UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________

FORM 10-Q

____________________________________________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934

For the Quarterly Period Ended ~~September 30, 2011~~March 31, 2012



o	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934

For the Transition Period From To

Commission file number 001-34626

PIEDMONT OFFICE REALTY TRUST, INC.

(Exact name of registrant as specified in its charter)

____________________________________________________



Maryland		58-2328421
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

11695 Johns Creek Parkway

Ste. 350

Johns Creek, Georgia 30097

(Address of principal executive offices)

(Zip Code)

(770) 418-8800

(Registrant’s telephone number, including area code)

N/A

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



	Large Accelerated filer x		Accelerated filer o
	Non-Accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of shares outstanding of the Registrant’s

~~only class of~~ common stock, as of ~~November~~May 2, ~~2011~~2012:

~~172,826,991~~172,734,007 shares

Table of Contents

FORM 10-Q

PIEDMONT OFFICE REALTY TRUST, INC.

TABLE OF CONTENTS



			Page No.
PART I.	Financial Statements

	Item 1.	Consolidated Financial Statements	4

		Consolidated Balance Sheets—~~September 30, 2011~~March 31, 2012 (unaudited) and December 31, ~~2010~~2011	5

		Consolidated Statements of ~~Operations~~Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2011~~March 31, 2012 (unaudited) and ~~2010~~2011 (unaudited)	6

		Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 (unaudited) and 2011 (unaudited)	7

		Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, ~~2010~~2011 and the ~~Nine~~Three Months Ended ~~September 30, 2011~~March 31, 2012 (unaudited)	78

		Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2011~~March 31, 2012 (unaudited) and ~~2010~~2011 (unaudited)	89

		Condensed Notes to Consolidated Financial Statements (unaudited)	910

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2120

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3027

	Item 4.	Controls and Procedures	3128

PART II.	Other Information

	Item 1.	Legal Proceedings	3229

	Item 1A.	Risk Factors	3430

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3430

	Item 3.	Defaults Upon Senior Securities	3430

	Item 4.	~~Reserved~~Mine Safety Disclosures	3430

	Item 5.	Other Information	3430

	Item 6.	Exhibits	3431

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q and other written or oral statements made by or on behalf of Piedmont Office Realty Trust, Inc. (“Piedmont”) may constitute forward-looking statements within the meaning of the federal securities laws. In addition, Piedmont, or its executive officers on Piedmont’s behalf, may from time to time make forward-looking statements in reports and other documents Piedmont files with the Securities and Exchange Commission or in connection with oral statements made to the press, potential investors, or others. Statements regarding future events and developments and Piedmont’s future performance, as well as management’s expectations, beliefs, plans, estimates, or projections relating to the future, are forward-looking statements within the meaning of these laws. Forward-looking statements include statements preceded by, followed by, or that include the words “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Examples of such statements in this report include descriptions of our real estate, financing, and operating objectives; discussions regarding future dividends and stock repurchases; and discussions regarding the potential impact of economic conditions on our portfolio.

These statements are based on beliefs and assumptions of Piedmont’s management, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding the demand for office space in the sectors in which Piedmont operates, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. The forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond Piedmont’s ability to control or predict. Such factors include, but are not limited to, the following:

The success of our real estate strategies and investment objectives, including our ability to identify and consummate suitable acquisitions;

~~If current market~~The demand for office space, rental rates and property values may continue to lag the general economic ~~conditions do not improve,~~recovery causing our business, results of operations, cash flows, financial condition ~~real estate and other asset values,~~ and access to capital ~~may~~to be adversely affected or otherwise impact performance, including the potential recognition of impairment charges;

Our $500 Million Unsecured Facility matures in August 2012 and a failure to fully renew or replace this Facility could cause our business, results of operations, cash flows, financial condition and access to capital to be adversely affected;

Lease terminations or lease defaults, particularly by one of our large lead tenants;

The impact of competition on our efforts to renew existing leases or re-let space on terms similar to existing leases;

Changes in the economies and other conditions of the office market in general and of the specific markets in which we operate, particularly in Chicago, Washington, D.C., and the New York metropolitan area;

Economic and regulatory changes, including accounting standards, that impact the real estate market generally;

Additional risks and costs associated with directly managing properties occupied by government tenants;

Adverse market and economic conditions may continue to ~~adversely~~negatively affect us and could cause us to recognize impairment charges or otherwise impact our performance;

Availability of financing and our lending banks’ ability to honor existing line of credit commitments;

Costs of complying with governmental laws and regulations;

Uncertainties associated with environmental and other regulatory matters;

Potential changes in the political environment and reduction in federal and/or state funding of our government tenants;

We are and may continue to be subject to litigation, which could have a material adverse effect on our financial condition;

Piedmont’s ability to continue to qualify as a ~~real estate investment trust~~REIT under the Internal Revenue Code ~~of 1986, as amended;~~(the “Code”); and

Other factors, including the risk factors discussed under Item 1A. of Piedmont’s Annual Report on Form 10-K for the year ended December 31, ~~2010~~2011.

Management believes these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and management undertakes no obligation to update publicly any of them in light of new information or future events.

Table of Contents

PART I. FINANCIAL STATEMENTS


ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS

The information presented in the accompanying consolidated balance sheets and related consolidated statements of operations, stockholders’ equity, and cash flows reflects all adjustments that are, in management’s opinion, necessary for a fair and consistent presentation of financial position, results of operations, and cash flows in accordance with U.S. generally accepted accounting principles.

The accompanying financial statements should be read in conjunction with the notes to Piedmont’s financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report on Form 10-Q and with Piedmont’s Annual Report on Form 10-K for the year ended December 31, ~~2010~~2011. Piedmont’s results of operations for the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 are not necessarily indicative of the operating results expected for the full year.

Table of Contents

PIEDMONT OFFICE REALTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except for share and per share amounts)


	(Unaudited)						(Unaudited)
	September 30, 2011			December 31, 2010			March 31, 2012			December 31, 2011
Assets:
Real estate assets, at cost:
Land	$	637,656		$	592,080		$	631,745		$	640,196
Buildings and improvements, less accumulated depreciation of $766,163 and $707,314 as of September 30, 2011 and December 31, 2010, respectively	2,955,186			2,779,652
Intangible lease assets, less accumulated amortization of $118,574 and $125,193 as of September 30, 2011 and December 31, 2010, respectively	88,047			68,227
Buildings and improvements, less accumulated depreciation of $813,679 and $792,342 as of March 31, 2012 and December 31, 2011, respectively							2,936,796			2,967,254
Intangible lease assets, less accumulated amortization of $119,188 and $119,419 as of March 31, 2012 and December 31, 2011, respectively							72,411			79,248
Construction in progress	16,853			8,591			16,725			17,353
Real estate assets held for sale, net	228,896			228,278
Total real estate assets	3,926,638			3,676,828			3,657,677			3,704,051
Investments in unconsolidated joint ventures	38,391			42,018			37,901			38,181
Cash and cash equivalents	16,128			56,718			28,679			139,690
Tenant receivables, net of allowance for doubtful accounts of $809 and $1,298 as of September 30, 2011 and December 31, 2010, respectively	131,094			123,269
Notes receivable	—			61,144
Tenant and notes receivable, net of allowance for doubtful accounts of $514 and $631 as of March 31, 2012 and December 31, 2011, respectively							150,655			129,523
Due from unconsolidated joint ventures	643			1,158			449			788
Restricted cash and escrows	36,300			814			25,108			9,039
Prepaid expenses and other assets	13,978			11,249			12,477			9,911
Goodwill	180,097			180,097			180,097			180,097
Deferred financing costs, less accumulated amortization of $8,611 and $11,740 as of September 30, 2011 and December 31, 2010, respectively	4,739			5,240
Deferred lease costs, less accumulated amortization of $115,633 and $111,671 as of September 30, 2011 and December 31, 2010, respectively	217,757			165,001
Other assets held for sale	47,353			49,944
Deferred financing costs, less accumulated amortization of $9,657 and $9,214 as of March 31, 2012 and December 31, 2011, respectively							5,187			5,977
Deferred lease costs, less accumulated amortization of $126,062 and $120,358 as of March 31, 2012 and December 31, 2011, respectively							228,468			230,577
Total assets	$	4,613,118		$	4,373,480		$	4,326,698		$	4,447,834
Liabilities:
Line of credit and notes payable	$	1,544,525		$	1,282,525		$	1,352,525		$	1,472,525
Accounts payable, accrued expenses, and accrued capital expenditures	143,106			112,648			116,292			122,986
Deferred income	32,514			35,203			32,031			27,321
Intangible lease liabilities, less accumulated amortization of $65,496 and $60,850 as of September 30, 2011 and December 31, 2010, respectively	51,599			42,005
Intangible lease liabilities, less accumulated amortization of $66,349 and $63,981 as of March 31, 2012 and December 31, 2011, respectively							46,640			49,037
Interest rate swap	—			691			2,552			2,537
Notes payable and other liabilities held for sale	124,451			126,954
Total liabilities	1,896,195			1,600,026			1,550,040			1,674,406
Commitments and Contingencies
Stockholders’ Equity:
Shares-in-trust, 150,000,000 shares authorized; none outstanding as of September 30, 2011 or December 31, 2010	—			—
Preferred stock, no par value, 100,000,000 shares authorized; none outstanding as of September 30, 2011 or December 31, 2010	—			—
Common stock, $.01 par value, 750,000,000 shares authorized; 172,826,991 and 172,658,489 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively (Note 12 )	1,728			1,727
Shares-in-trust, 150,000,000 shares authorized; none outstanding as of March 31, 2012 or December 31, 2011							—			—
Preferred stock, no par value, 100,000,000 shares authorized; none outstanding as of March 31, 2012 or December 31, 2011							—			—
Common stock, $.01 par value, 750,000,000 shares authorized; 172,629,748 shares issued and outstanding as of March 31, 2012 and December 31, 2011.							1,726			1,726
Additional paid-in capital	3,663,155			3,661,308			3,664,202			3,663,662
Cumulative distributions in excess of earnings	(952,370		)	(895,122		)	(888,331		)	(891,032		)
Other comprehensive loss	—			(691		)	(2,552		)	(2,537		)
Piedmont stockholders’ equity	2,712,513			2,767,222			2,775,045			2,771,819
Noncontrolling interest	1,613			1,609			1,613			1,609
Noncontrolling interest held for sale	2,797			4,623
Total stockholders’ equity	2,716,923			2,773,454			2,776,658			2,773,428
Total liabilities and stockholders’ equity	$	4,613,118		$	4,373,480		$	4,326,698		$	4,447,834

See accompanying notes

Table of Contents

PIEDMONT OFFICE REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME

(in thousands, except for share and per share amounts)


	(Unaudited)						(Unaudited)						(Unaudited)
	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2011			2010			2011			2010			2012			2011
Revenues:
Rental income	$	105,878		$	102,097		$	311,760		$	306,238		$	105,758		$	100,322
Tenant reimbursements	28,459			26,983			86,368			84,100			26,741			26,894
Property management fee revenue	110			806			1,303			2,265			574			830
Other rental income	(33		)	4,230			4,718			5,205			124			3,404
	134,414			134,116			404,149			397,808			133,197			131,450
Expenses:
Property operating costs	51,062			44,417			153,258			143,416			52,782			48,817
Depreciation	26,375			24,317			77,748			72,264			27,453			25,037
Amortization	14,907			9,302			39,411			28,215			12,792			10,338
General and administrative	4,673			6,595			18,631			20,790			5,257			6,612
	97,017			84,631			289,048			264,685			98,284			90,804
Real estate operating income	37,397			49,485			115,101			133,123			34,913			40,646
Other income (expense):
Interest expense	(16,236		)	(15,777		)	(49,638		)	(50,687		)	(16,537		)	(15,640		)
Interest and other (expense)/income	(91		)	993			3,130			2,996
Interest and other income													97			3,459
Equity in income of unconsolidated joint ventures	485			619			1,032			2,003			170			209
Gain on consolidation of variable interest entity	—			—			1,532			—			—			1,920
	(15,842		)	(14,165		)	(43,944		)	(45,688		)	(16,270		)	(10,052		)
Income from continuing operations	21,555			35,320			71,157			87,435			18,643			30,594
Discontinued operations:
Operating income	2,719			5,268			8,119			13,843			758			3,377
Impairment loss	—			—			—			(9,587		)
Gain on sale of real estate assets	26,756			—			26,756			—			17,830			—
Income from discontinued operations	29,475			5,268			34,875			4,256			18,588			3,377
Net income	51,030			40,588			106,032			91,691			37,231			33,971
Less: Net income attributable to noncontrolling interest	(4		)	(4		)	(12		)	(12		)	(4		)	(4		)
Net income attributable to Piedmont	$	51,026		$	40,584		$	106,020		$	91,679		$	37,227		$	33,967
Per share information – basic:
Income from continuing operations	$	0.13		$	0.21		$	0.41		$	0.51
Income from discontinued operations	0.17			0.03			0.20			0.03
Net income available to common stockholders	$	0.30		$	0.24		$	0.61		$	0.54
Per share information – diluted:
Per share information – basic and diluted:
Income from continuing operations	$	0.12		$	0.20		$	0.41		$	0.51		$	0.11		$	0.18
Income from discontinued operations	0.17			0.03			0.20			0.03			0.11			0.02
Net income available to common stockholders	$	0.29		$	0.23		$	0.61		$	0.54		$	0.22		$	0.20
Weighted-average common shares outstanding – basic	172,826,869			172,658,489			172,755,805			170,110,216			172,629,748			172,658,488
Weighted-average common shares outstanding – diluted	173,045,192			172,885,438			172,995,849			170,257,076			172,873,930			172,954,754

See accompanying notes.

Table of Contents

PIEDMONT OFFICE REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)



	(Unaudited)
	Three Months Ended
	March 31,
	2012					2011

Net income attributable to Piedmont			$	37,227				$	33,967
Other comprehensive loss:
Effective portion of loss on derivative instruments that are designated and qualify as cash flow hedges (See Note 5)	(748	)				(181	)
Less: reclassification of previously recorded loss included in net income (See Note 5)	733					407
Other comprehensive gain/(loss)			(15		)			226
Comprehensive income attributable to Piedmont			$	37,212				$	34,193

See accompanying notes

Table of Contents

PIEDMONT OFFICE REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, ~~2010~~2011

AND FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30, 2011~~MARCH 31, 2012 (UNAUDITED)

(in thousands, except per share amounts)

Common Stock ⁽¹⁾

Additional
Paid-In
Capital

Cumulative
Distributions
in Excess of
Earnings

Redeemable
Common
Stock

Other
Comprehensive
Loss

Non-
controlling
Interest

Total
Stockholders’
Equity
Shares Amount
Balance, December 31, 2009 158,917
$ 1,589
$ 3,477,168
$ (798,561 ) $ (75,164 ) $ (3,866 ) $ 5,716
$ 2,606,882
Net proceeds from issuance of common stock 13,800
138
184,266
—
—
—
—
184,404
Redemption of fractional shares of common stock (200 ) (2 ) (2,900 ) —
—
—
—
(2,902 )
Change in redeemable common stock outstanding —
—
—
—
75,164
—
—
75,164
Dividends to common stockholders ($1.26 per share), distributions to noncontrolling interest, and dividends reinvested —
—
(33 ) (216,940 ) —
—
(15 ) (216,988 )
Shares issued under the 2007 Omnibus Incentive Plan, net of tax 141
2
2,807
—
—
—
—
2,809
Net income attributable to noncontrolling interest —
—
—
—
—
—
531
531
Components of comprehensive income:

Net income —
—
—
120,379
—
—
—
120,379
Net change in interest rate swap —
—
—
—
—
3,175
—
3,175
Comprehensive income

123,554
Balance, December 31, 2010 172,658
1,727
3,661,308
(895,122 ) —
(691 ) 6,232
2,773,454
Offering costs associated with issuance of common stock —
—
(479 ) —
—
—
—
(479 )
Dividends to common stockholders ($0.945 per share), distributions to noncontrolling interest, and dividends reinvested —
—
(168 ) (163,268 ) —
—
(2,200 ) (165,636 )
Shares issued under the 2007 Omnibus Incentive Plan, net of tax 169
1
2,494
—
—
—
—
2,495
Net income attributable to noncontrolling interest —
—
—
—
—
—
378
378
Components of comprehensive income:

Net income —
—
—
106,020
—
—
—
106,020
Net change in interest rate derivatives —
—
—
—
—
691
—
691
Comprehensive income —
—
—
—
—
—
—
106,711
Balance, September 30, 2011 172,827
$ 1,728
$ 3,663,155
$ (952,370 ) $ —
$ —
$ 4,410
$ 2,716,923



