from the disposition of select properties, and proceeds from our $500 Million Unsecured 2018 Line of Credit as our primary sources of immediate liquidity.

During the fourth quarter of 2020, we sold our last three properties in New Jersey (consisting of 600 Corporate Drive and 200 and 400 Bridgewater Crossing, collectively the "New Jersey Portfolio"), and used a portion of the proceeds to purchase an asset in downtown Orlando, Florida.

We have approximately $462 million of capacity on our $500 million line of credit available as of filing.

When necessary, we may seek new secured or unsecured borrowings from third party lenders or issue securities as additional sources of capital.

We intend to use cash on hand, cash flows generated from the operation of our properties, net proceeds from the disposition of select properties, and borrowings under our $500 Million Unsecured 2018 Line of Credit as our primary sources of immediate liquidity.

We have $309 million of capacity on our $500 million line of credit available as of the date of this filing.

When necessary, we may seek other new secured or unsecured borrowings from third party lenders or issue securities as additional sources of capital.

The nature and timing of these additional sources of capital will be highly dependent on market conditions.

7 unchanged sentences

(1) Of the total amounts paid, approximately $6.3 million and $0.6 million related to soft costs such as capitalized interest, payroll, and other general and administrative expenses for the year ended December 31, 2021 and 2020, respectively.

Index to Financial Statements

"Capital expenditures for redevelopment/renovations" during the year ended December 31, 2020 primarily related to a redevelopment project to upgrade amenities at our 200 South Orange building in Orlando, Florida, as well as a redevelopment master plan project to upgrade common areas, amenities, and parking, at our Galleria buildings in Atlanta, Georgia.

Expenditures during the year ended December 31, 2019 primarily related to a redevelopment project to upgrade amenities at our US Bancorp building in Minneapolis, Minnesota, as well as a redevelopment project to upgrade common areas, amenities, and parking, at our Two Pierce Place building in Itasca, Illinois.

"Other capital expenditures, including building and tenant improvements" include all other capital expenditures during the period and are typically comprised of tenant and building improvements necessary to lease, maintain, or provide enhancements to our existing portfolio of office properties, including tenant improvements totaling approximately $13.4 million for the 520,000 square foot, 20-year renewal and expansion of the State of New York at our 60 Broad Street building in New York City incurred during the year ended December 31, 2020.

"Capital expenditures for redevelopment/renovations" during the years ended December 31, 2021 and 2020 primarily related to building upgrades, primarily to the lobbies and the addition of tenant amenities at our 60 Broad Street building in New York City;

our 200 and 222 South Orange Avenue buildings in Orlando, Florida;

our Galleria buildings in Atlanta, Georgia;

and our 25 Burlington Mall Road building in Boston, Massachusetts.

"Other capital expenditures, including building and tenant improvements" include all other capital expenditures during the respective period and are typically comprised of tenant and building improvements necessary to lease, maintain, or provide enhancements, including energy efficient equipment to our existing portfolio of office properties.

We currently do not anticipate incurring any unusually large or material capital expenditures within any given year in order to meet recognized sustainable development standards, and achieve our environmental impact goals.

Given that our operating model frequently results in leases for large blocks of space to credit-worthy tenants, our leasing success can result in capital outlays which vary from one reporting period to another based upon the specific leases executed.

For example, for leases executed during the year ended December 31, 2021, we committed to spend approximately $4.25 per square foot per year of lease term for tenant improvement allowances and lease commissions (net of expired lease commitments) as compared to $5.79 (net of expired lease commitments) for the year ended December 31, 2020.

As of December 31, 2020, we had one individually significant unrecorded tenant allowance commitment outstanding of approximately $38.2 million related to the State of New York's lease at our 60 Broad Street building mentioned above.

As of December 31, 2021, we had one individually significant unrecorded tenant allowance commitment outstanding of approximately $18.4 million related to the State of New York's lease at our 60 Broad Street building in New York.

In addition to the amounts that we have already committed to as a part of executed leases, we also anticipate continuing to incur similar market-based tenant improvement allowances and leasing commissions in conjunction with procuring future leases for our existing portfolio of properties.

Both the timing and magnitude of expenditures related to future leasing activity can vary due to a number of factors, including being highly dependent on the competitive market conditions at the time of lease negotiations of the particular office market within which a given lease is signed.

For example, we anticipate negotiating the long-term renewal of a majority of the City of New York's 313,000 square foot lease at our 60 Broad Street building.

Depending on the length of the lease term, we anticipate committing to spend significant capital for market-based tenant improvement allowances and leasing commissions associated with the renewal.

Both the timing and magnitude of expenditures related to future leasing activity can vary

Index to Financial Statements

due to a number of factors and are highly dependent on the size of the leased square footage and the competitive market conditions of the particular office market at the time a lease is being negotiated.

There are other uses of capital that may arise as part of our typical operations.

1 unchanged sentence

We may also use capital resources to repurchase additional shares of our common stock under our stock repurchase program when we believe the stock is trading disparately from our peers and at a significant discount to net asset value.

As of December 31, 2020 , we had approximately $169.3 million of board-authorized capacity remaining for future stock repurchases.

Finally, although we have no scheduled debt maturities until the third quarter of 2021, we may use capital to repay debt obligations when we deem it prudent to refinance various obligations.

Also, during the year ended December 31, 2021, we repurchased approximately 1.1 million shares at an average price of $17.76, or approximately $18.9 million.

As of December 31, 2021, we had approximately $150.5 million of remaining capacity under the program which may be used for share repurchases through February 2024.

Finally, other than our $500 Million Unsecured 2018 Line of Credit, which has a maturity date of September 2022 but can be extended for up to one additional year, we have no scheduled debt maturities until the second quarter of 2023.

We may use capital to repay debt obligations when we deem it prudent to refinance various obligations.

The amount and form of payment (cash or stock issuance) of future dividends to be paid to our stockholders will continue to be largely dependent upon (i) the amount of cash generated from our operating activities;

1 unchanged sentence

(iii) our determination of near-term cash needs for debt repayments, development projects, and selective acquisitions of new properties;

(iv) the timing of significant expenditures for tenant improvements, building redevelopment projects, and general property capital improvements;

(iv) the timing of significant expenditures for tenant improvements, leasing commissions, building redevelopment projects, and general property capital improvements;

(v) long-term dividend payout ratios for comparable companies;

4 unchanged sentences

Results of Operations (2021 vs.

