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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, 20172022
OR
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.Piedmont Office Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
 ____________________________________________________ 
Maryland58-2328421
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)


11695 Johns Creek Parkway5565 Glenridge Connector Ste. 450
Ste. 350
Johns Creek,Atlanta, Georgia 3009730342
(Address of principal executive offices)
(Zip (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)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, $0.01 par valuePDMNew York Stock Exchange

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  xNo 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large Accelerated filer x
Accelerated filer o
Non-Accelerated filer o     (Do not check if a smaller reporting company)        
Smaller reporting company o
Emerging growth companyo
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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
common stock, as of October 31, 2017:November 1, 2022:
144,371,942123,395,381 shares



Table of Contents
FORM 10-Q
PIEDMONT OFFICE REALTY TRUST, INC.
TABLE OF CONTENTS
Page No.
PART IFinancial Information
Page No.
PART I.Financial Statements
Item 1.
5
6
7
8
9
911
10
Condensed Notes to Consolidated Financial Statements (unaudited)(Unaudited)
1112
Item 2.
3226
Item 3.
4942
Item 4.
4943
PART II.Other Information
Item 1.
5144
Item 1A.
5144
Item 2.
5144
Item 3.
5144
Item 4.
5144
Item 5.
5244
Item 6.
5245



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q may constitute forward-looking statements within the meaning of the federal securities laws. In addition, Piedmont Office Realty Trust, Inc. ("Piedmont," "we," "our," or "us"), or itsour executive officers on Piedmont’sour behalf, may from time to time make forward-looking statements in reports and other documents Piedmont fileswe file with the Securities and Exchange Commission or in connection with other written or oral statements made to the press, potential investors, or others. Statements regarding future events and developments and Piedmont’sour future performance, as well as management’s expectations, beliefs, plans, estimates, or projections relating to the future, are forward-looking statements. 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,financings, and operating objectives; discussions regarding future dividends and share repurchases; and discussions regarding the potential impact of economic conditions on our real estate and lease portfolio.portfolio, among others.


These statements are based on beliefs and assumptions of Piedmont’sour management, which in turn are based on information available at the time the statements are made. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding the demand for office space in the markets in which Piedmont operates,we operate, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. The forward-looking statements also involve certain known and unknown 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’sour ability to control or predict. Such factors include, but are not limited to, the following:


•Economic, regulatory, and/or socio-economic (including work from home), technological (e.g. Metaverse, Zoom, etc), and other changes (including accounting standards) that impact the real estate market generally, the office sector or that could affectthe patterns of use of commercial office space;space in general, or the markets where we primarily operate or have high concentrations of Annualized Lease Revenue (“ALR”) (see definition below);
•The impact of competition on our efforts to renew existing leases or re-let space on terms similar to existing leases;
Changes•Lease terminations, lease defaults, lease contractions, or changes in the economies and other conditions affecting the office sector in general and the specific markets in which we operate, particularly in Washington, D.C., the New York metropolitan area, and Chicago where we have high concentrationsfinancial condition of our Annualized Lease Revenue (see definition below);
Lease terminations or lease defaults,tenants, particularly by one of our large lead tenants;
The effect on us of adverse market and economic conditions, including any resulting impairment•Impairment charges on both our long-lived assets or goodwill;goodwill resulting therefrom;
•The success of our real estate strategies and investment objectives, including our ability to implement successful redevelopment and development strategies or identify and consummate suitable acquisitions and divestitures;
•The illiquidity of real estate investments, including economic changes, such as rising interest rates, which could impact the number of buyers/sellers of our target properties, and regulatory restrictions to which real estate investment trusts ("REITs") are subject and the resulting impediment on our ability to quickly respond to adverse changes in the performance of our properties;
•The risks and uncertainties associated with our acquisition and disposition of properties, many of which risks and uncertainties may not be known at the time of acquisition;acquisition or disposition;
•Development and construction delays, including the potential of supply chain disruptions, and resultant increased costs and risks;
Our real estate development strategies may not be successful;
•Future acts of terrorism, civil unrest, or armed hostilities in any of the major metropolitan areas in which we own properties, or future cybersecurity attacks against us or any of our properties or our tenants;
•Risks related to the occurrence of cyber incidents, or a deficiency in our cybersecurity, which could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships;
•Costs of complying with governmental laws and regulations;regulations, including environmental standards imposed on office building owners;
•Uninsured losses or losses in excess of our insurance coverage, and our inability to obtain adequate insurance coverage at a reasonable cost;
•Additional risks and costs associated with directly managing properties occupied by government tenants;tenants, such as potential changes in the political environment, a reduction in federal or state funding of our governmental tenants, or an increased risk of default by government tenants during periods in which state or federal governments are shut down or on furlough;
•Significant price and volume fluctuations in the public markets, including on the exchange which we listed our common stock;
•Changes in the method pursuant to which the London Interbank Offered Rate ("LIBOR") and the Secured Overnight Financing Rate (“SOFR”) rates are determined and the planned phasing out of United States dollar ("USD") LIBOR after June 2023;
•Changing capital reserve requirements on our lenders and rapidly rising interest rates in the public bond markets could impact our ability to finance properties or refinance existing debt or significantly increase operating/financing costs;
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•The effect of future offerings of debt or equity securities or changes in market interest rates on the value of our common stock;
•Additional risks and costs associated with inflation and continuing increases in the rate of inflation, including the possibility of a recession that could negatively impact our operations and the operations of our tenants and their ability to pay rent;
•Uncertainties associated with environmental and other regulatory matters;
Potential changes in political environment and reduction in federal and/or state funding of our governmental tenants;
Any change•Changes in the financial condition of anyour tenants directly or indirectly resulting from geopolitical developments that could negatively affect important supply chains and international trade, the termination or threatened termination of our large lead tenants;existing international trade agreements, or the implementation of tariffs or retaliatory tariffs on imported or exported goods;
•The effect of any litigation to which we are, or may become, subject;
•Additional risks and costs associated with owning properties occupied by tenants in particular industries, such as oil and gas, hospitality, travel, co-working, etc., including risks of default during start-up and during economic downturns;
•Changes in tax laws impacting REITs and real estate in general, as well as our ability to continue to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”);, or other tax law changes which may adversely affect our stockholders;
•The future effectiveness of our internal controls and procedures;
•Actual or threatened public health epidemics or outbreaks, such as experienced during the COVID-19 pandemic, as well as governmental and private measures taken to combat such health crises, could have a material adverse effect on our business operations and financial results;
•The adequacy of our general reserve related to tenant lease-related assets or the establishment of any other reserve in the future; and
•Other factors, including the risk factors discussed under Item 1A. of our Amended Annual Report on Form 10-K/A10-K for the year ended December 31, 2016.2021.

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.



Information Regarding Disclosures Presented


Annualized Lease Revenue ("ALR"), a non-GAAP measure,ALR is calculated by multiplying (i) current rental payments (defined as base rent plus operating expense reimbursements, if payable by the tenant on a monthly basis under the terms of a lease that has been executed, but excluding (a) rental abatements and (b) rental payments related to executed but not commenced leases for space that was covered by an existing lease), by (ii) 12. In instances in which contractual rents or operating expense reimbursements are collected on an annual, semi-annual, or quarterly basis, such amounts are multiplied by a factor of 1, 2, or 4, respectively, to calculate the annualized figure. For leases that have been executed but not commenced relating to un-leasedunleased space, ALR is calculated by multiplying (i) the monthly base rental payment (excluding abatements) plus any operating expense reimbursements for the initial month of the lease term, by (ii) 12. Unless stated otherwise, this measure excludes revenues associated with our unconsolidated joint venture property (sold on July 27, 2017)development properties and development/re-development properties taken out of service for redevelopment, if any.

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PART I.     FINANCIAL STATEMENTSINFORMATION


ITEM 1.CONSOLIDATED FINANCIAL STATEMENTS
ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS.

The information presented in the accompanying consolidated balance sheets and related consolidated statements of income, comprehensive income, 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 ("GAAP").
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 Amended Annual Report on Form 10-K/A10-K for the year ended December 31, 2016.2021. Piedmont’s results of operations for the nine months ended September 30, 20172022 are not necessarily indicative of the operating results expected for the full year.

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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
 (Unaudited)  
 September 30,
2017		 December 31,
2016
Assets:   
Real estate assets, at cost:   
Land$614,934
 $617,138
Buildings and improvements, less accumulated depreciation of $926,105 and $856,254 as of September 30, 2017 and December 31, 2016, respectively2,723,163
 2,754,106
Intangible lease assets, less accumulated amortization of $93,265 and $109,152 as of September 30, 2017 and December 31, 2016, respectively78,700
 99,695
Construction in progress8,957
 34,814
Real estate assets held for sale, net—
 225,939
Total real estate assets3,425,754
 3,731,692
Investments in and amounts due from unconsolidated joint ventures49
 7,360
Cash and cash equivalents36,108
 6,992
Tenant receivables, net of allowance for doubtful accounts of $535 and $197 as of September 30, 2017 and December 31, 2016, respectively12,802
 26,494
Straight-line rent receivables182,609
 163,789
Restricted cash and escrows1,260
 1,212
Prepaid expenses and other assets28,232
 23,201
Goodwill98,918
 98,918
Interest rate swaps34
 —
Deferred lease costs, less accumulated amortization of $189,469 and $175,643 as of September 30, 2017 and December 31, 2016, respectively274,884
 298,695
Other assets held for sale, net—
 9,815
Total assets$4,060,650
 $4,368,168
Liabilities:   
Unsecured debt, net of discount and unamortized debt issuance costs of $8,337 and $10,269 as of September 30, 2017 and December 31, 2016, respectively$1,511,663
 $1,687,731
Secured debt, net of premiums and unamortized debt issuance costs of $1,020 and $1,161 as of September 30, 2017 and December 31, 2016, respectively191,923
 332,744
Accounts payable, accrued expenses, and accrued capital expenditures108,120
 165,410
Deferred income29,970
 28,406
Intangible lease liabilities, less accumulated amortization of $54,637 and $49,225 as of September 30, 2017 and December 31, 2016, respectively41,064
 48,005
Interest rate swaps3,915
 8,169
Total liabilities1,886,655
 2,270,465
Commitments and Contingencies—
 —
Stockholders’ Equity:   
Shares-in-trust, 150,000,000 shares authorized; none outstanding as of September 30, 2017 or December 31, 2016—
 —
Preferred stock, no par value, 100,000,000 shares authorized; none outstanding as of September 30, 2017 or December 31, 2016—
 —
Common stock, $.01 par value, 750,000,000 shares authorized; 145,294,845 and 145,235,313 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively1,453
 1,452
Additional paid-in capital3,676,706
 3,673,128
Cumulative distributions in excess of earnings(1,511,428) (1,580,863)
Other comprehensive income5,400
 2,104
Piedmont stockholders’ equity2,172,131
 2,095,821
Noncontrolling interest1,864
 1,882
Total stockholders’ equity2,173,995
 2,097,703
Total liabilities and stockholders’ equity$4,060,650
 $4,368,168
(Unaudited)
September 30,
2022		December 31,
2021
Assets:
Real estate assets, at cost:
Land$578,722 $529,941 
Buildings and improvements, less accumulated depreciation of $926,357 and $861,206 as of September 30, 2022 and December 31, 2021, respectively2,825,365 2,513,697 
Intangible lease assets, less accumulated amortization of $88,721 and $83,777 as of September 30, 2022 and December 31, 2021, respectively123,527 94,380 
Construction in progress44,977 43,406 
Real estate assets held for sale, net— 63,887 
Total real estate assets3,572,591 3,245,311 
Cash and cash equivalents10,653 7,419 
Tenant receivables, net of allowance for doubtful accounts of $2,000 and $4,000 as of September 30, 2022 and December 31, 2021, respectively7,796 2,995 
Straight-line rent receivables173,122 162,632 
Notes receivable— 118,500 
Restricted cash and escrows2,191 1,441 
Prepaid expenses and other assets23,925 20,485 
Goodwill98,918 98,918 
Interest rate swaps3,760 — 
Deferred lease costs, less accumulated amortization of $218,399 and $205,100 as of September 30, 2022 and December 31, 2021, respectively292,537 264,571 
Other assets held for sale, net— 8,393 
Total assets$4,185,493 $3,930,665 
Liabilities:
Unsecured debt, net of discount and unamortized debt issuance costs of $13,592 and $12,210 as of September 30, 2022 and December 31, 2021, respectively$1,948,408 $1,877,790 
Secured debt197,000 — 
Accounts payable, accrued expenses and accrued capital expenditures111,262 114,453 
Dividends payable— 26,048 
Deferred income70,798 80,686 
Intangible lease liabilities, less accumulated amortization of $38,636 and $35,880 as of September 30, 2022 and December 31, 2021, respectively60,694 39,341 
Interest rate swaps— 4,924 
Total liabilities2,388,162 2,143,242 
Commitments and Contingencies (Note 7)
— — 
Stockholders’ Equity:
Shares-in-trust, 150,000,000 shares authorized; none outstanding as of September 30, 2022 or December 31, 2021— — 
Preferred stock, no par value, 100,000,000 shares authorized; none outstanding as of September 30, 2022 or December 31, 2021— — 
Common stock, $0.01 par value, 750,000,000 shares authorized; 123,395,381 and 123,076,695 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively1,234 1,231 
Additional paid-in capital3,709,234 3,701,798 
Cumulative distributions in excess of earnings(1,905,544)(1,899,081)
Accumulated other comprehensive loss(9,194)(18,154)
Piedmont stockholders’ equity1,795,730 1,785,794 
Noncontrolling interest1,601 1,629 
Total stockholders’ equity1,797,331 1,787,423 
Total liabilities and stockholders’ equity$4,185,493 $3,930,665 
See accompanying notes