	Common Stock					Additional Paid-In Capital			Cumulative Distributions in Excess of Earnings			Other Comprehensive Loss			Non- controlling Interest			Total Stockholders’ Equity
	Shares		Amount			Additional Paid-In Capital			Cumulative Distributions in Excess of Earnings			Other Comprehensive Loss			Non- controlling Interest			Total Stockholders’ Equity
Balance, December 31, 2010	172,658		$	1,727		$	3,661,308		$	(895,122	)	$	(691	)	$	6,232		$	2,773,454
Stock repurchases as part of an announced program	(199	)	(2		)	—			(3,242		)	—			—			(3,244		)
Offering costs associated with the issuance of common stock	—		—			(479		)	—			—			—			(479		)
Attribution of asset sales proceeds to noncontrolling interest	—		—			—			—			—			(2,684		)	(2,684		)
Dividends to common stockholders ($1.2600 per share), distributions to noncontrolling interest, and dividends reinvested	—		—			(249		)	(217,709		)	—			(2,407		)	(220,365		)
Shares issued under the 2007 Omnibus Incentive Plan, net of tax	171		1			3,082			—			—			—			3,083
Net income attributable to noncontrolling interest	—		—			—			—			—			468			468
Net income attributable to Piedmont	—		—			—			225,041			—			—			225,041
Other comprehensive loss	—		—			—			—			(1,846		)	—			(1,846		)
Balance, December 31, 2011	172,630		1,726			3,663,662			(891,032		)	(2,537		)	1,609			2,773,428
Dividends to common stockholders ($0.20 per share), distributions to noncontrolling interest, and dividends reinvested	—		—			(43		)	(34,526		)	—			—			(34,569		)
Amortization of unvested shares granted under the 2007 Omnibus Incentive Plan	—		—			583			—			—			—			583
Net income attributable to noncontrolling interest	—		—			—			—			—			4			4
Net income attributable to Piedmont	—		—			—			37,227			—			—			37,227
Other comprehensive loss	—		—			—			—			(15		)	—			(15		)
Balance, March 31, 2012	172,630		$	1,726		$	3,664,202		$	(888,331	)	$	(2,552	)	$	1,613		$	2,776,658


⁽¹⁾	~~See Note 12 for further detail regarding Piedmont's conversion of Common Stock.~~

See accompanying notes

Table of Contents

PIEDMONT OFFICE REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	(Unaudited)						(Unaudited)
	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2011			2010			2012			2011
Cash Flows from Operating Activities:
Net income	$	106,032		$	91,691		$	37,231		$	33,971
Operating distributions received from unconsolidated joint ventures	2,289			3,379			788			1,158
Adjustments to reconcile net income to net cash provided by operating activities:
Income attributable to noncontrolling interest- discontinued operations	366			397			—			119
Depreciation	82,660			77,804			27,606			27,022
Amortization of deferred financing costs, fair market value adjustments on notes payable, and interest rate cap agreements	4,126			1,996
Amortization of deferred financing costs							803			607
Other amortization	43,316			31,964			12,485			11,938
Impairment loss	—			9,587
Accretion of notes receivable discount	(482		)	(1,928		)	—			(482		)
Stock compensation expense	2,975			2,458			334			968
Equity in income of unconsolidated joint ventures	(1,032		)	(2,003		)	(170		)	(209		)
Gain on sale of real estate assets	(26,756		)	—			(17,832		)	—
Gain on consolidation of variable interest entity	(1,532		)	—			—			(1,920		)
Changes in assets and liabilities:
Increase in tenant receivables, net	(9,690		)	(1,578		)
(Increase)/decrease in tenant receivables, net							(3,216		)	1,309
Increase in restricted cash and escrows	(15,792		)	(7,819		)	(16,069		)	(3,462		)
Increase in prepaid expenses and other assets	(4,864		)	(8,994		)	(2,659		)	(982		)
Increase in accounts payable and accrued expenses	1,823			7,520
Decrease in deferred income	(7,250		)	(624		)
Decrease in accounts payable and accrued expenses							(6,101		)	(8,165		)
Increase/(decrease) in deferred income							4,709			(337		)
Net cash provided by operating activities	176,189			203,850			37,909			61,535
Cash Flows from Investing Activities:
Investments in real estate assets and related intangibles	(175,322		)	(41,378		)	(13,075		)	(29,125		)
Cash assumed upon consolidation of variable interest entity	5,063			—			—			5,063
Net sales proceeds from wholly-owned properties	68,041			—			24,839			—
Net sales proceeds from unconsolidated joint ventures	3,036			—
Investments in unconsolidated joint ventures	(151		)	(29		)	—			(126		)
Deferred lease costs paid	(27,409		)	(10,524		)	(5,874		)	(12,381		)
Net cash used in investing activities	(126,742		)	(51,931		)
Net cash provided by/(used in) investing activities							5,890			(36,569		)
Cash Flows from Financing Activities:
Deferred financing costs paid	(1,401		)	(669		)	(12		)	—
Proceeds from line of credit and notes payable	469,000			—			49,000			15,000
Repayments of line of credit and notes payable	(392,000		)	(114,000		)	(169,000		)	—
Net proceeds from issuance of common stock	—			185,763
Redemption of fractional shares of common stock	—			(2,918		)
Costs of issuance of common stock							(229		)	—
Dividends paid and discount on dividend reinvestments	(165,636		)	(162,560		)	(34,569		)	(54,533		)
Net cash used in financing activities	(90,037		)	(94,384		)	(154,810		)	(39,533		)
Net (decrease)/increase in cash and cash equivalents	(40,590		)	57,535
Net decrease in cash and cash equivalents							(111,011		)	(14,567		)
Cash and cash equivalents, beginning of period	56,718			10,004			139,690			56,718
Cash and cash equivalents, end of period	$	16,128		$	67,539		$	28,679		$	42,151
Supplemental Disclosures of Significant Noncash Investing and Financing Activities:
Change in accrued offering costs	$	479		$	1,370
Change in accrued offering costs related to issuance of common stock							$	—		$	479
Accrued capital expenditures and deferred lease costs	$	9,395		$	1,249		$	4,410		$	3,240
Net assets assumed upon consolidation of variable interest entity, net of notes receivable previously recorded	$	188,283		$	—		$	—		$	188,233
Liabilities assumed upon consolidation of variable interest entity	$	191,814		$	—		$	—		$	191,376
Redeemable common stock	$	—		$	75,164

See accompanying notes

Table of Contents

PIEDMONT OFFICE REALTY TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2011~~March 31, 2012

(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 acquisition and ownership of commercial real estate properties throughout the United States, including properties that are under construction, are newly constructed, or have operating histories. Piedmont was incorporated in 1997 and commenced operations onin June 5,of 1998. Piedmont conducts business primarily through Piedmont Operating Partnership, L.P. (“Piedmont OP”), a Delaware limited partnership, as well as performing the management of its buildings through two wholly-owned subsidiaries, Piedmont Government Services, LLC and Piedmont Office Management, LLC. Piedmont is the sole general partner of Piedmont OP and possesses full legal control and authority over the operations of Piedmont OP. Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through both consolidated and unconsolidated joint ventures. 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, 2011~~March 31, 2012, Piedmont owned interests in 7975 office properties, plus five buildings owned through unconsolidated joint ventures and two industrial buildings. Our 7975 office properties are located in 1817 metropolitan areas across the United States. These office properties comprise approximately ~~21.8~~20.6 million square feet of primarily Class A commercial office space, and were approximately ~~86.4%~~84.4% leased as of ~~September 30, 2011~~March 31, 2012.

2.Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements of Piedmont have been 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 U.S. generally accepted accounting principles (“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 and certain prior period amounts have been reclassified to conform to the current period financial statement presentation, specifically relating to ~~(i)~~ the required presentation of income from discontinued operations for ~~the 111 Sylvan Avenue Building (sold in December 2010),~~ the Eastpointe Corporate Center (sold in July 2011), the 5000 Corporate Court ~~Building~~building (sold in August 2011), the 35 West Wacker Drive building (sold in December 2011), and the 35 W. Wacker Building (under contract as of September 30, 2011 and expected to be sold during the fourth quarter of 2011), (ii) the disclosure of Restricted cash and escrows, which was formerly a component of Prepaid expenses and other assets, and (iii) the reclassification of Class A and Class B common shares as Common Stock (seePortland Portfolio (sold in March 2012, see Note ~~12 for further detail)~~9). Piedmont’s consolidated financial statements include the accounts of Piedmont, Piedmont’s wholly-owned subsidiaries, any variable interest entity of which Piedmont or any of its wholly-owned subsidiaries is considered the primary beneficiary, or any entity in which Piedmont or any of its wholly-owned subsidiaries owns a controlling interest. 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, ~~2010~~2011.

Further, Piedmont has formed special purpose entities to acquire and hold real estate. Each special purpose entity is a separate legal entity and consequently the assets of the 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.

Income Taxes

Piedmont has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), 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. 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.

Goodwill

910

Table of Contents

~~Interest Rate Cap Agreements~~

~~Piedmont periodically enters into interest rate cap agreements~~basis, or on an interim basis if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Such interim circumstances may include, but are not limited to, limit its exposure to changing interest rates on its variable rate debt instruments. As required by GAAP, Piedmont records all interest rate caps on the balance sheet at estimated fair value as a component of Prepaid expenses and other assets. For interest rate caps designated as cash flow hedges, Piedmont reassesses the effectiveness of its interest rate caps on a regular basis to determine if they continue to be highly effective and also to determine if the forecasted transactions remain highly probable. Thesignificant adverse changes in fair value of interest rate caps designated as cash flow hedges are recorded in other comprehensive income (“OCI”), and the option purchase premium is amortized (reclassified from OCI to interest expense) over the life of the hedging relationship as the hedged forecasted transactions affect earnings. The reclassification is based on a schedule created at the inception of the hedge, which allocates the purchase price to the future periods the hedge is expected to benefit, based on fair value as of the inception of the hedging relationship. Due to the complexities of cash flow hedge accounting, Piedmont evaluates the cost-benefit relationship between the size of the related interest rate cap agreements and the exposure to potential fluctuationslegal factors or in the ~~fair~~general business climate, adverse action or assessment by a regulator, unanticipated competition, the loss of key personnel, or persistent declines in an entity’s stock price below carrying value of the ~~interest rate caps in order to determine if effective hedge accounting will be pursued.~~entity. In cases where the benefit does not outweigh the costs, Piedmont elects to use mark-to-market accounting, which adjusts the interest rate cap agreements to estimated fair value through earnings on a quarterly basis. Currently, Piedmont does not use derivatives for trading or speculative purposes.

~~Recent Accounting Pronouncements~~

~~In May~~September 2011, the Financial Accounting Standards Board ("FASB") issued an update related to Accounting Standards Codification Topic Fair Value Measurements and Disclosures (“ASC 820”) which converges GAAP and International Financial Reporting Standards ("IFRS") definition of “fair value”, the requirements for measuring amounts at fair value, and disclosures about these measurements. The update does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. The adoption of this update to ASC 820 is effective for Piedmont beginning with its first quarter 2012 interim financial statements and is not expected to have a material impact on Piedmont's consolidated financial statements or disclosures.

In June 2011, the FASB issued a new requirement related to the presentation of Comprehensive Income ("ASC 220") intended to converge how other comprehensive income ("OCI") is presented under GAAP and IFRS. ASC 220 gives an entity the option to present OCI information in either a single continuous statement of comprehensive income or in two separate but consecutive statements, but eliminates the presentation of OCI in the statement of stockholders' equity. The adoption of ASC 220 is effective for Piedmont beginning with its first quarter 2012 interim financial statements and, as the requirement pertains to disclosure only, is not expected to have a material impact on Piedmont's consolidated financial statements.

~~In September 2011, the FASB issued an~~ amendment ~~to ASC 350~~ regarding the testing of goodwill for ~~impairment.~~impairment effective for Piedmont on January 1, 2012. Under the amended guidance, ~~companies have~~Piedmont has the option, should it chose to do so, to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of athe reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, ~~a company~~Piedmont concludes that the estimated fair value is greater than the carrying amount, then performing the two-step impairment test is unnecessary. ~~The adoption~~However, if Piedmont chooses to forgo the availability of the ~~amendment~~qualitative analysis, the test prescribed by authoritative accounting guidance is a two-step test. The first step involves comparing the estimated fair value of the entity to ~~ASC 350~~its carrying value, including goodwill. Fair value is ~~effective~~determined by adjusting the trading price of the stock for ~~Piedmont beginning with~~various factors including, but not limited to: (i) liquidity or transferability considerations, (ii) control premiums, and/or (iii) fully distributed premiums, if necessary, multiplied by the ~~2012 fiscal year, except for~~common shares outstanding. If such calculated fair value exceeds the specific requirement to present items that are reclassified from other comprehensive income to net income alongside their respective components of net income and other comprehensive income, which has been deferred. Early adoption of this amendmentcarrying value, no further procedures or analysis is permitted or required. However, if the carrying value exceeds the calculated fair value, goodwill is potentially impaired and step two of the analysis would be required. Step two of the test involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the entity from the entity’s fair value calculated in step one of the test. If the implied value of the goodwill (the remainder left after deducting the fair values of the entity from its calculated overall fair value in step one of the test) is ~~not expected to have a material impact on Piedmont's consolidated financial statements or disclosures.~~less than the carrying value of goodwill, an impairment loss would be recognized.

3.~~Acquisitions~~

~~During the~~ ~~nine months endedSeptember 30, 2011~~, Piedmont purchased the 1200 Enclave Parkway Building in Houston, Texas, the Dupree Building in Atlanta, Georgia, the Medici Building, also in Atlanta, Georgia, and the 225 and 235 Presidential Way Buildings in Woburn, Massachusetts. In addition, Piedmont also acquired the 500 W. Monroe Building located in downtown Chicago, Illinois through a foreclosure sale related to certain notes receivable previously held by Piedmont (see Note 4 for a more complete description of this transaction). No additional purchase consideration was required to acquire the 500 W. Monroe Building interests. Piedmont funded the other acquisitions listed above with proceeds from its ~~$500~~ ~~Million Unsecured Facility, the proceeds from certain dispositions of wholly-owned and unconsolidated joint venture properties, and cash on hand.~~

~~Table of Contents~~

Property
Metropolitan
Statistical
Area
Acquisition Date
Number of
Buildings

Rentable
Square
Feet

Percentage
Occupied
as of
Acquisition Date

Acquisition
Price
(in millions)

1200 Enclave Parkway Building Houston, TX March 30, 2011 1
149,654 18 % $ 18.5

The Dupree Building Atlanta, GA April 29, 2011 1
137,818 83 % $ 20.5

The Medici Building Atlanta, GA June 7, 2011 1
152,221 22 % $ 13.2

The 225 and 235 Presidential Way Buildings Boston, MA September 13, 2011 2
440,130 100 % $ 85.3

500 W. Monroe Building Chicago, IL March 31, 2011 1
962,361 67 % $ 227.5
⁽¹⁾


⁽¹⁾ 3.	~~Represents the estimated fair value of real estate assets acquired as recorded in Piedmont’s accompanying consolidated balance sheet as of the acquisition date.~~Tenant and Notes Receivable

Tenant and notes receivables as of March 31, 2012 and December 31, 2011, respectively, were comprised of the following (in thousands):



	March 31, 2012		December 31, 2011
Tenant receivables, net of allowance for doubtful accounts of $514 and $631 as of March 31, 2012 and December 31, 2011, respectively	$	24,932	$	24,722
Cumulative rental revenue recognized on a straight-line basis in excess of cash received in accordance with lease terms	106,723		104,801
Notes receivable received in conjunction with real estate asset sale (See Note 9)	19,000		—
Tenant and notes receivable, net	$	150,655	$	129,523

4.~~Notes Receivable~~

~~Notes receivable as of~~ ~~December 31, 2010~~ ~~consisted solely of Piedmont’s~~ ~~two~~ ~~investments in mezzanine debt, both of which were secured by pledges of equity interests in the ownership of the 500 W. Monroe Building.~~

~~During the year ended~~ ~~December 31, 2010~~, ~~one~~ ~~of the~~ ~~two~~ notes matured but was not repaid and was therefore declared to be in maturity default. Piedmont initiated foreclosure proceedings and on March 31, 2011, Piedmont was the successful bidder at a UCC foreclosure sale allowing Piedmont to obtain control of the property, resulting in the extinguishment of other third-party loans that were subordinate to the secured position upon which Piedmont foreclosed.

~~As a result of obtaining control of the property, Piedmont is now considered the primary beneficiary of the variable interest entity (“VIE”) containing the 500 W. Monroe Building, subject to a~~ ~~$140.0 million~~ ~~first mortgage loan secured by the building, and a~~ ~~$45.0 million~~ ~~mezzanine loan collateralized by an equity ownership interest in the borrower under the mezzanine loan. (See Note 5 for information regarding the~~ ~~$140.0 million~~ ~~first mortgage loan and~~ ~~$45.0 million~~ mezzanine loan.) As such, Piedmont recorded the fair value of all of the assets and liabilities associated with the 500 W. Monroe Building, the remaining outstanding debt payable to third party lenders, and the interest rate cap agreements associated with the assumed debt in its consolidated financial statements in March 2011. The consolidation of the VIE resulted in an approximate ~~$1.5 million~~ ~~non-cash gain which is reflected in Piedmont’s results of operations for the~~ ~~nine months endedSeptember 30, 2011. Additionally, Piedmont recognized approximately~~ ~~$2.6 million~~ ~~in other income during the~~ ~~nine months endedSeptember 30, 2011~~ related to cash representing the building’s operating cash flow during the period between the original default date in August 2010, and the consummation of the foreclosure process on March 31, 2011. Such income had been deferred due to the ownership uncertainties associated with legal actions related to the foreclosure proceedings.

5.Line of Credit and Notes Payable

During the three months ended ~~September 30, 2011~~March 31, 2012, Piedmont ~~exercised its extension option to extend the maturity date of~~incurred net borrowings on the $500 Million ~~Million~~ Unsecured Facility ~~by one year to~~of approximately ~~August 30,~~$20.0 million. On January 9, 2012 ~~and exercised its extension options to extend the maturity dates of~~, Piedmont fully repaid the $~~140.0~~140 Million ~~Million~~ 500 W. Monroe Mortgage ~~Loan and~~Loan. Finally, on May 1, 2012, Piedmont repaid in full the balance outstanding on the $45.0 Million ~~Million 500 W. Monroe Mezzanine 1-A~~Fixed-Rate Loan ~~Participation to~~ ~~August 9, 2012~~.

