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Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-23 · 102 added, 105 removed, 273 unchanged (43% of the section changed)

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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.

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.

We intend to use cash on hand, cash flow 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.

As a result of refinancing activity completed in January 2024 (see Note 3 to our accompanying consolidated financial statements), our only remaining 2024 debt maturity is the $50.2 million outstanding balance of our $400 Million Unsecured Senior Notes due in March 2024, which we intend to repay using our $600 Million Unsecured 2022 Line of Credit.

Our 2025 debt maturities are the remaining $25 million of our $215 Million Unsecured 2023 Term Loan due in January 2025 and the $250 Million Unsecured 2018 Term Loan due in March 2025.

We currently anticipate repaying these amounts using any or a combination of following:

our $600 Million Unsecured 2022 Line of Credit, net proceeds from the disposition of select properties, and other new secured or unsecured borrowings from third party lenders or the public debt market.

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

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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(1) Of the total amounts paid, approximately $10.1 million and $7.2 million related to soft costs such as capitalized interest, payroll, and other general and administrative expenses for the year ended December 31, 2023 and 2022, respectively.

"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 Galleria Tower buildings in Dallas, Texas;

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

"Capital expenditures for redevelopment/renovations" during the years ended December 31, 2023 and 2022 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 Galleria Tower buildings in Dallas, Texas, as well as our 222 South Orange building in Orlando, Florida, and our Galleria on the Park buildings, 1155 Perimeter Center West, 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.

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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.

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.

For leases executed during the year ended December 31, 2023, we have committed to spend approximately $5.22 per square foot per year of lease term for tenant improvement allowances and lease commissions (net of expired lease commitments) as compared to $5.34 (net of expired lease commitments) for the year ended December 31, 2022.

As of December 31, 2023, we had one individually significant unrecorded tenant allowance commitment greater than $10.0 million.

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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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.

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 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.

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

Although repayment of debt is currently our priority, 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 also use capital resources to pay dividends to our stockholders.

Given the significant increase in interest expense during the year ended December 31, 2023 (see Results of Operations below), we reduced our annual dividend from $0.84 per share to $0.50 per share beginning with the third quarter of 2023 which will reduce the cash used to pay the dividend by approximately $40 million on an annual basis.

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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and (vii) the amount required to be distributed to maintain our status as a REIT.

With the fluctuating nature of cash flows and expenditures, we may periodically borrow funds on a short-term basis to cover timing differences in cash receipts and cash disbursements.

With the fluctuating nature of cash flows and expenditures, we may periodically borrow funds on a short-term basis to cover timing differences in cash receipts and cash disbursements, including to pay dividends to our stockholders.

Index to Financial Statements

Results of Operations (2023 vs.

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).

Net loss applicable to common stockholders for the year ended December 31, 2023 was approximately $48.4 million, or $0.39 per diluted share, as compared with net income applicable to common stockholders of $146.8 million, or $1.19 per diluted share, for the year ended December 31, 2022.

The decrease in net income reflects:

(i) a decreased gain on sale of real estate assets of $149.8 million;

(ii) a $35.6 million increase in interest expense in the current period compared to the prior period primarily due to higher interest rates;

(iii) and a $14.8 million increase in depreciation expense due to additional building and tenant improvements acquired and/or placed in service over the two year period.

These decreases were partially offset by continued growth in Property Net Operating Income during the year ended December 31, 2023, as compared to the year ended December 31, 2022.

Comparison of the accompanying consolidated statements of operations for the year ended December 31, 2023 vs.

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Amortization 87.7 15 % 90.9 16 % (3.2)

Impairment losses 26.0 4 % 41.0 8 % (15.0)

Impairment charges 29.4 4 % 26.0 4 % 3.4

General and administrative 29.2 5 % 29.1 5 % 0.1

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Other income 3.9 1 % 2.7 — % 1.2

Loss on early extinguishment of debt (0.8) — % — — % (0.8)

Gain on sale of real estate assets 1.9 — % 151.7 27 % (149.8)

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Rental and tenant reimbursement revenue increased approximately $9.6 million for the year ended December 31, 2023 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 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.

The increase was primarily due to capital recycling activity during the year ended December 31, 2022 and higher tenant reimbursements as a result of higher recoverable operating expenses during the current year as tenant utilization of our buildings increased during 2023 as compared to the prior year.

Other property related income increased approximately $4.3 million for the year ended December 31, 2023 as compared to the prior year primarily due to higher transient parking at our buildings during the current year.

Additionally, parking revenue associated with the 1180 Peachtree Street building acquired during the third quarter of 2022 also contributed to the increase.

