What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-17 · 113 added, 118 removed, 265 unchanged (47% of the section changed)

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of this report.

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 borrowings under our $600 Million Unsecured 2022 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.

In addition, on January 31, 2023, we entered into a new $215 million, floating-rate, unsecured term loan facility, the proceeds from which we intend to use to repay the majority of our $350 Million Unsecured Senior Notes that mature on June 1, 2023.

The remaining balance of the $350 Million Unsecured Senior Notes due 2023 will be repaid from a combination of cash on hand, proceeds from select property dispositions and/or borrowings under our $600 Million Unsecured 2022 Line of Credit.

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

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

As of December 31, 2022, we had the full $600 million of capacity available under our $600 Million Unsecured 2022 Line of Credit, and we believe that we have sufficient liquidity to meet our obligations for the foreseeable future.

Our most consistent use of capital has historically been, and we believe will continue to be, to fund capital expenditures for our existing portfolio of properties.

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"Capital expenditures for redevelopment/renovations" during the years ended December 31, 2022 and 2021 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.

our Galleria Tower buildings in Dallas, Texas;

as well as our Galleria buildings and 999 Peachtree Street in Atlanta, Georgia, among others.

"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.

Given that our operating model frequently results in leases for multiple 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, 2022, we committed to spend approximately $5.34 per square foot per year of lease term for tenant improvement allowances and lease commissions (net of expired lease commitments) as compared to $4.25 (net of expired lease commitments) for the year ended December 31, 2021.

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.

Commitments per square foot per year of lease term for tenant improvement allowances and lease commissions for the year ended December 31, 2021 were unusually low as they reflected the 330,000 square foot, five-year extension of the New York City lease at our 60 Broad Street asset, which did not include a tenant improvement allowance.

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.

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Subject to the identification and availability of attractive investment opportunities and our ability to consummate such acquisitions on satisfactory terms, acquiring new assets consistent with our investment strategy could also be a significant use of capital.

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.

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.

We may also use capital resources to repurchase additional shares of our common stock under our stock repurchase program when we believe such purposes would be a prudent use of capital.

As of December 31, 2022, we had approximately $150.5 million of board-authorized share repurchase capacity under the program which may be used for share repurchases through February 2024.

Finally, other than our $350 Million Unsecured Senior Notes due 2023 discussed above, we have no other debt maturing until 2024;

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

We may also use capital resources to pay dividends to our stockholders.

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;

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Results of Operations (2022 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.

Piedmont recognized net income applicable to common stockholders for the year ended December 31, 2022 of $146.8 million, or $1.19 per diluted share, as compared with net loss applicable to common stockholders of $1.2 million, or $0.01 per diluted share, for the year ended December 31, 2021.

The year ended December 31, 2022 included approximately $151.7 million of gain on the sales of real estate assets as well as increased revenues due to rental rate increases across the portfolio, offset by $26.0 million in non-cash impairment charges related to reductions in our carrying value of goodwill and one real estate asset.

The year ended December 31, 2021 included a $41.0 million non-cash impairment charge related to the subsequent sale of our last remaining Chicago asset (see Note 7 to our accompanying consolidated financial statements).

Comparison of the accompanying consolidated statements of operations for the year ended December 31, 2022 vs.

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Amortization 90.9 16 % 86.0 16 % 4.9

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

Impairment losses 26.0 4 % 41.0 8 % (15.0)

General and administrative 29.1 5 % 30.3 5 % (1.2)

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Other income 2.7 — % 10.2 2 % (7.5)

Loss on extinguishment of debt — — % (9.3) 2 % 9.3

Gain on sale of real estate assets 151.7 27 % — — % 151.7

Net income/(loss) $ 146.8 26 % $ (1.2) — % $ 148.0

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.

Rental and tenant reimbursement revenue increased approximately $31.1 million for the year ended December 31, 2022 as compared to the prior year.

The increase was primarily due to capital recycling activity subsequent to January 1, 2021, rental rate increases associated with recent leasing activity across the portfolio, and higher tenant reimbursements as a result of higher recoverable operating expenses as compared to the prior year.

Property management fee revenue decreased approximately $0.8 million for the year ended December 31, 2022 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.

Such fees fluctuate from period to period due to the variability of construction activity as well as the commencement or termination of property management agreements we may enter into with unrelated third-party owners.