Net income applicable to common stockholders for the year ended December 31, 2020 was $232.7 million, or $1.85 per diluted share, as compared with net income applicable to common stockholders of $229.3 million, or $1.82 per diluted share, for the year ended December 31, 2019.

Results for the year ended December 31, 2020 included approximately $205.7 million of gains on sales of real estate assets, whereas the prior year included approximately $188.1 million of gains on sales of real estate assets net of impairment losses, a $0.14 per diluted share increase from the prior year.

However, the increase was mostly offset by an increase in amortization expense related to acquired lease intangible assets as part of the net property acquisition activity subsequent to January 1, 2019.

Comparison of the accompanying consolidated statements of income for the year ended December 31, 2020 vs.

As a result of a $41.0 million impairment charge related to our last remaining Chicago asset (see Note 7 ), that was recorded during the fourth quarter of 2021, Piedmont recognized net loss applicable to common stockholders for the year ended December 31, 2021 of $1.2 million, or $0.01 per diluted share, as compared with net income applicable to common stockholders of $232.7 million, or $1.85 per diluted share, for the year ended December 31, 2020.

The year ended December 31, 2020 included approximately $196.4 million, or $1.56 per diluted share, of gains on sales of real estate assets, net of a $9.3 million loss on early extinguishment of debt, whereas the year ended December 31, 2021 included no gains or losses on sales of real estate assets or early extinguishment of debt.

Comparison of the accompanying consolidated statements of operations for the year ended December 31, 2021 vs.

the year ended December 31, 2020.

The following table sets forth selected data from our consolidated statements of income for the years ended December 31, 2020 and 2019, respectively, as well as each balance as a percentage of total revenues for the years presented (dollars in millions):

The following table sets forth selected data from our consolidated statements of operations for the years ended December 31, 2021 and 2020, respectively, as well as each balance as a percentage of total revenues for the years presented (dollars in millions):

December 31, 2021 % of Revenues December 31, 2020 % of Revenues Variance

6 unchanged sentences

Amortization 86.0 16 % 93.3 17 % (7.3)

Impairment losses on real estate assets — — % 8.9 2 % (8.9)

Impairment loss on real estate assets 41.0 8 % — — % 41.0

General and administrative 30.3 5 % 27.5 5 % 2.8

5 unchanged sentences

Gain on sale of real estate assets — — % 205.7 38 % (205.7)

Net income $ 232.7 43 % $ 229.3 43 % $ 3.4

Rental and tenant reimbursement revenue increased approximately $8.0 million for the year ended December 31, 2020 as compared to the same period in the prior year.

The favorable variance was primarily due to capital transaction activity subsequent to January 1, 2019 and new leases commencing at higher overall rental rates.

These increases were partially offset by the establishment of receivable reserves as a result of the COVID-19 pandemic during the year ended December 31, 2020, along with decreased portfolio occupancy.

Property management fee revenue decreased approximately $0.5 million for the year ended December 31, 2020 as compared to the same period in the prior year.

The decrease was primarily due to construction management fees received in the prior year from one of our former Independence Square properties, with such fees varying from period-to-period due to the variability of construction activity.

Other property related income decreased approximately $5.7 million for the year ended December 31, 2020 as compared to the same period in the prior year primarily due to the sale of the 500 West Monroe Street building with its 1,300-space parking

Net income/(loss) $ (1.2) — % $ 232.7 43 % $ (233.9)

Rental and tenant reimbursement revenue decreased approximately $5.3 million for the year ended December 31, 2021 as compared to the prior year, reflecting a full year of COVID impacts as compared to a partial year of impact in 2020.

Additionally, a 1% decrease in portfolio occupancy was partially offset by accretive capital recycling activity during the two years ended December 31, 2021, rental rate increases associated with recent leasing activity across the portfolio, and higher tenant reimbursements as a result of the expiration of operating expense abatements on certain large leases during the year ended December 31, 2021.

Property management fee revenue decreased approximately $0.4 million for the year ended December 31, 2021 as compared to the prior year.

Such fees fluctuate from period to period due to the variability of construction activity as well as the termination or commencement of property management agreements we may enter into with the buyers of properties in our portfolio.

Index to Financial Statements

garage during the fourth quarter of 2019, as well as lower transient parking utilization at our buildings during 2020 as a result of the COVID-19 pandemic.

These decreases were partially offset by new parking revenue associated with acquisitions consummated subsequent to January 1, 2019.

Property operating costs increased approximately $3.5 million for the year ended December 31, 2020 as compared to the same period in the prior year.

This variance was primarily due to capital transaction activity subsequent to January 1, 2019, and higher property tax expense in certain markets, partially offset by lower utility and janitorial costs as a result of reduced building utilization across our portfolio as a result of the pandemic, along with decreased portfolio occupancy.

Depreciation expense increased approximately $4.6 million for the year ended December 31, 2020 compared to the same period in the prior year.

The increase was due primarily to additional building and tenant improvements placed in service subsequent to January 1, 2019, partially offset by a decrease in depreciation associated with capital transaction activity subsequent to January 1, 2019.

Amortization expense increased approximately $16.6 million for the year ended December 31, 2020 compared to the same period in the prior year.

Approximately $23.2 million of the increase was due to capital transaction activity completed subsequent to January 1, 2019.

This increase was partially offset by certain lease intangible assets or other deferred costs at our existing properties becoming fully amortized as a result of the expiration of leases subsequent to January 1, 2019.

During the prior year ended December 31, 2019, we recognized impairment losses on real estate assets totaling approximately $8.9 million related to our 600 Corporate Drive asset in Lebanon, New Jersey, as well as an impairment loss recognized in conjunction with the disposition of The Dupree building in September 2019 (see Note 7 and Note 13 to the accompanying consolidated financial statements for more details).

No impairment losses on real estate assets were recorded during the year ended December 31, 2020.

