Piedmont Office Realty Trust Inc

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(Unaudited)

1. Organization

Piedmont Office Realty Trust, Inc. (“Piedmont”) (NYSE: PDM) is a Maryland corporation that operates in a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes and engages in the ownership, management, development, redevelopment, and operation of high-quality, Class A office properties located primarily in major U.S. Sunbelt markets. Piedmont was incorporated in 1997 and commenced operations in 1998. Piedmont conducts business through its wholly-owned subsidiary, Piedmont Operating Partnership, L.P. (“Piedmont OP”), a Delaware limited partnership. Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through various joint ventures which it controls. References to Piedmont herein shall include Piedmont and all of its subsidiaries, including Piedmont OP and its subsidiaries and joint ventures.

As of September 30, 2024, Piedmont owned and operated a portfolio comprised of 30 in-service projects andthree redevelopment projects. The in-service office projects total approximately 15.3 million square feet (unaudited) of primarily Class A office space and were 88.8% leased as of September 30, 2024.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements of Piedmont are prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of a full year’s results.

Piedmont’s consolidated financial statements include the accounts of Piedmont, Piedmont’s wholly-owned subsidiaries, any variable interest entity ("VIE") of which Piedmont or any of its wholly-owned subsidiaries is considered to have the power to direct the activities of the entity and the obligation to absorb losses/right to receive benefits, or any entity in which Piedmont or any of its wholly-owned subsidiaries owns a controlling interest. In determining whether Piedmont or Piedmont OP has a controlling interest, the following factors, among others, are considered: equity ownership, voting rights, protective rights of investors, and participatory rights of investors. For further information, refer to the financial statements and footnotes included in Piedmont’s Annual Report on Form 10-K for the year ended December 31, 2023.

All intercompany balances and transactions have been eliminated upon consolidation.

Further, Piedmont has formed special purpose entities to acquire and hold real estate. Each special purpose entity is a separate legal entity. Consequently, the assets of these special purpose entities are not available to all creditors of Piedmont. The assets owned by these special purpose entities are being reported on a consolidated basis with Piedmont’s assets for financial reporting purposes only.

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and notes. The most significant of these estimates include the underlying cash flows and holding periods used in assessing impairment, judgments regarding the recoverability of goodwill, and the assessment of the collectability of receivables. While Piedmont has made, what it believes to be, appropriate accounting estimates based on the facts and circumstances available as of the reporting date, actual results could materially differ from those estimates.

Income Taxes

Piedmont has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and has operated as such, beginning with its taxable year ended December 31, 1998. To qualify as a REIT, Piedmont must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income. As a REIT, Piedmont is generally not subject to federal income taxes, subject to fulfilling, among other things, its taxable income distribution requirement. Piedmont is subject to certain taxes related to the operations of properties in certain locations, as well as operations conducted by its taxable REIT subsidiary which have been provided for in the financial statements.

Operating Leases

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 three and nine months ended September 30, 2024 and 2023, respectively, as follows (in thousands):

Piedmont is a lessee of office space inone building owned by a third party. Piedmont's right of use asset and corresponding lease liability under the lease was approximately $15,000 and $100,000 as of September 30, 2024 and December 31, 2023, respectively. The right of use asset is recorded as a component of prepaid expenses and other assets, whereas the corresponding liability is presented as a component of accounts payable, accrued expenses, and accrued capital expenditures in the accompanying consolidated balance sheets. For both the three and nine months ended September 30, 2024 and 2023, Piedmont recognized approximately $20,000 and $60,000, respectively, of operating lease costs related to its office space lease. As of September 30, 2024, the remaining lease term of Piedmont's right of use asset is approximately 2 months, and the discount rate is 3.86%.

Recent Accounting Pronouncements

Segment Expense Disclosure

The Financial Accounting Standards Board (the "FASB") has issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures ("ASU 2023-07). ASU 2023-07 requires expanded disclosure of significant segment expenses which are regularly provided to the chief operating decision maker ("CODM"); all entities that have a single reportable segment must provide existing segment disclosures; disclosure of the title and position of the CODM; and entities must disclose the amounts and a qualitative description of "other segment items", representing the difference between segment revenue less segment expenses reported in segment profit or loss. ASU 2023-07 is effective for Piedmont beginning with the Form 10-K for the year ended December 31, 2024, and subsequent interim periods thereafter. Piedmont is currently evaluating the potential impact of adoption; however, Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption of ASU 2023-07.

Income Tax Disclosure

The FASB has issued ASU No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures ("ASU 2023-09). ASU 2023-09 requires expanded disclosure of tax information, including a rate reconciliation and the amounts of annual income taxes paid (net of refunds received), segregated by federal, state, and local jurisdictions. The amendments of ASU 2023-09 also require disclosure of income from continuing operations before income tax separated by domestic and foreign income, and eliminate the requirement to disclose the nature and estimates of the range of reasonable possible changes to unrecognized tax benefits within the following twelve months of the reporting period end. ASU 2023-09 is effective for Piedmont beginning with the Form 10-K for the year ended December 31, 2025. Piedmont is currently evaluating the potential impact of adoption; however, Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption of ASU 2023-09.

