Piedmont Office Realty Trust Inc

3. Debt

During the year ended December 31, 2023, Piedmont entered into a new, one-year, $215 million, floating-rate, unsecured term loan facility (the “$215 Million Unsecured 2023 Term Loan”) and issued$600 million in aggregate principal amount of 9.250% senior notes due July 20, 2028 (the “$600 Million Unsecured Senior Notes due 2028”).

The$600 Million Unsecured Senior Notes due 2028 are fully and unconditionally guaranteed by Piedmont. Interest is payable semi-annually on January 20 and July 20 of each year commencing January 20, 2024, and is subject to adjustment if Piedmont's corporate credit rating with either Moody’s Investors Services Inc. or S&P Global Ratings falls below investment grade (i.e. BBB-/Baa3). The$600 Million Unsecured Senior Notes due 2028 are subject to typical covenants that, subject to certain exceptions, include: (a) a limitation on the ability of Piedmont and Piedmont OP to, among other things, incur additional secured and unsecured indebtedness; (b) a limitation on the ability of Piedmont and Piedmont OP to merge, consolidate, sell, lease or otherwise dispose of their properties and assets substantially as an entirety; and (c) a requirement that Piedmont maintain a pool of unencumbered assets.

Also during the year ended December 31, 2023, Piedmont:

•fully repaid its $350 Million Unsecured Senior Notes that matured on June 1, 2023;

•redeemed and repaid (using proceeds from the $600 Million Unsecured Senior Notes due 2028) approximately $350 million of its $400 Million Senior Notes due 2024 through a tender offer, resulting in the recognition of an approximately$0.8 million of loss on early extinguishment of debt; and,

•repaid $100 million of the $200 Million Unsecured 2022 Term Loan Facility, scheduled to mature in December 2024.

On January 30, 2024, Piedmont:

•entered into a new, three-year, $200 Million unsecured syndicated bank term loan, due January 30, 2027 at Adjusted Daily Secured Overnight Financing Rate ("SOFR") plus 130 basis points;

•paid off the remaining $100 million of the $200 Million Unsecured 2022 Term Loan Facility;

•repaid $190 million of the $215 Million Unsecured 2023 Term Loan that was scheduled to mature on January 31, 2024; and,

•extended the remaining $25 million of the $215 Million Unsecured 2023 Term Loan to January 31, 2025.

As a result of the above refinancing activity, as of the date of this filing, Piedmont has approximately $325 million of unsecured debt with final maturities over the next three years.

Finally, during the year ended December 31, 2023, Piedmont amended its $250 million, floating-rate, unsecured term loan facility (the "$250 Million Unsecured 2018 Term Loan") to convert the reference interest rate from LIBOR to SOFR, along with the various other related amendments necessary to affect this conversion.

The following table summarizes the terms of Piedmont’s indebtedness outstanding as of December 31, 2023 and 2022, including net discounts/premiums and unamortized debt issuance costs (in thousands):

(1)All of Piedmont’s outstanding debt as of December 31, 2023 is unsecured and interest-only until maturity, except for the $197 Million Fixed Rate Mortgage secured by 1180 Peachtree Street.

(2)Effective rate after consideration of settled or in-place interest rate swap agreements and issuance discounts.

(3)On a periodic basis, Piedmont may select from multiple interest rate options, including the prime rate and various-length SOFR locks on all or a portion of the principal. The all-in interest rate associated with each SOFR interest period selection is comprised of the relevant adjusted SOFR rate (comprised of the relevant base SOFR interest rate plus a fixed adjustment of 0.10%) and is subject to an additional spread over the selected rate based on Piedmont’s current credit rating.

(4)On January 30, 2024, Piedmont repaid $190 million of the $215 Million Unsecured 2023 Term Loan and extended the remaining balance to January 31, 2025.

(5)Piedmont currently intends to repay the outstanding $50.2 million balance on the $400 Million Unsecured Senior Notes due 2024 through selective property dispositions, cash on hand from operations, and/or borrowings under its existing $600 Million Unsecured 2022 Line of Credit.