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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except for share and per share amounts)
 (Unaudited) (Unaudited)
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
Revenues:       
Rental income$113,350
 $113,821
 $361,048
 $340,326
Tenant reimbursements23,796
 24,163
 72,340
 70,000
Property management fee revenue441
 501
 1,341
 1,478
 137,587
 138,485
 434,729
 411,804
Expenses:       
Property operating costs54,090
 54,867
 165,253
 161,438
Depreciation30,000
 31,610
 90,827
 94,948
Amortization18,123
 18,640
 57,852
 53,848
Impairment loss on real estate assets—
 22,951
 —
 33,901
General and administrative6,618
 7,429
 23,250
 23,518
 108,831
 135,497
 337,182
 367,653
Real estate operating income28,756
 2,988
 97,547
 44,151
Other income (expense):       
Interest expense(16,183) (15,496) (52,661) (48,294)
Other income/(expense)290
 (720) 228
 (467)
Net recoveries from casualty events—
 34
 —
 34
Equity in income of unconsolidated joint ventures3,754
 129
 3,872
 354
 (12,139) (16,053) (48,561) (48,373)
Income/(loss) from continuing operations16,617
 (13,065) 48,986
 (4,222)
Discontinued operations:       
Operating income—
 1
 —
 —
Income from discontinued operations—
 1
 —
 —
Gain/(loss) on sale of real estate assets, net109,512
 (57) 115,951
 73,758
Net income/(loss)126,129
 (13,121) 164,937
 69,536
Plus: Net income applicable to noncontrolling interest4
 14
 10
 7
Net income/(loss) applicable to Piedmont$126,133
 $(13,107) $164,947
 $69,543
Per share information – basic and diluted:       
Income/(loss) from continuing operations and gain/(loss) on sale of real estate assets$0.87
 $(0.09) $1.13
 $0.48
Income from discontinued operations—
 —
 —
 —
Net income applicable to common stockholders$0.87
 $(0.09) $1.13
 $0.48
Weighted-average common shares outstanding – basic145,415,678
 145,231,160
 145,372,182
 145,228,755
Weighted-average common shares outstanding – diluted145,719,431
 145,669,237
 145,679,582
 145,601,026
Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
Revenues:
Rental and tenant reimbursement revenue$139,572 $127,427 $403,635 $380,306 
Property management fee revenue303 626 1,280 1,920 
Other property related income4,225 3,018 11,643 8,320 
144,100 131,071 416,558 390,546 
Expenses:
Property operating costs59,039 51,767 166,295 154,849 
Depreciation34,941 30,562 98,828 88,663 
Amortization23,290 20,373 67,022 63,978 
General and administrative6,590 6,955 21,212 22,417 
123,860 109,657 353,357 329,907 
Other income (expense):
Interest expense(17,244)(12,450)(44,917)(37,375)
Other income335 2,337 2,302 7,324 
Gain on sale of real estate assets— — 50,674 — 
(16,909)(10,113)8,059 (30,051)
Net income3,331 11,301 71,260 30,588 
Net loss applicable to noncontrolling interest— 5 1 9 
Net income applicable to Piedmont$3,331 $11,306 $71,261 $30,597 
Per share information – basic and diluted:
Net income applicable to common stockholders$0.03 $0.09 $0.58 $0.25 
Weighted-average common shares outstanding – basic123,395,381 124,135,556 123,329,626 124,056,908 
Weighted-average common shares outstanding – diluted123,697,455 124,627,409 123,630,501 124,471,786 
See accompanying notes

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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)

 (Unaudited) (Unaudited)
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
                
Net income/(loss) applicable to Piedmont  $126,133
   $(13,107)   $164,947
   $69,543
Other comprehensive income/(loss):               
Effective portion of gain/(loss) on derivative instruments that are designated and qualify as cash flow hedges (See Note 5)
175
   2,847
   307
   (12,182)  
Plus: Reclassification of previously recorded loss included in net income (See Note 5)
653
   1,045
   2,936
 

 3,291
 

Gain on investment in available for sale securities25
   7
   53
   19
  
Other comprehensive income/(loss)  853
   3,899
   3,296
   (8,872)
Comprehensive income/(loss) applicable to Piedmont  $126,986
   $(9,208)   $168,243
   $60,671
Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
Net income applicable to Piedmont$3,331 $11,306 $71,261 $30,597 
Other comprehensive income:
Effective portion of gain on derivative instruments that are designated and qualify as cash flow hedges (See Note 5)
2,662 582 7,507 1,848 
Plus: Reclassification of net loss included in net income (See Note 5)
194 750 1,453 2,216 
Other comprehensive income2,856 1,332 8,960 4,064 
Comprehensive income applicable to Piedmont$6,187 $12,638 $80,221 $34,661 



See accompanying notes

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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE YEARTHREE MONTHS ENDED DECEMBER 31, 2016
AND FOR THE NINE MONTHS ENDEDSEPTEMBER 30, 2017 (UNAUDITED)2022 AND 2021
(in thousands, except per share amounts)
 Common  StockAdditional
Paid-In
Capital		Cumulative
Distributions
in Excess of
Earnings		Accumulated
Other
Comprehensive
Income/(Loss)		Non-
controlling
Interest		Total
Stockholders’
Equity
 SharesAmount
Balance, June 30, 2022123,390 $1,234 $3,707,833 $(1,882,962)$(12,050)$1,608 $1,815,663 
Costs of issuance of common stock— — (461)— — — (461)
Dividends to common stockholders ($0.21 per share) and stockholders of subsidiaries— — — (25,913)— (7)(25,920)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax5 — 1,862 — — — 1,862 
Net income applicable to Piedmont— — — 3,331 — — 3,331 
Other comprehensive income— — — — 2,856 — 2,856 
Balance, September 30, 2022123,395 $1,234 $3,709,234 $(1,905,544)$(9,194)$1,601 $1,797,331 
Common  StockAdditional
Paid-In
Capital		Cumulative
Distributions
in Excess of
Earnings		Accumulated
Other
Comprehensive
Income/(Loss)		Non-
controlling
Interest		Total
Stockholders’
Equity
SharesAmount
Balance, June 30, 2021124,132 $1,241 $3,698,656 $(1,807,679)$(21,368)$1,658 $1,872,508 
Dividends to common stockholders ($0.21 per share) and stockholders of subsidiaries— — — (26,068)— (6)(26,074)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax4 — 1,552 — — — 1,552 
Net loss applicable to noncontrolling interest— — — — — (5)(5)
Net income applicable to Piedmont— — — 11,306 — — 11,306 
Other comprehensive income— — — — 1,332 — 1,332 
Balance, September 30, 2021124,136 $1,241 $3,700,208 $(1,822,441)$(20,036)$1,647 $1,860,619 

 Common  Stock 
Additional
Paid-In
Capital
 
Cumulative
Distributions
in Excess of
Earnings
 
Other
Comprehensive
Income/(Loss)
 
Non-
controlling
Interest
 
Total
Stockholders’
Equity
 Shares Amount 
Balance, December 31, 2015145,512
 $1,455
 $3,669,977
 $(1,550,698) $1,661
 $1,025
 $2,123,420
Share repurchases as part of an announced plan(462) (5) —
 (7,938) —
 —
 (7,943)
Offering costs—
 —
 (342) —
 —
 —
 (342)
Noncontrolling interest in consolidated joint venture—
 —
 —
 —
 —
 888
 888
Dividends to common stockholders ($0.84 per share), dividends to preferred stockholders of subsidiary, and dividends reinvested—
 —
 (173) (121,959) —
 (16) (122,148)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax185
 2
 3,666
 —
 —
 —
 3,668
Net income applicable to noncontrolling interest—
 —
 —
 —
 —
 (15) (15)
Net income applicable to Piedmont—
 —
 —
 99,732
 —
 —
 99,732
Other comprehensive income—
 —
 —
 —
 443
 —
 443
Balance, December 31, 2016145,235
 1,452
 3,673,128
 (1,580,863) 2,104
 1,882
 2,097,703
Share repurchases as part of an announced plan(195) (2) 

 (3,893) 

 

 (3,895)
Offering costs

 

 (97) 

 

 

 (97)
Dividends to common stockholders ($0.63 per share), dividends to preferred stockholders of subsidiary, and dividends reinvested

 

 (79) (91,619) 

 (8) (91,706)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax255
 3
 3,754
 

 

 

 3,757
Net income applicable to noncontrolling interest

 

 

 

 

 (10) (10)
Net income applicable to Piedmont

 

 

 164,947
 

 

 164,947
Other comprehensive income

 

 

 

 3,296
 

 3,296
Balance, September 30, 2017145,295
 $1,453
 $3,676,706
 $(1,511,428) $5,400
 $1,864
 $2,173,995


See accompanying notes

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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(in thousands, except per share amounts)

Common StockAdditional Paid-In CapitalCumulative Distributions in Excess of EarningsAccumulated
Other
Comprehensive
Income/(Loss)		Non- controlling InterestTotal Stockholders’ Equity
SharesAmount
Balance, December 31, 2021123,077 $1,231 $3,701,798 $(1,899,081)$(18,154)$1,629 $1,787,423 
Costs of issuance of common stock— — (461)— — — (461)
Dividends to common stockholders ($0.63 per share) and stockholders of subsidiaries— — — (77,724)— (27)(77,751)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax318 3 7,897 — — — 7,900 
Net loss applicable to noncontrolling interest— — — — — (1)(1)
Net income applicable to Piedmont— — — 71,261 — — 71,261 
Other comprehensive income— — — — 8,960 — 8,960 
Balance, September 30, 2022123,395 $1,234 $3,709,234 $(1,905,544)$(9,194)$1,601 $1,797,331 

Common StockAdditional Paid-In CapitalCumulative Distributions in Excess of EarningsAccumulated
Other
Comprehensive
Income/(Loss)		Non- controlling InterestTotal Stockholders’ Equity
SharesAmount
Balance, December 31, 2020123,839 $1,238 $3,693,996 $(1,774,856)$(24,100)$1,683 $1,897,961 
Costs of issuance of common stock— — (55)— — — (55)
Dividends to common stockholders ($0.63 per share) and stockholders of subsidiaries— — — (78,182)— (27)(78,209)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax297 3 6,267 — — — 6,270 
Net loss applicable to noncontrolling interest— — — — — (9)(9)
Net income applicable to Piedmont— — — 30,597 — — 30,597 
Other comprehensive income— — — — 4,064 — 4,064 
Balance, September 30, 2021124,136 $1,241 $3,700,208 $(1,822,441)$(20,036)$1,647 $1,860,619 

See accompanying notes
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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)
(in thousands) 
Nine Months Ended
September 30,
20222021
Cash Flows from Operating Activities:
Net income$71,260 $30,588 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation98,828 88,663 
Amortization of debt issuance costs inclusive of settled interest rate swaps2,738 2,396 
Other amortization60,457 58,743 
General reserve/ (reversal) for uncollectible accounts(2,000)412 
Stock compensation expense6,880 8,201 
Gain on sale of real estate assets(50,674)— 
Changes in assets and liabilities:
Increase in tenant and straight-line rent receivables(14,760)(13,448)
Increase in prepaid expenses and other assets(933)(2,815)
Cash received upon settlement of interest rate swaps— 623 
Increase in accounts payable and accrued expenses4,571 342 
Decrease in deferred income(12,383)(8,671)
Net cash provided by operating activities163,984 165,034 
Cash Flows from Investing Activities:
Acquisition of real estate assets, net of related debt assumed, and intangibles(270,899)— 
Capitalized expenditures(95,507)(83,477)
Net sales proceeds from wholly-owned properties143,596 — 
Proceeds from notes receivable118,500 — 
Deferred lease costs paid(16,042)(10,324)
Net cash used in investing activities(120,352)(93,801)
Cash Flows from Financing Activities:
Debt issuance and other costs paid(194)(454)
Proceeds from debt761,420 526,580 
Repayments of debt(693,000)(484,610)
Costs of issuance of common stock(311)(55)
Value of shares withheld for payment of taxes related to employee stock compensation(3,764)(3,050)
Repurchases of common stock as part of announced plan— (685)
Dividends paid(103,799)(103,891)
Net cash used in financing activities(39,648)(66,165)
Net increase in cash, cash equivalents, and restricted cash and escrows3,984 5,068 
Cash, cash equivalents, and restricted cash and escrows, beginning of period8,860 9,214 
Cash, cash equivalents, and restricted cash and escrows, end of period$12,844 $14,282 
 (Unaudited)
 Nine Months Ended
 September 30,
 2017 2016
Cash Flows from Operating Activities:   
Net income$164,937
 $69,536
Operating distributions received from unconsolidated joint ventures—
 579
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation90,827
 94,948
Amortization of debt issuance costs1,214
 1,264
Other amortization57,146
 53,325
Impairment loss on real estate assets—
 33,901
Stock compensation expense6,657
 7,630
Equity in income of unconsolidated joint ventures(3,872) (354)
Gain on sale of real estate assets, net(115,951) (73,758)
Changes in assets and liabilities:   
Decrease in tenant and straight-line rent receivables, net(15,040) (17,393)
(Increase)/decrease in restricted cash and escrows(656) 3,451
Increase in prepaid expenses and other assets(4,580) (3,429)
(Decrease)/increase in accounts payable and accrued expenses(5,863) 307
Decrease in deferred income1,513
 2,029
Net cash provided by operating activities176,332
 172,036
Cash Flows from Investing Activities:   
Acquisition of real estate assets, related intangibles, and cash held in escrow for acquisitions—
 (66,900)
Capitalized expenditures, net of accruals(65,407) (88,391)
Investment in consolidated joint venture—
 (165,848)
Net sales proceeds from wholly-owned properties375,199
 304,902
Net sales proceeds from unconsolidated joint ventures12,334
 —
Investments in unconsolidated joint ventures(1,162) —
Deferred lease costs paid(19,419) (15,345)
Net cash provided by/(used in) investing activities301,545
 (31,582)
Cash Flows from Financing Activities:   
Debt issuance costs paid(101) (212)
Proceeds from debt147,000
 552,000
Repayments of debt(466,046) (589,532)
Costs of issuance of common stock(97) (239)
Value of shares withheld to pay tax obligations related to employee stock compensation(3,385) (2,328)
Repurchases of common stock as part of announced plan(3,895) (7,943)
Dividends paid and discount on dividend reinvestments(122,237) (91,609)
Net cash used in financing activities(448,761) (139,863)
Net increase in cash and cash equivalents29,116
 591
Cash and cash equivalents, beginning of period6,992
 5,441
Cash and cash equivalents, end of period$36,108
 $6,032
    
Supplemental Disclosures of Significant Noncash Investing and Financing Activities:   
Accrued dividends and discount on dividend reinvestments$(30,531) $—
Accrued capital expenditures and deferred lease costs$8,590
 $24,624
Investment in consolidated joint venture$63,026
 $—


See accompanying notes

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PIEDMONT OFFICE REALTY TRUST, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 20172022
(unaudited)(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,ownership, management, development, management,redevelopment, and ownershipoperation of commercial real estatehigh-quality, Class A office properties throughoutlocated primarily in the United States, including properties that are under construction, are newly constructed, or have operating histories.Sunbelt. Piedmont was incorporated in 1997 and commenced operations in 1998. Piedmont conducts business primarily through its wholly-owned subsidiary, 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 owns 99.9% of, and is the sole general partner of, Piedmont OP and as such, possesses full legal control and authority over the operations of Piedmont OP. The remaining 0.1% ownership interest of Piedmont OP is held indirectly by Piedmont through its wholly-owned subsidiary, Piedmont Office Holdings, Inc. ("POH"), the sole limited partner of Piedmont OP.partnership. Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through consolidatedvarious joint ventures.ventures which it controls. References to Piedmont herein shall include Piedmont and all of its subsidiaries, including Piedmont OP and its subsidiaries and joint ventures.