During the year ended December 31, 2022, one multi-year property management agreement with a third-party terminated in Chicago, Illinois.

Other property related income increased approximately $4.8 million for the year ended December 31, 2022 as compared to the prior year primarily due to higher transient parking at our buildings during the current year, as compared to the prior year, and additional parking revenue associated with properties acquired subsequent to January 1, 2021.

Index to Financial Statements

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.

Property operating costs increased approximately $15.2 million for the year ended December 31, 2022 as compared to the prior year.

The variance was primarily due to higher recoverable operating expenses such as janitorial, security, and utilities resulting from higher tenant utilization during the current period, and capital recycling activity subsequent to January 1, 2021.

Depreciation expense increased approximately $13.0 million for the year ended December 31, 2022 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.

The increase was primarily due to additional building and tenant improvements acquired and/or placed in service subsequent to January 1, 2021.

Amortization expense increased approximately $4.9 million for the year ended December 31, 2022 compared to the prior year.

The increase was primarily due to additional amortization associated with property acquisitions subsequent to January 1, 2021, partially offset by certain lease intangible assets at our existing properties becoming fully amortized during the same period.

During the year ended December 31, 2022, we recognized a non-cash impairment loss on real estate assets of approximately $10.0 million related to a change in hold period assumptions for one of our Minneapolis properties.

See Note 7 to our accompanying consolidated financial statements for additional details.

Also, during the year ended December 31, 2022, due to the decline of the stock market and our stock price, we recognized a non-cash impairment loss related to goodwill of approximately $16.0 million for the year ended December 31, 2022.

See Note 2 to our accompanying consolidated financial statements for further details.

During the year ended December 31, 2021, we recognized a non-cash 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, which was subsequently sold during the year ended December 31, 2022.

General and administrative expenses decreased approximately $1.2 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily reflecting decreased accruals for potential performance-based compensation, partially offset by approximately $2.2 million in severance costs related to a reorganization of management during the fourth quarter of 2022.

Other Income (Expense)

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 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 (see "Gain on sale of real estate assets" explanation below).

The property was sold in June 2020.

The loss was comprised of a prepayment penalty and the write-off of unamortized debt issuance costs and discounts associated with the loan.

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.

Interest expense increased approximately $14.4 million for the year ended December 31, 2022 as compared to the prior year primarily driven by a higher average debt balance outstanding during the current year as a result of the purchase of the 1180 Peachtree Street building, as well as increased interest rates on our variable rate debt.

This increase was partially offset by a $0.5 million increase in capitalized interest associated with various redevelopment projects in progress during the year ended December 31, 2022.

Other income decreased approximately $7.5 million for the year ended December 31, 2022 as compared to the prior year due to the payoff of notes receivable due from the purchaser of our New Jersey Portfolio in March of 2022.

Gain on sale of real estate assets during the year ended December 31, 2022 includes $49.2 million of gain recognized on the sale of the 225 & 235 Presidential Way buildings, which closed in January of 2022, as well as $102.6 million of gain recognized on the sale of the 1414 Massachusetts Avenue building and the One Brattle Square building in December of 2022.

Results of Operations (2021 vs.

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Issuer and Guarantor Financial Information

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").

Piedmont, through its wholly-owned subsidiary Piedmont OP (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.

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(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;

In particular, 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;

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

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In the event of the bankruptcy, liquidation, reorganization or other winding up of Piedmont OP or the Guarantor, assets that secure any of their respective secured indebtedness and other secured obligations will be available to pay their respective obligations under the Notes or the guarantee, as applicable, and their other respective unsecured indebtedness and other unsecured obligations only after all of their respective indebtedness and other obligations secured by those assets have been repaid in full.

The non-Guarantors are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes, or to make any funds available therefore, whether by dividends, loans, distributions or other payments.

All non-Guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes, or to make any funds available therefore, whether by dividends, loans, distributions or other payments.

Pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being Registered , the following tables present summarized financial information for Piedmont OP as Issuer and Piedmont Office Realty Trust, Inc.

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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:

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

Our 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:

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

These operating segments are also Piedmont’s reportable segments.

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

Additionally, as of December 31, 2022, Piedmont owned two properties in Houston that did 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

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 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):

further investment in these markets.