(6)On January 30, 2024, Piedmont repaid the $100 million balance.

(7)Piedmont may extend the term for up toone additional year (throughtwo availablesix month extensions to a final extended maturity date of June 30, 2027) provided Piedmont is not then in default and upon payment of extension fees.

(8)Weighted average is based on contractual balance of outstanding debt and the stated or effectively fixed interest rates as of December 31, 2023.

A summary of Piedmont's consolidated principal outstanding for aggregate debt maturities of its indebtedness as of December 31, 2023, is provided below (in thousands):

Piedmont’s weighted-average interest rate as of December 31, 2023 and 2022, for the aforementioned borrowings was approximately 5.82% and 3.89%, respectively. Piedmont made interest payments on all indebtedness, including interest rate swap cash settlements, of approximately $81.0 million, $66.1 million, and $49.4 million during the years ended December 31, 2023, 2022, and 2021, respectively. Also, Piedmont capitalized interest of approximately $7.0 million, $4.2 million, and $3.7 million for the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023, Piedmont believes it was in compliance with all financial covenants associated with its debt instruments. See Note 5 for a description of Piedmont’s estimated fair value of debt as of December 31, 2023.

4. Derivative Instruments

Risk Management Objective of Using Derivatives

In addition to operational risks which arise in the normal course of business, Piedmont is exposed to economic risks such as interest rate, liquidity, and credit risk. In certain situations, Piedmont has entered into derivative financial instruments, specifically interest rate swap agreements, to manage interest rate risk exposure arising from current or future variable rate debt transactions. Interest rate swap agreements involve the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Piedmont’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for Piedmont making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

As of December 31, 2023, Piedmont was party to a total ofeight interest rate swap agreements which are designated as effective cash flow hedges and fully hedge the variable cash flows covering the entire outstanding balance of the $250 Million Unsecured 2018 Term Loan through the maturity of the loan in March 2025. The maximum length of time over which Piedmont is hedging its exposure to the variability in future cash flows related to these interest rate swap agreements is 15 months.

During the year ended December 31, 2021, Piedmont entered into, and subsequently settled, one forward starting interest rate swap agreement with a notional value of $50 million to hedge the risk of changes in the interest-related cash flows associated with the issuance of the $300 Million Unsecured Senior Notes due 2032 (see Note 3). The settlement resulted in a gain of approximately $0.6 million, which was recorded as accumulated OCI and is being amortized as an offset to interest expense over the followingten years.

A detail of Piedmont’s interest rate derivatives outstanding as of December 31, 2023 is as follows:

Piedmont presents its interest rate derivatives on its consolidated balance sheets on a gross basis as interest rate swap assets and interest rate swap liabilities. A detail of Piedmont’s interest rate derivatives on a gross and net basis as of December 31, 2023 and 2022, respectively, is as follows (in thousands):

The gain/(loss) on Piedmont's interest rate derivatives, including previously settled forward starting interest rate swaps, that was recorded in OCI and the accompanying consolidated statements of operations as a component of interest expense for the years ended December 31, 2023, 2022, and 2021, respectively, was as follows (in thousands):

Piedmont estimates that approximately $1.3 million will be reclassified from OCI as a decrease in interest expense over the next twelve months. Piedmont did not recognize any hedge ineffectiveness on its cash flow hedges during the three years ended December 31, 2023.

See Note 5 for fair value disclosures of Piedmont's derivative instruments.

Credit-risk-related Contingent Features

Piedmont has agreements with its derivative counterparties that contain a provision whereby if Piedmont defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Piedmont could also be declared in default on its derivative obligations. If Piedmont were to breach any of the contractual provisions of the derivative contracts, it could be required to settle its liability obligations under the agreements at their termination value of the estimated fair values plus accrued interest. However, as of December 31, 2023, all of Piedmont's interest rate swap agreements are in an asset position. Additionally, Piedmont has rights of set-off under certain of its derivative agreements related to potential termination fees and amounts payable under the agreements, if a termination were to occur.