As of September 30, 2017, Piedmont owned 66 in-service office properties. Piedmont's total consolidated portfolio consists of approximately 19 million square feet of primarily Class A commercial office space, and was 89.2% leased as of September 30, 2017. As of September 30, 2017,2022, Piedmont owned 53 in-service, Class A office properties and one redevelopment asset, primarily located within the Sunbelt. As of September 30, 2022, the in-service portfolio comprised approximately 88% of Piedmont's ALR16.8 million square feet (unaudited) and was generated from select sub-markets located primarily within eight major office markets located in the Eastern-half of the United States: Atlanta, Boston, Chicago, Dallas, Minneapolis, New York, Orlando, and Washington, D.C.86.8% leased.


Piedmont internally evaluates all of its real estate assets as one operating segment, and accordingly, does not report segment information.

2.Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation


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 GAAP for complete financial statements. In the opinion of management, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of a full year’s results.


Piedmont’s consolidated financial statements include the accounts of Piedmont, Piedmont’s wholly-owned subsidiaries, any variable interest entity ("VIE") forof which Piedmont or any of its wholly-owned subsidiaries is considered to have the power to direct the activities of the entity and the obligation to absorb losses/right to receive benefits, or any entity in which Piedmont or any of its wholly-owned subsidiaries owns a controlling interest. In determining whether Piedmont or Piedmont OP has a controlling interest, the following factors, among others, are considered: equity ownership, voting rights, protective rights of investors, and participatory rights of investors. For further information, refer to the financial statements and footnotes included in Piedmont’s Amended Annual Report on Form 10-K/A10-K for the year ended December 31, 2016.2021.


All intercompany balances and transactions have been eliminated upon consolidation.


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



Use of Estimates


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


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Income Taxes


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


ReclassificationsOperating Leases


Certain prior period amounts presentedPiedmont recognized the following fixed and variable lease payments, which together comprised rental and tenant reimbursement revenue in Piedmont's Amended Annual Report on Form 10-K/Athe accompanying consolidated statements of income for the yearthree and nine months ended September 30, 2022 and 2021, respectively, as follows (in thousands):

Three Months EndedNine Months Ended
September 30,
2022		September 30,
2021		September 30,
2022		September 30,
2021
Fixed payments$114,280 $105,592 $334,256 $315,971 
Variable payments25,292 21,835 69,379 64,335 
Total Rental and Tenant Reimbursement Revenue$139,572 $127,427 $403,635 $380,306 

Operating leases where Piedmont is the lessee relate primarily to office space in buildings owned by third parties. Piedmont's right of use asset and corresponding lease liability was approximately $0 and $60,000 as of September 30, 2022 and December 31, 2016 have been reclassified2021, respectively. The right of use asset is recorded as a component of prepaid expenses and other assets, whereas the corresponding liability is presented as a component of accounts payable, accrued expenses, and accrued capital expenditures in the accompanying consolidated balance sheets. For both the three and nine months ended September 30, 2022 and 2021, Piedmont recognized approximately $20,000 and $60,000, respectively, of operating lease costs related to conformthese office space leases. As of September 30, 2022, the lease term of Piedmont's right of use asset had ended; however, the lease was renewed effective October 1, 2022 for 26 months.

Intangible Assets and Liabilities Resulting from Purchasing Real Estate Assets

Upon the acquisition of real properties, Piedmont allocates the purchase price of the properties to tangible assets, consisting of land, building, site improvements, and identified intangible assets and liabilities, including the current period financial statement presentation. The reclassifications relate to the Two Independence Square building, locatedvalue of in-place leases, based in Washington, D.C., which was firsteach case on Piedmont's estimate of their fair values in accordance with Accounting Standards Codification ("ASC") 820 Fair Value Measurements.

Gross intangible lease assets and liabilities arising from in-place leases, inclusive of amounts classified as real estate assets held for sale, recorded at acquisition as of March 31, 2017,September 30, 2022 and was sold on July 5, 2017. Applicable balances related to the same asset remain classified as held for sale as of December 31, 2016.2021, respectively, are as follows (in thousands):


Recent Accounting Pronouncements
September 30, 2022December 31, 2021
Intangible Lease Assets:
Above-Market In-Place Lease Assets$1,967 $1,882 
In-Place Lease Valuation$210,281 $176,275 
Intangible Lease Origination Costs (included as component of Deferred Lease Costs)$296,672 $266,575 
Intangible Lease Liabilities (Below-Market In-Place Leases)$99,330 $75,221 


The Financial Accounting Standards Board (the "FASB") has issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09")
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For the three and Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08"). The amendments in ASU 2014-09, which are further clarified in ASU 2016-08,nine months ended September 30, 2022 and 2021, respectively, Piedmont recognized amortization of intangible lease costs as well as Accounting Standards Update 2016-10, Accounting Standards Update 2016-12, and Accounting Standards Update 2016-20 (collectively the "Revenue Recognition Amendments"), change the criteria for the recognition of certain revenue streams to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services using a five-step determination process. Steps 1 through 5 involve (i) identifying contracts with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations, and (v) recognizing revenue as an entity satisfies a performance obligation. The revenues impacted by the Revenue Recognition Amendments include a portion of Piedmont's tenant reimbursement revenues and property management fee revenues. Lease contracts and reimbursement revenues associated with property taxes and insurance are specifically excluded from the Revenue Recognition Amendments. The Revenue Recognition Amendments are effective in the first quarter of 2018 for Piedmont. Management has substantially completed its initial assessment of the impact of adoption of the Revenue Recognition Amendments. Approximately 90% of Piedmont's total revenues are derived from either long-term leases with its tenants or reimbursement of property tax and insurance expenses, which are excluded from the scope of the Revenue Recognition Amendments. In addition, based on management's assessment to date, Piedmont does not expect the timing of the recognition of reimbursement revenue and revenue from management agreements to change as a result of the new guidance, though certain classifications will change between rental revenue and tenant reimbursements. Finally, management has determined, and the FASB has confirmed, that the evaluation of non-lease components under the new Revenue Recognition Amendments will not be effective until Accounting Standards Update No. 2016-02, Leases (Topic 842), ("ASU 2016-02") becomes effective (see further discussion below), which will be first quarter of 2019 for Piedmont. Although management continues to evaluate the guidance and disclosures required by the Revenue Recognition Amendments, Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption.follows (in thousands):


The FASB has issued Accounting Standards Update No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"). The provisions of ASU 2017-05 define the term "in substance nonfinancial asset" as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) is concentrated in nonfinancial assets. Further, it states that nonfinancial assets should be derecognized once the counterparty obtains control. Finally, the amendments provide clarification for partial sales of nonfinancial assets. ASU 2017-05 is effective concurrent with the Revenue Recognition Amendments (detailed above), which will be the first quarter of 2018 for Piedmont. Although management continues to evaluate the guidance and disclosures required by ASU 2017-05, Piedmont does not anticipate a material change in how it recognizes, measures, and classifies the gain or loss on the disposition of real estate in its consolidated
Three Months EndedNine Months Ended
September 30,
2022		September 30,
2021		September 30,
2022		September 30,
2021
Amortization of Intangible Lease Origination Costs and In-Place Lease Valuation included in amortization expense$18,905 $16,580 $54,582 $51,208 
Amortization of Above-Market and Below-Market In-Place Lease intangibles as a net increase to rental revenues$3,542 $2,686 $9,713 $8,082 


financial statements as a result of adoption.

The FASB has issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). The amendments in ASU 2016-01 require equity investments, except those accounted for under the equity method of accounting, to be measured at estimated fair value with changes in fair value recognized in net income. Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments, and eliminates certain disclosure requirements. The amendments in ASU 2016-01 are effective in the first quarter of 2018, and Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption.

The FASB has issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230),Restricted Cash (a consensus of the FASB Emerging Issues Task Force) ("ASU 2016-18"). The provisions of ASU 2016-18 require entities to show changes in restricted cash and cash equivalents in addition to cash and cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between restricted and unrestricted cash in the statement of cash flows. Disclosures are required to reconcile the amount presented on the statement of cash flows to the balance sheet, as well as disclosing the nature of restriction on the restricted cash balances. ASU 2016-18 is effective for Piedmont in the first quarter of 2018, with early adoption permitted. Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption.

The FASB has issued ASU 2016-02, which fundamentally changes the definition of a lease, as well as the accounting for operating leases by requiring lessees to recognizeNet intangible assets and liabilities which arise from the lease, consistingas of a liability to make lease payments (the lease liability) and a right-of-use asset, representing the right to use the leased asset over the term of the lease. Accounting for leases by lessors is substantially unchanged from prior practice as lessors will continue to recognize lease revenue on a straight-line basis; however, ASU 2016-02 defines certain tenant reimbursements as non-lease components whichSeptember 30, 2022 will be subject to the guidance under ASU 2014-09. The amendments in ASU 2016-02 are effectiveamortized as follows (in thousands):

Intangible Lease Assets
Above-Market
In-place
Lease Assets		In-Place Lease Valuation
Intangible Lease
Origination Costs (1)
Below-Market
In-place Lease
Liabilities
For the remainder of 2022$51 $8,987 $10,502 $3,700 
For the years ending December 31:
2023160 29,545 34,523 12,625 
2024126 22,101 26,919 10,071 
202548 16,680 21,541 8,441 
202622 13,146 18,228 6,904 
202713 10,426 15,010 5,814 
Thereafter30 22,192 33,220 13,139 
$450 $123,077 $159,943 $60,694 
Weighted-Average Amortization Period (in years)4666

(1)Included as a component of Deferred Lease Costs in the first quarteraccompanying consolidated balance sheets.

14
Table of 2019, and Piedmont is currently evaluating the potential impact of adoption.Contents

3.    Acquisitions
The FASB has issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326),Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The provisions of ASU 2016-13 replace the "incurred loss" approach with an "expected loss" model for impairing trade and other receivables, held-to-maturity debt securities, net investment in leases, and off-balance-sheet credit exposures, which will generally result in earlier recognition of allowances for credit losses. Additionally, the provisions change the classification of credit losses related to available-for-sale securities to an allowance, rather than a direct reduction of the amortized cost of the securities. ASU 2016-13 is effective in the first quarter of 2020, with early adoption permitted as of January 1, 2019. Piedmont is currently evaluating the potential impact of adoption.

The FASB has issued Accounting Standards Update No. 2017-04, Intangibles—Goodwill and Other (Topic 350),Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). The provisions of ASU 2017-04 simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test, which is generally performed annually unless events or circumstances arise which would necessitate evaluating the carrying value for impairment in the interim. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a entity’s goodwill with the carrying amount of that goodwill by determining the fair value of its assets and liabilities (including unrecognized assets and liabilities) following the procedures that would be required in a business combination. Under the provisions of ASU 2017-04, an entity would instead recognize an impairment charge for the amount by which the carrying amount exceeds the entity’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that entity. ASU 2017-04 is effective in the first quarter of 2020, with early adoption permitted as of the first interim or annual impairment test of goodwill after January 1, 2017. Piedmont is currently evaluating the potential impact of adoption.

3.Debt

During the three months ended September 30, 2017,2022, Piedmont fully repaidacquired 100% of the $140ownership interest in 1180 Peachtree Street in Midtown Atlanta, Georgia (part of the Atlanta geographic segment), consisting of 691,092 square feet and 95% leased. The net contractual purchase price of $465.7 million included the assumption of an existing $197 million, 4.10% mortgage secured by the property. The remaining cash portion of the purchase price was primarily funded using a new $200 Million WDC Fixed-Rate Loans prior toUnsecured Term Loan Facility (further described in Note 4 below), as well as cash on hand and our $600 Million Unsecured 2022 Line of Credit.

