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PIEDMONT OFFICE REALTY TRUST INC Reports Operating Results (10-Q)

November 03, 2011 | About:
The MoS Investor

10qk

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PIEDMONT OFFICE REALTY TRUST INC (PDM) filed Quarterly Report for the period ended 2011-09-30.

Piedmont Office Realty Trust Cl A has a market cap of $3 billion; its shares were traded at around $17.38 with a P/E ratio of 13.4 and P/S ratio of 5.2. The dividend yield of Piedmont Office Realty Trust Cl A stocks is 7.2%.

Highlight of Business Operations:

During the nine months ended September 30, 2011, Piedmont used interest rate swap agreements to hedge the variable cash flows associated with its $250 Million Unsecured Term Loan that matured on June 28, 2011. Additionally, Piedmont recorded the two interest rate cap agreements used to hedge the variable cash flows associated with the 500 W. Monroe Loans at foreclosure on March 31, 2011, and designated the cap agreements as effective cash flow hedges. Such interest rate caps were in place through the original maturity of the debt on August 9, 2011. On July 27, 2011, Piedmont entered into two new interest rate cap agreements associated with the 500 W. Monroe Loans to replace the caps that matured at the same time as the original debt maturity. Due to the immaterial size of the agreements, Piedmont elected to account for the agreements under mark-to-market accounting, which adjusts the value of the agreements to estimated fair value on a quarterly basis through earnings. As such, Piedmont recognized approximately $44,000 of expense related to mark-to-market accounting on the replacement interest rate caps during the three months ended September 30, 2011.

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 the re-interpretation of language in the lease agreements which could result in the refund of previously recognized tenant reimbursement revenues, resulting in financial loss to Piedmont. Piedmont recorded additional reserves related to such tenant audits/disputes of approximately $0.1 million and $45,000 during the three months ended September 30, 2011 and September 30, 2010, respectively, and recorded reserves of approximately $0.1 million and approximately $0.1 million during the nine months ended September 30, 2011 and September 30, 2010, respectively, as adjustments to earnings.

The following table sets forth selected data from our consolidated statements of income for the three months ended September 30, 2011 and 2010, respectively, as well as each balance as a percentage of total revenues for the same periods presented (dollars in millions):

Rental income increased from approximately $306.2 million for the nine months ended September 30, 2010 to approximately $311.8 million for the nine months ended September 30, 2011. This variance is due primarily to properties acquired subsequent to September 30, 2010 which account for approximately $14.8 million of the increase in rental revenue. However, this increase was largely offset by lower lease rates for leases commencing subsequent to September 30, 2010, primarily at our 1200 Crown Colony Drive Building, and our 150 West Jefferson Building in Detroit, Michigan, as well as a reduction in leased space due to lease terminations, contractions, and/or restructurings at various properties, including our 1201 Eye Street Building, our 800 North Brand Boulevard Building, and our Chandler Forum Building.

penalties, unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and intend to continue to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for federal income tax purposes. We have elected to treat Piedmont Office Holdings, Inc. (“POH”), a wholly-owned subsidiary of Piedmont, as a taxable REIT subsidiary. We perform non-customary services for tenants of buildings that we own, including real estate and non-real estate related-services; however, any earnings related to such services performed by our taxable REIT subsidiary are subject to federal and state income taxes. In addition, for us to continue to qualify as a REIT, our investments in taxable REIT subsidiaries cannot exceed 25% of the value of our total assets. POH recorded operations for the three and nine months ended ended September 30, 2011, and accordingly recorded a provision of approximately $8,000 and $17,000, respectively, for federal and state income taxes in our accompanying consolidated financial statements.

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