General and administrative expenses decreased approximately $10.4 million for the year ended December 31, 2020 as compared to the same period in the prior year with the current period reflecting decreased accruals for incentive and stock based compensation and the prior period reflecting certain one-time expenses associated with the senior management transition that took place on June 30, 2019, resulting in lower compensation at the executive level in the current period.

Other property related income decreased approximately $0.6 million for the year ended December 31, 2021 as compared to the prior year primarily due to lower transient parking at our buildings reflecting a full year of the COVID-19 pandemic impact in 2021 versus a partial year for the year ended December 31, 2020.

Property operating costs decreased approximately $4.0 million for the year ended December 31, 2021 as compared to the prior year.

The variance was primarily due to lower operating costs, largely associated with lower real estate taxes in certain jurisdictions.

Depreciation expense increased approximately $10.0 million for the year ended December 31, 2021 compared to the prior year.

The increase was primarily due to additional building and tenant improvements placed in service subsequent to January 1, 2020.

Amortization expense decreased approximately $7.3 million for the year ended December 31, 2021 compared to the prior year.

Amortization expense decreased primarily due to certain lease intangible assets at our existing properties becoming fully amortized subsequent to January 1, 2020.

During the year ended December 31, 2021, we recognized an impairment loss on real estate assets of approximately $41.0 million related to a change in hold period assumptions for our last remaining Chicago asset, Two Pierce Place in Itasca, Illinois.

No impairment loss on real estate assets were recorded during the year ended December 31, 2020.

General and administrative expenses increased approximately $2.8 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020, with the year ended December 31, 2021 primarily reflecting increased accruals for potential performance based equity compensation.

Other Income (Expense)

Interest expense decreased approximately $6.6 million for the year ended December 31, 2020 as compared to the same period in the prior year primarily as a result of lower interest rates during the current year, as well as the repayment of the $160 million mortgage debt in conjunction with our sale of the 1901 Market Street building in June 2020.

This variance was partially offset by a decrease in capitalized interest in the current year, as compared to the prior year, of approximately $1.2 million.

Other income increased approximately $1.0 million for the year ended December 31, 2020 as compared to the same period in the prior year.

The variance is primarily attributable to interest income recognized on notes receivable extended to the purchaser of our New Jersey Portfolio.

The notes receivable mature in October 2023 (see Note 13 to the accompanying consolidated financial statements for more details) and are secured by the 200 and 400 Bridgewater Crossing properties.

The loss on extinguishment of debt for the year ended December 31, 2020 was associated with the early repayment of the $160 Million Fixed-Rate Loan which was collateralized by the 1901 Market Street building.

Interest expense decreased approximately $3.7 million for the year ended December 31, 2021 as compared to the prior year as a result of the repayment of a $160 million mortgage in conjunction with the sale of the 1901 Market Street building in 2020, as well as an increase in capitalized interest associated with various redevelopment projects during the year ended December 31, 2021.

These decreases were partially offset by higher average borrowings on our $500 Million Unsecured 2018 Line of Credit during the current year as compared to the year ended December 31, 2020, largely driven by the purchase of the 999 Peachtree Street building in Atlanta, Georgia during the fourth quarter of 2021.

Other income increased approximately $7.6 million for the year ended December 31, 2021 as compared to the prior year.

The variance is primarily attributable to interest income recognized on notes receivable extended to the purchaser of our New Jersey Portfolio in October 2020.

These notes receivable mature in October 2023 and are secured by the 200 and 400 Bridgewater Crossing properties (see Note 13 to the accompanying consolidated financial statements for more details).

The property was sold in June 2020.

1 unchanged sentence

Gain on sale of real estate assets during the year ended December 31, 2020 includes a gain of approximately $191.0 million recognized on the sale of the 1901 Market Street building in Philadelphia, Pennsylvania and a gain of approximately $14.6 million recognized on the sale of the New Jersey Portfolio.

Gain on sale of real estate assets during the year ended December 31, 2019 includes approximately $33.2 million gain recognized on the sale of the One Independence Square building in Washington, D.C., an approximately $6.1 million adjustment of the gain on sale for the Two Independence Square building related to the reimbursement of certain previously disputed tenant improvement overages, and an approximately $157.7 million gain recognized on the sale of the 500 West Monroe Street building in Chicago, Illinois.

Index to Financial Statements

Results of Operations (2020 vs.

2 unchanged sentences

2019)" in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 17, 2021, for a discussion of the results of operations for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

Index to Financial Statements

Issuer and Guarantor Financial Information

During the years ended December 31, 2013 and 2014 and 2020, Piedmont, through its wholly-owned subsidiary Piedmont Operating Partnership, LP ("Piedmont OP" or the "Issuer"), issued senior unsecured notes payable of $350 million, $400 million, and $300 million, respectively (collectively, the "Notes").

The Notes are senior unsecured obligations of Piedmont OP and rank equally in right of payment with all of Piedmont OP's other existing and future senior unsecured indebtedness and are effectively subordinated in right of payment to all of Piedmont OP’s existing and future mortgage indebtedness and other secured indebtedness (to the extent of the value of the collateral securing such indebtedness) and to all existing and future indebtedness and other liabilities of Piedmont OP’s subsidiaries, whether secured or unsecured.

Piedmont, through its wholly-owned subsidiary Piedmont Operating Partnership, LP ("Piedmont OP" or the "Issuer"), has issued senior unsecured notes payable of $350 million that mature in 2023, $400 million that mature in 2024, and two separate issuances of $300 million, that mature in 2030 and 2032, respectively, (collectively, the "Notes").

The Notes are senior unsecured obligations of Piedmont OP, rank equally in right of payment with all of Piedmont OP's other existing and future senior unsecured indebtedness, and would be effectively subordinated in right of payment to any of Piedmont OP’s future mortgage or other secured indebtedness (to the extent of the value of the collateral securing such indebtedness) and to all existing and future indebtedness and other liabilities of Piedmont OP’s subsidiaries, whether secured or unsecured.

The Notes are fully and unconditionally guaranteed by Piedmont Office Realty Trust, Inc.