5. Fair Value Measurements of Financial Instruments

Piedmont considers its cash and cash equivalents, tenant receivables, notes receivable, restricted cash and escrows, accounts payable and accrued expenses, interest rate swap agreements, and debt to meet the definition of financial instruments. The following table sets forth the carrying and estimated fair value for each of Piedmont’s financial instruments, as well as its level within the GAAP fair value hierarchy, as of December 31, 2023 and 2022, respectively (in thousands):

(1)For the periods presented, the carrying value of these financial instruments approximates estimated fair value due to their short-term maturity.

Piedmont's debt was carried at book value as of December 31, 2023 and 2022; however, Piedmont's estimate of its fair value is disclosed in the table above. Piedmont uses widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of the debt facilities, including the period to maturity of each instrument, and uses observable market-based inputs for similar debt facilities which have transacted recently in the market. Therefore, the estimated fair values determined are considered to be based on significant other observable inputs (Level 2). Scaling adjustments are made to these inputs to make them applicable to the remaining life of Piedmont's outstanding debt. Piedmont has not changed its valuation technique for estimating the fair value of its debt.

Piedmont’s interest rate swap agreements presented above, and as further discussed in Note 4, are classified as “Interest rate swaps” in the accompanying consolidated balance sheets and were carried at estimated fair value as of December 31, 2023 and 2022. The valuation of these derivative instruments was determined using widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of the derivatives, including the period to maturity of each instrument, and uses observable market-based inputs, including interest rate curves and implied volatilities. Therefore, the estimated fair values determined are considered to be based on significant other observable inputs (Level 2). In addition, Piedmont considered both its own and the respective counterparties’ risk of nonperformance in determining the estimated fair value of its derivative financial instruments by estimating the current and potential future exposure under the derivative financial instruments as of the valuation date. The credit risk of Piedmont and its counterparties was factored into the calculation of the estimated fair value of the interest rate swaps; however, as of December 31, 2023 and 2022, this credit valuation adjustment did not comprise a material portion of the estimated fair value. Therefore, Piedmont believes that any unobservable inputs used to determine the estimated fair values of its derivative financial instruments are not significant to the fair value measurements in their entirety, and does not consider any of its derivatives to be Level 3 financial instruments.

6. Impairment Charges

Goodwill Impairment Charges

During the years ended December 31, 2023 and 2022, Piedmont considered the decline in its stock price to be an indicator of impairment and performed several interim impairment assessments of its goodwill balance. These assessments involved comparing the estimated fair value of each of its reporting units (see Note 14) to the reporting unit’s carrying value, inclusive of the goodwill balance allocated to the reporting unit. Estimation of the fair value of each reporting unit involved the projection of discounted future cash flows using certain assumptions that are subjective in nature, including assumptions regarding future market rental rates and the number of months it may take to re-lease a property subsequent to the expiration of current lease agreements, as well as future property operating expenses, among other factors.

Based on the interim impairment assessments performed during the years ended December 31, 2023 and 2022, Piedmont determined that the carrying values of its Boston, Minneapolis, New York, and Northern Virginia/Washington D.C. reporting units (inclusive of each segment's assigned goodwill balance) exceeded the estimated fair value of each respective reporting unit and recorded goodwill impairment charges of approximately $29.4 million and $16.0 million, respectively, in the accompanying consolidated statement of operations. As the carrying value (inclusive of the assigned goodwill balance) of the Boston, Minneapolis, and Northern Virginia/Washington D.C. reporting units exceeded the estimated fair value of each respective reporting unit by an amount greater than the goodwill balance assigned to each unit, the charges for the Boston, Minneapolis, and Northern Virginia/Washington D.C. reporting units were equal to the goodwill balance that had been assigned to each segment. As this was not the case for the New York segment, the charge related to the New York reporting unit, was calculated based on the amount by which the carrying amount of the New York segment (inclusive of the assigned goodwill balance) exceeded the fair value of the New York reporting unit.