Index to Financial Statements

Property operating costs increased approximately $9.0 million for the year ended December 31, 2023 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 $14.8 million for the year ended December 31, 2023 compared to the prior year.

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.

The increase was primarily due to additional building and tenant improvements acquired and/or placed in service subsequent to January 1, 2022, as well as the acquisition of 1180 Peachtree Street mentioned above.

Amortization expense decreased approximately $3.2 million for the year ended December 31, 2023 compared to the prior year.

The decrease in amortization expense associated with certain lease intangible assets at our existing properties becoming fully amortized subsequent to January 1, 2022 was largely offset by additional amortization associated with the acquisition of 1180 Peachtree Street mentioned above, as well as accelerated amortization associated with lease terminations.

During the years ended December 31, 2023 and 2022, we reduced the carrying amount of goodwill resulting in the recognition of non-cash impairment charges of approximately $29.4 million and $16.0 millions, respectively.

See Note 6 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.

During the year ended December 31, 2022, we also 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.

Other Income (Expense)

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.

Interest expense increased approximately $35.6 million for the year ended December 31, 2023 as compared to the prior year primarily driven by increased interest rates on floating-rate debt during 2023 and on $600 million of refinanced fixed-rate debt, also obtained in 2023.

Other income increased approximately $1.2 million for the year ended December 31, 2023 as compared to the prior year due primarily to interest income earned on cash invested for short periods pending the repayment of debt;

consequently, we do not expect such interest income to recur in future periods.

The loss on early extinguishment of debt for the year ended December 31, 2023 is comprised of the pro-rata write-off of unamortized debt issuance costs and discounts associated with the early repurchase of approximately $350 million aggregate principal amount of the $400 Million Unsecured Senior Notes due 2024, as well as fees paid.

See Note 3 to our accompanying consolidated financial statements for further details.

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 2022, as well as $102.5 million of gain recognized on the sale of the Cambridge Portfolio in December 2022.

Results of Operations (2022 vs.

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Issuer and Guarantor Financial Information

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").

As of December 31, 2023, Piedmont, through its wholly-owned subsidiary Piedmont OP, had four separate issuances totaling approximately $1.3 billion of senior unsecured notes payable outstanding that mature in 2024, 2028, 2030 and 2032 (see Note 3 to our accompanying consolidated financial statements for additional details regarding each of these issuances) (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.

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;

The Notes are fully and unconditionally guaranteed by Piedmont, the parent entity that consolidates Piedmont OP and all other subsidiaries.

In particular, Piedmont guarantees to each holder of the Notes that the principal and interest 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, 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 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.

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.

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

Piedmont’s guarantee of the Notes is effectively subordinated in right of payment to any future mortgage or other secured indebtedness or secured guarantees of Piedmont (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 Piedmont’s subsidiaries.

In the event of the bankruptcy, liquidation, reorganization or other winding up of Piedmont OP or Piedmont, 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.

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.

as Guarantor on a combined basis after elimination of (i) intercompany transactions and balances among the Issuer and the Guarantor and (ii) equity in earnings from and investments in any subsidiary that is a non-Guarantor (in thousands):

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 as guarantor on a combined basis after elimination of (i) intercompany transactions and balances among Piedmont OP and Piedmont and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor (in thousands):

Combined Balances of Piedmont OP and Piedmont Office Realty Trust, Inc.

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Net loss $ (115,485)

Net Operating Income by Geographic Segment

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, 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

further investment in these markets.

Net Operating Income by Geographic Segment

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

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

These operating segments are also our reportable segments.

Additionally, as of December 31, 2023, we 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 we do not maintain a significant presence or anticipate further investment in this market.

These two properties are included in "Other" below.

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Dallas 64,566 62,444

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

Boston 39,101 45,587

Orlando 36,639 35,327

Northern Virginia/Washington, D.C.

36,334 39,994

Minneapolis 33,302 31,886

New York 29,357 31,252

Boston 25,703 39,101

Total reportable segments 329,376 322,882

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Comparison of the Year Ended December 31, 2023 Versus the Year Ended December 31, 2022

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.

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

Northern Virginia/Washington, D.C.

NOI decreased due to the termination of certain leases at Arlington Gateway in late 2022.

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

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, along with appropriate adjustments to those reconciling items for joint ventures, if any.

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, goodwill, and investment in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, along with appropriate adjustments to those reconciling items for joint ventures, if any.

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 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.

We calculate Core FFO by starting with FFO, as defined by NAREIT, and adjusting for gains or losses on the early 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.