(the "Guarantor"), the parent entity that consolidates Piedmont OP and all other subsidiaries.

By execution of the guarantee, the Guarantor guarantees to each holder of the Notes that the principal and interest on the Notes will be paid in full when due, whether at the maturity dates of the respective loans, or upon acceleration, upon redemption, or otherwise, and interest on overdue principal and interest on any overdue interest, if any, on the Notes and all other obligations of the Issuer to the holders of the Notes will be promptly paid in full.

interest on overdue principal and interest on any overdue interest, if any, on the Notes will also be paid in full when due;

and all other obligations of the Issuer to the holders of the Notes will be promptly paid in full.

The Guarantor's guarantee of the Notes is its senior unsecured obligation and ranks equally in right of payment with all of the Guarantor's other existing and future senior unsecured indebtedness and guarantees.

The Guarantor’s guarantee of the notes is effectively subordinated in right of payment to all existing and future mortgage indebtedness and other secured indebtedness and secured guarantees of the Guarantor (to the extent of the value of the collateral securing such indebtedness and guarantees);

The Guarantor’s guarantee of the Notes is effectively subordinated in right of payment to any future mortgage or other secured indebtedness or secured guarantees of the Guarantor (to the extent of the value of the collateral securing such indebtedness and guarantees);

and all existing and future indebtedness and other liabilities, whether secured or unsecured, of the Guarantor’s subsidiaries.

13 unchanged sentences

Net loss $ (44,463)

Index to Financial Statements

Net Operating Income by Geographic Segment

The chief operating decision maker ("CODM"), who is our President and Chief Executive Officer, evaluates our portfolio and assesses the ongoing operations and performance of our properties utilizing the following geographic segments:

Dallas, Atlanta, Washington, D.C., Minneapolis, Boston, Orlando, and New York.

Atlanta, Dallas, Washington, D.C., Minneapolis, Boston, Orlando, and New York.

These operating segments are also Piedmont’s reportable segments.

Additionally, as of December 31, 2020, Piedmont owns two properties in Houston and one property in Chicago that do not meet the definition of an operating or reportable segment as the CODM does not regularly review these properties for purposes of allocating resources or assessing performance, and Piedmont does not maintain a significant presence or anticipate further investment in these markets.

Additionally, as of December 31, 2021, Piedmont owned two properties in Houston and one property in Chicago that

Index to Financial Statements

do not meet the definition of an operating or reportable segment as the CODM does not regularly review these properties for purposes of allocating resources or assessing performance, and Piedmont does not maintain a significant presence or anticipate further investment in these markets.

These three properties are included in "Corporate and other" below.

See Note 17 , Segment Information , to the accompanying consolidated financial statements for additional information and a reconciliation of Net income applicable to Piedmont to Net Operating Income ("NOI").

See Note 16, Segment Information , to the accompanying consolidated financial statements for additional information and a reconciliation of Net income/(loss) applicable to Piedmont to Net Operating Income ("NOI").

The following table presents NOI by geographic segment (in thousands):

12 unchanged sentences

Comparison of the Year Ended December 31, 2021 Versus the Year Ended December 31, 2020

NOI increased primarily as a result of the purchase of the Dallas Galleria Office Towers in February 2020.

NOI increased primarily due to a full year of operating income at the Galleria 400 and 600 buildings, as well as the commencement of leases across the Atlanta market.

Washington, D.C.

NOI decreased largely due to the sale of the One Independence Square property in February 2019, as well as the write-off of certain lease-related assets at our 3100 Clarendon Boulevard building during the year ended December 31, 2020.

NOI increased primarily due to a full year of operating income at the Dallas Galleria Office Towers, purchased in February 2020.

NOI increased primarily due to operating income at the 999 Peachtree Street building, purchased in October 2021.

NOI increased primarily as a result of executing a renewal and expansion totaling approximately 155,000 square feet at 5&15 Wayside, as well as a rent increase related to a single tenant at our 5 Wall Street building during 2021.

NOI decreased primarily due to the sale of the New Jersey Portfolio in October 2020.

Corporate and other

NOI decreased primarily as a result of the sale of 1901 Market Street building in Philadelphia, Pennsylvania in June 2020, as well as the sale of the 500 West Monroe Street building in Chicago, Illinois in October 2019.

NOI decreased primarily as a result of the sale of 1901 Market Street building in Philadelphia, Pennsylvania in June 2020.

Index to Financial Statements

Funds From Operations ("FFO"), Core Funds From Operations ("Core FFO"), and Adjusted Funds From Operations (“AFFO”)

Net income calculated in accordance with GAAP is the starting point for calculating FFO, Core FFO, and AFFO.

These metrics are non-GAAP financial measures and should not be viewed as an alternative measurement of our operating performance to net income.

Net income/(loss) calculated in accordance with GAAP is the starting point for calculating FFO, Core FFO, and AFFO.

These metrics are non-GAAP financial measures and should not be viewed as an alternative measurement of our operating performance to net income/(loss).

Management believes that accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time.

2 unchanged sentences

We calculate FFO in accordance with the current National Association of Real Estate Investment Trusts ("NAREIT") definition.

NAREIT currently defines FFO as follows:

Net income (computed in accordance with GAAP), excluding gains or losses from sales of depreciable real estate and impairment charges, plus the add back of depreciation and amortization on real estate assets.

NAREIT currently defines FFO as Net income/(loss) (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investment in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

Other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than we do;

therefore, our computation of FFO may not be comparable to such other REITs.

We calculate Core FFO by starting with FFO, as defined by NAREIT, and adjusting for gains or losses on the extinguishment of swaps and/or debt, acquisition-related expenses, and any significant non-recurring or infrequent items.

Core FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance.

therefore, our computation of FFO may not be comparable to the computation made by other REITs.

We calculate Core FFO by starting with FFO, as defined by NAREIT, and adjusting for gains or losses on the extinguishment of swaps and/or debt and any significant non-recurring or infrequent items.

Core FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income/(loss) calculated in accordance with GAAP as a measurement of our operating performance.

We believe that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain infrequent or non-recurring items which can create significant earnings volatility, but which do not directly relate to our core recurring business operations.