The purchase price of 1180 Peachtree Street, inclusive of approximately $2.2 million of closing costs, was allocated as follows:

1180 Peachtree Street
Land$56,932 
Building and improvements336,219 
Intangible lease assets (1)
53,426 
Lease acquisition costs, net of tenant credits received from seller (1)
(4,071)
Intangible lease origination costs (1)
56,748 
Intangible lease liabilities (1)
(31,355)
Total allocated purchase price$467,899 
Assumption of secured mortgage note(197,000)
Net cash paid upon acquisition$270,899 

(1)Amortization of in-place lease intangibles and lease acquisition costs are recognized using the straight-line method over approximately 7.4 years, the average remaining life of in-place leases.


4.    Debt

As noted above, in conjunction with the acquisition of 1180 Peachtree Street during the three months ended September 30, 2022, Piedmont entered into a Loan Assignment and Assumption Agreement for an existing $197 million fixed rate mortgage secured by the property (the “$197 Million Fixed Rate Mortgage”). The $197 Million Fixed Rate Mortgage has a remaining term of approximately six years and a final maturity date without penalty and repaidof October 1, 2028. Interest only at a fixed rate of 4.10% per annum is payable until October 1, 2023, at which point the outstanding balanceloan becomes amortizing.

Piedmont also entered into a new $200 million, floating-rate, unsecured term loan facility (the “$200 Million Unsecured Term Loan Facility”) during the three months ended September 30, 2022 to fund the majority of the cash portion of the 1180 Peachtree Street purchase price. The term of the $200 Million Unsecured Term Loan Facility is six months, with an option to extend twice for an additional three months for a final maturity date of July 24, 2023. Piedmont may prepay the loan in whole or in part, at any time without premium or penalty. The stated interest rate spread over Adjusted Term SOFR can vary from 0.80% to 1.65% based upon the then current credit rating of Piedmont. As of September 30, 2022, the applicable interest rate spread on the loan was 1.00%.

During the nine months ended September 30, 2022, Piedmont amended and restated its $500 Million Unsecured 20152018 Line of Credit using a portionwhich had an initial maturity date of September 30, 2022. As amended and restated, the capacity of the net proceeds from the saleline of credit has been expanded to $600 million (the "$600 Million Unsecured 2022 Line of Credit"). The term of the Two Independence Square building (see Note 9).new $600 Million Unsecured 2022 Line of Credit was extended to June 30, 2026, and Piedmont may extend the term for up to one additional year (through two available six-month extensions) provided Piedmont is not then in default and all representations and warranties are true and correct in all material respects and upon payment of applicable extension fees. Under certain terms of the agreement, Piedmont may increase the new facility by up to an additional $500 million, to an aggregate size of $1.1 billion, provided that no existing bank has any obligation to participate in such increase. Piedmont paid customary arrangement and upfront fees to the lenders in connection with the closing of the new facility.



The $600 Million Unsecured 2022 Line of Credit has the option to bear interest at varying levels (determined with reference to the greater of the credit rating for Piedmont or Piedmont OP) based on the Adjusted Term SOFR Rate, Adjusted Daily Effective SOFR Rate, or the Base Rate, all as defined in the facility agreement. Further, the Base Rate is defined as the greater of the
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prime rate, the federal funds rate plus 0.5%, or the Adjusted Term SOFR Rate for a one-month period plus 1.0%. The term SOFR loans are available with interest periods selected by Piedmont of one, three, or six months. The stated interest rate spread over Adjusted SOFR can vary from 0.725% to 1.4% based upon the greater of the then current credit rating of Piedmont or Piedmont OP. As of September 30, 2022, based upon Piedmont’s current BBB credit rating, the current stated Adjusted SOFR spread on the loan is 0.85%.

The $600 Million Unsecured 2022 Line of Credit and the $200 Million Unsecured Term Loan Facility have certain financial covenants that require, among other things, the maintenance of an unencumbered interest rate coverage ratio of at least 1.75, an unencumbered leverage ratio of at least 1.60, a fixed charge coverage ratio of at least 1.50, a leverage ratio of no more than 0.60, and a secured debt ratio of no more than 0.40.

The following table summarizes the terms of Piedmont’s indebtedness outstanding as of September 30, 20172022 and December 31, 20162021 (in thousands):

Facility (1)
Stated Rate
Effective Rate (2)
MaturityAmount Outstanding as of
September 30, 2022December 31, 2021
Secured (Fixed)
$197 Million Fixed Rate Mortgage4.10 %10/1/2028$197,000 $— 
Subtotal197,000 — 
Unsecured (Variable and Fixed)
$200 Million Unsecured Term Loan FacilitySOFR + 1.00%4.13 %(3)1/23/2023(4)$200,000 $— 
$350 Million Unsecured Senior Notes due 20233.40 %3.43 %6/01/2023(5)350,000 350,000 
$400 Million Unsecured Senior Notes due 20244.45 %4.10 %3/15/2024400,000 400,000 
$250 Million Unsecured 2018 Term LoanLIBOR + 0.95%3.86 %(6)3/31/2025250,000 250,000 
$600 Million Unsecured 2022 Line of Credit(7)
SOFR + 0.85%3.86 %(3)6/30/2026(8)162,000 290,000 
$300 Million Unsecured Senior Notes due 20303.15 %3.90 %

8/15/2030300,000 300,000 
$300 Million Unsecured Senior Notes due 20322.75 %2.78 %

4/1/2032300,000 300,000 
Discounts and unamortized debt issuance costs(13,592)(12,210)
Subtotal/Weighted Average (9)
3.65 %$1,948,408 $1,877,790 
Total/Weighted Average (9)
3.69 %$2,145,408 $1,877,790 

(1)All of Piedmont’s outstanding debt as of September 30, 2022 is unsecured and interest-only until maturity, except for the $197 Million Fixed Rate Mortgage, secured by 1180 Peachtree Street, which will begin amortizing principal in October 2023.
(2)Effective rate after consideration of settled or in-place interest rate swap agreements and issuance discounts.
(3)On a periodic basis, Piedmont may select from multiple interest rate options, including the prime rate and various-length SOFR locks on all or a portion of the principal. All SOFR selections are subject to an additional spread over the selected rate based on Piedmont’s current credit rating.
(4)Piedmont intends to repay the $200 Million Unsecured Term Loan Facility due January 2023 using the net sales proceeds from the future disposition of properties, cash on hand from operations, and/or draws under its existing $600 Million Unsecured 2022 Line of Credit. Additionally, Piedmont may extend the term for up to six additional months (through two available three month extensions to a final extended maturity date of July 24, 2023) provided Piedmont is not then in default and upon payment of extension fees.
(5)Piedmont currently intends to repay the $350 Million Unsecured Senior Notes due 2023 through debt refinancing, cash on hand from operations, and/or draws under its existing $600 million Unsecured 2022 Line of Credit.
(6)The facility has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of changes to Piedmont's credit rating, $100 million of the principal balance to 3.56% through the maturity date of the loan. For the remaining variable portion of the loan, Piedmont may periodically select from multiple interest rate options, including the prime rate and various-length LIBOR locks on all or a portion there of. All LIBOR selections are subject to an additional spread
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Facility (1)
 Stated Rate 
Effective Rate (2)
 Maturity Amount Outstanding as of
 September 30, 2017 December 31, 2016
Secured (Fixed)          
$140 Million WDC Fixed-Rate Loans 5.76% 5.76% 11/1/2017 $—
 $140,000
$35 Million Fixed-Rate Loan (3)
 5.55% 3.75% 9/1/2021 30,903
 31,583
$160 Million Fixed-Rate Loan (4)
 3.48% 3.58% 7/5/2022 160,000
 160,000
Net premium and unamortized debt issuance costs       1,020
 1,161
Subtotal/Weighted Average (5)
 3.82%     191,923
 332,744
Unsecured (Variable and Fixed)          
$170 Million Unsecured 2015 Term Loan (6)
 LIBOR + 1.125%
 2.37% 5/15/2018 170,000
 170,000
$300 Million Unsecured 2013 Term Loan LIBOR + 1.20%
 2.78%
(7) 
1/31/2019 300,000
 300,000
$500 Million Unsecured 2015 Line of Credit (6)
 LIBOR + 1.00%
 —% 6/18/2019
(8) 
—
 178,000
$300 Million Unsecured 2011 Term Loan LIBOR +  1.15%
 3.35%
(7) 
1/15/2020 300,000
 300,000
$350 Million Senior Notes 3.40% 3.43% 6/01/2023 350,000
 350,000
$400 Million Senior Notes 4.45% 4.10% 3/15/2024 400,000
 400,000
Discounts and unamortized debt issuance costs       (8,337)
 (10,269)
Subtotal/Weighted Average (5)
 3.43%     1,511,663
 1,687,731
Total/Weighted Average (5)
 3.47%     $1,703,586
 $2,020,475
over the selected rate based on Piedmont’s current credit rating. The rate presented is the weighted-average rate for the effectively fixed and variable portions of the debt outstanding as of September 30, 2022 (see Note 5 for more detail).

(1)
Other than the $35 Million Fixed-Rate Loan, all of Piedmont’s outstanding debt as of September 30, 2017 and December 31, 2016 is interest-only.
(2)
Effective rate after consideration of settled or in-place interest rate swap agreements, issuance premiums/discounts, and/or fair market value adjustments upon assumption of debt.
(3)
Collateralized by the 5 Wall Street building in Burlington, Massachusetts.
(4)
Collateralized by the 1901 Market Street building in Philadelphia, Pennsylvania.
(5)
Weighted average is based on contractual balance of outstanding debt and the stated or effectively fixed interest rates in the table as of September 30, 2017.
(6)
On a periodic basis, Piedmont may select from multiple interest rate options, including the prime rate and various-length LIBOR locks. All LIBOR selections are subject to an additional spread over the selected rate based on Piedmont’s current credit rating.
(7)
Facility has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of Piedmont's credit rating, the rate shown as the effective rate.
(8)
Piedmont may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of June 18, 2020) provided Piedmont is not then in default and upon payment of extension fees.

(7)The $500 Million Unsecured 2018 Line of Credit was amended and restated during the nine months ended September 30, 2022 and is now reflected as the $600 Million Unsecured 2022 Line of Credit. The $500 Million Unsecured 2018 Line of Credit had a stated rate of LIBOR + 0.90% as of December 31, 2021.
(8)Piedmont may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of June 30, 2027) provided Piedmont is not then in default and upon payment of extension fees.
(9)Weighted average is based on contractual balance of outstanding debt and the stated or effectively fixed interest rates as of September 30, 2022.

Piedmont made interest payments on all debt facilities, including interest rate swap cash settlements, of approximately $18.0$18.3 million and $18.5$16.2 million for the three months ended September 30, 20172022 and 2016,2021, respectively, and approximately $54.0$46.9 million and $53.2$41.5 million for the nine months ended September 30, 20172022 and 2016,2021, respectively. Also, Piedmont capitalized interest of approximately $37,000$1.1 million and $1.5$1.0 million for the three months ended September 30, 20172022 and 2016,2021, respectively, and approximately $0.2$3.2 million and $3.4$2.7 million for the nine months ended September 30, 20172022 and 2016,2021, respectively. As of September 30, 2017,2022, Piedmont believes it was in compliance with all financial covenants associated with its debt instruments.

See Note 6 for a description of Piedmont’s estimated fair value of debt as of September 30, 2017.2022.



4.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 must consolidate the VIE. Each of the following VIEs has the sole purpose of holding land and office buildings and their resulting operations, and are classified in the accompanying consolidated balance sheets in the same manner as Piedmont’s wholly-owned properties.
A summary of Piedmont’s interests in, and consolidation treatment of, its VIEs and their related carrying values as of September 30, 2017 and December 31, 2016 is as follows (net carrying amount in millions):

Entity 
Piedmont’s
%
Ownership
of Entity
 
Related
Building
 
Consolidated/
Unconsolidated
 
Net Carrying
Amount as of
September 30, 2017
 
Net Carrying
Amount as of
December 31, 2016
 
Primary Beneficiary
Considerations
1201 Eye Street N.W. Associates, LLC 98.6%
    (1) 
1201 Eye Street Consolidated $82.1
 $(6.7) In accordance with the partnership’s governing documents, Piedmont currently receives 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 N.W. Associates, LLC 98.1%
 (1) 
1225 Eye Street Consolidated $66.2
 $9.9
 In accordance with the partnership’s governing documents, Piedmont currently receives 100% of the cash flow of the entity and has sole discretion in directing the management and leasing activities of the building.
Piedmont 500 W. Monroe Fee, LLC 100% 500 W. Monroe Consolidated $265.2
 $262.4
 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 100% of the economic benefits of the property until such returns are met.

(1) During the three months ended September 30, 2017, Piedmont repaid a $140 million mortgage secured by the 1201 and 1225 Eye Street properties located in Washington, D.C., and recapitalized the 1201 and 1225 Eye Street N.W. Associates, LLCs, increasing Piedmont's ownership from 49.5% in each of the LLCs to the amounts stated above.

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 other similar agreements to manage interest rate risk exposure arising from current or future variable rate debt transactions. Interest rate swap agreements involve the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Piedmont’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements.


Cash Flow Hedges of Interest Rate Risk


Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for Piedmont making fixed-rate payments over the life of the agreements without changingexchange of the underlying notional amount. As ofDuring the three months ended September 30, 2017,2021, Piedmont was party to variousentered into, and subsequently settled, one forward starting interest rate swap agreements, allagreement with a notional value of which are designated as effective cash flow hedges and fully$50 million to hedge the variablerisk of changes in the interest-related cash flows coveringassociated with the entire outstanding balancesissuance of the $300 Million Unsecured 2011 Term LoanSenior Notes due 2032. The settlement resulted in a gain of approximately $0.6 million, which was recorded as accumulated other comprehensive income ("OCI") and the $300 Million Unsecured 2013 Term Loan. is being amortized as an offset to interest expense over ten years.

The maximum length of time over which Piedmont is hedging its exposure to the variability in future cash flows for forecasted transactions is 2730 months.