3. Debt

During the nine months ended September 30, 2024, Piedmont OP issued $400 million in aggregate principal amount of 6.875% senior notes (the “$400 Million Unsecured Senior Notes”), which mature on July 15, 2029. Upon issuance of the $400 Million Unsecured Senior Notes, Piedmont OP received net proceeds of $396 million, reflecting a discount of approximately $4 million which will be amortized to interest expense over the 5-year term of the $400 Million Unsecured Senior Notes using the effective interest method. The $400 Million Unsecured Senior Notes are fully and unconditionally guaranteed by Piedmont. Interest on the $400 Million Unsecured Senior Notes is payable semi-annually on January 15 and July 15 of each year commencing January 15, 2025, and is subject to adjustment if the credit rating on the $400 Million Unsecured Notes falls below investment grade, as defined in the credit agreement.

The $400 Million Unsecured Senior Notes are subject to certain 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.

The net proceeds from the $400 Million Unsecured Senior Notes were used to repay the balance outstanding under Piedmont's $600 Million Unsecured 2022 Line of Credit and the remaining $25 million outstanding on its $215 Million Unsecured 2023 Term Loan (see discussion below). Piedmont intends to use the remaining proceeds from the $400 Million Unsecured Senior Notes, along with any sales proceeds from any potential property dispositions and Piedmont's available bank credit, to repay the $250 Million Unsecured 2018 Term Loan that matures in March of 2025.

Also, during the nine months ended September 30, 2024, Piedmont OP entered into a new $200 Million Unsecured 2024 Term Loan and used the net proceeds, along with its $600 Million Unsecured 2022 Line of Credit, to repay the remaining $100 million balance on the $200 Million Unsecured 2022 Term Loan Facility and $190 million of the $215 Million Unsecured 2023 Term Loan, resulting in a loss on early extinguishment of debt of approximately $0.4 million related to unamortized financing costs. The remaining $25 million of the $215 Million Unsecured 2023 Term Loan was extended and ultimately paid off with the proceeds of the aforementioned $400 Million Unsecured Senior Notes.

The term of the $200 Million Unsecured 2024 Term Loan isthree years, with a maturity date of January 29, 2027. Piedmont may prepay the loan in whole or in part, at any time without premium or penalty. The stated interest rate spread over Adjusted SOFR can vary from 0.85% to 1.70% based upon the then current credit rating of Piedmont or Piedmont OP, whichever is higher. During any period that either Piedmont or Piedmont OP has received credit ratings from two different credit rating agencies that are not equivalent, the credit rating shall be determined as the higher of the two credit ratings. As of September 30, 2024, the applicable interest rate spread on the loan was 1.30%, and the effective rate was 5.41%.

The $200 Million Unsecured 2024 Term Loan has certain financial covenants that require, among other things, the maintenance of an unencumbered interest rate coverage ratio of at least 1.75, an unencumbered leverage ratio of at least 1.60, a fixed charge coverage ratio of at least 1.50, a leverage ratio of no more than 0.60, and a secured debt ratio of no more than 0.40.

Finally, during the nine months ended September 30, 2024, Piedmont repaid the remaining $50.2 million balance of the $400 Million Unsecured Senior Notes due 2024 with proceeds from the disposition of the One Lincoln Park building (see Note 8 below).

The following table summarizes the terms of Piedmont’s consolidated indebtedness outstanding as of September 30, 2024 and December 31, 2023 (in thousands):

(1)All of Piedmont’s outstanding debt as of September 30, 2024 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)The all-in stated interest rates for the SOFR selections are comprised of the relevant adjusted SOFR rate (calculated as the 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 or Piedmont OP's current credit rating, whichever is higher.

(4)Piedmont currently intends to repay the outstanding balance on debt due within one year with cash on hand and proceeds from potential selective property dispositions, and/or with Piedmont's available bank credit.

(5)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.

(6)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.

(7)This term loan has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix the interest rate on the aggregate principal amount of the term loan to 5.41% through February 1, 2026, assuming no change in Piedmont's or Piedmont OP's credit rating. See Note 4 for disclosures of Piedmont's derivative instruments.

Piedmont made interest payments on all debt facilities, including interest rate swap cash settlements, of approximately $42.5 million and $24.9 million for the three months ended September 30, 2024 and 2023, respectively, and approximately $105.2 million and $70.0 million for the nine months ended September 30, 2024 and 2023, respectively. Also, Piedmont capitalized interest of approximately $3.4 million and $1.9 million for the three months ended September 30, 2024 and 2023, respectively, and approximately $9.2 million and $4.5 million for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, 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 September 30, 2024.