1 unchanged sentence

Other REITs may not define Core FFO in the same manner as us;

therefore, our computation of Core FFO may not be comparable to that of other REITs.

We calculate AFFO by starting with Core FFO and adjusting for non-incremental capital expenditures and acquisition-related costs and then adding back non-cash items including:

non-real estate depreciation, straight-line rent adjustments and fair value lease adjustments, non-cash components of interest expense and compensation expense.

AFFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance.

therefore, our computation of Core FFO may not be comparable to the computation made by other REITs.

We calculate AFFO by starting with Core FFO and adjusting for non-incremental capital expenditures and non-cash items including:

non-real estate depreciation, straight-lined rent and fair value lease adjustments, non-cash components of interest expense and compensation expense.

AFFO is a non-GAAP financial measure and should not be viewed as an alternative to net income/(loss) calculated in accordance with GAAP as a measurement of our operating performance.

We believe that AFFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments in new properties or enhancements to existing properties that improve revenue growth potential.

Other REITs may not define AFFO in the same manner as us;

therefore, our computation of AFFO may not be comparable to that of other REITs.

therefore, our computation of AFFO may not be comparable to the computation of other REITs.

Index to Financial Statements

Reconciliations of net income to FFO, Core FFO, and AFFO for the years ended December 31, 2020, 2019, and 2018, respectively, are presented below (in thousands except per share amounts):

GAAP net income applicable to common stock $ 232,688 $ 1.85 $ 229,261 $ 1.82 $ 130,296 $ 1.00

Reconciliations of net income/(loss) to FFO, Core FFO, and AFFO for the years ended December 31, 2021, 2020, and 2019, respectively, are presented below (in thousands except per share amounts):

GAAP net income/(loss) applicable to common stock $ (1,153) $ (0.01) $ 232,688 $ 1.85 $ 229,261 $ 1.82

Depreciation of real assets

4 unchanged sentences

41,000 0.33 — — 8,953 0.07

Gain on sale- wholly-owned properties

Gain on sale of real estate assets

— — (205,666) (1.63) (197,010) (1.56)

15 unchanged sentences

7,924 7,014 5,030

Net effect of amortization of above and below-market in-place lease intangibles

Amortization of lease-related intangibles

(11,290) (12,284) (8,323)

4 unchanged sentences

Weighted-average shares outstanding – diluted 124,455 (3)

126,104 126,182

(1) Based on weighted-average shares outstanding—diluted.

1 unchanged sentence

Tenant improvements, leasing commissions, building capital and deferred lease incentives incurred to lease space that was vacant at acquisition, leasing costs for spaces vacant for greater than one year, leasing costs for spaces at newly acquired properties for which in-place leases expire shortly after acquisition, improvements associated with the expansion of a building, and renovations that either enhance the rental rates of a building or change the property's underlying classification, such as from a Class B to a Class A property, are excluded from this measure.

Non-incremental capital expenditures for the year ended December 31, 2020 includes a $16 million leasing commission for the approximately 20-year, 520,000-square-foot renewal and expansion of the State of New York's lease at our 60 Broad Street building in New York City that was executed during the fourth quarter of 2019.

(3) Includes potential dilution under the treasury stock method that would occur if our remaining unvested and potential stock awards vested and resulted in additional common shares outstanding.

Such shares are not included when calculating net loss per diluted share applicable to Piedmont for the year ended December 31, 2021 as they would reduce the loss per share presented.

Index to Financial Statements

1 unchanged sentence

Property Net Operating Income ("Property NOI") is a non-GAAP measure which we use to assess our operating results.

We calculate Property NOI beginning with Net income (computed in accordance with GAAP) before interest, income-related federal, state, and local taxes, depreciation and amortization and removing any impairment losses, gains or losses from sales of any property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business.

We calculate Property NOI beginning with Net income/(loss) (calculated in accordance with GAAP) before interest, income-related federal, state, and local taxes, depreciation and amortization and removing any impairments and gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business.

Furthermore, we remove general and administrative expenses, income associated with property management performed by us for other organizations, and other income or expense items such as interest income from loan investments or costs from the pursuit of non-consummated transactions.

1 unchanged sentence

while such effects are not adjusted in calculating Property NOI (accrual basis).

Property NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance.

Property NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income/(loss) calculated in accordance with GAAP as a measurement of our operating performance.

We believe that Property NOI, on either a cash or accrual basis, is helpful to investors as a supplemental comparative performance measure of income generated by our properties alone without our administrative overhead.

1 unchanged sentence

therefore, our computation of Property NOI may not be comparable to that of other REITs.

We calculate Same Store Net Operating Income ("Same Store NOI") as Property NOI applicable to the properties owned or placed in service during the entire span of the current and prior year reporting periods.

Same Store NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance.

We believe that Same Store NOI, on either a cash or accrual basis is helpful to investors as a supplemental comparative performance measure of the income generated from the same group of properties from one period to the next.

We calculate Same Store Net Operating Income ("Same Store NOI") as Property NOI attributable to the properties (excluding undeveloped land parcels) that were (i) owned by us during the entire span of the current and prior year reporting periods;

(ii) that were not being developed or redeveloped during those periods;

and (iii) for which no operating expenses were capitalized during those periods.

For Same Store NOI (cash basis), the effects of straight-lined rents and fair value lease revenue are also eliminated.

Same Store NOI, on either a cash or accrual basis, is a non-GAAP financial measure and should not be viewed as an alternative to net income/(loss) calculated in accordance with GAAP as a measurement of our operating performance.

We believe that Same Store NOI is helpful to investors as a supplemental comparative performance measure of the income generated from the same group of properties from one period to the next.