A detail of Piedmont’s interest rate derivatives outstanding as of September 30, 20172022 is as follows:


Interest Rate Derivatives:Number of Swap AgreementsAssociated Debt InstrumentTotal Notional Amount
(in millions)		Effective DateMaturity Date
Interest rate swaps2$250 Million Unsecured 2018 Term Loan$100 3/29/20183/31/2025
Interest Rate Derivatives: Number of Swap Agreements Associated Debt Instrument 
Total Notional Amount
(in millions)
 Effective Date Maturity Date
Interest rate swaps 4 $300 Million Unsecured 2013 Term Loan $200
 1/30/2014 1/31/2019
Interest rate swaps 2 $300 Million Unsecured 2013 Term Loan 100
 8/29/2014 1/31/2019
Interest rate swaps 3 $300 Million Unsecured 2011 Term Loan 300
 11/22/2016 1/15/2020
Total     $600
    


Piedmont presents its interest rate derivatives on its consolidated balance sheets on a gross basis as interest rate swap assets and interest rate swap liabilities. A detail of Piedmont’s interest rate derivatives on a gross and net basis as of September 30, 20172022 and December 31, 2016,2021, respectively, is as follows (in thousands):

Interest rate swaps classified as:September 30,
2022		December 31,
2021
Gross derivative assets$3,760 $— 
Gross derivative liabilities— (4,924)
Net derivative asset/(liability)$3,760 $(4,924)

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Interest rate swaps classified as:September 30,
2017		 December 31,
2016
Gross derivative assets$34
 $—
Gross derivative liabilities(3,915) (8,169)
Net derivative asset/(liability)$(3,881) $(8,169)
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The effective portion ofgain/(loss) on Piedmont's interest rate derivatives, including the gain/(loss) on previously settled forward swaps, that was recorded in OCI and the accompanying consolidated statements of income as a component of interest expense for the three and nine months ended September 30, 20172022 and 2016,2021, respectively, wasis as follows (in thousands):

 Three Months Ended Nine Months Ended
Interest Rate Swaps in Cash Flow Hedging RelationshipsSeptember 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016
Amount of gain/(loss) recognized in OCI$175
 $2,847
 $307
 $(12,182)
Amount of previously recorded loss reclassified from accumulated OCI into interest expense$653
 $1,045
 $2,936
 $3,291
 Three Months EndedNine Months Ended
Interest Rate Swaps in Cash Flow Hedging RelationshipsSeptember 30,
2022		September 30,
2021		September 30,
2022		September 30,
2021
Amount of gain recognized in OCI$2,662 $582 $7,507 $1,848 
Amount of previously recorded loss reclassified from OCI into interest expense$(194)$(750)$(1,453)$(2,216)
Total amount of interest expense presented in the consolidated statements of income$(17,244)$(12,450)$(44,917)$(37,375)


Piedmont estimates that approximately $1.2$1.3 million will be reclassified from accumulated other comprehensive loss toOCI as an decrease in interest expense over the next twelve months. Piedmont recognized no loss related to hedge ineffectiveness of its cash flow hedges during the three and nine months ended September 30, 2017 and 2016, respectively.

Additionally, see Note 6 for fair value disclosures of Piedmont's derivative instruments.


Credit-risk-related Contingent Features


Piedmont has agreements with its derivative counterparties that contain a provision whereby if Piedmont defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Piedmont could also be declared in default on its derivative obligations. If Piedmont were to breach any of the contractual provisions of the derivative contracts, it could be required to settle its liability obligations under the agreements at their termination value of the estimated fair values plus accrued interest, or approximately $4.0 million interest. However, as of September 30, 2017.2022, both of Piedmont's interest rate swap agreements are in an asset position. Additionally, Piedmont has rights of set-off under certain of its derivative agreements related to potential terminationtermination fees and amounts payable under the agreements, if a termination were to occur.



6.Fair Value Measurement of Financial Instruments
Piedmont considers its cash and cash equivalents, tenant receivables, notes receivable, restricted cash and escrows, accounts payable and accrued expenses, interest rate swap agreements, and debt to meet the definition of financial instruments. The following table sets forth the carrying and estimated fair value for each of Piedmont’s financial instruments, as well as its level within the GAAP fair value hierarchy, as of September 30, 20172022 and December 31, 2016,2021, respectively (in thousands):


 September 30, 2022December 31, 2021
Financial InstrumentCarrying ValueEstimated
Fair Value		Level Within Fair Value HierarchyCarrying ValueEstimated
Fair Value		Level Within Fair Value Hierarchy
Assets:
Cash and cash equivalents (1)
$10,653 $10,653 Level 1$7,419 $7,419 Level 1
Tenant receivables, net (1)
$7,796 $7,796 Level 1$2,995 $2,995 Level 1
Notes receivable$— $— Level 2$118,500 $120,075 Level 2
Restricted cash and escrows (1)
$2,191 $2,191 Level 1$1,441 $1,441 Level 1
Interest rate swaps$3,760 $3,760 Level 2$— $— Level 2
Liabilities:
Accounts payable and accrued expenses (1)
$16,712 $16,712 Level 1$45,065 $45,065 Level 1
Interest rate swaps$— $— Level 2$4,924 $4,924 Level 2
Debt, net$2,145,408 $1,997,395 Level 2$1,877,790 $1,938,563 Level 2
 September 30, 2017 December 31, 2016
Financial InstrumentCarrying Value 
Estimated
Fair Value
 Level Within Fair Value Hierarchy Carrying Value 
Estimated
Fair Value
 Level Within Fair Value Hierarchy
Assets:           
Cash and cash equivalents(1)
$36,108
 $36,108
 Level 1 $6,992
 $6,992
 Level 1
Tenant receivables, net(1)
$12,802
 $12,802
 Level 1 $26,494
 $26,494
 Level 1
Restricted cash and escrows(1)
$1,260
 $1,260
 Level 1 $1,212
 $1,212
 Level 1
Interest rate swaps$34
 $34
 Level 2 $—
 $—
 Level 2
Liabilities:           
Accounts payable and accrued expenses(1)
$13,465
 $13,465
 Level 1 $44,733
 $44,733
 Level 1
Interest rate swaps$3,915
 $3,915
 Level 2 $8,169
 $8,169
 Level 2
Debt, net$1,703,586
 $1,731,584
 Level 2 $2,020,475
 $2,027,436
 Level 2


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


Piedmont's debt was carried at book value as of September 30, 20172022 and December 31, 2016;2021, and its notes receivable were carried at book value as of December 31, 2021; however, Piedmont's estimate of its estimatedthe fair value of each of these financial instruments as of each period end is disclosed in the table above. Piedmont uses widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of theits notes receivables and debt, facilities, including the period to maturity
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of each instrument,note receivable and debt facility, and uses observable market-based inputs for similar loan and debt facilities which have transacted recently in the market. Therefore, the estimated fair values determined are considered to be based on significant other observable inputs (Level 2). Scaling adjustments are made to these inputs to make them applicable to the remaining life of Piedmont's notes receivables and outstanding debt. Consequently, the estimated fair values of the notes receivable and debt as of December 31, 2021 and the estimated fair value of debt as of September 30, 2022 are considered to be based on significant other observable inputs (Level 2). Piedmont has not changed its valuation technique for estimating the fair value of its notes receivable or debt.


Piedmont’s interest rate swap and forward starting interest rate swap agreements presented above, and as further discussed in Note 5, are classified as “Interest rate swap” assets and liabilitiesswaps” in the accompanying consolidated balance sheets and were carried at estimated fair value as of September 30, 20172022 and December 31, 2016.2021. The valuation of these derivative instruments was determined using widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of the derivatives, including the period to maturity of each instrument, and uses observable market-based inputs, including interest rate curves and implied volatilities. Therefore, the estimated fair values determined are considered to be based on significant other observable inputs (Level 2). In addition, Piedmont considered both its own and the respective counterparties’ risk of nonperformance in determining the estimated fair value of its derivative financial instruments by estimating the current and potential future exposure under the derivative financial instruments that both Piedmont and the counterparties were at risk for as of the valuation date. The credit risk of Piedmont and its counterparties werewas factored into the calculation of the estimated fair value of the interest rate swaps; however, as of September 30, 20172022 and December 31, 2016,2021, this credit valuation adjustment did not comprise a material portion of the estimated fair value. Therefore, Piedmont believes that any unobservable inputs used to determine the estimated fair values of its derivative financial instruments are not significant to the fair value measurements in their entirety, and does not consider any of its derivative financial instrumentsderivatives to be Level 3 assets or liabilities.financial instruments.



7.Impairment Loss on Real Estate Assets

Piedmont recorded impairment loss on real estate assets for the three and nine months ended September 30, 2017 and 2016, respectively, as follows (in thousands):

 Three Months Ended Nine Months Ended
 September 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016
150 West Jefferson(1)
$—
 $—
 $—
 $8,258
9221 Corporate Boulevard (2)
—
 —
 —
 2,692
9200 and 9211 Corporate Boulevard(3)
—
 22,951
 —
 22,951
Total impairment loss on real estate assets(4)
$—
 $22,951
 $—
 $33,901

(1)
Piedmont recognized an impairment loss on real estate assets based upon the difference between the carrying value of the asset and the anticipated contract sales price, less estimated selling costs.

(2)
Piedmont, using a probability-weighted model heavily weighted towards the short-term sale of the 9221 Corporate Boulevard building in Rockville, Maryland, determined that the carrying value would not be recovered from the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. As a result, Piedmont recognized a loss on impairment of approximately $2.7 million during the nine months ended September 30, 2016 calculated as the difference between the carrying value of the asset and the anticipated contract sales price, less estimated selling costs.

(3)
Piedmont elected to sell its remaining two assets and exit the Rockville, Maryland sub-market of Washington, D.C, after selling the 9221 Corporate Boulevard building in July 2016 (mentioned above). Upon management's change in its hold period assumption for the assets from a long-term hold to a near-term sale, Piedmont recognized an impairment loss of approximately $23.0 million. The impairment loss was calculated as the difference between the carrying value of the asset and the anticipated contracted sales price, less estimated selling costs. Piedmont reclassified the properties as held for sale, recognized an impairment loss, entered into a binding contract, and subsequently sold the 9200 and 9211 Corporate Boulevard buildings during the three months ended September 30, 2016.

(4)
The fair value measurements used in the evaluation of the non-financial assets above are considered to be Level 1 valuations within the fair value hierarchy as defined by GAAP, as there are direct observations and transactions involving the assets by unrelated, third-party purchasers.

8.Commitments and Contingencies


Commitments Under Existing Lease Agreements


UnderAs a recurring part of its existingbusiness, Piedmont is typically required under its executed 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. Such commitments will be accrued and capitalized as the related expenditures are incurred. In addition to the amounts that Piedmont classifieshas already committed to as a part of executed leases, Piedmont also anticipates continuing to incur similar market-based tenant improvement allowances and leasing commissions in conjunction with procuring future leases for its capital improvements into two categories: (i) improvements which maintainexisting portfolio of properties. Both the building's existing asset valuetiming and its revenue generating capacity (“non-incremental capital expenditures”) and (ii) improvements which incrementally enhance the building's asset value by expanding its revenue generating capacity (“incremental capital expenditures”). Asmagnitude of September 30, 2017, commitments to fund potential non-incremental capital expenditures over the next five years for tenant improvements totaled approximately $32.1 million related to Piedmont's existing lease portfolio overfuture leasing activity can vary due to a number of factors and are highly dependent on the respective lease terms, the majority of which Piedmont estimates may be required to be funded over the next three years based on when the underlying leases commence. For most of Piedmont’s leases, the timingsize of the actual fundingleased square footage and the competitive market conditions of these tenant improvementsthe particular office market at the time a lease is largely dependent upon tenant requests for reimbursement. In some cases, these obligations may expire with the leases without further recourse to Piedmont. As of September 30, 2017, commitments for incremental capital expenditures for tenant improvements associated with executed leases totaled approximately $15.2 million.being negotiated.


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-interpretationdifferent interpretations of language in the lease agreements whichfrom that made by Piedmont, which could result in the refundrequests for refunds of previously recognized tenant reimbursement revenues, resulting in financial loss to Piedmont. Piedmont recordedThere were no such reductions in rental and reimbursement revenues related to such tenant audits/disputes during the three or nine months ended September 30, 2017 and 2016, respectively, and $0.3 million and $02022 or 2021.
19
Table of such reductions in reimbursement revenues related to such tenant audits/disputesContents
8.    Property Dispositions

The following properties were sold during the nine months ended September 30, 20172022 (in thousands):

Buildings SoldLocation / Reportable SegmentDate of SaleGain on Sale of Real Estate AssetsNet Sales Proceeds
Two Pierce PlaceItasca, Illinois / OtherJanuary 25, 2022$1,741 $24,272 
225 and 235 Presidential WayBoston, Massachusetts / BostonJanuary 28, 202248,933 119,324 
Total$50,674 $143,596 

The 225 and 2016, respectively.