The fair value measurements used in the evaluations described above are considered to be Level 3 valuations within the fair value hierarchy as defined by GAAP as the measurements involve projections of discounted future cash flows, which are derived from unobservable assumptions, the most subjective of which are capitalization rates and discount rates for each respective reporting unit. The ranges of discount rates and the capitalization rate used for each segment in the above analyses, at the respective time the analyses were performed, were as follows:

Impairment Losses on Real Estate Assets

Piedmont recorded the following impairment losses on real estate assets for the years ended December 31, 2023, 2022, and 2021 (in thousands):

Management shortened the intended hold period for each of the above buildings and in doing so, determined that the carrying value would not be recovered from the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. As a result, Piedmont recognized a loss on impairment calculated as the difference between the carrying value of the asset and the estimated fair value less costs to sell. The estimated fair values were determined based on net contract prices with unrelated, third-party purchasers for each respective building. The fair value measurements used in the evaluation of the non-financial assets above are considered to be Level 1 valuations within the fair value hierarchy as defined by GAAP, as there are direct observations and transactions involving the assets by unrelated, third-party purchasers. The Two Pierce Place building was subsequently sold during the year ended December 31, 2022.

7. Commitments and Contingencies

Commitments Under Existing Lease Agreements

As a recurring part of its business, Piedmont is typically required under its executed lease agreements to fund tenant improvements, leasing commissions, and building improvements. In addition, certain agreements contain provisions that require Piedmont to issue corporate or property guarantees to provide funding for capital improvements or other financial obligations. As of December 31, 2023, Piedmont hadone individually significant unrecorded tenant allowance commitment greater than $10 million. These commitments will be capitalized as the related expenditures are incurred.

Contingencies Related to Tenant Audits/Disputes

Certain lease agreements include provisions that grant tenants the right to engage independent auditors to audit their annual operating expense reconciliations. Such audits may result in different interpretations of language in the lease agreements from that made by Piedmont, which could result in requests for refunds of previously recognized tenant reimbursement revenues, resulting in financial loss to Piedmont. There wereno such reductions during the three years ended December 31, 2023.

Litigation

Piedmont is from time to time a party to legal proceedings, which arise in the ordinary course of its business. None of these ordinary course legal proceedings are reasonably likely to have a material adverse effect on results of operations or financial condition. Piedmont is not aware of any such legal proceedings contemplated by governmental authorities.

8. Stock Based Compensation

Annually, the Compensation Committee of Piedmont's Board of Directors has granted deferred stock award units to certain employees at its discretion. Employee awards typically vest ratably over three orfour years. In addition, Piedmont's independent directors receive an annual grant of deferred stock award units for services rendered and such awards vest over aone year service period.

Certain management employees' long-term equity incentive program is split between these deferred stock award units described above and a multi-year performance share program whereby actual awards are contingent upon Piedmont's total stockholder return ("TSR") performance relative to the TSR of a peer group of office REITs. The target incentives for these employees, as well as the peer group to be used for comparative purposes, are predetermined by the board of directors, advised by an outside compensation consultant. The number of shares earned, if any, are determined at the end of the multi-year performance period (or upon termination) and vest immediately. In the event that a participant's employment is terminated prior to the end of the multi-year period, in certain circumstances the participant may be entitled to a pro-rated award based on Piedmont's TSR relative performance as of the termination date. The grant date fair value of the multi-year performance share awards is estimated using the Monte Carlo valuation method and is recognized ratably over the performance period.

A rollforward of Piedmont's equity based award activity for the year ended December 31, 2023 is as follows:

The following table provides additional information regarding stock award activity during the years ended 2023, 2022, and 2021 (in thousands except for per share amounts):

(1)Amounts reflect the issuance of performance share awards related to the 2019-21 and 2018-20 Performance Share Plans during the years ended December 31, 2022, and 2021, respectively.

A detail of Piedmont’s outstanding stock awards and programs as of December 31, 2023 is as follows:

(1)Amounts reflect the total original grant to employees and independent directors, net of shares surrendered upon vesting to satisfy required minimum tax withholding obligations through December 31, 2023.