Other REITs may not define Same Store NOI in the same manner as we do;

1 unchanged sentence

Index to Financial Statements

The following table sets forth a reconciliation from net income calculated in accordance with GAAP to EBITDAre, Core EBITDA, Property NOI, and Same Store NOI on both a cash and accrual basis, for the years ended December 31, 2020 and 2019, respectively (in thousands):

The following table sets forth a reconciliation from net income/(loss) calculated in accordance with GAAP to EBITDAre, Core EBITDA, Property NOI, and Same Store NOI on both a cash and accrual basis, for the years ended December 31, 2021 and 2020, respectively (in thousands):

Cash Basis Accrual Basis

2 unchanged sentences

2021 December 31,

Net income applicable to Piedmont (GAAP basis) $ 232,688 $ 229,261 $ 232,688 $ 229,261

Net income/(loss) applicable to Piedmont (GAAP basis) $ (1,153) $ 232,688 $ (1,153) $ 232,688

Net loss applicable to noncontrolling interest

12 unchanged sentences

— 9,336 — 9,336

Retirement and separation expenses associated with senior management transition in June 2019

— 3,175 — 3,175

Core EBITDA (2)

5 unchanged sentences

(9,089) (1,724) (9,089) (1,724)

Non-cash general reserve for uncollectible accounts 4,553 —

Non-cash general reserve/(recovery) for uncollectible accounts (553) 4,553

Straight-line rent effects of lease revenue

14 unchanged sentences

(1) We calculate Earnings Before Interest, Taxes, Depreciation, and Amortization- Real Estate ("EBITDAre") in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition.

NAREIT currently defines EBITDAre as net income (computed in accordance with GAAP) adjusted for gains or losses from sales of property, impairment losses, depreciation on real estate assets, amortization on real estate assets, interest expense and taxes.

NAREIT currently defines EBITDAre as net income/(loss) (computed in accordance with GAAP) adjusted for gains or losses from sales of property, impairment losses, depreciation on real estate assets, amortization on real estate assets, interest expense and taxes.

Some of the adjustments mentioned can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates.

EBITDAre is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance.

EBITDAre is a non-GAAP financial measure and should not be viewed as an alternative to net income/(loss) calculated in accordance with GAAP as a measurement of our operating performance.

We believe that EBITDAre is helpful to investors as a supplemental performance measure because it provides a metric for understanding our results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization) and capitalization and capital structure expenses (such as interest expense and taxes).

We also believe that EBITDAre can help facilitate comparisons of operating performance between periods and

We also believe that EBITDAre can help facilitate comparisons of operating performance between periods and with other REITs.

However, other REITs may not define EBITDAre in accordance with the

Index to Financial Statements

with other REITs.

However, other REITs may not define EBITDAre in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than us;

NAREIT definition, or may interpret the current NAREIT definition differently than us;

therefore, our computation of EBITDAre may not be comparable to that of such other REITs.

(2) We calculate Core Earnings Before Interest, Taxes, Depreciation, and Amortization ("Core EBITDA") as net income (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business.

Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance.

(2) We calculate Core Earnings Before Interest, Taxes, Depreciation, and Amortization ("Core EBITDA") as net income/(loss) (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business.

Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative to net income/(loss) calculated in accordance with GAAP as a measurement of our operating performance.

We believe that Core EBITDA is helpful to investors as a supplemental performance measure because it provides a metric for understanding the performance of our results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization), as well as items that are not part of normal day-to-day operations of our business.

2 unchanged sentences

(3) Presented net of related operating expenses incurred to earn such management fee revenue.

(4) Acquisitions consist of Galleria 100 in Atlanta, Georgia, purchased on May 6, 2019;

Galleria 400 and Galleria 600 in Atlanta, Georgia, purchased on August 23, 2019;

One Galleria Tower, Two Galleria Tower and Three Galleria Tower in Dallas, Texas, purchased on February 12, 2020;

and 222 South Orange Avenue in Orlando, Florida, purchased on October 29, 2020.

(5) Dispositions consist of One Independence Square in Washington, D.C., sold on February 28, 2019;

The Dupree in Atlanta, Georgia, sold on September 4, 2019;

500 West Monroe Street in Chicago, Illinois, sold on October 28, 2019;

1901 Market Street in Philadelphia, Pennsylvania, sold on June 25, 2020;

and the New Jersey Portfolio sold on October 28, 2020 (consisting of 200 and 400 Bridgewater Crossing in Bridgewater, New Jersey, and 600 Corporate Drive in Lebanon, New Jersey).

(4) Acquisitions include One Galleria Tower, Two Galleria Tower and Three Galleria Tower in Dallas, Texas, purchased on February 12, 2020, and 999 Peachtree Street in Atlanta, Georgia, purchased on October 22, 2021.

(5) Dispositions include 1901 Market Street in Philadelphia, Pennsylvania, sold on June 25, 2020, and the New Jersey Portfolio sold on October 28, 2020 (consisting of the Company's final remaining assets in the state;

200 and 400 Bridgewater Crossing in Bridgewater, New Jersey, and 600 Corporate Drive in Lebanon, New Jersey).

(6) Other investments consist of active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods.

The operating results from Two Pierce Place in Itasca, Illinois and 222 South Orange Avenue in Florida are included in this line item.

Our portfolio is a geographically diverse group of properties located primarily in select sub-markets within seven major Eastern U.S.

office markets, with a majority of our ALR being generated from the Sunbelt.

We typically lease space to large, credit-worthy corporate or governmental tenants on a long-term basis.

As of December 31, 2020, our average lease is between 15,000 and 20,000 square feet with six years of lease term remaining.

The operating results from 222 South Orange Avenue in Florida are included in this line item.

Our portfolio is a geographically diverse group of properties located primarily in select sub-markets within seven major U.S.

office markets, with a majority of our Annualized Lease Revenue ("ALR") being generated from Sunbelt markets.

We typically lease space to large, creditworthy corporate or governmental tenants on a long-term basis.

As of December 31, 2021, our average lease was approximately 15,000 square feet with six years of lease term remaining.

Consequently, leased percentage, as well as rent roll ups and roll downs, which we experience as a result of re-leasing, can fluctuate widely between buildings and between tenants, depending on when a particular lease is scheduled to commence or expire.

Leased Percentage

On a same store basis, our portfolio was approximately 88% leased as of December 31, 2020, as compared to 91% leased as of December 31, 2019.

Other than the City of New York's 313,000 square foot lease that is currently in holdover status at 60 Broad Street in New York, we have no leases greater than 1% of our ALR expiring during the eighteen month period following December 31, 2020.