On ~~September 20, 2011~~, Piedmont entered into an agreement to sell its interest in the office property known as the 35 W. Wacker Building in Chicago, Illinois. The property is encumbered by a mortgage note, which will be assumedsecured by the ~~purchaser as part~~4250 N. Fairfax building in advance of the transaction. In accordance with GAAP, Piedmont included the note payable in the disposal group of assets and liabilities presented as held for sale on the accompanying consolidated balance sheet as of ~~September 30, 2011. See Note 10 for additional information.~~its scheduled maturity.

Piedmont made interest payments on all debt facilities, including interest rate swap cash settlements related to ~~Piedmont’s~~ ~~$250~~ ~~Million Unsecured Term Loan,~~certain of its debt facilities, totaling approximately $~~16.8~~15.8 million and $~~16.7 million~~ ~~for the three months ended~~ ~~September 30, 2011~~ ~~and~~ ~~2010, respectively, and~~ ~~$50.1 million~~ ~~and~~ ~~$53.0~~15.9 million for the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010~~2011, respectively.

~~Table of Contents~~

See Note ~~8 below~~7 for a description of Piedmont’s estimated fair value of debt as of ~~September 30, 2011~~March 31, 2012.

The following table summarizes the terms of Piedmont’s indebtedness outstanding as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 (in thousands):

Table of Contents


Facility	Collateral	Rate⁽¹⁾			Maturity	Amount Outstanding as of				Collateral	Rate⁽¹⁾			Maturity	Amount Outstanding as of
Facility	Collateral	Rate⁽¹⁾			Maturity	September 30, 2011		December 31, 2010		Collateral	Rate⁽¹⁾			Maturity	March 31, 2012			December 31, 2011
Secured
Secured (Fixed)
$45.0 Million Fixed-Rate Loan	4250 N. Fairfax	5.20	%		6/1/2012	$	45,000	$	45,000	4250 N. Fairfax	5.20	%		6/1/2012	$	45,000	⁽²⁾	$	45,000
$200.0 Million Mortgage Note	Aon Center	4.87	%		5/1/2014	200,000		200,000		Aon Center	4.87	%		5/1/2014	200,000			200,000
$25.0 Million Mortgage Note	Aon Center	5.70	%		5/1/2014	25,000		25,000		Aon Center	5.70	%		5/1/2014	25,000			25,000
$350.0 Million Secured Pooled Facility	Nine Property Collateralized Pool ⁽²⁾	4.84	%		6/7/2014	350,000		350,000		Nine Property Collateralized Pool ⁽³⁾	4.84	%		6/7/2014	350,000			350,000
$105.0 Million Fixed-Rate Loan	US Bancorp Center	5.29	%		5/11/2015	105,000		105,000		US Bancorp Center	5.29	%		5/11/2015	105,000			105,000
$125.0 Million Fixed-Rate Loan	Four Property Collateralized Pool ⁽³⁾	5.50	%		4/1/2016	125,000		125,000		Four Property Collateralized Pool ⁽⁴⁾	5.50	%		4/1/2016	125,000			125,000
$42.5 Million Fixed-Rate Loan	Las Colinas Corporate Center I & II	5.70	%		10/11/2016	42,525		42,525		Las Colinas Corporate Center I & II	5.70	%		10/11/2016	42,525			42,525
$140.0 Million WDC Mortgage Notes	1201 & 1225 Eye Street	5.76	%		11/1/2017	140,000		140,000		1201 & 1225 Eye Street	5.76	%		11/1/2017	140,000			140,000
$140.0 Million 500 W. Monroe Mortgage Loan	500 W. Monroe	LIBOR + 1.008%		⁽⁴⁾	8/9/2012	140,000		—		500 W. Monroe	LIBOR + 1.008%			8/9/2012	—			140,000
$45.0 Million 500 W. Monroe Mezzanine I Loan- A Participation	500 W. Monroe	LIBOR + 1.45%		⁽⁴⁾	8/9/2012	45,000		—
Subtotal/Weighted Average ⁽⁵⁾		4.59	%			1,217,525		1,032,525			5.17	%			1,032,525			1,172,525
Unsecured
$250 Million Unsecured Term Loan		LIBOR + 1.50%			6/28/2011	—		250,000
Unsecured (Variable)
$300 Million Unsecured Term Loan											LIBOR + 1.45%		⁽⁶⁾	11/22/2016	300,000			300,000
$500 Million Unsecured Facility		0.84	%	⁽⁶⁾	8/30/2012	327,000		—			0.73	%	⁽⁷⁾	8/30/2012	20,000			—
Subtotal/Weighted Average ⁽⁵⁾		0.84	%			327,000		250,000			2.57	%			320,000			300,000
Total/ Weighted Average ⁽⁵⁾		3.79	%			$	1,544,525	$	1,282,525		4.55	%			$	1,352,525		$	1,472,525


⁽¹⁾	All of Piedmont’s outstanding debt as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 is interest-only debt.


⁽²⁾	Repaid in full on May 1, 2012.


⁽³⁾	Nine property collateralized pool includes: 1200 Crown Colony Drive, Braker Pointe III, 2 Gatehall Drive, One and Two Independence Square, 2120 West End Avenue, 400 Bridgewater Crossing, 200 Bridgewater Crossing, and Fairway Center II.


⁽³⁾⁽⁴⁾	Four property collateralized pool includes 1430 Enclave Parkway, Windy Point I and II, and 1055 East Colorado Boulevard.


⁽⁴⁾	~~Subject to interest rate cap agreements, which limit Piedmont’s exposure to potential increases in the LIBOR rate to~~ ~~2.19%~~.

⁽⁵⁾

Weighted average is based on contractual balance of outstanding debt and interest rates in the table as of ~~September 30, 2011~~March 31, 2012. ~~As such, the following metrics would change to~~ ~~4.63%~~ ~~for the weighted average interest rate of secured debt, and~~ ~~3.89%~~ for the weighted average interest rate of all outstanding debt if the note payable included in the disposal group of assets and liabilities held for sale (related to the 35 W. Wacker Building) was included in the calculations.


⁽⁶⁾	The $300 Million Unsecured Term Loan has a stated variable rate; however, Piedmont entered into interest rate swap agreements which effectively fix, exclusive of changes to Piedmont's credit rating, the rate on this facility to 2.69%.

⁽⁷⁾

Piedmont may select from multiple interest rate options with each draw, including the prime rate and various-length LIBOR locks. All LIBOR selections are subject to an additional spread (0.475% as of March 31, 2012) over the selected rate based on Piedmont’s current credit rating. The outstanding balance as of March 31, 2012 consisted of a LIBOR draw at 0.25% (subject to the additional spread mentioned above).

~~Table of Contents~~

~~locks. All LIBOR selections are subject to an additional spread (0.475%~~ ~~as of~~ ~~September 30, 2011) over the selected rate based on Piedmont’s current credit rating. The outstanding balance as of~~ ~~September 30, 2011~~ ~~consisted of several LIBOR draws ranging between~~ ~~0.23%~~ ~~and~~ ~~0.24%~~ ~~(subject to the additional spread mentioned above) as well as a draw subject to the prime rate which was~~ ~~3.25%~~ ~~at that time.~~

6.5.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 such as interest rate swap agreements and interest rate cap agreements to manage interest rate risk exposure arising from variable rate debt transactions

Table of Contents

that result in the receipt or payment of future known and uncertain cash amounts, the value of which is 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. Interest rate caps also may be used as cash flow hedges and involve payment to a counterparty in exchange for establishing a maximum rate which will not be exceeded, despite market conditions to the contrary.

During the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012, Piedmont used interest rate swap agreements to hedge the variable cash flows associated with its $~~250~~300 Million ~~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 endedSeptember 30, 2011~~.

~~A detail of~~Loan. Piedmont’s interest rate ~~derivatives~~swap agreements outstanding as of ~~September 30, 2011~~March 31, 2012 iswere as follows:

Interest Rate Derivative

Notional Amount

(in millions)

Effective Date

Maturity Date

Notional Amount

(in millions)

Effective Date

Maturity Date

Interest rate cap

140

8/15/2011

8/15/2012

⁽¹⁾

Interest rate cap

⁽²⁾

8/15/2011

8/15/2012

⁽¹⁾

Interest rate swap

125

11/22/2011

11/22/2016

Interest rate swap

11/22/2011

11/22/2016

Interest rate swap

11/22/2011

11/22/2016

Interest rate swap

11/22/2011

11/22/2016

Total

202

300


⁽¹⁾	~~Mirrors the monthly interest accrual period of the 500 W. Monroe Loans.~~


⁽²⁾	Interest rate cap agreement is inclusive of both the $45.0 Million 500 W. Monroe Mezzanine I Loan- A Participation payable to an unrelated third-party, as well as the loan participation formerly owned by Piedmont as a note receivable.

All of Piedmont's interest rate ~~derivative~~swap agreements outstanding ~~through~~ ~~August 9, 2011~~for the periods presented were designated as cash flow hedges of interest rate risk. The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in OCI and is ~~subsequently~~ reclassified into earnings as interest expense in the period that the hedged forecasted transaction affects earnings. ~~As mentioned above, Piedmont elected to account for the two replacement interest rate cap agreements related to the 500 W. Monroe Loans under the mark-to-market method of accounting.~~

The effective portion of Piedmont’s ~~derivative financial instruments (interest~~interest rate ~~caps and swaps)~~swaps that was recorded in the accompanying consolidated statements of income for the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 and ~~2010~~2011, respectively, iswas as ~~follows (in thousands):~~follows:

~~Table of Contents~~


	Three Months Ended						Nine Months Ended						Three Months Ended
Derivative in Cash Flow Hedging Relationships (Interest Rate Swaps and Caps)	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Derivative in Cash Flow Hedging Relationships (Interest Rate Swaps) (in thousands)													March 31, 2012			March 31, 2011
Amount of loss recognized in OCI on derivative	$	—		$	637		$	204		$	1,483		$	748		$	181
Amount of previously recorded loss reclassified from accumulated OCI into interest expense	$	(44	)	$	(350	)	$	(895	)	$	(4,321	)	$	(733	)	$	(407	)

Piedmont estimates that an additional $2.6 million will be reclassified from accumulated other comprehensive loss as an increase to interest expense over the next twelve months. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on Piedmont’s cash flow hedges during the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 or ~~2010~~2011, respectively.

~~The fair value of Piedmont’s interest rate swap agreements outstanding as of~~ ~~December 31, 2010~~ ~~that were designated as hedging instruments under GAAP was approximately~~ ~~$0.7 million~~ ~~and is presented as “Interest Rate Swap” in the accompanying consolidated balance sheets. The fair value of Piedmont’s interest rate cap agreements as of~~ ~~September 30, 2011~~ ~~was approximately~~ ~~$3,000, and is recorded on the accompanying consolidated balance sheet as a component of Prepaid and other assets.~~

Please see the accompanying statements of stockholders’ equity for a rollforward of Piedmont’s Other Comprehensive Loss account. Additionally, see Note 7 for fair value disclosures of Piedmont's interest rate swap derivatives.

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 obligation. If Piedmont breached any of the contractual provisions of the derivative contracts, it would be required to settle its obligations under the agreements at their termination value of the fair values plus accrued interest, or approximately $2.6 million.

7.6.Variable Interest Entities

Variable interest holders who have the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and have the obligation to absorb the majority of losses of the entity or the right to receive significant benefits of the entity are considered to be the primary beneficiary and must consolidate the VIE.

Table of Contents

A summary of Piedmont’s interests in and consolidation treatment of its VIEs as of ~~September 30, 2011~~March 31, 2012 is as follows (net carrying amount in millions):

~~Table of Contents~~


Entity	Piedmont’s % Ownership of Entity		Related Building	Consolidated/ Unconsolidated	Net Carrying Amount as of September 30, 2011			Net Carrying Amount as of December 31, 2010		Primary Beneficiary Considerations	Piedmont’s % Ownership of Entity	Related Building	Consolidated/ Unconsolidated	Net Carrying Amount as of March 31, 2012			Net Carrying Amount as of December 31, 2011			Primary Beneficiary Considerations
1201 Eye Street NW Associates, LLC	49.5	%	1201 Eye Street	Consolidated	$	(1.6	)	$	0.3	In accordance with the partnership’s governing documents, Piedmont is entitled to 100% of the cash flow of the entity and has sole discretion in directing the management and leasing activities of the building.	49.5%	1201 Eye Street	Consolidated	$	(2.8	)	$	(1.6	)	In accordance with the partnership’s governing documents, Piedmont is entitled to 100% of the cash flow of the entity and has sole discretion in directing the management and leasing activities of the building.
1225 Eye Street NW Associates, LLC	49.5	%	1225 Eye Street	Consolidated	$	1.1		$	1.9	In accordance with the partnership’s governing documents, Piedmont is entitled to 100% of the cash flow of the entity and has sole discretion in directing the management and leasing activities of the building.	49.5%	1225 Eye Street	Consolidated	$	(0.5	)	$	0.6		In accordance with the partnership’s governing documents, Piedmont is entitled to 100% of the cash flow of the entity and has sole discretion in directing the management and leasing activities of the building.
Wells REIT Multi-State Owner, LLC											100%	1200 Crown Colony Drive	Consolidated	$	30.6		$	28.0		In accordance with a tenant's lease, if Piedmont sells the property on or before March 2013, then the tenant would be entitled to an equity participation fee.
Piedmont 500 W. Monroe Fee, LLC	100	%	500 W. Monroe	Consolidated	$	43.7		N/A		The Omnibus Agreement with the previous owner includes equity participation rights for the previous owner, if certain financial returns are achieved; however, Piedmont has sole decision making authority and is entitled to the economic benefits of the property until such returns are met.	100%	500 W. Monroe	Consolidated	$	207.0		$	76.9		The Omnibus Agreement with the previous owner includes equity participation rights for the previous owner, if certain financial returns are achieved; however, Piedmont has sole decision making authority and is entitled to the economic benefits of the property until such returns are met.
Suwanee Gateway One, LLC	100	%	Suwanee Gateway One	Consolidated	$	7.7		$	7.8	The fee agreement includes equity participation rights for the incentive manager, if certain returns on investment are achieved; however, Piedmont has sole decision making authority and is entitled to the economic benefits of the property until such returns are met.	100%	Suwanee Gateway One	Consolidated	$	7.6		$	7.7		The fee agreement includes equity participation rights for the incentive manager, if certain returns on investment are achieved; however, Piedmont has sole decision making authority and is entitled to the economic benefits of the property until such returns are met.
Medici Atlanta, LLC	100	%	The Medici Building	Consolidated	$	13.0		N/A		The fee agreement includes equity participation rights for the incentive manager, if certain returns on investment are achieved; however, Piedmont has sole decision making authority and is entitled to the economic benefits of the property until such returns are met.	100%	The Medici	Consolidated	$	13.5		$	13.0		The fee agreement includes equity participation rights for the incentive manager, if certain returns on investment are achieved; however, Piedmont has sole decision making authority and is entitled to the economic benefits of the property until such returns are met.
400 TownPark, LLC											100%	400 TownPark	Consolidated	$	24.1		$	23.7		The fee agreement includes equity participation rights for the incentive manager, if certain returns on investment are achieved; however, Piedmont has sole decision making authority and is entitled to the economic benefits of the property until such returns are met.

Each of the VIEs described above has the sole purpose of holding office buildings and their resulting operations, and are classified in the accompanying consolidated balance sheets in the same manner as Piedmont’s other wholly-owned properties.

8.7.Fair Value Measurement of Financial Instruments

Piedmont considers its cash, accounts receivable, notes receivable, accounts payable, interest rate swap ~~agreements, interest rate cap~~ agreements, and line of credit and notes payable 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 of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 (in thousands):

1514

Table of Contents


	As of September 30, 2011				As of December 31, 2010				As of March 31, 2012					As of December 31, 2011
Financial Instrument	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Level Within Fair Value Hierarchy	Carrying Value		Estimated Fair Value
Assets:
Cash and cash equivalents⁽¹⁾	$	16,128	$	16,128	$	56,718	$	56,718	$	28,679	$	28,679	Level 1	$	139,690	$	139,690
Tenant receivables, net⁽¹⁾⁽²⁾	$	142,884	$	142,884	$	134,006	$	134,006
Tenant and notes receivable, net⁽¹⁾									$	43,932	$	43,932	Level 1	$	24,722	$	24,722
Liabilities:
Accounts payable⁽¹⁾	$	13,521	$	13,521	$	15,763	$	15,763	$	15,123	$	15,123	Level 1	$	14,637	$	14,637
Interest rate swap agreements	$	—	$	—	$	691	$	691	$	2,552	$	2,552	Level 2	$	2,537	$	2,537
Interest rate cap agreements	$	3	$	3	N/A		N/A
Line of credit and notes payable⁽²⁾	$	1,664,525	$	1,722,246	$	1,402,525	$	1,428,255
Line of credit and notes payable									$	1,352,525	$	1,408,637	Level 2	$	1,472,525	$	1,529,811


⁽¹⁾	For the periods presented, the carrying value approximates estimated fair value.

⁽²⁾

Piedmont's line of credit and notes payable is carried at book value as of March 31, 2012; 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 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 line of credit and notes payable.