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87,717 0.71 90,891 0.74 85,946 0.69

Impairment losses

Impairment charges

29,446 0.24 25,981 0.21 41,000 0.33

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$ 214,399 $ 1.73 $ 244,822 $ 1.98 $ 245,422 $ 1.97

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

Loss on extinguishment of debt

Severance costs associated management reorganization — — 2,248 0.02 — —

Loss on early extinguishment of debt

820 0.01 — — — —

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Depreciation of non real estate assets

728 949 1,216

Straight-line effects of lease revenue

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Weighted-average shares outstanding – diluted 123,702 (3)

123,524 124,455 (3)

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

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(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.

Such shares are not included when calculating net loss per diluted share applicable to Piedmont for the years ended December 31, 2023 and 2021 as they would reduce the loss per share presented.

Index to Financial Statements

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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.

and (ii) that were not out of service for development or redevelopment during those periods.

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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Net income/(loss) applicable to Piedmont (GAAP basis) $ (48,387) $ 146,830 $ (48,387) $ 146,830

Net loss applicable to noncontrolling interest

— (14) — (14)

Net income applicable to noncontrolling interest

Interest expense

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Depreciation and amortization attributable to noncontrolling interests 80 85 80 85

Impairment losses

Impairment charges

29,446 25,981 29,446 25,981

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316,595 311,291 316,595 311,291

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

Loss on early extinguishment of debt

Severance costs associated management reorganization — 2,248 — 2,248

Core EBITDA (2)

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(3,256) (1,847) (3,256) (1,847)

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

Reversal of non-cash general reserve for uncollectible accounts (1,000) (3,000)

Straight-line rent effects of lease revenue

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(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.

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

(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.

(4) Acquisitions include 1180 Peachtree Street in Atlanta, Georgia, purchased during the third quarter of 2022.

(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.

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As of December 31, 2023, 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, 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 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.

The leased percentage of our portfolio increased approximately 40 basis points during the year ended December 31, 2023, from 86.7% leased as of December 31, 2022 to 87.1% leased as of December 31, 2023.

The increase was attributable to the completion of approximately 830,000 of new tenant leases during the year ended December 31, 2023, representing the largest annual amount of new tenant leasing since 2018.

Additionally, we renewed approximately 1.4 million square feet of expiring leases, resulting in approximately 2.2 million square feet of total leasing for the year ended December 31, 2023.

Scheduled lease expirations for 2024 represent approximately 1.2 million square feet, or 7.4% of our ALR, some portion of which may renew.

Our historical retention rate is approximately 68% over the past five years.

To the extent the square footage from new leases for currently vacant space exceeds or falls 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 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.

Commencement of a lease associated with a new tenant 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.

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

As of December 31, 2023, we had approximately 1.1 million square feet of executed leases for vacant space yet to commence or under rental abatement, representing approximately $35 million of future additional annual cash rents.

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 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.

During the year ended December 31, 2023, we

Index to Financial Statements

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.

experienced a 4.7% and 12.4% roll up in cash and accrual rents, respectively, on executed leases related to space vacant one year or less.

During the year ended December 31, 2023, Same Store NOI increased by 2.2% on a cash basis and decreased 1.0% on an accrual basis as compared to the prior year.

Cash basis Same Store NOI increased as compared to the prior year primarily due to rental rate roll-ups, as well as new leases commencing or leases with expiring rental or operating expense abatements beginning to outweigh leases that expired during 2023.

Property Net Operating Income on an accrual basis increased approximately $4.8 million, or 1.4%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily as a result of the acquisition of 1180 Peachtree Street during the third quarter of 2022.

After removing the operating results of 1180 Peachtree Street, Same Store NOI on an accrual basis for the year ended December 31, 2023 decreased approximately 1% as compared to the prior year.

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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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.

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.

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

Index to Financial Statements

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

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.

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 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

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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.

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, inclusive of allocated goodwill.

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).

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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.

See Note 6 to our accompanying consolidated financial statements for more details regarding our goodwill for the years ended December 31, 2023 and 2022.

Rental Revenue Recognition

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• whether the estimated economic life of the leasehold improvements is long enough to allow for a significant residual value that could benefit the landlord at the end of the lease term.

When we conclude that we are the owner of tenant improvements, we record the cost to construct the tenant improvements as an asset and commence rental revenue recognition when the tenant takes possession of or controls the finished space, which is typically when the improvements being recorded as our asset are substantially complete, and our landlord obligation has been materially satisfied.

Index to Financial Statements

materially satisfied.

When we conclude that our tenant is the owner of certain tenant improvements, we record our contribution towards those improvements as a lease incentive, which is amortized as a reduction to rental and tenant reimbursement revenue on a straight-line basis over the term of the related lease, and the recognition of rental revenue begins when the tenant takes possession of or controls the space.

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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

Index to Financial Statements

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 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, 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.

There were no related-party transactions during the three years ended December 31, 2023.

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