Piedmont Office Realty Trust, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. The filing identifies the registrant as Piedmont Office Realty Trust, Inc. (NYSE: PDM). It owns 54 in-service office properties and one redevelopment asset across seven U.S. markets; the in-service portfolio was 86.0% leased.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $129.3 million | $137.2 million |
| Net income attributable to Piedmont | $9.3 million; $0.08 per diluted share | $8.7 million; $0.07 per diluted share |
| Net operating income (NOI) | $77.7 million | $83.8 million |
| Same-store NOI | Cash basis: $64.3 million, up 3.9%; accrual basis: $69.1 million, down 1.2% | Cash: $61.9 million; accrual: $69.9 million |
| Operating cash flow | $46.8 million | $46.8 million |
| Capital expenditures | $25.8 million | $32.3 million |
| Cash and cash equivalents | $10.7 million | $7.3 million at Dec. 31, 2020 |
| Total debt, contractual balance | $1.661 billion | $1.622 billion at Dec. 31, 2020 |
NOI was approximately 60.1% of revenue in Q1 2021, compared with 61.1% in Q1 2020. Cash, cash equivalents and restricted cash totaled $12.4 million at quarter-end. The company reported $460 million of available capacity on its $500 million revolving credit line as of the filing date. Debt’s weighted-average effective rate was 2.97%; approximately $1.2 billion was fixed or effectively fixed, with an average effective rate of approximately 3.76%. Piedmont said it was in compliance with debt covenants.
Changes and management commentary
- Revenue declined $7.9 million, principally from lower rental revenue following property sales and lower occupancy, and lower transient parking income during the pandemic.
- Net income rose $0.6 million. Lower interest expense, interest income on seller-financed notes, and reduced property operating costs more than offset weaker revenue.
- Interest expense decreased $2.7 million to $12.6 million. Other income increased to $2.4 million, principally reflecting interest on notes receivable from the October 2020 New Jersey portfolio sale.
- Portfolio occupancy eased to 86.0% from approximately 86.8% at year-end 2020. Management said leasing activity had improved as the economy recovered and reported collection of more than 99% of monthly billed contractual rent during the quarter.
- Nearly 1 million square feet of executed leases remained to commence or were under rent abatement. Leasing activity in the quarter produced a 7.0% accrual rent roll-up but a 2.8% cash rent roll-down, primarily due to one large, long-term renewal.
Liquidity, outlook, risks and unusual items
- Management said COVID-19 had not materially affected financial condition or overall liquidity to date, but cautioned that longer-term effects on tenants, office demand, occupancy, rental growth and earnings remain uncertain. Approximately $3.3 million of deferred tenant rent, plus interest, remained due.
- Debt maturities include a $27.4 million secured loan due September 2021 and a $300 million term loan due November 2021. The $44 million drawn on the revolving line matures in September 2022, with two six-month extension options subject to conditions.
- A 1 percentage-point increase in rates on outstanding variable-rate borrowings would increase annual interest expense by approximately $4.9 million. Certain credit agreements reference LIBOR; management said they include fallback provisions for an alternate rate.
- A $37.2 million unrecorded tenant allowance commitment relates to the State of New York’s approximately 20-year, 520,000-square-foot renewal and expansion at 60 Broad Street. Approximately $3.3 million of pandemic-related deferred rents plus interest also remained outstanding.
- The board declared a Q2 2021 dividend of $0.21 per share, payable June 18, 2021. No formal earnings or operating guidance was provided in the supplied filing text.
- Management reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Progress on renewal of New York City’s 313,000-square-foot 60 Broad Street lease, which was in holdover status, and the timing and funding of the related tenant allowance commitment.
- Whether occupancy, leasing commencements and rent collections improve, and whether deferred rents are collected.
- Plans and funding for the September and November 2021 debt maturities, alongside available revolving credit and future capital needs.
- The filing’s cash-flow statement reports a $0.685 million outflow labeled common-stock repurchases, while its Part II disclosure says no common-stock repurchases occurred during Q1; clarify the timing and classification.
- Changes to leasing costs, capital spending and dividends, and the effect of interest rates and LIBOR transition on borrowing costs.