~~For the periods presented, the carrying value and estimated fair value includes assets and liabilities held for sale.~~

Piedmont’s interest rate ~~cap~~swap agreements discussed in Note 65 above were ~~adjusted~~classified as “Interest rate swap” liability in the accompanying consolidated balance sheets and carried at fair value as of ~~September 30, 2011~~March 31, 2012, and ~~Piedmont's interest rate swap agreement also discussed in Note 6 above was adjusted and carried at fair value as of~~ December 31, 2010. The interest rate swap and interest rate cap agreements were classified as “Interest rate swap” liability and as a component of “Prepaid expenses and other assets”, respectively, in the accompanying consolidated balance sheets.2011. The valuation of these derivative instruments ~~for both types of agreements,~~ 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 fair values determined are considered to be based on significant other observable inputs (Level 2). In addition, ~~as related to the interest rate swap agreements,~~ Piedmont considered both its own and the respective counterparties’ risk of nonperformance in determining the fair value of its derivative financial instruments by estimating the current and potential future exposure under the derivative financial instruments that both Piedmont and the counterparties were at risk for as of the valuation date. ~~This total expected exposure was then discounted using factors that contemplate the creditworthiness~~The credit risk of Piedmont and its counterparties was factored into the ~~counterparties to arrive at a credit charge. This credit charge was then netted against the value~~calculation of the ~~derivative financial instruments determined using the discounted cash flow analysis described above to arrive at a total~~ estimated fair value of the interest rate ~~swap agreements. As~~swaps; however, as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011, ~~the~~this credit valuation adjustment did not comprise a material portion of the estimated fair ~~values of the derivative financial instruments; therefore,~~value. Therefore, Piedmont believes that any unobservable inputs used to determine the fair values of its derivative financial instruments are not significant to the fair value measurements in their entirety, and does not consider ~~either~~any of its derivative financial instruments to be Level 3 liabilities.

9.8.Commitments and Contingencies

Commitments Under Existing Agreements

Certain lease agreements include provisions that, at the option of the tenant, may obligate Piedmont to provide funding for capital improvements. Under its existing lease agreements, Piedmont may be required to fund significant 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 ~~September 30, 2011~~March 31, 2012, Piedmont anticipates funding approximately $~~145.3~~137.3 million ~~(approximately~~ ~~$34.6 million~~ ~~relates to tenants at the 35 W. Wacker Building which is held for sale)~~ in potential obligations for tenant improvements related to its existing lease portfolio over the respective lease terms, the majority of which Piedmont estimates may be required to be funded over the next ~~five~~several years. For most of Piedmont’s leases, the timing of the actual funding of these tenant improvements is largely dependent upon tenant requests for reimbursement. In some cases, these obligations may expire with the leases without further recourse to Piedmont.

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 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~~No such reserves related to such tenant audits/disputes ~~of approximately~~were recorded during the ~~$0.1 million~~three months endedMarch 31, 2012 and ~~$45,000~~ ~~during the three months ended~~ ~~September 30,~~March 31, 2011 ~~and~~ ~~September 30, 2010~~, ~~respectively, and recorded reserves of approximately~~ ~~$0.1 million~~ ~~and approximately~~ ~~$0.1 million~~ ~~during the~~ ~~nine months endedSeptember 30, 2011~~ ~~and~~ ~~September 30, 2010, respectively, as adjustments to earnings.~~respectively.

1615

Table of Contents

Letters of Credit

As of ~~September 30, 2011~~March 31, 2012, Piedmont was subject to the following letters of credit, which reduce the total outstanding capacity under its $500 Million Unsecured Facility:


Amount	Amount	Expiration of Letter of Credit ⁽¹⁾	Amount	Expiration of Letter of Credit ⁽¹⁾
$	382,556	August 2012	382,556	December 2012
$	14,782,820	February 2012	14,782,820	February 2013
$	2,006,589	December 2011	9,033,164	June 2012
$	9,033,164	June 2012


⁽¹⁾	These letter of credit agreements automatically renew for consecutive, one-year periods each anniversary, subject to the satisfaction of the credit obligation and certain other limitations.

Assertion of Legal Action

Piedmont is currently party to two separate lawsuits, where one of the lead plaintiffs in each lawsuit is the same stockholder. The first suit was filed in March 2007, and, in general, alleges inadequate disclosures pursuant to the federal securities laws against Piedmont’s officers, directors, and advisors in connection with the transaction to internalize its management function and become a self-managed entity. The suit originally contained thirteen counts; however, twelve of those counts have subsequently been dismissed. ~~As of the time of this filing, the parties are preparing for trial, but no trial date~~The suit has been ~~set.~~removed from the court's trial calendar pending resolution of a request for interlocutory appellate review of certain legal rulings made by the court. Piedmont believes that ~~the allegations contained in the complaint are~~plaintiff's remaining allegation is without merit and ~~as such,~~intends to continue to vigorously defend this action; however, due to the uncertainties inherent in any litigation, Piedmont has determined that the risk of material loss associated with this lawsuit is ~~remote. Further,~~reasonably possible. The plaintiff has claimed damages of approximately $159 million plus pre-judgment interest, which defendants dispute. There are a number of defendants in this case and the allocation of damages, if any, between Piedmont ~~will continue to vigorously defend this action. Due~~and any other defendants (including any indemnification rights or obligations of Piedmont with respect to the ~~uncertainties inherent in any litigation process, Piedmont’s assessment~~other defendants) is indeterminable at this time. Additionally, up to $13 million of such potential damages may be recoverable by Piedmont under its insurance policies. Therefore, Piedmont estimates the ~~ultimate potential financial impact~~range of ~~the case notwithstanding, the risk of financial~~gross reasonably possible loss ~~does exist.~~(without regard to allocations or insurance recoveries) associated with this claim to be $0 to $159 million plus pre-judgment interest.

The second lawsuit was filed in October 2007 and originally alleged four counts, including inadequate disclosures pursuant to the federal securities laws. To date, the court has dismissed two of the four counts in their entirety and has dismissed portions of the remaining two counts. On April 11, 2011, the Eleventh Circuit Court of Appeals invalidated the district court’s order certifying a class and remanded the case to the district court for further proceedings. Piedmont believes that ~~the~~plaintiffs' allegations ~~contained in the complaint~~ are without merit, and ~~as such, has determined that the risk of material loss associated with this lawsuit is remote. Further, Piedmont will~~intends to continue to vigorously defend this action. Due to the uncertainties inherent in any litigation process, ~~Piedmont’s~~Piedmont's assessment of the ~~ultimate potential financial impact~~merits of the case notwithstanding, the risk of material financial loss does ~~exist.~~exist; however, given that a class has not yet been established, Piedmont's current assessment of the risk of material financial loss associated with this case is that it is remote. Such assessment is subject to change in future periods as additional legal rulings are made by the court.

Please refer to Part II. Item 1 “Legal Proceedings” for a complete description of the chronology of the two lawsuits.

~~10.~~9.Discontinued Operations

On ~~September 20, 2011~~March 19, 2012, Piedmont ~~entered into an agreement to sell its interest (approximately~~sold ~~96.5%~~four~~) in the~~ office ~~property~~properties known as the ~~35 W. Wacker Building~~Deschutes building, the Rhein building, the Rogue building, and the Willamette building, as well as 18.19 acres of adjoining, undeveloped land, (collectively the "Portland Portfolio") for approximately $~~401.0~~43.9 million~~, with~~. Piedmont recorded net sales proceeds of approximately $24.8 million and recognized a gain on the sale of approximately $17.8 million. As part of the transaction, Piedmont accepted an ~~expected closing in~~unsecured promissory note from the ~~fourth quarter~~buyer for the remaining $19.0 million owed on the sale at a rate of ~~2011.~~8.73% and a maturity date of October 31, 2012. In accordance with GAAP, Piedmont reclassified the ~~building from real estate assets held for use to real estate assets held for sale on its consolidated balance sheet as of~~ ~~September 30, 2011. As such, Piedmont reclassified the~~ operational results of the ~~property~~Portland Portfolio as income from discontinued operations for prior periods to conform with current period presentation.

On ~~August 31, 2011, Piedmont sold its office property known as 5000 Corporate Court Building in Holtsville, New York, and in accordance with GAAP, Piedmont reclassified the operational results of the property as~~The details comprising income from discontinued operations, ~~for prior periods to conform with current period presentation. Piedmont recognized a gain of approximately~~ ~~$14.6 millionand net sales proceeds of approximately~~ ~~$36.3 million~~ onincluding results from the ~~sale of~~Portland Portfolio, the Eastpointe Corporate Center building (sold in July 2011), the 5000 Corporate Court ~~Building. However, such gain may change slightly~~building (sold in ~~future periods pending~~August 2011), and the ~~completion~~35 West Wacker Drive building (sold in December 2011), are presented below (in thousands):

Table of Contents



	Three Months Ended March 31,
	2012		2011
Revenues:
Rental income	$	797	$	9,508
Tenant reimbursements	231		5,596
	1,028		15,104
Expenses:
Property operating costs	106		6,335
Depreciation	153		1,985
Amortization of deferred leasing costs	8		1,738
General and administrative expenses	3		16
	270		10,074
Other income (expense):
Interest expense	—		(1,534		)
Net income attributable to noncontrolling interest	—		(119		)
	—		(1,653		)
Operating income, excluding impairment loss and gain on sale	758		3,377
Gain on sale of real estate assets	17,830		—
Income from discontinued operations	$	18,588	$	3,377

10.Stock Based Compensation

Deferred Stock Awards

Piedmont has granted deferred stock awards in the form of restricted stock to its employees. The awards are determined by the Compensation Committee of the board of directors of Piedmont on an annual basis and typically vest over a three-year period beginning on the grant date. In addition, Piedmont has adopted a multi-year performance share program for certain of its employees. Restricted shares are earned based on the relative performance of Piedmont's ~~obligations related to ongoing construction projects at~~total stockholder return as compared with a predetermined peer group's total stockholder return over a three-year period. Typically, shares are not awarded until the ~~property.~~end of the third year in the performance period and vest immediately upon award; however, the inaugural performance share program, which covers the fiscal 2010-2012 performance period, contains three interim performance periods whereby shares may be awarded.

OnA rollforward of Piedmont's deferred stock award activity for the ~~July 1, 2011~~, Piedmont sold its office property known as Eastpointe Corporate Center in Issaquah, Washington, and in accordance with GAAP, Piedmont reclassified the operational results of the property as income from discontinued operations for prior periods to conform with current period presentation. Piedmont recognized a gain of approximately ~~$12.2 million~~three months ended ~~and net sales proceeds of approximately~~ ~~$31.7 million~~March 31, 2012 ~~on the sale of the Eastpointe Corporate Center.~~is as follows:

~~Additionally, on December 8, 2010, Piedmont sold its office property known as the 111 Sylvan Avenue Building, located in~~



	Unvested Deferred Stock Awards as of January 1, 2012		Deferred Stock Awards Granted During Three Months Ended March 31, 2012			Deferred Stock Awards Vested During Three Months Ended March 31, 2012		Deferred Stock Awards Forfeited During Three Months Ended March 31, 2012			Unvested Deferred Stock Awards as of March 31, 2012
Shares	511,203		(90,891		)	—		(1,159		)	419,153
Weighted-Average Grant Date Fair Value	$	19.56	$	19.69		$	—	$	19.49		$	19.53

Table of Contents

~~Englewood Cliffs, New Jersey, and accordingly the operational results of the property for the nine months ended September 30, 2010, including a~~ ~~$9.6 million~~ impairment charge that resulted from adjusting the assets to fair value, are presented as discontinued operations in the accompanying 2010 statement of operations. The fair value measurement used in the evaluation of this non-financial asset was considered to be a Level 1 valuation within the fair value hierarchy as defined by GAAP, as there were direct observations and transactions involving the asset (i.e. the asset was sold to a third-party purchaser).

~~The details comprising assets held for sale, consisting of the 35 W. Wacker Building, are presented below (in thousands):~~

September 30,
2011 December 31,
2010
Real estate assets held for sale, net:
Land $ 55,573
$ 55,573
Building and improvements, less accumulated depreciation of $41,754 and $37,442 as of September 30, 2011 and December 31, 2010, respectively 167,024
164,343
Intangible lease assets, less accumulated amortization of $22,725 and $20,549 as of September 30, 2011 and December 31, 2010, respectively 3,626
5,802
Construction in progress 2,673
2,560
Total real estate assets held for sale, net $ 228,896
$ 228,278

Other assets held for sale:
Tenant receivables $ 11,790
$ 10,737
Deferred financing costs, less accumulated amortization of $169 and $153 as of September 30, 2011 and December 31, 2010, respectively 49
66
Deferred lease costs, less accumulated amortization of $29,353 and $26,055 as of September 30, 2011 and December 31, 2010, respectively 24,067
27,480
Restricted cash and escrows 11,447
11,661
Total other assets held for sale $ 47,353
$ 49,944

Notes payable and other liabilities held for sale:
Notes payable, secured by 35 W. Wacker Building, at fixed-rate of 5.10%, maturing January 1, 2014 $ 120,000
$ 120,000
Intangible lease liabilities, less accumulated amortization of $25,960 and $23,458 as of September 30, 2011 and December 31, 2010, respectively 4,451
6,954
Total notes payable and other liabilities held for sale $ 124,451
$ 126,954

Noncontrolling interest held for sale $ 2,797
$ 4,623

The details comprising income/(loss) from discontinued operations, including results from the 35 W. Wacker Building, the Eastpointe Corporate Center Building, the 5000 Corporate Court Building, and the 111 Sylvan Avenue Building, are presented below (in thousands):

~~Table of Contents~~

Three Months Ended September 30, Nine Months Ended September 30,
2011 2010 2011 2010
Revenues:
Rental income $ 7,477
$ 10,273
$ 24,631
$ 30,455
Tenant reimbursements 3,565
2,708
14,303
14,046
11,042
12,981
38,934
44,501
Expenses:
Property operating costs 3,403
2,395
15,712
14,637
Depreciation 1,516
1,694
4,912
5,541
Amortization of deferred leasing costs 1,676
1,716
5,093
5,193
General and administrative expenses 45
171
80
195
6,640
5,976
25,797
25,566
Other income (expense):
Interest expense (1,568 ) (1,583 ) (4,653 ) (4,697 )
Interest and other income 16
—
1
2
Net income attributable to noncontrolling interest (131 ) (154 ) (366 ) (397 )
(1,683 ) (1,737 ) (5,018 ) (5,092 )
Operating income, excluding impairment loss and gain on sale $ 2,719
$ 5,268
$ 8,119
$ 13,843
Impairment loss —
—
—
(9,587 )
Gain on sale of real estate assets 26,756
—
26,756
—
Income from discontinued operations $ 29,475
$ 5,268
$ 34,875
$ 4,256

~~11.Stock Based Compensation~~

A detail of Piedmont’s ~~unvested~~outstanding employee deferred stock awards as of ~~September 30, 2011~~March 31, 2012 is as follows:


Date of grant	Net Shares Granted⁽¹⁾	Grant Date Fair Value		Vesting Schedule	Unvested Shares as of September 30, 2011	Type of Award	Net Shares Granted ⁽¹⁾		Grant Date Fair Value		Vesting Schedule	Unvested Shares as of March 31, 2012
May 6, 2009	135,564	$	22.20	Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 6, 2010, 2011, and 2012, respectively.	44,393	Annual Deferred Stock Award	135,564		$	22.20	Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 6, 2010, 2011, and 2012, respectively.	44,100
May 11, 2010						Fiscal Year 2010-2012 Performance Share Program	27,502	⁽²⁾	$	28.44	Shares vest immediately upon determination of award in 2012 and 2013.	69,316	⁽³⁾
May 24, 2010	180,340	$	18.71	Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 24, 2011, 2012, and 2013, respectively.	107,473	Annual Deferred Stock Award	180,340		$	18.71	Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 24, 2011, 2012, and 2013, respectively.	106,778
May 24, 2010	46,440	$	18.71	Of the shares granted, 33.33% vested or will vest on May 24, 2011, 2012, and 2013, respectively.	35,268	One-Time Special Deferred Stock Award in Recognition of Piedmont's Initial Public Offering	46,440		$	18.71	Of the shares granted, 33.33% vested or will vest on May 24, 2011, 2012, and 2013, respectively.	34,912
April 5, 2011	142,468	$	19.40	Of the shares granted, 25% vested on the date of grant, and 25% will vest on April 5, 2012, 2013, and 2014, respectively.	115,746	Annual Deferred Stock Award	142,468		$	19.40	Of the shares granted, 25% vested on the date of grant, and 25% will vest on April 5, 2012, 2013, and 2014, respectively.	113,892
April 5, 2011						Fiscal Year 2011-2013 Performance Share Program	—		$	18.27	Shares vest immediately upon determination of award in 2014.	50,155	⁽³⁾
Total					302,880							419,153


⁽¹⁾	Amounts reflect the total grant, net of ~~cumulative~~ shares surrendered upon vesting to satisfy required minimum tax withholding obligations through ~~September 30, 2011~~March 31, 2012.


⁽²⁾	Represents net shares granted at the end of the first interim performance period ended December 31, 2010.


⁽³⁾	Estimated based on Piedmont's cumulative total stockholder return for the respective performance period through March 31, 2012. Such estimates are subject to change in future periods based on both Piedmont's and its peers' stock performance and dividends paid.

During the three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010~~2011, respectively, Piedmont recognized approximately $~~1.1~~0.3 million and $~~1.1~~1.0 million of compensation expense ~~and directors' fees~~ related to stock awards, all of which relates to the amortization of nonvested shares. ~~During the~~ ~~nine months endedSeptember 30, 2011~~ ~~and~~ ~~2010, Piedmont recognized approximately~~ ~~$4.8 million~~ ~~and~~ ~~$3.9 million, respectively, of compensation expense and directors' fees for the same stock awards of which~~ ~~$3.7 million~~ ~~and~~ ~~$2.5 million, respectively, related to the amortization of nonvested shares. During the~~ ~~nine months endedSeptember 30, 2011~~, ~~168,502~~ ~~shares were issued to employees, directors and officers.~~ As of ~~September 30, 2011~~March 31, 2012, approximately $~~5.8~~1.4 million of unrecognized compensation cost related to nonvested, share-based compensation remained, which Piedmont will record in its consolidated statements of income over a weighted-average vesting period of approximately one year.

