Piedmont Office Realty Trust Management Discusses Q2 2012 Results - Earnings Call Transcript

Piedmont Office Realty Trust (PDM)

Q2 2012 Earnings Call

August 02, 2012 10:00 am ET


Robert E. Bowers - Chief Financial Officer, Executive Vice President and Treasurer

Donald A. Miller - Chief Executive Officer, President and Director


Anthony Paolone - JP Morgan Chase & Co, Research Division

Michael Knott - Green Street Advisors, Inc., Research Division

Brendan Maiorana - Wells Fargo Securities, LLC, Research Division

John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division

Paul E. Adornato - BMO Capital Markets U.S.

Chris Caton - Morgan Stanley, Research Division



Greetings and welcome to the Piedmont Office Realty Trust Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Robert Bowers, Chief Financial Officer. Thank you, Mr. Bowers. You may begin.

Robert E. Bowers

Thank you, operator. Good morning and welcome to Piedmont's Second Quarter 2012 Conference Call. Last night, in addition to posting our earnings release, we also filed our quarterly Form 10-Q and Form 8-K, which includes our unaudited supplemental information, all of which are available on our website at piedmontreit.com, under our Investor Relations section.

On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Now forward-looking statements address matters which are subject to risks and uncertainties that may cause actual results to differ from those we discussed today. Examples of forward-looking statements include those related to Piedmont's future revenues and operating income and financial guidance, as well as future leasing and investment activity. You should not place any undue reliance on any of these forward-looking statements as these statements speak only as of the date they are made. We encourage all of our listeners to review the more detailed discussion related to risk associated with forward-looking statements contained in the company's filings with the SEC, including our most recent Form 10-Q.

In addition, during this call today, we'll refer to non-GAAP financial measures, such as funds from operations, core FFO, AFFO and EBITDA. The definitions and reconciliations of non-GAAP measures are contained in the supplemental financial information available on the company's website.

I'll review our financial results in a minute after Don Miller, our CEO, discusses some of the quarter's highlights. Don?

Donald A. Miller

Good morning, everyone. Thank you for taking the time to join us this morning as we review our second quarter 2012 financial and operational results and share our perspectives on the current leasing and transactional environment. It's just Bobby, Eddie Guilbert, our VP of strategic planning and me on the call this morning as we are still in New York for meetings, following our quarterly board meeting held here yesterday. We will do our best to answer your questions and if we don't have the details readily available, we will certainly follow-up with public disclosure as appropriate. For this quarter's leasing activity, during the quarter, we executed approximately 600,000 square feet of total leasing, bringing our leasing for the year through June to 1.4 million square feet. While the total amount of completed leasing transactions for the quarter is a little lighter than we expected, we believe that a substantial volume of potential transactions is in the pipeline, which is anticipated to execute in the coming weeks. Of the leasing executed during the quarter, the 3 largest leases were in 11-plus year lease of approximately 123,000 square feet for the headquarters of Piper Jaffray at U.S. Bancorp Center in Minneapolis, and approximately a 100,000 square-foot, 10-plus year lease for the U.S. headquarters of Brother International at 200 Bridgewater Crossing in Bridgewater, New Jersey, and an approximately 80,000 square-foot 10-plus year renewal for the headquarters of HD Vest Financial Services at Las Colinas Corporate Center in Dallas. Details of other significant leases executed during the quarter are outlined in our supplemental package available on the website.

As I reminded everyone yesterday -- I'm sorry, as I reminded everyone last quarter, we expect the first half of 2012 to be the trough of this cycle for Piedmont's occupancy and net operating income statistics. Our quarter-over-quarter occupancy metrics showed modest improvement and we expect that trend to continue over the latter half of the year as several large new leases are under negotiation. We project that our same-store cash NOI will slow its decline over the remainder of the year as 600,000 square feet of new leases commenced and as the free rent periods burn off on 1.3 million square feet of current leases. Combined, these contractual leases and free rent burn off should contribute approximately $0.20 per share in annual FFO going forward over the next couple of years.

Lease expirations totaling only 3.9% of our annualized leasing revenue remain in 2012. Looking ahead to the expiration schedule for the next 5 years, 2013 is the last major year of lease expirations, with 12.3% of our annualized lease revenues set for expiration, of which 1/3 is associated with our BP lease at Aon Center in December of next year. We are working through several of our large remaining near-term lease expirations, including 2 in our government portfolio in Washington D.C., the 330,000 square-foot lease with OCC at One Independence Square, which is set to expire in early 2013, and a 220,000 square-foot lease with National Park Service at 1201 Eye Street, which is now in holdover and the GSA is yet issue their FFO.

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