9.    Property Dispositions and Assets Held for Sale

Properties sold during the nine months endedSeptember 30, 2017 and 2016 did not meet235 Presidential Way assets met the criteria to be reported as discontinued operations. The operational results for these properties prior to their sale dates are presented as continuing operations in the accompanying consolidated statementsbalance sheet as held for sale assets as of income, and the gain/(loss) on sale is presented separately on the face of the income statement.December 31, 2021. Details of such properties soldamounts as of December 31, 2021 are presented belowas follows (in thousands):


December 31, 2021
Real estate assets held for sale, net:
Land$7,750 
Building and improvements, less accumulated depreciation of $16,699 as of December 31, 202155,110 
Construction in progress1,027 
Total real estate assets held for sale, net$63,887 
Other assets held for sale, net:
Straight-line rent receivables$2,966 
Deferred lease costs, less accumulated amortization of $996 as of December 31, 20215,427 
Total other assets held for sale, net$8,393 
Buildings Sold Location Date of Sale Gain/(Loss) on Sale Net Sales Proceeds
1055 East Colorado Boulevard Pasadena, California April 21, 2016 $29,461
 $60,076
Fairway Center II Brea, California April 28, 2016 $14,405
 $33,062
1901 Main Street Irvine, California May 2, 2016 $29,964
 $63,149
9221 Corporate Boulevard Rockville, Maryland July 27, 2016 $(192) $12,035
150 West Jefferson Detroit, Michigan July 29, 2016 $(680) $77,827
9200 and 9211 Corporate Boulevard Rockville, Maryland September 28, 2016 $(41) $12,518
Sarasota Commerce Center II Sarasota, Florida June 16, 2017 $6,493
 $23,090
Two Independence Square Washington, D.C. July 5, 2017 $109,516
 $352,180


Sale ofAlso during the 8560 Upland Drive building

During the threenine months ended September 30, 2017,2022, Piedmont soldreceived $118.5 million in proceeds from the payoff of two notes receivable that Piedmont had received in late 2020 from the buyer of its 72% interest in the 8560 Upland Drive building in Denver, Colorado for approximately $12.7 million which resulted in net salesremaining New Jersey properties. The proceeds were used to pay down Piedmont's unsecured line of $12.3 million and a gain on sale of approximately $3.7 million, which is included in income from unconsolidated joint ventures in the accompanying consolidated statements of income.credit.


Assets Held for Sale

In February 2017, Piedmont reclassified the Two Independence Square building from real estate assets held for use to real estate assets held for sale as a result of entering into a binding agreement to sell the property. The sale of the Two Independence Square building closed on July 5, 2017. Details of assets held for sale as of September 30, 2017 and December 31, 2016 are presented below (in thousands):
  September 30, 2017 December 31, 2016
Real estate assets held for sale, net:    
Land $—
 $52,710
Building and improvements, less accumulated depreciation of $0 and $88,319 as of September 30, 2017 and December 31, 2016, respectively —
 173,218
Construction in progress —
 11
Total real estate assets held for sale, net $—
 $225,939
     
Other assets held for sale, net:    
Straight-line rent receivables $—
 $2,059
Prepaid expenses and other assets —
 454
Deferred lease costs, less accumulated amortization of $0 and $2,825 as of September 30, 2017 and December 31, 2016, respectively —
 7,302
Total other assets held for sale, net $—
 $9,815



10.9.    Stock Based Compensation
The Compensation Committee of Piedmont's Board of Directors has periodically granted deferred stock awardsaward units to all of Piedmont'seligible employees and independent directors. Employeeat its discretion based upon the previous year's financial results measured against various board approved performance metrics. Most employee awards typically vest ratably over a multi-year periodthree years. In addition, Piedmont's independent directors receive an annual grant of deferred stock award units for services rendered and independent directorsuch awards vest over a one year. year service period.

Certain management employees' long-term equity incentive program is split equally between the time-vested awardsdeferred stock award units described above and a multi-year performance share program whereby actual awards may be earned basedare contingent upon Piedmont's total stockholder return ("TSR") performance relative to the TSR of a peer group's TSR.group of office REITs. The target incentives for these certain employees, as well as the peer group isto be used for comparative purposes, are predetermined by the Boardboard of Directors. Anydirectors, advised by an outside compensation consultant. None of the shares potentially earned are awarded atuntil the end of the multi-year performance period (or upon termination) and vest upon award.award and are pro-rated if certain terminations occur before the end of the multi-year period. The grant date fair value of the multi-year performance share awards is estimated using the Monte Carlo valuation method.


20
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A rollforward of Piedmont's equity based award activity for the nine months ended September 30, 20172022 is as follows:


SharesWeighted-Average Grant Date Fair Value
Unvested and Potential Stock Awards as of December 31, 20211,099,181 $23.97 
Deferred Stock Awards Granted299,322 $16.54 
Change in Estimated Potential Share Awards based on TSR Performance119,589 $19.67 
Performance Stock Awards Vested(267,744)$29.43 
Deferred Stock Awards Vested(266,675)$19.15 
Deferred Stock Awards Forfeited(4,953)$18.08 
Unvested and Potential Stock Awards as of September 30, 2022978,720 $20.27 
 Shares Weighted-Average Grant Date Fair Value
Unvested Stock Awards as of December 31, 2016944,223
 $19.44
Deferred Stock Awards Granted299,251
 $21.38
Change in Estimated Potential Future Performance Share Awards, net of forfeitures(7,828) $23.65
Performance Stock Awards Vested(118,446) $22.00
Deferred Stock Awards Vested(302,474) $19.35
Deferred Stock Awards Forfeited(7,200) $19.79
Unvested Stock Awards as of September 30, 2017807,526
 $21.39


The following table provides additional information regarding stock award activity during the three and nine months ended September 30, 20172022 and 2016,2021, respectively (in thousands, except per share amounts):


Three Months EndedNine Months Ended
September 30,
2022		September 30,
2021		September 30,
2022		September 30,
2021
Weighted-Average Grant Date Fair Value per share of Deferred Stock Granted During the Period$— $— $16.54 $17.24 
Total Grant Date Fair Value of Deferred Stock Vested During the Period$200 $206 $5,106 $5,208 
Share-based Liability Awards Paid During the Period (1)
$— $— $5,481 $3,610 

(1)Reflects the value of stock earned pursuant to the 2019-21 and 2018-20 Performance Share Plans during the nine months ended September 30, 2022 and 2021, respectively.

21
 Three Months Ended Nine Months Ended
 September 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016
Weighted-Average Grant Date Fair Value of Deferred Stock Granted During the Period$—
 $—
 $21.38
 $19.96
Total Grant Date Fair Value of Deferred Stock Vested During the Period$11
 $108
 $5,852
 $4,766
Share-based Liability Awards Paid During the Period(1)
$—
 $—
 $2,877
 $1,127
Table of Contents

(1)
Amounts reflect the issuance of performance share awards related to the 2014-16 and 2013-15 Performance Share Plans during the nine months ended September 30, 2017 and 2016, respectively.

A detail of Piedmont’s outstanding stock awards and programs as of September 30, 20172022 is as follows:


Date of grantType of Award
Net Shares
Granted (1)
Grant
Date Fair
Value		Vesting ScheduleUnvested Shares
May 3, 2019Deferred Stock Award30,958 (2)$21.04 Of the shares granted, 20% vested or will vest on July 1, 2020, 2021, 2022, 2023 and 2024 respectively.19,011 
February 19, 2020Deferred Stock Award142,083 $24.41 Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on February 19, 2021, 2022, and 2023, respectively.41,801 
March 19, 2020Fiscal Year 2020-2022 Performance Share Program— $25.83 Shares awarded, if any, will vest immediately upon determination of award in 2023.207,931 (3)
February 17, 2021Deferred Stock Award239,521 $17.15 Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on February 17, 2022, 2023, and 2024, respectively.129,527 
February 18, 2021Fiscal Year 2021-2023 Performance Share Program— $23.04 Shares awarded, if any, will vest immediately upon determination of award in 2024.154,712 (3)
February 10, 2022Deferred Stock Award231,933 $16.85 Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on February 10, 2023, 2024, and 2025, respectively.190,374 
February 17, 2022Fiscal Year 2022-2024 Performance Share Program— $17.77 Shares awarded, if any, will vest immediately upon determination of award in 2025.194,330 (3)
May 11, 2022Deferred Stock Award-Board of Directors41,034 $14.62 Of the shares granted, 100% will vest on the earlier of the 2023 Annual Meeting or May 11, 2023.41,034 
Total978,720 
Date of grant Type of Award 
Net Shares
Granted (1)
 
Grant
Date Fair
Value
 Vesting Schedule Unvested Shares as of September 30, 2017 
January 3, 2014 Deferred Stock Award 86,769
 $16.56
 Of the shares granted, 20% vested or will vest on January 3, 2015, 2016, 2017, 2018, and 2019, respectively. 35,094
 
May 1, 2015 Deferred Stock Award 216,837
 $17.59
 Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 1, 2016, 2017, and 2018, respectively. 67,114
 
May 1, 2015 Fiscal Year 2015-2017 Performance Share Program —
 $18.42
 Shares awarded, if any, will vest immediately upon determination of award in 2018. 143,846
(2) 
May 24, 2016 Deferred Stock Award 233,011
 $19.91
 Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 24, 2017, 2018, and 2019, respectively. 133,092
 
May 24, 2016 Fiscal Year 2016-2018 Performance Share Program —
 $23.02
 Shares awarded, if any, will vest immediately upon determination of award in 2019. 103,790
(2) 
May 18, 2017 Deferred Stock Award-Board of Directors 26,187
 $21.38
 Of the shares granted, 100% will vest by May 18, 2018. 26,187
 
May 18, 2017 Deferred Stock Award 246,740
 $21.38
 Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 18, 2018, 2019, and 2020, respectively. 200,899
 
May 18, 2017 Fiscal Year 2017-2019 Performance Share Program —
 $30.45
 Shares awarded, if any, will vest immediately upon determination of award in 2020. 97,504
(2) 
Total         807,526
 


(1)
Amounts reflect the total grant to employees and independent directors, net of shares surrendered upon vesting to satisfy required minimum tax withholding obligations through September 30, 2017.
(2)
Estimated based on Piedmont's cumulative TSR for the respective performance period through September 30, 2017. Share estimates are subject to change in future periods based upon Piedmont's relative performance compared to its peers' total stockholder return.

(1)Amounts reflect the total original grant to employees and independent directors, net of shares surrendered upon vesting to satisfy required minimum tax withholding obligations through September 30, 2022.
(2)Includes a special, one-time deferred stock award to Piedmont's Chief Executive Officer effective on July 1, 2019, the date of his promotion to the position, which vests in ratable installments over a five year period beginning July 1, 2020.
(3)Estimated based on Piedmont's cumulative TSR for the respective performance period through September 30, 2022. Share estimates are subject to change in future periods based upon Piedmont's relative TSR performance compared to its peer group of office REITs.

During the three months ended September 30, 20172022 and 2016,2021, Piedmont recognized approximately $1.3$2.0 million and $2.0$1.8 million, respectively, of compensation expense related to stock awards, all of which is related to the amortization of unvested shares.and potential stock awards and fair value adjustment for liability awards. During the nine months ended September 30, 20172022 and 2016,2021, Piedmont recognized approximately $7.0$6.9 million and $7.7$8.2 million, respectively, of compensation expense related to stock awards, of which $5.2$5.8 million and $6.2$6.9 million is related to the amortization of unvested shares, respectively.and potential stock awards and fair value adjustment for liability awards. During the nine months endedSeptember 30, 2017, a net total2022, 318,686 shares (net of 254,873shares surrendered upon vesting to satisfy required minimum tax withholding obligations) were issued to employees and independent directors. As of September 30, 2017,2022, approximately $5.1$8.0 million of unrecognized compensation cost related to unvested deferredand potential stock awards remained, which Piedmont will record in its consolidated statements of income over a weighted-average vesting period of approximately one year.


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10.    Supplemental Disclosures for the Statement of Consolidated Cash Flows

Certain non-cash investing and financing activities for the nine months ended September 30, 2022 and 2021 (in thousands) are outlined below:
Nine Months Ended
September 30,
2022		September 30,
2021
Accrued capital expenditures and deferred lease costs$18,424 $40,697 
Change in accrued dividends$(26,048)$(25,682)
Change in accrued share repurchases as part of an announced plan$— $(685)
Accrued deferred financing costs$71 $495 
Accrued stock issuance costs$150 $— 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash and escrows as presented in the accompanying consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021, to the consolidated balance sheets for the respective period (in thousands):
20222021
Cash and cash equivalents, beginning of period$7,419 $7,331 
Restricted cash and escrows, beginning of period1,441 1,883 
Total cash, cash equivalents, and restricted cash and escrows as presented in the accompanying consolidated statement of cash flows, beginning of period$8,860 $9,214 
Cash and cash equivalents, end of period$10,653 $8,189 
Restricted cash and escrows, end of period2,191 6,093 
Total cash, cash equivalents, and restricted cash and escrows as presented in the accompanying consolidated statement of cash flows, end of period$12,844 $14,282 

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

11.Earnings Per Share


There are no adjustments to “Net income applicable to Piedmont” for the diluted earnings per share computations. Adjustments to the carrying amount of non-controlling interest as a result of the measurement of a redeemable equity participation do not impact net income or comprehensive income; rather such adjustments are treated as the repurchase of a non-controlling interest.



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 unvested deferred stock awards. Diluted weighted average number of common shares reflects the potential dilution under the treasury stock method that would occur if the remaining unvested deferredand potential stock awards vested and resulted in additional common shares outstanding. Unvested deferredand potential stock awards which are determined to be anti-dilutive are not included in the calculation of diluted weighted average common shares. For the three months ended September 30, 2022 and 2021, Piedmont calculated and excluded weighted average outstanding anti-dilutive shares of approximately 194,330 and 145,222, respectively, and for the nine months ended September 30, 2022 and 2021, Piedmont calculated and excluded weighted average outstanding anti-dilutive shares of 346,695 and 313,140, respectively.