~~Table of Contents~~

~~12.Stockholders' Equity~~

Effective June 30, 2011, the board of directors of Piedmont approved Articles Supplementary and Articles of Amendment to Piedmont's Third Articles of Amendment and Restatement. Together, the Articles Supplementary and Articles of Amendment (1) reclassified and designated all of Piedmont's authorized but unissued shares of Class B Common Stock as Class A Common Stock and then (2) changed the designation of Piedmont's Class A Common Stock to Common Stock. The Articles Supplementary and Articles of Amendment were each filed with the State Department of Assessments and Taxation of Maryland on June 30, 2011 and were effective upon such filing. As such, Piedmont has effected the reclassification of the authorized and outstanding Class A and B shares to Common Stock for all periods presented.

~~13.~~11.Earnings Per Share

There are no adjustments to “Net income attributable to Piedmont” or “Income from continuing operations” for the diluted earnings per share computations.

Net income per share-basic is calculated as net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Net income per share-diluted is calculated as net income available to common stockholders divided by the diluted weighted average number of common shares outstanding during the period, including nonvested restricted stock. Diluted weighted average number of common shares is calculated to reflect the potential dilution under the treasury stock method that would occur as if the remaining unvested restricted stock awards ~~had~~has vested and resulted in additional common shares outstanding.

The following table reconciles the denominator for the basic and diluted earnings per share computations shown on the consolidated statements of ~~operations:~~income for the three months endedMarch 31, 2012 and 2011, respectively:

Table of Contents


	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended March 31,
	2011	2010	2011	2010	2012	2011
Weighted-average common shares – basic	172,827	172,658	172,756	170,110	172,630	172,658
Plus incremental weighted-average shares from time-vested conversions:
Restricted stock awards	218	227	240	147	244	297
Weighted-average common shares – diluted	173,045	172,885	172,996	170,257	172,874	172,955

~~14.~~12.Subsequent Events

~~Acquisition~~Note Payable Secured by 4250 N. Fairfax Building Repaid

On ~~October 5, 2011~~May 1, 2012, Piedmont ~~entered into a contract to purchase 400 TownPark~~repaid in ~~Lake Mary, Florida, for approximately~~full the balance outstanding on the $~~23.9 million. The~~ ~~five-story building, which was built in 2008, contains approximately~~ ~~176,000~~45.0 Million ~~square feet and is approximately~~ ~~19%~~ ~~leased. Piedmont expects to close~~Fixed-Rate Loan secured by the ~~acquisition during the fourth quarter.~~4250 N. Fairfax building in advance of its scheduled maturity.

~~Fourth~~Second Quarter Dividend Declaration

On ~~November~~May 2, ~~2011~~2012, the board of directors of Piedmont declared dividends for the ~~fourth~~second quarter of ~~2011~~2012 in the amount of $~~0.3150~~0.20 per common share outstanding to stockholders of record as of the close of business on ~~December~~June 1, ~~2011~~2012. Such dividends are to be paid on ~~December~~June 22, ~~2011~~2012.

~~Stock Repurchase Program~~

On ~~November 2, 2011, the Board of Directors of Piedmont authorized the repurchase of up to~~ ~~$300 million~~ of Piedmont's common stock over the next two years. Piedmont may repurchase the shares from time to time, in accordance with applicable securities laws, in the open market or in privately negotiated transactions. Repurchases will depend upon market conditions and other factors, and repurchases may be commenced or suspended from time to time in Piedmont's discretion, without prior notice.

2019

Table of Contents


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto of Piedmont Office Realty Trust, Inc. (“Piedmont”). See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I, as well as the notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2010~~2011.

Liquidity and Capital Resources

We intend to use cash flows generated from the operation of our wholly-owned properties and consolidated joint ventures, distributions from our unconsolidated joint ventures, proceeds from aselective property ~~disposition currently under contract,~~dispositions, and proceeds from our existing ~~$500~~$500 Million Unsecured Facility as our primary sources of immediate liquidity. Our existing $500 Million Unsecured Facility matures in August of 2012 and ~~long-term liquidity.~~we anticipate that we will seek a comparable replacement facility prior to its maturity. In addition, ~~potential additional selective dispositions~~depending on the timing and volume of ~~existing properties~~our property acquisition and disposition activities, we may seek other financing opportunities (such as issuance of additional equity or debt securities or additional borrowings from third-party lenders) afforded to us based on our relatively low leverage and quality asset base ~~may also provide~~as additional sources of capital; however, the availability and attractiveness of terms for these sources of capital is highly dependent on market conditions. As of the time of this filing, we had $~~342.0~~56.0 million outstanding under our ~~$500~~$500 Million Unsecured ~~Facility, primarily as a result of paying off the $250 Million Term Loan during June 2011 and closing on several acquisitions.~~Facility. As a result, we had approximately $~~132.6~~420.6 million under this facility available as of the date of this filing for future borrowing (approximately $~~25.4~~23.4 million of capacity is reserved as security for outstanding letters of credit required by various third parties).

We estimate that our most immediate ~~uses~~use of capital will be to fund capital expenditures for our existing portfolio of properties. These expenditures include two types of specifically identified building improvement projects: (i) general repair and maintenance projects that we as the owner may choose to perform at any of our various properties and (ii) tenant improvement allowances and leasing commissions negotiated as part of executed leases with our tenants. ~~The~~Both the timing and magnitude of general repair and maintenance projects are subject to our discretion. We anticipate funding approximately $~~145.3~~137.3 million ~~(approximately~~ ~~$34.6 million~~ ~~relates to tenants at the 35 W. Wacker Building which is held for sale)~~ in unrecorded contractual obligations for tenant improvements related to our existing lease portfolio over the respective lease term, the majority of which we estimate may be required to be funded over the next ~~five~~several years. For many of our leases, the timing of the actual funding of these tenant improvements is largely dependent upon tenant requests for reimbursement. In some cases, these obligations may expire with the respective lease, without further recourse to us. Finally, ~~projected amounts for~~we also anticipate funding certain tenant improvements and leasing commissions related to anticipated re-leasing efforts ~~are expected to remain high over the next three years as~~for several of our large tenants as they approach their lease expiration dates in ~~2012 and 2013. The~~the next few years. Both the timing and magnitude of these amounts are subject to change as competitive market conditions at the time of lease negotiations dictate.

~~We also anticipate that, subject~~Subject to the identification and availability of attractive ~~properties~~investment opportunities and our ability to consummate additional acquisitions on satisfactory terms, acquiring new assets compatible with our investment strategy could also be a significant use of capital. ~~We also~~Additionally, we expect to use funds to make scheduled debt service payments and/or debt repayments when such obligations become due. During the ~~third~~ quarter ended March 31, 2012, we ~~exercised our extension option to extend~~fully repaid the ~~maturity date of the~~ ~~$500~~ ~~Million Unsecured Facility by one year to August 30, 2012 and exercised our extension options to extend the maturity dates of the~~$140.0 million 500 W. Monroe Mortgage Loan, and subsequent to quarter end we repaid the ~~500 W. Monroe Mezzanine 1-A Loan Participation to August 9,~~$45 million mortgage note secured by the 4250 North Fairfax building in advance of its original maturity of June 2012. ~~As such,~~Other than amounts outstanding on the $500 Million Unsecured Facility ($56.0 million as of the time of this filing), we have no other pending debt maturities until June 2012; however, we anticipate seeking new alternative financing from either a third-party lender or the public debt markets in the coming year depending on the timing and volume of our property acquisition and disposition activities.2014.

Our cash flows from operations depend significantly on market rents and the ability of our tenants to make rental payments. While we believe the diversity and high credit quality of our tenants help mitigate the risk of a significant interruption of our cash flows from operations, the challenging economic conditions that we have seen over the last three years, the downward pressure on rental rates in many of our markets, the potential for an increase in interest rates, or the possibility for a further downturn in one or more of our larger markets, could adversely impact our operating cash flows. Our primary focus is to achieve an attractive long-term, risk-adjusted return for our stockholders. Competition to attract and retain high-credit-quality tenants remains intense due to general economic conditions. At the same time, ~~as mentioned above,~~ several large leases at our properties ~~have been renewed~~expired in the past year or are scheduled to expire over the next ~~three years,~~two years. In some cases we have had to accept lower market driven rental rates and ~~significant capital may be required~~grant larger tenant improvement packages to ~~retain these~~renew leases or secure new tenants than a stronger economic climate might have produced. We expect the commencement of certain recently executed leases with lower rental rates and ~~maintain our current occupancy levels, including payment of leasing commissions, tenant concessions, and anticipated leasing expenditures. As such,~~the downtime we will ~~continue~~experience while re-tenanting certain properties to ~~closely monitor~~put pressure on 2012 cash flow. As a result, our ~~tenant renewals, rental rates, competitive market conditions, and~~board of directors declared a quarterly dividend for the first quarter of 2012 of $0.20 per share which approximates our ~~cash flows.~~ estimated annual taxable income of $0.80 per share.

The amount and form of payment (cash or stock issuance) of future dividends to be paid to our stockholders will continue to be largely dependent upon (i) the amount of cash generated from our operating ~~activities or the selective sale of certain properties,~~activities; (ii) our expectations of future cash ~~flows,~~flows; (iii) our determination of near-term cash needs for debt repayments and selective acquisitions of new ~~properties,~~properties; (iv) the timing of significant expenditures for tenant improvements and general property capital ~~improvements,~~improvements; (v) long-term payout ratios for comparable ~~companies,~~companies; (vi) our ability to continue to access additional sources of

~~Table of Contents~~

capital, including potential sales of our ~~properties~~properties; and (vii) the amount required to be distributed to maintain our status as a REIT. Given the fluctuating nature of cash flows and expenditures, we may periodically borrow funds on a short-term basis to cover timing differences in cash collections and cash ~~receipts. Although we covered the dividend out~~

Table of operating cash flows in 2010, we have experienced declines in cash flow in 2011 due primarily to increasing capital commitments for new leases, and due to the commencement of certain recently executed leases with lower rental rates. As a result, we do not anticipate that we will fully cover our current quarterly dividend rate out of cash flows in 2011 or 2012. Our current cash flow generation is being closely monitored. We notified our stockholders in a letter dated September 22, 2011, that we anticipate adjusting our current yearly dividend of $1.26 per share , pending board approval, to a rate closer to our estimated yearly taxable income of $0.80 per share, beginning in 2012.Contents

receipts.

Results of Operations

Overview

Our income from continuing operations for the three months ended ~~September 30, 2011~~ March 31, 2012decreased as compared to the prior ~~period due in part~~period. The reduction is attributable to ~~$4.2 million~~the non-recurrence of other rental income related to lease ~~terminations~~terminations/modifications, the gain on consolidation of a variable interest entity, and interest and other income related to the mezzanine note receivable held on the 500 W. Monroe building prior to its acquisition in the prior ~~period which did not recur~~period. These decreases were partially offset in the current ~~period. In addition,~~period by the results of operations ~~for~~from the ~~current period reflect eight additional~~acquisition of properties ~~acquired~~ subsequent to ~~September 30, 2010.~~January 1, 2011.

Comparison of the three months ended ~~September 30, 2011~~March 31, 2012 versus the three months ended ~~September 30, 2010~~March 31, 2011

The following table sets forth selected data from our consolidated statements of income for the three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010~~2011, respectively, as well as each balance as a percentage of total revenues for the same periods presented (dollars in millions):


	September 30, 2011			%		September 30, 2010			%		$ Increase (Decrease)			March 31, 2012			%		March 31, 2011			%		$ Increase (Decrease)
Revenue:
Rental income	$	105.9				$	102.1				$	3.8		$	105.8				$	100.3				$	5.5
Tenant reimbursements	28.5					27.0					1.5			26.7					26.9					(0.2		)
Property management fee revenue	0.1					0.8					(0.7		)	0.6					0.8					(0.2		)
Other rental income	—					4.2					(4.2		)	0.1					3.4					(3.3		)
Total revenues	134.5			100	%	134.1			100	%	0.4			133.2			100	%	131.4			100	%	1.8
Expense:
Property operating costs	51.1			38	%	44.4			33	%	6.7			52.8			40	%	48.8			37	%	4.0
Depreciation	26.4			20	%	24.3			18	%	2.1			27.5			20	%	25.0			19	%	2.5
Amortization	14.9			11	%	9.3			7	%	5.6			12.8			10	%	10.4			8	%	2.4
General and administrative expense	4.7			3	%	6.6			5	%	(1.9		)	5.2			4	%	6.6			5	%	(1.4		)
Real estate operating income	37.4			28	%	49.5			37	%	(12.1		)	34.9			26	%	40.6			31	%	(5.7		)
Other income (expense):
Interest expense	(16.2		)	(12	)%	(15.8		)	(12	)%	(0.4		)	(16.5		)	(12	)%	(15.6		)	(12	)%	(0.9		)
Interest and other (expense)/income	(0.1		)	—	%	1.0			1	%	(1.1		)
Interest and other income														0.1			—	%	3.5			3	%	(3.4		)
Equity in income of unconsolidated joint ventures	0.5			—	%	0.6			—	%	(0.1		)	0.1			—	%	0.2			—	%	(0.1		)
Gain on consolidation of variable interest entity														—			—	%	1.9			1	%	(1.9		)
Income from continuing operations	$	21.6		16	%	$	35.3		26	%	$	(13.7	)	$	18.6		14	%	$	30.6		23	%	$	(12.0	)
Income from discontinued operations														$	18.6				$	3.4				$	15.2

Continuing Operations

Revenue

Rental income increased from approximately $~~102.1~~100.3 million for the three months ended ~~September 30, 2010~~March 31, 2011 to approximately $~~105.9~~105.8 million for the three months ended ~~September 30, 2011~~March 31, 2012. Approximately ~~$7.1~~$8.3 million of the variance is due to properties acquired subsequent to ~~September 30, 2010.~~January 1, 2011, as well as new leases commencing at our Piedmont Pointe I and II buildings in Bethesda, Maryland in late 2011. However, ~~this increase was largely~~these increases were partially offset by a reduction in leased space due to lease ~~terminations and~~ expirations at various properties (primarily at our Windy Point II ~~Building~~building in Schaumburg, Illinois), as well as lower lease rates for leases commencing subsequent to ~~September 30, 2010~~March 31, 2011 at certain of our ~~buildings.~~

~~Tenant reimbursements~~ ~~increased~~ ~~from approximately~~ ~~$27.0 million~~ ~~for the~~ ~~three months endedSeptember 30, 2010~~ ~~to approximately~~

~~Table of Contents~~

~~$28.5 million~~ ~~for the~~ ~~three months endedSeptember 30, 2011~~ primarily due to properties acquired subsequent to September 30, 2010 which account for approximately $3.0 million of the increase. This variance was partially offset by a decrease in tenant reimbursementsbuildings (primarily at our 800 North Brand Boulevard Building due to the fact that a lease renewal at the location has a gross rental structure with a base-year for operating expense which will be set through most of 2011, which precludes the reimbursement of operating expenses. The variance was also partially offset due to lower tenant reimbursements at our Windy Point II Building1200 Crown Colony Drive building in ~~Schaumburg, Illinois which was the result of a lease expiration.~~Quincy, Massachusetts).

Other rental income is comprised primarily of income recognized for lease terminations and restructurings. Unlike the majority of our rental income, which is recognized ratably over long-term contracts, lease termination fee income in other rental income is recognized once we have completed our obligation to provide space to the tenant. Lease termination fee income for the three months ended ~~September 30, 2010~~March 31, 2011 of approximately $~~4.2~~3.4 million ~~relate~~relates primarily to lease terminations at the ~~Chandler Forum Building~~1201 Eye Street building in ~~Chandler, Arizona,~~Washington D.C., the ~~Sarasota Commerce Center II Building~~1075 West Entrance Drive building in ~~Sarasota, Florida~~Auburn Hills, Michigan and the 110 Hidden Lake Circle ~~Building~~building in

Table of Contents

Duncan, South Carolina. We do not expect such income to be comparable in future periods, as it will be dependent upon the exercise of lease terminations by tenants and/or the execution of restructuring agreements that may not be in our control or are deemed by management to be in the best interest of the portfolio over the long term.

Expense

Property operating costs increased approximately $~~6.7~~4.0 million for the three months ended ~~September 30, 2011~~March 31, 2012 compared to the same period in the prior ~~year.~~ ~~The variance~~year, and the increase is primarily attributable to properties acquired subsequent to September 30, 2010, contributing approximately $5.0 million of new expense. The remaining variance is also attributable to fluctuations in property tax expense as a result of successful appeals of the assessed value at certain of our buildings in the prior period and the current period, where the magnitude of successful appeals was greater in the prior year.January 1, 2011.

Depreciation expense increased approximately $~~2.1~~2.5 million for the three months ended ~~September 30, 2011~~March 31, 2012 compared to the same period in the prior year. The variance is largely attributable to properties acquired subsequent to ~~September 30, 2010~~,January 1, 2011, accounting for approximately $1.7 million of the increase. The remainder of the increase is due to depreciation on additional tenant improvements and building expenditures capitalized subsequent to ~~September 30, 2010~~March 31, 2011.

Amortization expense increased approximately $~~5.6~~2.4 million for the three months ended ~~September 30, 2011~~March 31, 2012 compared to the same period in the prior year. The variance is primarily attributable to properties acquired subsequent to ~~September 30, 2010~~,January 1, 2011, contributing approximately ~~$6.3~~$4.4 million of the increase. This increase, however, was partially offset by reduced amortization expense as a result of lease intangible assets becoming fully amortized at certain of our other properties subsequent to ~~September 30, 2010~~March 31, 2011. as well as accelerated amortization of certain other intangible assets in the prior period related to the termination of leases.