We remain in advanced discussions for the renewal of substantially all of the City of New York's leased square footage.

To the extent new leases for currently vacant space outweigh or fall short of scheduled expirations, such leases would increase or decrease our overall leased percentage, respectively.

Our portfolio was approximately 86% leased as of December 31, 2021, as compared to approximately 87% leased as of December 31, 2020.

As of December 31, 2021, we had only one lease greater than 1% of our ALR that is scheduled to expire over the following twelve months.

This lease at our 750 West John Carpenter Freeway asset (assigned to the Dallas geographic reportable segment) represents 1.2% of our ALR, and is scheduled to expire during the fourth quarter of 2022.

We are currently in advanced discussions with the tenant for a renewal of a majority of their space.

As the economy has continued to recover from the impacts of the COVID-19 pandemic, leasing activity across our portfolio has improved;

however, to the extent new leases for currently vacant space outweigh or fall short of scheduled expirations, such leases would increase or decrease our overall leased percentage, respectively.

Impact of Downtime, Abatement Periods, and Rental Rate Changes

Commencement of new leases typically occurs 6-18 months after the lease execution date, after refurbishment of the space is completed.

The downtime between a lease expiration and the new lease's commencement can negatively impact Property NOI and Same Store NOI comparisons (both accrual and cash basis).

In addition, office leases, both new and renewal, often contain upfront rental and/or operating expense abatement periods which delay the cash flow benefits of the lease even after the new lease or renewal has commenced and will continue to negatively impact Property NOI and Same Store NOI on a cash basis until such abatements expire.

As of December 31, 2020, we had approximately 1 million square feet of executed leases for vacant space yet to commence or under rental abatement.

Commencement of new tenant leases typically occurs 6-18 months after the lease execution date, after refurbishment of the space is completed.

The downtime between a lease expiration and a new lease's commencement can negatively impact Property NOI and Same Store NOI comparisons (both accrual and cash basis).

In addition, office leases, both new and renewal, often contain upfront rental and/or operating expense abatement periods which delay the cash flow benefits of the lease even after the new or renewal lease has commenced and negatively impact Property NOI and Same Store NOI on a cash basis until such abatements expire.

As of December 31, 2021, we had approximately 750,000 square feet of executed leases for vacant space yet to commence or under rental abatement.

If we are unable to replace expiring leases with new or renewal leases at rental rates equal to or greater than the expiring rates, rental rate roll downs could occur and negatively impact Property NOI and Same Store NOI comparisons.

As mentioned above, our geographically diverse portfolio and the magnitude of some of our tenant's leased space can result in rent roll ups and roll downs that can fluctuate widely on a building-by-building and a quarter-to-quarter basis.

During the year ended December 31, 2020, we experienced a 3.5% and 10.2% roll up in cash and accrual rents, respectively, on leases executed during the period for space vacant one year or less.

During the year ended December 31, 2021, we experienced a 15.6% and 7.5% roll up in accrual and cash rents, respectively, on executed leases related to space vacant one year or less.

Index to Financial Statements

Same Store NOI decreased by 1.7% and 0.2% on a cash and accrual basis, respectively, for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

The decrease in cash basis Same Store NOI was primarily attributable to the deferral, net of subsequent collections, of approximately $5.8 million of 2020 rental payments.

Additional contributors to the decreases were a reduction in transient parking revenue as a result of the pandemic and decreased portfolio occupancy in 2020 when compared to 2019.

Property NOI and Same Store NOI comparisons for any given period fluctuate as a result of the mix of net leasing activity in individual properties during the respective period.

Same Store NOI increased by 6.5% and 3.4% on a cash and accrual basis, respectively, for the year ended December 31, 2021.

The primary drivers of the increases in both metrics included increased rental rates and decreased operating expenses, particularly real estate taxes, as well as the expiration of abatements at certain properties.

These increases were partially offset by an approximately 1% overall reduction in portfolio occupancy during 2021 due to slower new tenant touring and leasing activity in 2020 as a result of the COVID-19 pandemic.

Property NOI and Same Store NOI comparisons for any given period fluctuate as a result of the mix of net leasing activity during the respective period.

Election as a REIT

3 unchanged sentences

If we fail to qualify as a REIT in any taxable year, we may be subject to federal income taxes on our taxable income for that year and for the four years following the year during which qualification is lost and/or penalties, unless the IRS grants us relief under certain statutory provisions.

Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders.

Such an event could materially adversely affect our net income/(loss) and net cash available for distribution to our stockholders.

However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and intend to continue to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for federal income tax purposes.

We have elected to treat POH, a wholly-owned subsidiary of Piedmont, as a taxable REIT subsidiary.

POH performs non-customary services for tenants of buildings that we own, including solar power generation and real estate and non-real estate related-services.

Any earnings related to such services performed by our taxable REIT subsidiary are subject to federal and state income taxes.

In addition, for us to continue to qualify as a REIT, our investments in taxable REIT subsidiaries cannot exceed 20% of the value of our total assets.

We have elected to treat one of our wholly owned subsidiaries as a taxable REIT subsidiary ("TRS").

Our TRS performs non-customary services for tenants of buildings that we own, including real estate and non-real estate related-services.

Any earnings related to such services performed by our TRS are subject to federal and state income taxes.

In addition, for us to continue to qualify as a REIT, our investments in TRS cannot exceed 20% of the value of our total assets.

We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations.

2 unchanged sentences

However, due to the long-term nature of the leases, the leases may not readjust their reimbursement rates frequently enough to fully cover inflation.

Off-Balance Sheet Arrangements

We are not dependent on off-balance sheet financing arrangements for liquidity, and do not currently have any off-balance sheet arrangements.

For further information regarding our commitments under operating lease obligations, see the notes of our accompanying consolidated financial statements, as well as the table found in Contractual Obligations below.

Application of Critical Accounting Policies

Application of Critical Accounting Estimates

Our accounting policies have been established to conform with GAAP.

6 unchanged sentences

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate and related intangible assets, both operating properties and properties under construction, in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable.

When indicators of potential impairment are present, we assess whether the respective carrying values will be recovered from the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition for assets held for use, or from the estimated fair value, less costs

Index to Financial Statements

to sell, for assets held for sale.