(2)Includes a special, one-time deferred stock award to Piedmont's Chief Executive Officer effective July 1, 2019, the date of his promotion to the position, which vests in ratable installments over afive year period beginning July 1, 2020.

(3)Estimated based on Piedmont's cumulative TSR for the respective performance period through December 31, 2023. Share estimates are subject to change in future periods based upon Piedmont's relative TSR performance compared to its peer group of office REITs.

During the years ended December 31, 2023, 2022, and 2021, Piedmont recognized approximately $8.1 million, $8.8 million and $11.0 million of compensation expense related to stock awards, of which approximately $8.1 million, $7.7 million and $9.7 million related to the amortization of unvested shares and potential stock awards and the fair value adjustment for liability awards, respectively. During the year ended December 31, 2023, a total of 275,740 shares (net of shares surrendered upon vesting to satisfy required minimum tax withholding obligations) were issued to employees and independent directors. As of December 31, 2023, approximately $11.4 million of unrecognized compensation cost related to unvested and potential stock awards remained, which Piedmont will record in its consolidated statements of operations over a weighted-average vesting period of approximatelyone year.

9. Earnings Per Share

There are no adjustments to “Net income/(loss) applicable to Piedmont” for the diluted earnings per share computations.

Net income/(loss) per share-basic is calculated as net income/(loss) available to common stockholders divided by the weighted average number of common shares outstanding during the period. Net income/(loss) per share-diluted is calculated as net income/(loss) available to common stockholders divided by the diluted weighted average number of common shares outstanding during the period, including unvested deferred stock awards. Diluted weighted average number of common shares reflects the potential dilution under the treasury stock method that would occur if the remaining unvested and potential stock awards vested and resulted in additional common shares outstanding. Unvested and potential stock awards which are determined to be anti-dilutive are not included in the calculation of diluted weighted average common shares. For each of the years ended December 31, 2023, 2022, and 2021, Piedmont calculated and excluded weighted average outstanding anti-dilutive shares of approximately 1,030,824,421,005, and 1,114,025, respectively.

The following table reconciles the denominator for the basic and diluted earnings per share computations shown on the consolidated statements of income for the years ended December 31, 2023, 2022, and 2021, respectively (in thousands):

10. Operating Leases

Piedmont’s real estate assets are leased to tenants under operating leases for which the terms vary, including certain provisions to extend the lease term, options for early terminations subject to specified penalties, and other terms and conditions as negotiated. Piedmont retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant; however, generally they are not significant. Exposure to credit risk exists to the extent that tenant receivables exceed this amount. Security deposits liabilities related to tenant leases are included in accounts payable, accrued expenses, and accrued capital expenditures in the accompanying consolidated balance sheets.

The future minimum rental income from Piedmont’s investment in real estate assets under non-cancelable operating leases as of December 31, 2023 is presented below (in thousands):

Piedmont recognized the following fixed and variable lease payments, which together comprised rental and tenant reimbursement revenue in the accompanying consolidated statements of operations for the years ended December 31, 2023, 2022, and 2021, respectively, as follows (in thousands):

Operating leases where Piedmont is the lessee relate primarily to office space in buildings owned by third parties and managed by Piedmont. Piedmont'sright to use asset and corresponding lease liability, using Piedmont's incremental borrowing rate as the lease discount rate, was approximately $0.1 million for the year ended December 31, 2023 and approximately $0.2 million for the year ended December 31, 2022. For the three years ended December 31, 2023, Piedmont recognized approximately $0.1 million of operating lease costs, respectively. As of December 31, 2023, the lease term of Piedmont's right of use asset isone year, and the discount rate is 3.86%.

11. Property Dispositions and Assets Held for Sale

Property Dispositions

None of Piedmont's property dispositions during the three years ended December 31, 2023 met the criteria to be reported as discontinued operations. The operational results and gain on sale of real estate assets are presented as continuing operations in the accompanying consolidated statements of operations. Details of such properties sold are presented below (in thousands):

(1)The Cambridge Portfolio is comprised of the One Brattle Square building and the 1414 Massachusetts Avenue building in Cambridge, Massachusetts. The closing date for One Brattle Square was December 13, 2022, and the sale of 1414 Massachusetts Avenue closed on December 20, 2022.