General and administrative expenses decreased approximately $~~1.9~~1.4 million for the three months ended ~~September 30, 2011~~March 31, 2012 compared to the same period in the prior year. The decrease is primarily attributable to higher recoveries from our insurance carriers related to our ongoing litigation defense, as well as lower transfer agent expenses and related investor support expenses in the current period as compared to the prior year, ~~costs of~~totaling approximately ~~$1.5~~$0.7 million. Additionally, we recognized a reduction in state and local tax expense as compared to the prior year.

Other Income (Expense)

Interest expense increased approximately $~~0.4~~0.9 million for the three months ended ~~September 30, 2011~~March 31, 2012 compared to the same period in the prior year. In the prior year, asthe interest rate on the $250 Million Unsecured Term Loan was effectively fixed at 2.36% until it was repaid at maturity in June 2011. In November 2011, we entered into a ~~result~~new $300 Million Unsecured Term Loan which had an effectively fixed interest rate of ~~consolidating~~2.69%. The slightly higher interest rate, coupled with the higher outstanding principal balance, resulted in the recognition of increased interest expense in the current period. Additionally, we accelerated the amortization of deferred finance costs related to the early payoff of the $140.0 Million 500 W. Monroe ~~Loans in March of 2011. This increase was partially offset by the maturity of the $250 Million Term~~Mortgage Loan in ~~June 2011 with borrowings on our $500 Million Unsecured Loan Facility at a lower average interest rate.~~January 2012 of approximately $0.2 million.

Interest and other ~~(expense)/~~income decreased approximately $~~1.1~~3.4 million for the three months ended ~~September 30, 2011~~March 31, 2012 compared to the same period in the prior ~~year~~year. The decrease reflects the recognition in the prior period of approximately $2.6 million of previously deferred property operating income, as well as income on previously outstanding mezzanine notes receivables. The mezzanine loan receivables were terminated and a ~~result~~gain on consolidation of ~~our~~VIE was recognized upon the foreclosure onand subsequent consolidation of the 500 W. Monroe ~~Building, which secured our previous investments~~building in ~~notes receivable on that property. Additionally, we recognized interest income in the prior period for default interest earned on one~~Chicago, Illinois as of ~~the notes receivable.~~March 31, 2011.

Income from continuing operations per share on a fully diluted basis decreased from $~~0.21~~0.18 for the three months ended ~~September 30, 2010~~March 31, 2011 to $~~0.13~~0.11 for the three months ended ~~September 30, 2011~~March 31, 2012, primarily due to the ~~increase~~non-recurrence of other rental income related to lease terminations/modifications, the gain on consolidation of a variable interest entity, and interest and other income related to the 500 W. Monroe building acquisition in ~~property operating costs, depreciation and amortization expense associated with~~the prior period. These decreases were offset in the current period by the results of operations from the acquisition of properties ~~acquired~~ subsequent to ~~September 30, 2010~~.January 1, 2011.

Discontinued Operations

In accordance with GAAP, ~~we have classified~~ the operations of ~~the 111 Sylvan Avenue Building in Englewood Cliffs, New Jersey,~~ the Eastpointe Corporate Center in Issaquah, Washington, the 5000 Corporate Court ~~Building~~building in Holtsville, New York, ~~and~~ the 35

~~Table of Contents~~

W. West Wacker ~~Building~~Drive building in Chicago, Illinois and the Rhein, Deschutes, Willamette, and Rogue buildings (the "Portland Portfolio") are classified as discontinued operations for all periods presented. Income from discontinued operations increased approximately ~~$24.2~~$15.2 million for the three months ended ~~September 30, 2011~~March 31, 2012 compared to the same period in the prior ~~year. We~~year primarily due to the gain realized ~~a combined gain~~ on the sale of ~~our Eastpointe Corporate Center and our 5000 Corporate Court Building~~Portland Portfolio (including excess undeveloped land) of ~~$26.8~~approximately $17.8 million during the current period. ~~There was no activity in the current period at the 111 Sylvan Avenue Building as the property was sold in December 2010.~~ We do not expect that income from discontinued operations will be comparable to future periods, as such income is subject to the timing and existence of future property dispositions.

~~Comparison of the~~ ~~nine months endedSeptember 30, 2011~~ ~~versus the~~ ~~nine months endedSeptember 30, 2010~~

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

September 30,
2011 % September 30,
2010 %
$
Increase
(Decrease)
Revenue:
Rental income $ 311.8
$ 306.2
$ 5.6
Tenant reimbursements 86.3
84.1
2.2
Property management fee revenue 1.3
2.3
(1.0 )
Other rental income 4.7
5.2
(0.5 )
Total revenues 404.1
100 % 397.8
100 % 6.3
Expense:
Property operating costs 153.3
38 % 143.4
36 % 9.9
Depreciation 77.7
19 % 72.3
18 % 5.4
Amortization 39.4
10 % 28.2
7 % 11.2
General and administrative expense 18.6
5 % 20.8
6 % (2.2 )
Real estate operating income 115.1
28 % 133.1
33 % (18.0 )
Other income (expense):
Interest expense (49.6 ) (12 )% (50.7 ) (13 )% 1.1
Interest and other income 3.2
1 % 3.0
1 % 0.2
Equity in income of unconsolidated joint ventures 1.0
— % 2.0
1 % (1.0 )
Gain on consolidation of VIE 1.5
1 % —
— % 1.5
Income from continuing operations $ 71.2
18 % $ 87.4
22 % $ (16.2 )

~~Continuing Operations~~

~~Revenue~~

~~Rental income~~ ~~increased~~ ~~from approximately~~ ~~$306.2 million~~ ~~for the~~ ~~nine months endedSeptember 30, 2010~~ ~~to approximately~~ ~~$311.8 million~~ ~~for the~~ ~~nine months endedSeptember 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.

~~Tenant reimbursements~~ ~~increased~~ ~~from approximately~~ ~~$84.1 million~~ ~~for the~~ ~~nine months endedSeptember 30, 2010~~ ~~to approximately~~ ~~$86.3 million~~ ~~for the~~ ~~nine months endedSeptember 30, 2011~~ ~~primarily due to properties acquired subsequent to~~ ~~September 30, 2010~~, accounting for approximately $6.7 million of the increase in tenant reimbursements. This variance was offset by a decrease in property tax reimbursements due to successful appeals of the assessed values at several of our buildings of approximately $4.3 million.

2422

Table of Contents

Building in Auburn Hills, Michigan, the US Bancorp Center in Minneapolis, Minnesota, the Crescent Ridge II Building in Minneapolis, Minnesota, and the 110 Hidden Lake Circle Building. Lease termination fee income for the ~~nine months endedSeptember 30, 2010~~ ~~of approximately~~ ~~$5.2 million~~ primarily relate to leases terminated at the Chandler Forum Building, the 110 Hidden Lake Circle Building and the Sarasota Commerce Center II Building. We do not expect such income to be comparable in future periods, as it will be dependent upon the exercise of lease terminations by tenants and/or the execution of restructuring agreements that may not be in our control or are deemed by management to be in the best interest of the portfolio over the long term.

~~Expense~~

~~Property operating costs~~ ~~increased~~ ~~approximately~~ ~~$9.9 million~~ ~~for the~~ ~~nine months endedSeptember 30, 2011~~ ~~compared to the same period in the prior year. This variance is due primarily to properties acquired subsequent to~~ ~~September 30, 2010~~, which accounts for an approximate $10.5 million increase in property costs. Property operating costs also increased due to higher recoverable repair and maintenance costs of approximately $1.1 million. These variances were partially offset as a result of successful appeals of the assessed values at several of our buildings resulting in lower estimated property tax expense of approximately $1.2 million.

~~Depreciation expense~~ ~~increased~~ ~~approximately~~ ~~$5.4 million~~ ~~for the~~ ~~nine months endedSeptember 30, 2011~~ ~~compared to the same period in the prior year. The variance is primarily attributable to properties acquired subsequent to~~ ~~September 30, 2010, comprising approximately $3.6 million of the increase. Additionally, new tenant improvements and building expenditures capitalized at our existing properties subsequent to~~ ~~September 30, 2010~~ ~~resulted in additional depreciation expense of approximately $1.6 million.~~

~~Amortization expense~~ ~~increased~~ ~~approximately~~ ~~$11.2 million~~ ~~for the~~ ~~nine months endedSeptember 30, 2011~~ ~~compared to the same period in the prior year. The variance is primarily attributable to properties acquired subsequent to~~ ~~September 30, 2010~~, accounting for approximately $12.6 million of the increase. The remaining variance is primarily the net difference between lower amortization expense recognized for lease intangible assets that became fully amortized subsequent to ~~September 30, 2010~~ ~~and charges to accelerate amortization expense on certain lease intangible assets related to various lease terminations at certain of our buildings.~~

~~General and administrative expenses~~ ~~decreased~~ ~~approximately~~ ~~$2.2 million~~ ~~for the~~ ~~nine months endedSeptember 30, 2011~~ compared to the same period in the prior year. The decrease is primarily attributable to lower transfer agent expenses and related investor support expenses in the current period as compared to the prior year costs incurred subsequent to the listing of our shares on the New York Stock Exchange in February 2010 of approximately $5.1 million. The decrease was partially offset by higher legal fees of $2.1 million mainly due to higher insurance reimbursements related to our defense of ongoing litigation in the prior period. We also incurred higher employee benefit costs of approximately $1.4 million, primarily due to the new stock performance component of the 2010 Long Term Incentive Compensation Plan which effects long-term incentive compensation grants for officers.

~~Other Income (Expense)~~

~~Interest expense~~ ~~decreased~~ ~~approximately~~ ~~$1.1 million~~ ~~for the~~ ~~nine months endedSeptember 30, 2011~~ compared to the same period in the prior year mainly because we extended the $250 Million Term Loan in June 2010, and entered into new interest rate swap agreements with four counterparties to effectively fix the interest rate on the loan at 2.36%, as compared to the previous rate of 4.97%. The weighted average interest rate fell even further in the third quarter 2011 after the $250 Million Term Loan matured in June and was replaced with borrowings on the $500 Million Unsecured Loan Facility. However, these decreases were partially offset by interest expense related to recording the 500 W. Monroe Loans in our consolidated financial statements in March 2011 as part of our becoming the primary beneficiary of the VIE containing the 500 W. Monroe Building in Chicago, Illinois, a $140.0 million first mortgage loan secured by the building, and a participation in a mezzanine loan totaling $45.0 million.

~~Interest and other income~~ ~~increased~~ ~~approximately~~ ~~$0.2 million~~ ~~for the~~ ~~nine months endedSeptember 30, 2011~~ compared to the same period in the prior year. The variance is due to the recognition of previously deferred property operating income upon consolidation of the 500 W. Monroe Building in the current period of approximately $2.6 million. The increase was largely offset by the fact that we no longer record interest income or mezzanine discount amortization in the current period on our former investments in mezzanine debt, both of which were secured by pledges of equity interests in the ownership of the property, due to our successful bid at a UCC foreclosure sale of the 500 W. Monroe Building.

~~Equity in income of unconsolidated joint ventures~~ ~~decreased~~ ~~approximately~~ ~~$1.0 million~~ ~~for the~~ ~~nine months endedSeptember 30, 2011~~ compared to the same period in the prior year. The decrease was a result of tenants vacating space at the 47300 Kato Road Building in Fremont, California effective in June 2010 and the Two Park Center Building located in Hoffman Estates, Illinois effective in January 2011. These decreases were offset slightly by our proportionate share of the gain recognized on the sale of both the 360 Interlocken Building in Broomfield, Colorado, and the 47300 Kato Road Building. We expect equity in income of unconsolidated joint ventures to fluctuate based on the timing and extent to which dispositions occur as our unconsolidated joint ventures approach their stated dissolution periods.

~~Table of Contents~~

~~The approximate~~ ~~$1.5 million~~ ~~gain on the consolidation of our VIE recognized during the~~ ~~nine months endedSeptember 30, 2011~~ ~~is the net result of recording the estimated fair value of the net assets associated with taking ownership of the 500 W. Monroe Building through foreclosure.~~

~~Income from continuing operations per share on a fully diluted basis decreased from~~ ~~$0.51~~ ~~for the~~ ~~nine months endedSeptember 30, 2010~~ to ~~$0.41~~ ~~for the~~ ~~nine months endedSeptember 30, 2011~~ ~~primarily due to the increase in property operating costs, depreciation and amortization expense associated with properties acquired subsequent to~~ ~~September 30, 2010. Although rental income increased due to properties acquired subsequent to~~ ~~September 30, 2010~~, such rental income was negatively impacted by lower rental rates and reductions in leased space at some of our existing properties during the same period. Other increases that partially offset the decrease in continuing operations per share include an increase in tenant reimbursements and the recognition of a non-recurring, non-cash gain of approximately ~~$1.5 million~~ ~~upon consolidation of the VIE containing the 500 W. Monroe Building.~~

~~Discontinued Operations~~

In accordance with GAAP, we have classified the operations of the 111 Sylvan Avenue Building , the Eastpointe Corporate Center, the 5000 Corporate Court Building, and the 35 W. Wacker Building as discontinued operations for all periods presented. Income from discontinued operations increased approximately $24.2 million for the ~~nine months endedSeptember 30, 2011~~ compared to the same period in the prior year. We realized a gain on the sale of our Eastpointe Corporate Center and our 5000 Corporate Court Building of $26.8 million during the current period. There was no activity in the current period at the 111 Sylvan Avenue Building as the property was sold in December 2010. We do not expect that income from discontinued operations will be comparable to future periods, as such income is subject to the timing and existence of future property dispositions.

Funds From Operations (“FFO”), Core FFO, and Adjusted Funds from Operations (“AFFO”)

Net income calculated in accordance with GAAP is the starting point for calculating FFO, Core FFO, and AFFO. FFO, Core FFO, and AFFO ~~which~~ are non-GAAP financial measures and should not be viewed as an alternative measurement of our operating performance to net income. Management believes that accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use of FFO, Core FFO, and AFFO, together with the required GAAP presentation, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.

We calculate FFO in accordance with the current NAREIT definition as follows: Net income (computed in accordance with GAAP), excluding gains or losses from sales of property and impairment charges (including our proportionate share of any impairment charges and/or gains or losses from sales of property related to investments in unconsolidated joint ventures), plus depreciation and amortization on real estate assets (including our proportionate share of depreciation and amortization related to investments in unconsolidated joint ventures). Other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than we do; therefore, our computation of FFO may not be comparable to such other REITs.

We calculate Core FFO as FFO (calculated as set forth above) less ~~impairment charges,~~ acquisition costs and other significant, ~~nonrecurring~~non-recurring items, (including our proportionate share of any impairment charges, acquisition costs, or significant nonrecurring items recognized during the period related to investments in unconsolidated joint ventures). During the ~~nine months endedSeptember 30, 2011, we reduced FFO for the nonrecurring~~ ~~$1.5 million~~such as a gain on ~~consolidation~~early extinguishment of ~~the VIE containing the 500 W. Monroe Building and 500 W. Monroe Loans, the~~ ~~$26.8 million~~ ~~gain on sale of our wholly-owned properties, the~~ ~~$0.1 million~~ ~~gain on sale of properties held by our unconsolidated partnerships and added back acquisition costs of approximately~~ ~~$1.0 million~~ ~~to arrive at Core FFO.~~debt.

We calculate AFFO as Core FFO (calculated as set forth above) exclusive of the net effects of: (i) amortization associated with deferred financing costs; (ii) depreciation ~~on non-income-producing~~of non real estate assets; (iii) straight-line lease revenue/expense; (iv) amortization of above and below-market lease intangibles; (v) stock-based and other non-cash compensation expense; (vi) amortization of mezzanine discount income; (vii) acquisition costs, and (viii) non-incremental capital expenditures (as defined below). Our proportionate share of such adjustments related to investments in unconsolidated joint ventures are also included when calculating AFFO.