In the event that the expected undiscounted future cash flows for assets held for use or the estimated fair value, less costs to sell, for assets held for sale do not exceed the respective asset carrying value, we adjust such assets to the respective estimated fair values and recognize an impairment loss.

Projections of expected future cash flows require that we estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors.

The subjectivity of assumptions used in the future cash flow analysis, including capitalization and discount rates, could result in an incorrect assessment of the property’s estimated fair value and, therefore, could result in the misstatement of the carrying value of our real estate and related intangible assets and our reported net income attributable to Piedmont.

The changing of these assumptions and the subjectivity of assumptions used in the future cash flow analysis, including capitalization and discount rates, could result in a

Index to Financial Statements

changed assessment or an incorrect assessment of the property’s estimated fair value and, therefore, could result in the misstatement of the carrying value of our real estate and related intangible assets and our reported net income/(loss) attributable to Piedmont.

Rental Revenue Recognition

14 unchanged sentences

In addition, we also record the cost of certain tenant improvements paid for or reimbursed by tenants when we conclude that we are the owner of such tenant improvements using the factors discussed above.

For these tenant-funded tenant improvements, we record the amount funded or reimbursed by tenants as deferred revenue, which is amortized and recognized as rental revenue over the term of the related lease beginning upon substantial completion of the leased premises.

For these tenant-funded tenant improvements, we record the amount funded or reimbursed by tenants as an asset and deferred revenue.

The asset is depreciated and the deferred revenue is amortized and recognized as rental revenue over the term of the related lease beginning upon substantial completion of the leased premises.

Consequently, our determination as to whether we, or our tenant, are the owner of tenant improvements for accounting purposes has a significant impact on both the amount and timing of rental revenue that we record related to tenant-funded tenant improvements.

Accounting Pronouncements Adopted during the Year Ended December 31, 2020

Reference Rate Reform Relief

Accounting Standards Update No.

2020-04, Reference Rate Reform (Topic 848) ("ASU 2020-04"), was issued in March 2020.

ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur.

During the year ended December 31, 2020, we elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives.

Application of these expedients preserves the presentation of derivatives consistent with past presentation.

We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

Index to Financial Statements

Financial Instruments- Credit Loss Amendments

On January 1, 2020, we adopted ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments , as well as ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and ASU No.

2019-05, Financial Instruments- Credit Losses:

Targeted Transition Relief (collectively the "Credit Loss Amendments").

The provisions of the Credit Loss Amendments replace the "incurred loss" approach with an "expected loss" model for impairing trade and other receivables, held-to-maturity debt securities, net investment in leases, and off-balance-sheet credit exposures, which will generally result in earlier recognition of allowances for credit losses.

However, the Financial Accounting Standards Board (the "FASB") also issued ASU No.

2018-19 Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which is effective concurrent with the Credit Loss Amendments, and excludes receivables arising from operating leases from the scope of the Credit Loss Amendments and affirms that such receivables should be evaluated for collectibility as prescribed by Accounting Standards Codification 842 Leases .

As s ubstantially all of our receivables are operating lease receivables there was no material impact to our accompanying consolidated financial statements or disclosures as a result of adoption of the Credit Loss Amendments.

During the year ended December 31, 2020, the FASB issued a Staff Q&A on Topic 842 and Topic 840 (lease accounting guidance):

Accounting for lease concessions related to the effects of the COVID-19 pandemic .

Generally, changes to payment terms not contemplated by the lease contract should be accounted for under Topic 842 as a lease modification.

The FASB staff has provided relief from this modification guidance through an accounting policy election, provided that changes to the payment terms do not result in a substantial increase in the rights of either the lessee or the lessor under the lease.

We have elected not to apply the relief provided by the FASB Staff, and have instead accounted for all rent relief agreements as result of COVID-19 as lease modifications.

See further details concerning rent relief agreements with our tenants in Note 8 to our accompanying consolidated financial statements.

Related-Party Transactions and Agreements

1 unchanged sentence

Owens retired effective June 30, 2017, and remained a consultant for us until June 30, 2020, earning $18,500 per month.

During the years ended December 31, 2020, 2019, and 2018, Piedmont recognized approximately $ 0.1 million, $ 0.2 million, and $ 0.3 million, respectively, of expense related to this consulting agreement.

During the years ended December 31, 2021, 2020, and 2019, Piedmont recognized approximately $0, $0.1 million, and $0.2 million, respectively, of expense related to this consulting agreement.

Additionally, during the year ended December 31, 2019, we entered into employment or retirement agreements with certain of our current and former executive officers as more fully described in our Definitive Proxy Statement and Current Report on Form 8-K filed on March 19, 2019.

Contractual Obligations

Our contractual obligations as of December 31, 2020 were as follows (in thousands):

Payments Due by Period

Contractual Obligations (1)

Total Less than

1 year 1-3 years 3-5 years More than

Long-term debt (2)

$ 1,632,610 $ 327,610 $ 355,000 (3)

$ 650,000 $ 300,000

(1) Contractual obligations do not include amounts committed for tenant or capital improvements under leases where Piedmont is the lessor.

However, see Note 8 to our accompanying consolidated financial statements for details concerning our material lease commitments, the timing of which may fluctuate.

Additionally, Piedmont does not have material obligations as lessee under operating lease agreements as of December 31, 2020.

(2) Amounts include principal payments only and balances outstanding as of December 31, 2020, not including approximately $10.6 million of net unamortized issuance discounts, debt issuance costs paid to lenders, or estimated fair value adjustments.

We made interest payments, including payments under our interest rate swaps, of approximately $50.7 million during the year ended December 31, 2020, and expect to pay interest in future periods on outstanding debt obligations based on the rates and terms disclosed herein and in Note 4 to our accompanying consolidated financial statements.

(3) Includes the balance outstanding as of December 31, 2020 of the $500 Million Unsecured 2018 Line of Credit.

However, we may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of September 29, 2023) provided we are not then in default and upon payment of extension fees.

Index to Financial Statements

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 7. Management’s Discussion and Analysis