Piedmont Office Realty Trust, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted. The company owns and operates office properties and reported 54 in-service properties totaling approximately 16.4 million square feet, 85.9% leased at quarter-end.
Financial performance and position
- Q2 revenue: $130.2 million, down 3.3% from $134.6 million. Rental and tenant reimbursement revenue was $127.0 million, down $4.2 million.
- Q2 earnings: Net income attributable to Piedmont was $9.9 million, or $0.08 per diluted share, versus $192.4 million, or $1.52, a year earlier. The prior-year quarter included a $191.4 million property-sale gain and a $9.3 million debt-extinguishment loss.
- Six-month revenue and earnings: Revenue was $259.5 million, down 4.5%; net income attributable to Piedmont was $19.3 million, or $0.15 per diluted share, versus $201.1 million, or $1.59. The 2020 period included the same $191.4 million sale gain.
- Operating measures: Q2 NOI was $78.8 million, versus $81.4 million; six-month NOI was $156.4 million, versus $165.2 million. Same-store NOI grew 4.7% on an accrual basis and 4.8% on a cash basis in Q2; for the first half, growth was 1.7% accrual and 4.3% cash. Core FFO was $0.48 per diluted share in Q2 and $0.97 for the first half.
- Cash flow: Six-month operating cash flow was $100.2 million, compared with $90.6 million. Investing activities used $61.6 million and financing activities used $38.1 million. Cash, cash equivalents and restricted cash totaled $9.7 million at June 30.
- Debt and liquidity: Debt carrying value was $1.67 billion, up from $1.62 billion at year-end; weighted-average stated/effective interest rate was 2.88%. Debt fair value was estimated at $1.74 billion. The company reported $425 million of available capacity on its $500 million revolving credit facility and said it was in compliance with debt covenants.
- Dividend: The company declared a third-quarter dividend of $0.21 per common share, payable September 17, 2021.
Changes and management commentary
- Revenue and NOI were lower year over year, reflecting prior-year property dispositions and pandemic-related leasing slowdown and occupancy effects. Lower transient parking activity also weighed on first-half revenue.
- Same-store NOI improved, supported by the burn-off of rent abatements, termination income and the 60 Broad Street lease renewal. The company reported 85.9% leased versus 86.8% at December 31, 2020, while noting leasing activity had improved as the economy recovered.
- Management said most tenant rental collections had returned to pre-pandemic levels and COVID-19 had not materially affected overall financial condition or liquidity to date. It cautioned that the longer-term effects on tenants and the economy remained unclear.
- The company repaid a $35 million secured loan in June. A $300 million unsecured term loan matures in November 2021; management anticipated refinancing it with a new unsecured debt issuance later in 2021.
- The 225 and 235 Presidential Way properties were classified as held for sale, with a sale expected near year-end, subject to customary conditions. The company also held $118.5 million of notes receivable from a property buyer, due October 2023 and secured by two properties.
Outlook, risks and contingencies
- No specific earnings or revenue guidance was provided. Management identified cash from property operations, dispositions and the revolving credit facility as liquidity sources, and noted that access to additional capital depends on market conditions.
- Key risks include office-space demand and occupancy, lease renewals and tenant credit, COVID-19 effects, interest rates and refinancing, property values and impairments, and the concentration of lease revenue in seven markets. A 1% increase in variable rates on existing borrowings was estimated to increase annual interest expense by approximately $5.3 million.
- A $28.1 million unrecorded tenant allowance commitment relates to the State of New York lease renewal and expansion at 60 Broad Street; it will be recorded as expenditures are incurred. Most pandemic-related rent deferrals had been collected, with remaining balances reserved.
- The filing reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Progress, pricing and terms of the anticipated refinancing of the $300 million November 2021 maturity, and actual revolver availability.
- Leasing, occupancy and rent collection trends, including commencement of more than 600,000 square feet of executed leases that had not yet commenced or were under rent abatement.
- Completion and proceeds of the planned sale of the Presidential Way properties, and collectibility of the $118.5 million notes receivable.
- Cash requirements for the $28.1 million tenant allowance, ongoing property capital spending, and the sustainability of the $0.21 quarterly dividend.
- Reconciliation of GAAP earnings with non-GAAP FFO, Core FFO and NOI measures; the filing cautions these measures may not be comparable across REITs.