These two properties are included in "Other" below.

See Note 16 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 accrual-basis NOI by geographic segment (in thousands):

Years Ended December 31,

Dallas $ 66,155 $ 59,845

Atlanta $ 82,878 $ 62,772

Washington, D.C.

36,914 36,696

Minneapolis 32,538 33,588

Dallas 62,444 66,155

Washington, D.C./Northern Virginia 39,994 36,914

Boston 39,101 45,587

Orlando 35,327 33,449

Minneapolis 31,886 32,538

New York 31,252 30,049

Total reportable segments 322,882 307,464

Corporate and other 10,163 13,915

Other 14,685 10,163

Total NOI $ 337,567 $ 317,627

Comparison of the Year Ended December 31, 2022 Versus the Year Ended December 31, 2021

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.

NOI increased primarily due to the acquisition of 999 Peachtree Street during the fourth quarter of 2021 and 1180 Peachtree Street during the third quarter of 2022.

NOI decreased primarily due to a contraction by a tenant at 750 West John Carpenter Freeway, as well as an expiration of a lease at One Galleria Tower during 2021.

Washington, D.C./Northern Virginia

NOI increased due to the commencement of certain leases, primarily at 400 Virginia Avenue and 3100 Clarendon Boulevard.

NOI decreased primarily due to the disposition of 225 and 235 Presidential Way in January 2022.

NOI increased primarily due to the expiration of rental and operating expense abatements associated with the Transocean lease at our Enclave Place building in Houston, Texas during the second quarter of 2021.

Index to Financial Statements

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

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;

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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.

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

non-real estate depreciation, straight-lined rents and fair value lease adjustments, non-cash components of interest expense and compensation expense, and by making similar adjustments for joint ventures, if any.

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.

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90,891 0.74 85,946 0.69 93,242 0.74

Impairment loss on real estate assets

Impairment losses

25,981 0.21 41,000 0.33 — —

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$ 244,822 $ 1.98 $ 245,422 $ 1.97 $ 229,590 $ 1.82

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

— — — — 3,175 0.02

Severance costs associated with fourth quarter 2022 management reorganization 2,248 0.02 — — — —

Loss on extinguishment of debt

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Weighted-average shares outstanding – diluted 123,524 124,455 (3)

126,104 126,182

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

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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/(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.

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

We calculate Property NOI beginning with Net income/(loss) (calculated in accordance with GAAP) before adjusting for interest, 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.

For Property NOI (cash basis), the effects of non-cash general reserve for uncollectible accounts, straight-lined rents and fair value lease revenue are also eliminated;

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

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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.

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Depreciation and amortization attributable to noncontrolling interests 85 84 85 84

Impairment loss on real estate assets

Impairment losses

25,981 41,000 25,981 41,000

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311,291 297,733 311,291 297,733

Loss on extinguishment of debt

— 9,336 — 9,336

Severance costs associated with fourth quarter 2022 management reorganization 2,248 — 2,248 —

Core EBITDA (2)

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(1,847) (9,089) (1,847) (9,089)

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

Non-cash general reserve/(reversal) for uncollectible accounts (3,000) (553)

Straight-line rent effects of lease revenue

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Property NOI 309,901 295,221 337,567 317,627

Net operating income from:

Net operating (income)/loss from:

Acquisitions (4)

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Change period over period in Same Store NOI 1.9 % N/A 1.1 % N/A

(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/(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.

(1) We calculate Earnings Before Interest, Taxes, Depreciation, and Amortization- Real Estate ("EBITDAre") in accordance with the current 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, along with the same adjustments for joint ventures.

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/(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 with other REITs.

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

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.

Index to Financial Statements

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

expense and taxes).

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 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/(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.

(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 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.

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.

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

(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).

(4) Acquisitions include 999 Peachtree Street, purchased during the fourth quarter of 2021, and 1180 Peachtree Street, purchased during the third quarter of 2022, both located in Atlanta, Georgia.

(5) Dispositions include Two Pierce Place in Itasca, Illinois and 225 and 235 Presidential Way in Woburn, Massachusetts, all sold during the first quarter of 2022, and One Brattle Square and 1414 Massachusetts Avenue in Cambridge, Massachusetts, sold in the fourth quarter of 2022.

(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 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.