Reconciliations of net income to FFO, Core FFO, and AFFO are presented below (in thousands except per share amounts):

2623

Table of Contents


	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended March 31,
	2011			Per Share ⁽¹⁾			2010			Per Share⁽¹⁾			2011			Per Share⁽¹⁾			2010			Per Share⁽¹⁾			2012			Per Share ⁽¹⁾			2011			Per Share⁽¹⁾
Net income attributable to Piedmont	$	51,026		$	0.29		$	40,584		$	0.23		$	106,020		$	0.61		$	91,679		$	0.54		$	37,227		$	0.22		$	33,967		$	0.20
Depreciation of real assets ⁽²⁾	28,102			0.16			26,163			0.15			83,135			0.48			78,285			0.46			27,809			0.16			27,154			0.15
Amortization of lease-related costs ⁽²⁾	16,616			0.10			11,119			0.07			44,601			0.26			33,712			0.20			12,840			0.07			12,106			0.07
Gain on consolidation of VIE	—			—			—			—			(1,532		)	(0.01		)	—			—			—			—			(1,920		)	(0.01		)
Gain on sale- wholly-owned properties	(26,756		)	(0.15		)	—			—			(26,756		)	(0.15		)	—			—			(17,830		)	(0.10		)	—			—
Gain on sale- unconsolidated partnership	(70		)	—			—			—			(116		)	—			—			—			—			—			—			—
Funds From Operations	$	68,918		$	0.40		$	77,866		$	0.45		$	205,352		$	1.19		$	203,676		$	1.20		$	60,046		$	0.35		$	71,307		$	0.41
Adjustment:
Acquisition costs	285			—			310			—			975			—			358			—			(3		)	—			(26		)	—
Impairment loss ⁽²⁾	—			—			53			—			—			—			9,640			0.06
Core Funds From Operations	$	69,203		$	0.40		$	78,229		$	0.45		$	206,327		$	1.19		$	213,674		$	1.26		$	60,043		$	0.35		$	71,281		$	0.41
Adjustments:
Deferred financing cost amortization	879			—			607			—			2,546			0.02			2,000			0.01			803			—			607			0.01
Amortization of fair market adjustments on notes payable	471			—			—			—			1,413			0.01			—			—
Depreciation of non real estate assets	84			—			176			—			422			—			533			—			93			—			170			—
Straight-line effects of lease expense ⁽²⁾	(4,129		)	(0.02		)	(2,921		)	(0.02		)	(4,488		)	(0.03		)	(2,632		)	(0.01		)	(1,565		)	(0.01		)	2,237			0.01
Stock-based and other non-cash compensation	1,111			0.01			1,095			0.01			2,975			0.02			2,458			0.01			334			—			968			0.01
Net effect of amortization of below-market in-place lease intangibles ⁽²⁾	(1,817		)	(0.01		)	(1,510		)	(0.01		)	(4,850		)	(0.03		)	(4,461		)	(0.03		)	(1,532		)	(0.01		)	(1,363		)	(0.01		)
Income from amortization of discount on purchase of mezzanine loans	—			—			(569		)	—			(484		)	—			(1,932		)	(0.01		)	—			—			(484		)	—
Acquisition costs	(285		)	—			(310		)	—			(975		)	—			(358		)	—			3			—			26			—
Non-incremental capital expenditures ⁽³⁾	(15,538		)	(0.09		)	(8,023		)	(0.04		)	(46,018		)	(0.27		)	(22,722		)	(0.13		)	(8,066		)	(0.04		)	(17,131		)	(0.10		)
Adjusted Funds From Operations	$	49,979		$	0.29		$	66,774		$	0.39		$	156,868		$	0.91		$	186,560		$	1.10		$	50,113		$	0.29		$	56,311		$	0.33
Weighted-average shares outstanding – diluted	173,045						172,885						172,996						170,257						172,874						172,955


⁽¹⁾	Based on weighted average shares outstanding – diluted.


⁽²⁾	Includes adjustments for wholly-owned properties, as well as such adjustments for our proportionate ownership in unconsolidated joint ventures.

⁽³⁾

~~Effective July 1, 2011,~~ Piedmont defines non-incremental capital expenditures as capital expenditures of a recurring nature related to tenant improvements and leasing commissions that do not incrementally enhance the underlying assets' income generating capacity. Tenant improvements, leasing commissions, building capital and deferred lease incentives incurred to lease space that was vacant at acquisition, leasing costs for spaces vacant for greater than one year, leasing costs for spaces at newly acquired properties for which in-place leases expire shortly after acquisition, improvements associated with the expansion of a building, and renovations that either change the underlying classification from a Class B to a Class A property or enhance the marketability of a building are excluded from this measure. All data for prior periods presented have been ~~recalculated~~calculated in accordance with ~~the new~~this definition for comparability.

Election as a REIT

We have elected to be taxed as a REIT under the Code and have operated as such beginning with our taxable year ended December 31, 1998. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our adjusted REIT taxable income, computed without regard to the dividends-paid deduction and by excluding net capital gains attributable to our stockholders, as defined by the Code. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we may be subject to federal income taxes on our taxable income for that year and for the four years following the year during which qualification is lost and/or

~~Table of Contents~~

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 solar power generation, real estate and non-real estate related-services; however, any earnings related to such

Table of Contents

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.~~

Inflation

We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that are intended to protect us from, and mitigate the risk of, the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax, and insurance reimbursements on a per square-foot basis, or in some cases, annual reimbursement of operating expenses above certain per square-foot allowance. However, due to the long-term nature of the leases, the leases may not readjust their reimbursement rates frequently enough to fully cover inflation.

Off-Balance Sheet Arrangements

We are not dependent on off-balance sheet financing arrangements for liquidity. Our off-balance sheet arrangements consist of our investments in unconsolidated joint ventures and operating lease obligations related to ground leases at certain of our properties. The unconsolidated joint ventures in which we invest are prohibited by their governing documents from incurring debt. For further information regarding our commitments under operating lease obligations, see the Contractual Obligations table below.

Application of Critical Accounting Policies

Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. The critical accounting policies outlined below have been discussed with members of the Audit Committee of the board of directors.

Investment in Real Estate Assets

We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income attributable to Piedmont. The estimated useful lives of our assets by class are as follows:



Buildings	40 years
Building improvements	5-25 years
Land improvements	20-25 years
Tenant improvements	Shorter of economic life or lease term
Intangible lease assets	Lease term

Allocation of Purchase Price of Acquired Assets

Upon the acquisition of real properties, it is our policy to allocate the purchase price of properties to acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases, and value of tenant relationships, based in each case on their estimated fair values.

The fair values of the tangible assets of an acquired property (which includes land and buildings) are determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and building based on our determination of the fair value of these assets. We determine the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by us in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance, and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. We also estimate the cost to execute similar leases including leasing commissions, legal, and other related costs.

2825

Table of Contents

~~other related costs.~~

The fair values of above-market and below-market in-place lease values are recorded based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) our estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining noncancelable term of the lease. The above-market and below-market lease values are capitalized as intangible lease assets and liabilities and amortized as an adjustment of rental income over the remaining terms of the respective leases.

The fair values of in-place leases include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease, and tenant relationships. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on management’s consideration of current market costs to execute a similar lease. These direct costs are included in deferred lease costs in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. Customer relationships are valued based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. These lease intangibles are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.

Estimates of the fair values of the tangible and intangible assets require us to estimate market lease rates, property operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property is held for investment. The use of inappropriate estimates would result in an incorrect assessment of our purchase price allocations, which could impact the amount of our reported net income attributable to us.

Valuation of Real Estate Assets and Investments in Joint Ventures Which Hold Real Estate Assets

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate and related intangible assets, both operating properties and properties under construction, in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate and related intangible assets may not be recoverable, we assess the recoverability of these assets by determining whether the carrying value will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, we adjust the real estate and related intangible assets to the fair value and recognize an impairment loss.

Projections of expected future cash flows require that we estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis, including capitalization and discount rates, could result in an incorrect assessment of the property’s fair value and, therefore, could result in the misstatement of the carrying value of our real estate and related intangible assets and our net income attributable to us. We have determined that there has been no impairment in the carrying value of real estate assets owned by us or any unconsolidated joint ventures as of ~~September 30, 2011~~March 31, 2012.

Goodwill

Goodwill is the excess of cost of an acquired entity over the amounts specifically assigned to assets acquired and liabilities assumed in purchase accounting for business combinations, as well as costs incurred as part of the acquisition. We test the carrying value of our goodwill for impairment on an annual basis, or on an interim basis if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Such interim circumstances may include, but are not limited to, significant adverse changes in legal factors or in the general business climate, adverse action or assessment by a regulator, unanticipated competition, the loss of key personnel, or persistent declines in an entity’s stock price below carrying value of the entity. ~~The~~We have the option, should we choose to use it, to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, we conclude that the estimated fair value is greater than the carrying amount, then performing the two-step impairment test is unnecessary. However, if we chose to forgo the availability of the qualitative analysis, the test prescribed by authoritative accounting guidance is a two-step ~~test; however, recent changes to such guidance provide for qualitative analysis that may be performed before proceeding to the two-step~~ test. ~~See~~ ~~Recent Accounting Pronouncements~~ ~~in Note 2 of the accompanying consolidated financial statements for further detail.~~ The first step involves comparing the estimated fair value of the entity to its carrying value, including goodwill. Fair value is determined by adjusting the trading price of the stock for various factors including, but not limited to: (i) liquidity or transferability considerations, (ii) control premiums, and/or (iii) fully distributed premiums, if necessary, multiplied by the common shares outstanding. If such calculated fair value exceeds the carrying value, no further procedures or analysis is permitted or required. However, if the carrying value exceeds the calculated fair value,

Table of Contents

goodwill is potentially impaired and step two of the analysis would be required. Step two of the test involves calculating the implied fair

~~Table of Contents~~

value of goodwill by deducting the fair value of all tangible and intangible net assets of the entity from the entity’s fair value calculated in step one of the test. If the implied value of the goodwill (the remainder left after deducting the fair values of the entity from its calculated overall fair value in step one of the test) is less than the carrying value of goodwill, an impairment loss would be recognized. We have determined that there have been no events or circumstances that would indicate that the carrying amount may be impaired as of ~~September 30, 2011~~March 31, 2012.

Investment in Variable Interest Entities

VIEs are defined by GAAP as entities in which equity investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. If an entity is determined to be a VIE, it must be consolidated by the primary beneficiary. The primary beneficiary is the enterprise that has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, absorbs the majority of the entity’s expected losses, or receives a majority of the entity’s expected residual returns. Generally, expected losses and expected residual returns are the anticipated negative and positive variability, respectively, in the fair value of the VIE’s net assets. When we make an investment, we assess whether the investment represents a variable interest in a VIE and, if so, whether we are the primary beneficiary of the VIE. Incorrect assumptions or assessments may result in an inaccurate determination of the primary beneficiary. The result could be the consolidation of an entity acquired or formed in the future that would otherwise not have been consolidated or the non-consolidation of such an entity that would otherwise have been consolidated.

We evaluate each investment to determine whether it represents variable interests in a VIE. Further, we evaluate the sufficiency of the entities’ equity investment at risk to absorb expected losses, and whether as a group, the equity has the characteristics of a controlling financial interest.

Contractual Obligations

Our contractual obligations as of ~~September 30, 2011~~March 31, 2012 are as follows (in thousands):


	Payments Due by Period										Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term debt⁽¹⁾	$	1,664,525	$	557,000	$	695,000	$	230,000	$	182,525	$	1,352,525	$	65,000	$	575,000	$	572,525	$	140,000
Operating lease obligations⁽²⁾	78,777		721		2,249		1,500		74,307		78,431		750		2,249		1,500		73,932
Total	$	1,743,302	$	557,721	$	697,249	$	231,500	$	256,832	$	1,430,956	$	65,750	$	577,249	$	574,025	$	213,932

⁽¹⁾

Amounts include principal payments only. We made interest payments, including payments under our interest rate swaps, of approximately $~~50.1~~15.8 million during the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012, and expect to pay interest in future periods on outstanding debt obligations based on the rates and terms disclosed herein and in Note 54 of our accompanying consolidated financial statements.

⁽²⁾

Three properties (the River Corporate Center ~~Building~~building in Tempe, Arizona; the 8700 South Price Road ~~Building~~building in Tempe, Arizona; and the 2001 NW 64^thStreet ~~Building~~building in Ft. Lauderdale, Florida) are subject to ground leases with expiration dates ranging between 2048 and 2101. The aggregate remaining payments required under the terms of these operating leases as of ~~September 30, 2011~~March 31, 2012 are presented above.

Commitments and Contingencies

We are subject to certain commitments and contingencies with regard to certain transactions. Refer to Note 98 to our consolidated financial statements for further explanation. Examples of such commitments and contingencies include:

Commitments Under Existing Lease Agreements;

Contingencies Related to Tenant Audits;

Letters of Credit; and

Assertion of Legal Action.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our future income, cash flows, and fair values of our financial instruments depend in part upon prevailing market interest rates.

~~Table of Contents~~

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency, exchange rates, commodity prices, and equity prices. Our exposure to market risk includes interest rate fluctuations in connection with any borrowings under our

Table of Contents

$500 Million Unsecured Facility and ~~under the debt assumed in conjunction with the foreclosure of the 500 W. Monroe Building.~~our $300 Million Unsecured Term Loan. As a result, the primary market risk to which we believe we are exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control contribute to interest rate risk. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flow primarily through a low-to-moderate level of overall borrowings, as well as managing the variability in rate fluctuations on our outstanding debt. As such, a significant portion of our debt is based on fixed interest rates to hedge against instability in the credit markets, ~~or in~~and we have effectively fixed the ~~case of the debt assumed as part of consolidating the 500 W. Monroe Building, we put LIBOR~~ interest rate ~~caps in place~~ on ~~the debt to limit~~ our ~~exposure to potential increases in LIBOR during the term of the loans.~~$300 Million Unsecured Term Loan through interest rate swap agreements, provided that we maintain our corporate credit rating. We do not enter into derivative or interest rate transactions for speculative purposes.

All of our debt was entered into for other than trading purposes, and the estimated fair value of our debt as of ~~September 30, 2011~~March 31, 2012~~, including notes payable held for sale,~~ was approximately $~~1.7~~1.4 billion. Our interest rate swap agreements in place as of March 31, 2012 carried notional amounts totaling $300 million and fixed interest rates of 2.69%. See Notes 54 and 87 of our accompanying consolidated financial statements for further detail.

As of ~~September 30, 2011~~March 31, 2012, all of our outstanding debt, ~~(including notes payable held for sale),~~ except for amounts outstanding under our $500 Million Unsecured Facility, is subject to fixed, or effectively fixed, interest ~~rates, or variable LIBOR rates which are capped at~~ ~~2.19%. The $140.0 million and $45.0 million indebtedness assumed upon consolidation of the 500 W. Monroe Building are subject to a stated rate of LIBOR (0.229%~~ ~~for the accrual period in effect as of~~ ~~September 30, 2011) plus 1.008% and 1.45%, respectively. In both instances, the LIBOR rate is capped at~~ ~~2.19%, limiting our exposure to potential increases to LIBOR.~~rates. Our total outstanding debt subject to fixed or ~~capped, variable~~effectively fixed interest rates has an average effective interest rate of approximately ~~4.63%~~4.61% per annum (~~4.59%~~ ~~exclusive of notes payable held for sale)~~ with expirations ranging from 2012 to 2017. A change in the market interest rate impacts the net financial instrument position of our fixed-rate debt portfolio but has a minimal impact on interest incurred or cash flows.

As of ~~September 30, 2011~~March 31, 2012, we had $~~327.0~~20.0 million outstanding on our $500 Million Unsecured Facility, which is the only debt facility subject to ~~uncapped,~~ variable interest rates. Our $500 Million Unsecured Facility currently has a stated rate of LIBOR plus 0.475% per annum or the prime rate, at the company’s discretion. Draws outstanding as of ~~September 30, 2011~~March 31, 2012 were subject to a blended rate of ~~0.84%~~0.73% as of ~~September 30, 2011~~March 31, 2012. To the extent that we borrow additional funds in the future under the $500 Million Unsecured Facility or potential future variable-rate lines of credit, we would have exposure to increases in interest rates, which would potentially increase our cost of debt.


ITEM 4.	CONTROLS AND PROCEDURES

Management’s Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the quarterly period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report in providing a reasonable level of assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in applicable SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2011~~March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3128

Table of Contents

PART II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

Assertion of Legal Action

In Re Wells Real Estate Investment Trust, Inc. Securities Litigation, Civil Action No. 1:07-cv-00862-CAP(Upon motions to dismiss filed by defendants, parts of all seven counts were dismissed by the court. Counts III through VII were dismissed in their entirety. On August 2, 2010, the court ruled on various pre-trial motions and denied the defendants’ motion for summary judgment. The parties are preparing for trial, but no trial date has been set.)

On March 12, 2007, a stockholder filed a ~~purported~~ class action and derivative complaint in the United States District Court for the District of Maryland against, among others, Piedmont, ~~Piedmont’s~~Piedmont's previous advisors, and ~~the~~certain officers and directors of ~~Piedmont prior~~Piedmont. Upon motion by the defendants, the case was transferred to the ~~closing~~United States District Court for the Northern District of ~~the Internalization. The complaint attempts to assert class action claims~~Georgia on ~~behalf of those persons who received and were entitled to vote on the proxy statement filed with the SEC on February 26,~~April 17, 2007.

~~The~~As subsequently amended and dismissed in part, the complaint alleges ~~among other things, (i) that the consideration to be paid as part of the Internalization is excessive; (ii)~~ violations of Section 14(a), including Rule 14a-9 thereunder, and Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), based upon allegations that the proxy statement for Piedmont's 2007 internalization transaction (the "Internalization") contains false and misleading statements or omits to state material ~~facts; (iii) that~~facts. On February 9, 2011, the ~~board~~plaintiff dismissed its claim for violation of ~~directors and~~Section 20(a) of the ~~current and previous advisors breached their fiduciary duties to the class and to Piedmont; and (iv) that the proposed Internalization will unjustly enrich certain directors and officers of Piedmont.~~Exchange Act.

~~The~~As subsequently amended and dismissed in part, the complaint seeks, among other things, (i) certification of the class action; (ii) a judgment declaring the proxy statement false and misleading; (iii) unspecified monetary damages; (iv) to nullify any stockholder approvals obtained during the proxy process; (v) to nullify the Internalization; (vi) ~~restitution for disgorgement~~cancellation and rescission of ~~profits, benefits,~~any stock issued as consideration in the Internalization, or, in the alternative, rescissory damages; and ~~other compensation for wrongful conduct and fiduciary breaches;~~ (vii) ~~the nomination and election of new independent directors, and the retention of a new financial advisor to assess the advisability of Piedmont’s strategic alternatives; and (viii)~~ the payment of reasonable ~~attorneys’~~attorneys' fees and ~~experts’~~experts' fees.

On June 27, 2007, the plaintiff filed an amended complaint, which contains the same counts as the original complaint, described above, with amended factual allegations based primarily on events occurring subsequent to the original complaint and the addition of a Piedmont officer as an individual defendant.