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The following table reconciles the denominator for the basic and diluted earnings per share computations shown on the consolidated statements of income for the three and nine months endedSeptember 30, 20172022 and 2016,2021, respectively (in thousands):


 Three Months EndedNine Months Ended
 September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Weighted-average common shares – basic123,395124,136123,330124,057
Plus: Incremental weighted-average shares from time-vested deferred and performance stock awards302491301415
Weighted-average common shares – diluted123,697 124,627123,631124,472

12.    Segment Information
 Three Months Ended Nine Months Ended
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Weighted-average common shares – basic145,416 145,231 145,372 145,229
Plus: Incremental weighted-average shares from time-vested deferred and performance stock awards

303 438 308 372
Weighted-average common shares – diluted145,719 145,669 145,680 145,601
        
Common stock issued and outstanding as of period end    145,295 145,234


Piedmont's President and Chief Executive Officer has been identified as Piedmont's chief operating decision maker ("CODM"), as defined by GAAP. The CODM evaluates Piedmont's portfolio and assesses the ongoing operations and performance of its properties utilizing the following geographic segments: Atlanta, Dallas, Washington, D.C., Boston, Orlando, New York, and Minneapolis. These operating segments are also Piedmont’s reportable segments. As of September 30, 2022, Piedmont also owned two properties in Houston that do not meet the definition of an operating or reportable segment as the CODM does not regularly review these properties for purposes of allocating resources or assessing performance. Further, Piedmont does not maintain a significant presence or anticipate further investment in this market. These two properties are the primary contributors to accrual-based net operating income ("NOI") included in "Other" below. During the periods presented, there have been no material inter segment transactions. The accounting policies of the reportable segments are the same as Piedmont's accounting policies.


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


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

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

Three Months EndedNine Months Ended
September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Atlanta$34,026 $23,795 $92,558 $69,644 
Dallas28,379 26,478 81,881 82,903 
Washington, D.C.15,608 15,654 46,980 44,937 
Boston14,735 16,992 44,797 48,226 
Orlando15,131 13,074 43,513 41,453 
New York14,525 12,845 42,461 39,329 
Minneapolis15,470 15,788 45,987 46,142 
Total reportable segments137,874 124,626 398,177 372,634 
Other6,226 6,445 18,381 17,912 
Total Revenues$144,100 $131,071 $416,558 $390,546 

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

Three Months EndedNine Months Ended
September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Atlanta$21,627 $15,127 $58,354 $44,725 
Dallas15,325 16,246 47,189 50,267 
Washington, D.C.9,712 9,802 29,851 27,460 
Boston9,646 12,058 29,922 33,829 
Orlando8,865 7,656 26,206 25,743 
New York7,959 7,502 23,901 22,636 
Minneapolis8,072 8,089 23,950 24,556 
Total reportable segments81,206 76,480 239,373 229,216 
Other3,893 2,731 10,794 6,436 
Total NOI$85,099 $79,211 $250,167 $235,652 

A reconciliation of Net income applicable to Piedmont Operating Partnership, L.P. (the "Issuer"), Piedmont Office Realty Trust, Inc. (the "Guarantor"), andto NOI is presented below (in thousands):

Three Months EndedNine Months Ended
September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Net income applicable to Piedmont$3,331 $11,306 $71,261 $30,597 
Management fee revenue (1)
(177)(309)(743)(946)
Depreciation and amortization58,230 50,935 165,850 152,641 
General and administrative expenses6,590 6,955 21,212 22,417 
Interest expense17,244 12,450 44,917 37,375 
Other income(119)(2,121)(1,655)(6,423)
Gain on sale of real estate assets— — (50,674)— 
Net loss applicable to noncontrolling interests— (5)(1)(9)
Total NOI$85,099 $79,211 $250,167 $235,652 

(1)Presented net of related operating expenses incurred to earn such management fee revenue. Such operating expenses are a component of property operating costs in the other directly and indirectly owned subsidiaries of the Guarantor (the "Non-Guarantor Subsidiaries") is provided pursuant to the requirements of Rule 3-10 of Regulation S-X regarding financialaccompanying consolidated statements of guarantors and issuers of guaranteed registered securities. The Issuer is a wholly-owned subsidiary of the Guarantor, and all guarantees by the Guarantor of securities issued by the Issuer are full and unconditional. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Non-Guarantor Subsidiaries.income.



13.    Subsequent Event
Condensed Consolidated Balance Sheets
As of September 30, 2017
(in thousands)Issuer Guarantor Non-Guarantor Subsidiaries Eliminations Consolidated
Assets:         
Real estate assets, at cost:         
Land$43,929
 $—
 $571,005
 $—
 $614,934
Buildings and improvements, less accumulated depreciation206,700
 —
 2,516,763
 (300) 2,723,163
Intangible lease assets, less accumulated amortization317
 —
 78,383
 —
 78,700
Construction in progress797
 —
 8,160
 —
 8,957
Total real estate assets251,743
 —
 3,174,311
 (300) 3,425,754
Investments in and amounts due from unconsolidated joint ventures49
 —
 —
 —
 49
Cash and cash equivalents25,884
 150
 10,074
 —
 36,108
Tenant and straight-line rent receivables, net17,556
 —
 177,855
 —
 195,411
Advances to affiliates6,257,405
 1,576,739
 —
 (7,834,144) —
Investment in subsidiary—
 3,538,945
 177
 (3,539,122) —
Notes receivable88,910
 —
 144,500
 (233,410) —
Prepaid expenses, restricted cash, escrows, and other assets4,905
 38
 25,358
 (809) 29,492
Goodwill98,918
 —
 —
 —
 98,918
Interest rate swaps34
 —
 —
 —
 34
Deferred lease costs, net13,927
 —
 260,957
 —
 274,884
Total assets$6,759,331
 $5,115,872
 $3,793,232
 $(11,607,785) $4,060,650
Liabilities:         
Debt, net$1,511,587
 $—
 $425,409
 $(233,410) $1,703,586
Accounts payable, accrued expenses, and accrued capital expenditures16,546
 652
 91,731
 (809) 108,120
Advances from affiliates790,748
 5,226,546
 1,915,105
 (7,932,399) —
Deferred income3,728
 —
 26,242
 —
 29,970
Intangible lease liabilities, net—
 —
 41,064
 —
 41,064
Interest rate swaps3,915
 —
 —
 —
 3,915
Total liabilities2,326,524
 5,227,198
 2,499,551
 (8,166,618) 1,886,655
Stockholders’ Equity:         
Common stock—
 1,453
 —
 —
 1,453
Additional paid-in capital3,534,946
 3,679,578
 1,304
 (3,539,122) 3,676,706
Retained/(cumulative distributions in excess of) earnings892,461
 (3,792,357) 1,290,513
 97,955
 (1,511,428)
Other comprehensive loss5,400
 —
 —
 —
 5,400
Piedmont stockholders’ equity4,432,807
 (111,326) 1,291,817
 (3,441,167) 2,172,131
Noncontrolling interest—
 —
 1,864
 —
 1,864
Total stockholders’ equity4,432,807
 (111,326) 1,293,681
 (3,441,167) 2,173,995
Total liabilities and stockholders’ equity$6,759,331
 $5,115,872
 $3,793,232
 $(11,607,785) $4,060,650


Condensed Consolidated Balance Sheets
As of December 31, 2016
(in thousands)Issuer Guarantor Non-Guarantor Subsidiaries Eliminations Consolidated
Assets:         
Real estate assets, at cost:         
Land$46,133
 $—
 $571,005
 $—
 $617,138
Buildings and improvements, less accumulated depreciation228,194
 —
 2,526,212
 (300) 2,754,106
Intangible lease assets, less accumulated amortization725
 —
 98,970
 —
 99,695
Construction in progress145
 —
 34,669
 —
 34,814
Real estate assets held for sale, net—
 —
 225,939
 —
 225,939
Total real estate assets275,197
 —
 3,456,795
 (300) 3,731,692
Investments in and amounts due from unconsolidated joint ventures7,360
 —
 —
 —
 7,360
Cash and cash equivalents3,674
 150
 3,168
 —
 6,992
Tenant and straight-line rent receivables, net20,159
 —
 170,124
 —
 190,283
Advances to affiliates6,464,135
 1,315,616
 —
 (7,779,751) —
Investment in subsidiary—
 3,630,564
 181
 (3,630,745)
—
Notes receivable88,910
 —
 95,790
 (184,700) —
Prepaid expenses, restricted cash, escrows, and other assets6,189
 —
 20,121
 (1,897) 24,413
Goodwill98,918
 —
 —
 —
 98,918
Deferred lease costs, net16,550
 —
 282,145
 —
 298,695
Other assets held for sale, net—
 —
 9,815
 —
 9,815
Total assets$6,981,092
 $4,946,330
 $4,038,139
 $(11,597,393) $4,368,168
Liabilities:         
Debt, net$1,701,933
 $—
 $503,242
 $(184,700) $2,020,475
Accounts payable, accrued expenses, and accrued capital expenditures17,365
 31,230
 118,712
 (1,897) 165,410
Advances from affiliates708,340
 5,071,521
 2,098,146
 (7,878,007) —
Deferred income5,206
 —
 23,200
 —
 28,406
Intangible lease liabilities, net—
 —
 48,005
 —
 48,005
Interest rate swaps8,169
 —
 —
 —
 8,169
Total liabilities2,441,013
 5,102,751
 2,791,305
 (8,064,604) 2,270,465
Stockholders’ Equity:         
Common stock—
 1,452
 —
 —
 1,452
Additional paid-in capital3,626,564
 3,676,000
 1,309
 (3,630,745) 3,673,128
Retained/(cumulative distributions in excess of) earnings911,411
 (3,833,873) 1,243,643
 97,956
 (1,580,863)
Other comprehensive income2,104
 —
 —
 —
 2,104
Piedmont stockholders’ equity4,540,079
 (156,421) 1,244,952
 (3,532,789) 2,095,821
Noncontrolling interest—
 —
 1,882
 —
 1,882
Total stockholders’ equity4,540,079
 (156,421) 1,246,834
 (3,532,789) 2,097,703
Total liabilities and stockholders’ equity$6,981,092
 $4,946,330
 $4,038,139
 $(11,597,393) $4,368,168

Condensed Consolidated Statements of Income
For the three months ended September 30, 2017
(in thousands)Issuer Guarantor Non-Guarantor Subsidiaries Eliminations Consolidated
Revenues:         
Rental income$10,232
 $—
 $103,544
 $(426) $113,350
Tenant reimbursements2,376
 —
 21,562
 (142) 23,796
Property management fee revenue—
 —
 4,553
 (4,112) 441
 12,608
 —
 129,659
 (4,680) 137,587
Expenses:         
Property operating costs5,372
 —
 53,398
 (4,680) 54,090
Depreciation3,199
 —
 26,801
 —
 30,000
Amortization740
 —
 17,383
 —
 18,123
General and administrative1,539
 77
 5,002
 —
 6,618
 10,850
 77
 102,584
 (4,680) 108,831
Real estate operating income/(loss)1,758
 (77) 27,075
 —
 28,756
Other income (expense):         
Interest expense(13,795) —
 (6,354) 3,966
 (16,183)
Other income/(expense)2,404
 —
 1,852
 (3,966) 290
Equity in income of unconsolidated joint ventures3,754
 —
 —
 —
 3,754
 (7,637) —
 (4,502) —
 (12,139)
Income/(loss) from continuing operations(5,879) (77) 22,573
 —
 16,617
Discontinued operations:         
Operating income—
 —
 —
 —
 —
Income from discontinued operations—
 —
 —
 —
 —
Gain/(loss) on sale of real estate assets, net(4) —
 109,516
 —
 109,512
Net income/(loss)(5,883) (77) 132,089
 —
 126,129
Plus: Net income applicable to noncontrolling interest—
 —
 4
 —
 4
Net income/(loss) applicable to Piedmont$(5,883) $(77) $132,093
 $—
 $126,133

Condensed Consolidated Statements of Income
For the three months ended September 30, 2016
(in thousands)Issuer Guarantor Non-Guarantor Subsidiaries Eliminations Consolidated
Revenues:         
Rental income$12,862
 $—
 $101,423
 $(464) $113,821
Tenant reimbursements3,430
 —
 20,970
 (237) 24,163
Property management fee revenue—
 —
 3,985
 (3,484) 501
 16,292
 —
 126,378
 (4,185) 138,485
Expenses:         
Property operating costs7,820
 —
 51,287
 (4,240) 54,867
Depreciation3,617
 —
 27,993
 —
 31,610
Amortization863
 —
 17,777
 —
 18,640
Impairment loss on real estate assets—
 —
 22,951
 —
 22,951
General and administrative7,187
 83
 9,016
 (8,857) 7,429
 19,487
 83
 129,024
 (13,097) 135,497
Real estate operating income/(loss)(3,195) (83) (2,646) 8,912
 2,988
Other income (expense):         
Interest expense(11,799) —
 (6,949) 3,252
 (15,496)
Other income/(expense)2,608
 —
 (76) (3,252) (720)
Net recoveries from casualty events—
 —
 34
 —
 34
Equity in income of unconsolidated joint ventures129
 —
 —
 —
 129
 (9,062) —
 (6,991) —
 (16,053)
Income/(loss) from continuing operations(12,257) (83) (9,637) 8,912
 (13,065)
Discontinued operations:         
Operating income—
 —
 1
 —
 1
Income from discontinued operations—
 —
 1
 —
 1
Gain/(loss) on sale of real estate assets, net134
 —
 (191) —
 (57)
Net income/(loss)(12,123) (83) (9,827) 8,912
 (13,121)
Plus: Net income applicable to noncontrolling interest—
 —
 14
 —
 14
Net income/(loss) applicable to Piedmont$(12,123) $(83) $(9,813) $8,912
 $(13,107)