Our portfolio consists of office properties located within identified growth submarkets in large metropolitan cities concentrated primarily in the Sunbelt.

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

As of December 31, 2022, our average lease was approximately 15,000 square feet with approximately 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

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.

Our portfolio was 86.7% leased as of December 31, 2022, as compared to 85.5% leased as of December 31, 2021, and scheduled lease expirations for the portfolio as a whole for 2023 represent approximately 7% of our ALR, some portion of which may renew.

To the extent the square footage from new leases for currently vacant space exceed or fall short of the square footage associated with non-renewing expirations, such leases would increase or decrease our overall leased percentage, respectively.

Impact of Downtime, Abatement Periods, and Rental Rate Changes

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.

Commencement of a lease associated with a new tenant in the property 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 to new tenants and those renewing, 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 negatively impact Property NOI and Same Store NOI on a cash basis until such abatements expire.

As of December 31, 2022, we had approximately 1.14 million square feet of executed leases for vacant space yet to commence or under rental abatement, representing approximately $33 million of additional annual cash revenue.

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, 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.

As mentioned above, our diverse portfolio and the magnitude of some of our tenants' leased spaces 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, 2022, we experienced a 9.7% and 17.2% roll up in cash and accrual rents, respectively, on executed leases related to space vacant one year or less.

Both increases for the year were impacted by a lease renewal and extension executed with a large tenant with an average lease term of three years at our Three Galleria Tower building in Dallas, Texas.

Index to Financial Statements

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.

Same Store NOI increased by 1.9% and 1.1% on a cash and accrual basis, respectively, for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The primary drivers of the increases in both metrics were increased rental rates and the expiration of abatements at certain properties.

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.

Election as a REIT

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Valuation of Real Estate Assets

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.

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate and intangible assets of operating properties 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 to sell, for assets held for sale.

1 unchanged sentence

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 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

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 changed assessment or an incorrect assessment of the property’s estimated fair value and, therefore, could result in the

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.

misstatement of the carrying value of our real estate and related intangible assets and our reported net income/(loss) attributable to Piedmont.

Valuation of Goodwill

Goodwill is the excess of cost of an acquired entity over the amounts specifically assigned to assets acquired and liabilities assumed in purchase accounting for business combinations, and is allocated to each of our reporting units.

We test the carrying value of the goodwill assigned to each of our reporting units for impairment on an annual basis, or on an interim basis if an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit may be less than its carrying value.

Such interim circumstances may include, but are not limited to, significant adverse changes in legal factors or in the general business climate, adverse action or assessment by a regulator, unanticipated competition, the loss of key personnel, or persistent declines in an entity’s stock price below the carrying value of the entity.

In performing our goodwill impairment assessment, we compare the estimated fair value of each of our reporting units to the reporting unit's carrying value.

If we conclude the fair value of a reporting unit is less than its carrying value, then we would recognize a goodwill impairment loss equal to the excess of the reporting unit's carrying amount over its estimated fair value (not to exceed the total goodwill allocated to that reporting unit).

Estimation of the fair value of each reporting unit involves projections of discounted future cash flows, which are derived using certain assumptions that are subjective in nature.

We also make estimates about future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, and the number of months it takes to re-lease the property, among other factors.

The changing of these assumptions and the subjectivity of the market based assumptions used in the discounted future cash flow analysis, particularly the capitalization rates and discount rates, could result in a changed assessment or an incorrect assessment of the reporting unit’s estimated fair value and, therefore, could result in the misstatement of the carrying value of our reporting units and related goodwill and our reported net income/(loss) attributable to Piedmont.

In addition, adverse economic conditions could also cause us to recognize additional asset impairment charges in the future, which could materially and adversely affect our business, financial condition and results of operations.

Rental Revenue Recognition

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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.

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

Index to Financial Statements

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.

Related-Party Transactions and Agreements

There were no related-party transactions during the three years ended December 31, 2021, other than a consulting agreement with our former Chief Investment Officer ("CIO"), Raymond L.

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, 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.

Index to Financial Statements

There were no related-party transactions during the three years ended December 31, 2022, other than a consulting agreement with our former Chief Investment Officer, who 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, 2022, 2021, and 2020, Piedmont recognized approximately $0, $0, and $0.1 million, respectively, of expense related to this consulting agreement.

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