On March 31, 2008, the court granted in part the defendants’ motion to dismiss the amended complaint. The court dismissed five of the seven counts of the amended complaint in their entirety. The court dismissed the remaining two counts with the exception of allegations regarding the failure to disclose in Piedmont’s proxy statement details of certain expressions of interest by a third party in acquiring Piedmont. On April 21, 2008, the plaintiff filed a second amended complaint, which alleges violations of the federal proxy rules based upon allegations that the proxy statement to obtain approval for Internalization omitted details of certain expressions of interest in acquiring Piedmont. The second amended complaint seeks, among other things, unspecified monetary damages, to nullify and rescind Internalization, and to cancel and rescind any stock issued to the defendants as consideration for Internalization. On May 12, 2008, the defendants answered the second amended complaint.

~~On June 23, 2008, the plaintiff filed a motion for class certification.~~ On September 16, 2009, the court granted the ~~plaintiff’s~~plaintiff's motion for class certification. On September 30, 2009, the defendants filed a petition for permission to appeal immediately the court’s order granting the motion for class certification with the Eleventh Circuit Court of Appeals, which the Eleventh Circuit Court of Appeals denied on October 30, 2009.

~~On April 13, 2009, the plaintiff moved for leave to amend the second amended complaint to add additional defendants. The court denied the motion for leave to amend on June 23, 2009.~~

On December 4, 2009, the parties filed motions for summary judgment. On August 2, 2010, the court entered an order denying the ~~defendants’~~defendants' motion for summary judgment and granting, in part, the ~~plaintiff’s~~plaintiff's motion for partial summary judgment.

On ~~August 12, 2010,~~November 17, 2011, the court issued rulings granting several of the plaintiff's pre trial motions to prohibit the defendants from introducing certain evidence, including evidence of the defendants' reliance on advice from their outside legal and financial advisors, and limiting the defendants' ability to relate their subjective views, considerations, and observations during the trial of the case.

On February 23, 2012, the court granted several of defendants' motions, including a motion for reconsideration regarding a motion plaintiff had filed seeking exclusion of certain evidence impacting damages, and motions seeking exclusion of certain evidence proposed to be submitted by plaintiff. The suit has been removed from the court's trial calendar pending resolution of a request for interlocutory appellate review of certain legal rulings made by the court.

On March 20, 2012, the court granted the defendants leave to file a motion for summary judgment. On April 5, 2012, the defendants filed a motion ~~seeking~~for summary judgment. On April 24, 2012, the plaintiff filed its response to ~~certify~~ the ~~court’s decision on~~defendants' motion for summary judgment. The time for the ~~parties’ motions~~defendants to file their reply in support of their motion for summary judgment ~~for immediate appeal. On November 1, 2010, the court denied the defendants’ motion to certify its order on the parties’ motions for summary judgment for immediate appeal. No trial date~~ has ~~been set.~~not yet expired.

We believe that ~~the~~plaintiff's allegations ~~contained in the complaint~~ are without merit, and ~~as such, have determined that the risk of material loss associated with this lawsuit is remote. Further,~~ we will continue to vigorously defend this action. Due to the uncertainties inherent in the litigation process, our assessment of the ~~ultimate potential financial impact~~merits of the ~~case~~claim notwithstanding, the risk of

~~Table of Contents~~

material financial loss does ~~exist, as~~exist. Plaintiff is seeking damages of approximately $159 million plus prejudgment interest, which defendants dispute. There are a number of defendants in this case and the allocation of damages, if any, to Piedmont versus the other defendants (including any indemnification rights or obligations of Piedmont with respect to the other defendants) is indeterminable at this time. In addition, up to $13 million of any ~~litigation.~~damages may be recoverable by Piedmont under its insurance policies.

In Re Piedmont Office Realty Trust, Inc. Securities Litigation, Civil Action No. 1:~~07-cv-02660-CAP (The defendants have filed a motion to dismiss the third amended complaint. Discovery is stayed pending resolution of the defendants' motion to dismiss.)~~07-cv-02660-CAP

On October 25, 2007, the same stockholder mentioned above filed a second purported class action in the United States District Court for the Northern District of Georgia against Piedmont and its board of directors. The complaint attempts to assert class action claims on behalf of (i) those persons who were entitled to tender their shares pursuant to the tender offer filed with the SEC by Lex-Win Acquisition LLC, a former stockholder, on May 25, 2007, and (ii) all persons who are entitled to vote on the proxy statement filed with the SEC on October 16, 2007.

~~The~~As subsequently amended and dismissed in part, the complaint alleges, among other things, violations of the federal securities laws, including Sections 14(a) and 14(e) of the Exchange Act and Rules 14a-9 and 14e-2(b) promulgated ~~thereunder. In addition, the complaint alleges that defendants have also breached their fiduciary duties owed to the proposed classes.~~

~~On December 26, 2007, the plaintiff filed a motion seeking that the court designate it as lead plaintiff and its counsel as class lead counsel, which the court granted on May 2, 2008.~~

On May 19, 2008, the lead plaintiff filed an amended complaint which contained the same counts as the original complaint. On June 30, 2008, defendants filed a motion to dismiss the amended complaint.

On March 30, 2009, the court granted in part the defendants’ motion to dismiss the amended complaint. The court dismissed two of the four counts of the amended complaint in their entirety. The court dismissed the remaining two counts with the exception ofthereunder based upon allegations regarding (i) the failure to disclose certain information ~~regarding the likelihood of a listing~~ in our amended response to the Lex-Win tender offer and

Table of Contents

(ii) purported misstatements or omissions in our proxy statement concerning then-existing market conditions, the alternatives to a listing or extension that were explored by the defendants, the results of conversations with potential buyers as to our valuation, and certain details of our share redemption program. On April 13, 2009, defendants moved for reconsideration of the court’s March 30, 2009 order or, alternatively, for certification of the order for immediate appellate review. The defendants also requested that the proceedings be stayed pending consideration of the motion. On June 19, 2009, the court denied the motion for reconsideration and the motion for certification of the order for immediate appellate review.

On April 20, 2009, the plaintiff, joined by a second plaintiff, filed a second amended complaint, which alleges violations of the federal securities laws, including Sections 14(a) and 14(e) of the Exchange Act and Rules 14a-9 and 14e-2(b) promulgated thereunder. The second amended complaint seeks, among other things, unspecified monetary damages, to nullify and void any authorizations secured by the proxy statement, and to compel a tender offer. On May 11, 2009, the defendants answered the second amended complaint.

On June 10, 2009, the plaintiffs filed a motion for class certification. The court granted the ~~plaintiffs’~~plaintiffs' motion for class certification on March 10, 2010. Defendants sought and received permission from the Eleventh Circuit Court of Appeals to appeal the class certification order on an interlocutory basis. On April 11, 2011, the Eleventh Circuit Court of Appeals invalidated the district ~~court’s~~court's order certifying a class and remanded the case to the district court for further proceedings.

On July 15, 2011, the plaintiffs filed a motion for leave to file a third amended complaint. The court granted the plaintiffs' motion for leave to file a third amended complaint on September 27, 2011. The plaintiffs' third amended complaint contains the same counts as the second amended complaint, described above, with amended factual allegations and the addition of Piedmont as a defendant against whom relief is sought.

On October 21, 2011, the defendants filed a motion to dismiss the third amended complaint. The ~~time for the~~ plaintiffs ~~to file~~filed their response in opposition to the defendants' motion to dismiss ~~has not yet expired.~~

on November 15, 2011. The defendants filed their reply in support of their motion to dismiss on December 9, 2011. The defendants' motion to dismiss is currently pending before the court.

Discovery is currently stayed pending resolution of the defendants' motion to dismiss.

We believe that ~~the~~plaintiffs' allegations ~~contained in the complaint~~ are without merit, and ~~as such, have determined that the risk of material loss associated with this lawsuit is remote. Further,~~ we will continue to vigorously defend this action. Due to the uncertainties inherent in the litigation process, our assessment of the ~~ultimate potential financial impact~~merits of the ~~case~~claim notwithstanding, the risk of material financial loss does ~~exist, as with any litigation.~~exist.

~~Table of Contents~~


ITEM 1A.	RISK FACTORS

There have been no known material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2010~~2011.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


(a)	There were no unregistered sales of equity securities during the ~~third~~first quarter ~~2011~~2012.


(b)	Not applicable.


(c)	During the quarter ended ~~September 30, 2011~~March 31, 2012, Piedmont’s ~~transfer agent repurchased shares~~repurchases of its common stock consisted solely of shares repurchased by its transfer agent in the open market, in order to reissue such shares under its dividend reinvestment plan (the “DRP”), as follows:

Period
Total Number of
Shares Purchased
(in 000’s)

Average Price Paid
per Share

Total Number of
Shares Purchased
as Part of
Publicly Announced
Program
(in 000’s) ⁽¹⁾

Maximum Approximate
Dollar Value of Shares
Available That May
Yet Be Purchased
Under the Program
(in 000’s)⁽¹⁾

July 1, 2011 to July 31, 2011 —
$ —
—
$ —

August 1, 2011 to August 31, 2011 —
$ —
—
$ —

September 1, 2011 to September 30, 2011 257
$ 16.07
—
$ —
⁽¹⁾



Period	Total Number of Shares Purchased (in 000’s)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (in 000’s) ⁽¹⁾	Maximum Approximate Dollar Value of Shares Available That May Yet Be Purchased Under the Program (in 000’s)⁽¹⁾
January 1, 2012 to January 31, 2012	—	$	—	—	$	—
February 1, 2012 to February 29, 2012	—	$	—	—	$	—
March 1, 2012 to March 31, 2012	119	$	17.46	—	$	296,756	⁽¹⁾

⁽¹⁾

Under our amended and restated DRP announced in our Current Report on Form 8-K filed February 24, 2012, we have the option to either issue shares that we purchase in the open market or issue shares directly from Piedmont from authorized but unissued shares. Such election will take place at the settlement of each quarterly dividend in which there are participants in our DRP, and may change from quarter to quarter based on our judgment of the best use of proceeds for Piedmont. Therefore, ~~repurchases may occur on a quarterly basis, but~~the "Maximum Approximate Dollar Value of Shares Available That May Yet Be Purchased Under the Program" relates only to the ~~extent necessary~~stock repurchase program. The stock repurchase program was previously announced in our Quarterly Report on Form 10-Q filed November 3, 2011, and authorizes the repurchase of up to ~~satisfy~~$300 million of shares of our common stock, expiring on November 2, 2013. The stock repurchase program is separate from shares purchased for DRP ~~elections by our stockholders.~~issuance.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

Not applicable.


ITEM 4.	~~RESERVED~~MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

None.

Table of Contents


ITEM 6.	EXHIBITS

The Exhibits required to be filed with this report are set forth on the Exhibit Index to ~~Third~~First Quarter ~~2011~~2012 Form 10-Q of Piedmont Office Realty Trust, Inc. attached hereto.

3431

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		PIEDMONT OFFICE REALTY TRUST, INC.
		(Registrant)

Dated:	~~November~~May 3, ~~2011~~2012	By:	/s/ Robert E. Bowers
			Robert E. Bowers
			Chief Financial Officer and Executive Vice President
			(Principal Financial Officer and Duly Authorized Officer)

3532

Table of Contents

EXHIBIT INDEX

~~THIRD~~FIRST QUARTER ~~2011~~2012

FORM 10-Q

PIEDMONT OFFICE REALTY TRUST, INC.



Exhibit Number			Description of Document
3.1			Third Articles of Amendment and Restatement of Piedmont Office Realty Trust, Inc. (the “Company”) (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed on March 16, 2010)

3.2			Articles of Amendment of the Company effective June 30, 2011 (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on July 6, 2011)

3.3			Articles Supplementary of the Company effective June 30, 2011 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on July 6, 2011)

3.4			Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s current Report on Form 8-K filed on January 22, 2010)

~~10.1~~			~~2010 Long-Term Incentive Program Award Agreement~~

~~10.2~~			~~2010 Long-Term Incentive Program~~

~~10.3~~			~~Long-Term Incentive Program Award Agreement~~

~~10.4~~			~~Long-Term Incentive Program~~
~~10.5~~			Amendment Number One to Employment Agreement dated as of February 2, 2007, by and between the Company and Donald A. Miller, CFA (incorporated by reference to the Company's Current Report on Form 8-K, filed on September 14, 2011)

31.1			Rule 13a-14(a)/15d-14(a) Certification, executed by Donald A. Miller, CFA, Principal Executive Officer of the Company

31.2			Rule 13a-14(a)/15d-14(a) Certification, executed by Robert E. Bowers, Principal Financial Officer of the Company

32.1			Certification required by Rule 13a-14(b)/15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, executed by Donald A. Miller, CFA, Chief Executive Officer and President of the Company

32.2			Certification required by Rule 13a-14(b)/15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, executed by Robert E. Bowers, Chief Financial Officer and Executive Vice-President of the Company

101.INS			XBRL Instance Document *

101.SCH			XBRL Taxonomy Extension Schema *

101.CAL			XBRL Taxonomy Extension Calculation Linkbase *

101.DEF			XBRL Taxonomy Extension Definition Linkbase *

101.LAB			XBRL Taxonomy Extension Label Linkbase *

101.PRE			XBRL Taxonomy Extension Presentation Linkbase *

*			Furnished with this Form 10-Q

3633



	Common Stock ⁽¹⁾					Additional Paid-In Capital			Cumulative Distributions in Excess of Earnings			Redeemable Common Stock			Other Comprehensive Loss			Non- controlling Interest			Total Stockholders’ Equity
	Shares		Amount			Additional Paid-In Capital			Cumulative Distributions in Excess of Earnings			Redeemable Common Stock			Other Comprehensive Loss			Non- controlling Interest			Total Stockholders’ Equity
Balance, December 31, 2009	158,917		$	1,589		$	3,477,168		$	(798,561	)	$	(75,164	)	$	(3,866	)	$	5,716		$	2,606,882
Net proceeds from issuance of common stock	13,800		138			184,266			—			—			—			—			184,404
Redemption of fractional shares of common stock	(200	)	(2		)	(2,900		)	—			—			—			—			(2,902		)
Change in redeemable common stock outstanding	—		—			—			—			75,164			—			—			75,164
Dividends to common stockholders ($1.26 per share), distributions to noncontrolling interest, and dividends reinvested	—		—			(33		)	(216,940		)	—			—			(15		)	(216,988		)
Shares issued under the 2007 Omnibus Incentive Plan, net of tax	141		2			2,807			—			—			—			—			2,809
Net income attributable to noncontrolling interest	—		—			—			—			—			—			531			531
Components of comprehensive income:
Net income	—		—			—			120,379			—			—			—			120,379
Net change in interest rate swap	—		—			—			—			—			3,175			—			3,175
Comprehensive income																					123,554
Balance, December 31, 2010	172,658		1,727			3,661,308			(895,122		)	—			(691		)	6,232			2,773,454
Offering costs associated with issuance of common stock	—		—			(479		)	—			—			—			—			(479		)
Dividends to common stockholders ($0.945 per share), distributions to noncontrolling interest, and dividends reinvested	—		—			(168		)	(163,268		)	—			—			(2,200		)	(165,636		)
Shares issued under the 2007 Omnibus Incentive Plan, net of tax	169		1			2,494			—			—			—			—			2,495
Net income attributable to noncontrolling interest	—		—			—			—			—			—			378			378
Components of comprehensive income:
Net income	—		—			—			106,020			—			—			—			106,020
Net change in interest rate derivatives	—		—			—			—			—			691			—			691
Comprehensive income	—		—			—			—			—			—			—			106,711
Balance, September 30, 2011	172,827		$	1,728		$	3,663,155		$	(952,370	)	$	—		$	—		$	4,410		$	2,716,923



Property	Metropolitan Statistical Area	Acquisition Date	Number of Buildings	Rentable Square Feet	Percentage Occupied as of Acquisition Date		Acquisition Price (in millions)
1200 Enclave Parkway Building	Houston, TX	March 30, 2011	1	149,654	18	%	$	18.5
The Dupree Building	Atlanta, GA	April 29, 2011	1	137,818	83	%	$	20.5
The Medici Building	Atlanta, GA	June 7, 2011	1	152,221	22	%	$	13.2
The 225 and 235 Presidential Way Buildings	Boston, MA	September 13, 2011	2	440,130	100	%	$	85.3
500 W. Monroe Building	Chicago, IL	March 31, 2011	1	962,361	67	%	$	227.5	⁽¹⁾



	September 30, 2011		December 31, 2010
Real estate assets held for sale, net:
Land	$	55,573	$	55,573
Building and improvements, less accumulated depreciation of $41,754 and $37,442 as of September 30, 2011 and December 31, 2010, respectively	167,024		164,343
Intangible lease assets, less accumulated amortization of $22,725 and $20,549 as of September 30, 2011 and December 31, 2010, respectively	3,626		5,802
Construction in progress	2,673		2,560
Total real estate assets held for sale, net	$	228,896	$	228,278

Other assets held for sale:
Tenant receivables	$	11,790	$	10,737
Deferred financing costs, less accumulated amortization of $169 and $153 as of September 30, 2011 and December 31, 2010, respectively	49		66
Deferred lease costs, less accumulated amortization of $29,353 and $26,055 as of September 30, 2011 and December 31, 2010, respectively	24,067		27,480
Restricted cash and escrows	11,447		11,661
Total other assets held for sale	$	47,353	$	49,944

Notes payable and other liabilities held for sale:
Notes payable, secured by 35 W. Wacker Building, at fixed-rate of 5.10%, maturing January 1, 2014	$	120,000	$	120,000
Intangible lease liabilities, less accumulated amortization of $25,960 and $23,458 as of September 30, 2011 and December 31, 2010, respectively	4,451		6,954
Total notes payable and other liabilities held for sale	$	124,451	$	126,954

Noncontrolling interest held for sale	$	2,797	$	4,623