(2)During the year ended December 31, 2023, Piedmont recorded additional gain on sale as a result of receiving $1.9 million in previously escrowed sales proceeds.

12. Supplemental Disclosures for the Statement of Consolidated Cash Flows

Certain noncash investing and financing activities for the years ended December 31, 2023, 2022, and 2021 (in thousands) are outlined below:

The following table provides a reconciliation of cash, cash equivalents, and restricted cash and escrows as presented in the accompanying consolidated statements of cash flows for the years ended December 31, 2023, 2022, and 2021 to the consolidated balance sheets for the respective period (in thousands):

Amounts in restricted cash and escrows typically represent: escrow accounts required for future property repairs; escrow accounts for the payment of real estate taxes as required under certain of Piedmont's debt agreements; earnest money deposited by a buyer to secure the purchase of one of Piedmont's properties; or security or utility deposits held for tenants as a condition of their lease agreement.

13. Income Taxes

Piedmont’s income tax basis net income/(loss) for the years ended December 31, 2023, 2022, and 2021, is calculated as follows (in thousands):

For income tax purposes, dividends to common stockholders are characterized as ordinary income, capital gains, or as a return of a stockholder’s invested capital. The composition of Piedmont’s distributions per common share is presented below:

Piedmont hadno uncertain tax positions as of December 31, 2023 or 2022.

14. Segment Information

Piedmont's President and Chief Executive Officer has been identified as Piedmont's chief operating decision maker ("CODM"), as defined by GAAP. The CODM evaluates Piedmont's portfolio and assesses the ongoing operations and performance of its properties utilizing the following geographic segments: Atlanta, Dallas, Orlando, Northern Virginia/Washington, D.C., Minneapolis, New York, and Boston. These operating segments are also Piedmont’s reportable segments. As of December 31, 2023, Piedmont also ownedtwo properties in Houston that 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. Further, Piedmont does not maintain a significant presence or anticipate further investment in this market. Thesetwo properties are the primary contributors to accrual-based net operating income ("NOI") included in "Other" below. During the periods presented, there have been no material inter-segment transactions. The accounting policies of the reportable segments are the same as Piedmont's accounting policies.

Accrual-based net operating income ("NOI") by geographic segment is the primary performance measure reviewed by Piedmont's CODM to assess operating performance and consists only of revenues and expenses directly related to real estate rental operations. NOI is calculated by deducting property operating costs from lease revenues and other property related income. NOI reflects property acquisitions and dispositions, occupancy levels, rental rate increases or decreases, and the recoverability of operating expenses. Piedmont's calculation of NOI may not be directly comparable to similarly titled measures calculated by other REITs.

Asset value information and capital expenditures by segment are not reported because the CODM does not use these measures to assess performance.

The following table presents accrual-based lease revenue and other property related income included in NOI by geographic reportable segment (in thousands):

The following table presents NOI by geographic reportable segments (in thousands):

A reconciliation of Net income/(loss) applicable to Piedmont to NOI is presented below (in thousands):

(1)Presented net of related operating expenses incurred to earn such management fee revenue. Such operating expenses are a component of property operating costs in the accompanying consolidated statements of operations.

15. Subsequent Events

Refinancing Activity

On January 30, 2024, Piedmont entered into a new $200 million syndicated bank term loan maturing in January 2027; paid off the remaining $100 million outstanding under the $200 Million Unsecured 2022 Term Loan Facility; repaid $190 million of the $215 Million Unsecured 2023 Term Loan and extended the remaining balance to January of 2025. See Note 3 above for further details.

Declaration of Dividend for the First Quarter 2024

On February 1, 2024, the board of directors declared a dividend for the first quarter 2024 in the amount of $0.125 per share on its common stock to stockholders of record as of the close of business on February 23, 2024, payable on March 15, 2024.