Condensed Consolidated Statements of Income
For the nine months ended September 30, 2017
(in thousands)Issuer Guarantor Non-Guarantor Subsidiaries Eliminations Consolidated
Revenues:         
Rental income$32,749
 $—
 $329,669
 $(1,370) $361,048
Tenant reimbursements8,341
 —
 64,372
 (373) 72,340
Property management fee revenue—
 —
 13,753
 (12,412) 1,341
 41,090
 —
 407,794
 (14,155) 434,729
Expenses:         
Property operating costs17,027
 —
 162,381
 (14,155) 165,253
Depreciation9,943
 —
 80,884
 —
 90,827
Amortization2,399
 —
 55,453
 —
 57,852
General and administrative4,798
 261
 18,191
 —
 23,250
 34,167
 261
 316,909
 (14,155) 337,182
Real estate operating income/(loss)6,923
 (261) 90,885
 —
 97,547
Other income (expense):         
Interest expense(43,049) —
 (20,868) 11,256
 (52,661)
Other income/(expense)6,873
 —
 4,611
 (11,256) 228
Equity in income of unconsolidated joint ventures3,872
 —
 —
 —
 3,872
 (32,304) —
 (16,257) —
 (48,561)
Income/(loss) from continuing operations(25,381) (261) 74,628
 —
 48,986
Discontinued operations:         
Operating income—
 —
 —
 —
 —
Income from discontinued operations—
 —
 —
 —
 —
Gain on sale of real estate assets, net6,430
 —
 109,521
 —
 115,951
Net income/(loss)(18,951) (261) 184,149
 —
 164,937
Plus: Net income applicable to noncontrolling interest—
 —
 10
 —
 10
Net income/(loss) applicable to Piedmont$(18,951) $(261) $184,159
 $—
 $164,947

Condensed Consolidated Statements of Income
For the nine months ended September 30, 2016
(in thousands)Issuer Guarantor Non-Guarantor Subsidiaries Eliminations Consolidated
Revenues:         
Rental income$42,990
 $—
 $299,319
 $(1,983) $340,326
Tenant reimbursements10,455
 —
 59,950
 (405) 70,000
Property management fee revenue—
 —
 12,480
 (11,002) 1,478
 53,445
 —
 371,749
 (13,390) 411,804
Expenses:         
Property operating costs24,583
 —
 150,369
 (13,514) 161,438
Depreciation12,993
 —
 81,955
 —
 94,948
Amortization2,854
 —
 50,994
 —
 53,848
Impairment loss of real estate assets8,259
 —
 25,642
 —
 33,901
General and administrative22,802
 251
 28,881
 (28,416) 23,518
 71,491
 251
 337,841
 (41,930) 367,653
Real estate operating income/(loss)(18,046) (251) 33,908
 28,540
 44,151
Other income (expense):         
Interest expense(36,159) —
 (20,354) 8,219
 (48,294)
Other income/(expense)7,008
 282
 462
 (8,219) (467)
Net recoveries from casualty events—
 —
 34
 —
 34
Equity in income of unconsolidated joint ventures354
 —
 —
 —
 354
 (28,797) 282
 (19,858) —
 (48,373)
Net income/(loss)(46,843) 31
 14,050
 28,540
 (4,222)
Discontinued operations:         
Operating income—
 —
 —
 —
 —
Income from discontinued operations—
 —
 —
 —
 —
Gain on sale of real estate assets, net30,096
 —
 43,662
 —
 73,758
Net income/(loss)(16,747) 31
 57,712
 28,540
 69,536
Plus: Net income applicable to noncontrolling interest—
 —
 7
 —
 7
Net income/(loss) applicable to Piedmont$(16,747) $31
 $57,719
 $28,540
 $69,543


Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2017
(in thousands)Issuer Guarantor Non-Guarantor Subsidiaries Eliminations Consolidated
Net Cash Provided by/(Used in) Operating Activities$(15,467) $4,335
 $187,464
 $—
 $176,332
          
Cash Flows from Investing Activities:         
Investment in real estate assets and real estate related intangibles, net of accruals(793) —
 (64,614) —
 (65,407)
Intercompany note receivable—
 —
 (48,710) 48,710
 —
Net sales proceeds from wholly-owned properties23,028
 —
 352,171
 —
 375,199
Net sales proceeds received from unconsolidated joint ventures12,334
 —
 —
 —
 12,334
Investments in unconsolidated joint ventures(1,162) —
 —
 —
 (1,162)
Deferred lease costs paid(858) —
 (18,561) —
 (19,419)
Net cash provided by investing activities32,549
 —
 220,286
 48,710
 301,545
Cash Flows from Financing Activities:         
Debt issuance costs paid(102) —
 1
 —
 (101)
Proceeds from debt147,000
 —
 —
 —
 147,000
Repayments of debt(325,000) —
 (141,046) —
 (466,046)
Intercompany note payable(14,289) —
 62,999
 (48,710) —
Costs of issuance of common stock—
 (97) —
 —
 (97)
Value of shares withheld to pay tax obligations related to employee stock compensation—
 (3,385) —
 —
 (3,385)
Repurchases of common stock as part of announced plan—
 (3,895) —
 —
 (3,895)
(Distributions to)/repayments from affiliates197,519
 125,271
 (322,790) —
 —
Dividends paid and discount on dividend reinvestments—
 (122,229) (8) —
 (122,237)
Net cash used in financing activities5,128
 (4,335) (400,844) (48,710) (448,761)
Net increase in cash and cash equivalents22,210
 —
 6,906
 —
 29,116
Cash and cash equivalents, beginning of period3,674
 150
 3,168
 —
 6,992
Cash and cash equivalents, end of period$25,884
 $150
 $10,074
 $—
 $36,108

Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2016
(in thousands)Issuer Guarantor Non-Guarantor Subsidiaries Eliminations Consolidated
Net Cash Provided by/(Used in) Operating Activities$(18,977) $4,121
 $158,352
 $28,540
 $172,036
          
Cash Flows from Investing Activities:         
Investment in real estate assets, consolidated joint venture, and real estate related intangibles, net of accruals(24,255) —
 (296,884) —
 (321,139)
Intercompany note receivable440
 —
 (71,900) 71,460
 —
Net sales proceeds from wholly-owned properties187,192
 —
 117,710
 —
 304,902
Deferred lease costs paid(2,021) —
 (13,324) —
 (15,345)
Net cash provided by/(used in) investing activities161,356
 —
 (264,398) 71,460
 (31,582)
Cash Flows from Financing Activities:         
Debt issuance costs paid(212) —
 —
 —
 (212)
Proceeds from debt552,000
 —
 —
 —
 552,000
Repayments of debt(421,000) —
 (168,532) —
 (589,532)
Intercompany note payable(9,600) —
 81,060
 (71,460) —
Costs of issuance of common stock—
 (239) —
 —
 (239)
Value of shares withheld to pay tax obligations related to employee stock compensation—
 (2,328) —
 —
 (2,328)
Repurchases of common stock as part of announced plan—
 (7,943) —
 —
 (7,943)
(Distributions to)/repayments from affiliates(262,150) 97,990
 192,700
 (28,540) —
Dividends paid and discount on dividend reinvestments—
 (91,601) (8) —
 (91,609)
Net cash provided by/(used in) financing activities(140,962) (4,121) 105,220
 (100,000) (139,863)
Net increase/(decrease) in cash and cash equivalents1,417
 —
 (826) —
 591
Cash and cash equivalents, beginning of period2,174
 150
 3,117
 —
 5,441
Cash and cash equivalents, end of period$3,591
 $150
 $2,291
 $—
 $6,032

13.Subsequent Events

Fourth Quarter Dividend Declaration


On October 31, 2017,25, 2022, the Boardboard of Directorsdirectors of Piedmont declared dividendsa dividend for the fourth quarter 2017of 2022 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on November 24, 2017.25, 2022. Such dividends are todividend will be paid on January 4, 2018.3, 2023.



25
Table of Contents
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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,” "we," "our," or "us"). See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I, as well as the consolidated financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Amended Annual Report on Form 10-K/A10-K for the year ended December 31, 2016.2021.


Liquidity and Capital Resources

We intend to use cash on hand, cash flows generated from the operation of our properties, net proceeds from the disposition of select properties, and borrowings under our $500$600 Million Unsecured 20152022 Line of Credit and proceeds from selective property dispositions as our primary sources of immediate liquidity. During the quarter ended September 30, 2017, we sold the Two Independence Square building in Washington, D.C., which generated net sales proceeds of approximately $352 million. We used the proceeds to pay off the balance outstanding on our $500 Million Unsecured 2015 Line of Credit, as well as to repay the $140 Million WDC Fixed-Rate Loans. As a result, as of the date of this filing, in addition to approximately $36 million cash on hand, we have the full capacity under our $500 million line of credit available. From time to time,When necessary, we may also seek additionalother new secured or unsecured borrowings from third-partythird party lenders or issue other debt or equity securities as additional sources of capital. The availabilitynature and attractivenesstiming of terms for these additional sources of capital arewill be highly dependent on market conditions. We believe that we have sufficient liquidity to meet our obligations for the foreseeable future.

During the quarter ended September 30, 2022, we acquired 1180 Peachtree Street, an iconic, 41-story, Class AA, LEED Platinum, trophy office building located at the epicenter of Midtown Atlanta, Georgia, for a net purchase price of approximately $465 million, comprised of approximately $268 million in cash and the assumption of an existing $197 million, 4.10% mortgage secured by the property. The cash portion of the net purchase price was funded primarily from the proceeds of a $200 million, unsecured, floating rate, term loan put in place during the three months ended September 30, 2022 and bearing interest at Adjusted Term SOFR + 100 bps. On a longer-term basis, we anticipate using the net sales proceeds from the disposition of non-strategic assets over the next several quarters to ultimately fund the acquisition and maintain an approximately leverage-neutral balance sheet.

Our most consistent use of capital has historically been, and we believe will continue to be, to fund capital expenditures for our existing portfolio of properties. During the nine months ended September 30, 20172022 and 20162021 we incurred the following types of capital expenditures (in thousands):


Nine Months Ended
September 30, 2022September 30, 2021
Capital expenditures for redevelopment/renovations$49,592 $39,422 
Other capital expenditures, including building and tenant improvements45,915 44,055 
Total capital expenditures (1)
$95,507 $83,477 
 Nine Months Ended
 September 30, 2017 September 30, 2016
    
    
Capital expenditures for new development$4,794
 $13,116
Capital expenditures for redevelopment/renovations714
 7,344
Other capital expenditures, including tenant improvements59,899
 67,931
Total capital expenditures(1)
$65,407
 $88,391


(1)
Of the total amounts paid, approximately $0.2 million and $5.1(1)Of the total amounts paid, approximately $5.2 million and $4.5 million relates to soft costs such as capitalized interest, payroll, and other property operating costs such as capitalized interest, payroll, and other general and administrative expenses for the nine months ended September 30, 2017 and 2016, respectively.

"Capital expenditures for new development" relate to new office development projects. Expenditures during the nine months ended September 30, 2017 pertained to 500 TownPark, a now-complete, 134,000 square foot, 90% leased, four-story office building located adjacent to our existing 400 TownPark building in Lake Mary, Florida, as well as initial pre-construction costs for three separate land parcels in our portfolio. During the nine months ended September 30, 2016, our active development projects consisted of Enclave Place, our now-complete, 301,000 square foot, 11-story office tower in Houston, Texas,2022 and the previously mentioned 500 TownPark building.2021, respectively.


"Capital expenditures for redevelopment/renovations" during both the nine months ended September 30, 20172022 and 20162021 related to a now-complete redevelopment project that convertedbuilding upgrades, primarily to the lobbies and the addition of tenant amenities at our 3100 Clarendon Boulevard60 Broad Street building in Arlington, Virginia from governmental use into Class A private sector office space.New York City; our 200 South Orange Avenue building in Orlando, Florida; and our Galleria buildings in Atlanta, Georgia, among others.


"Other capital expenditures" includeexpenditures, including building and tenant improvements" includes all other capital expenditures during the period and areis typically comprised of tenant and building improvements necessary to lease, maintain, or provide enhancements to our existing portfolio of office properties.


We classifyGiven that our tenant and building improvements into two categories: (i) improvements which maintainoperating model sometimes results in leases for large blocks of space to credit-worthy tenants, our leasing success can result in capital outlays that vary significantly from one reporting period to another depending upon the building's existing asset value and its revenue generating capacity (“non-incremental capital expenditures”) and (ii) improvements which incrementally enhancespecific leases executed. For leases executed during the building's asset value by expanding its revenue generating capacity (“incremental capital expenditures”). Commitments for funding non-incremental capital expendituresnine months ended September 30, 2022, we committed to spend approximately $4.93 per square foot per year of lease term for tenant improvements overimprovement allowances and lease commissions (net of expired lease commitments) as compared to $3.95 (net of expired lease commitments) for the next five years related to our existingnine months ended September 30, 2021. Commitments per square foot per year of lease portfolio total approximately $32.1 million. The timingterm for tenant improvement allowances and lease commissions (net of expired lease commitments) for the nine months ended September 30, 2021 were unusually low as they reflected the 330,000 square foot, five-year extension of the fundingNew York City lease at our 60 Broad Street asset, which did not include a tenant improvement allowance.

26
Table of these commitments is largely dependent upon tenant requests for reimbursement; however, we anticipate that a significant portion of these improvement allowances may be requested over the next three years based on when the underlying leases commence. In some instances, these obligations may expire withContents

the respective lease without further recourse to us. Additionally, commitments for incremental capital expenditures for tenant improvements associated with executed leases totaled approximately $15.2 million as of September 30, 2017.

In addition to the amounts described above to whichthat we have already committed to as a part of executed leases, we also anticipate continuing to incur similar market-based tenant improvement allowances and leasing commissions in conjunction with procuring future leases for our existing portfolio of properties, including recently completed development and redevelopment projects. Given that our operating model frequently results in leases for large blocks of space to credit-worthy tenants, our leasing success can result in significant capital outlays. For example, for leases executed during the nine months ended September 30, 2017, we committed to spend approximately $3.65 and $1.47 per square foot per year of lease term for tenant improvement allowances and leasing commissions, respectively, and for those executed during the nine months ended September 30, 2016, we committed to spend approximately $3.68 and $1.54 per square foot per year of lease term for tenant improvement allowances and leasing commissions, respectively.properties. Both the timing and magnitude of expenditures related to future leasing activity can vary due to a number of factors and are highly dependent on the size of the leased square footage and the competitive market conditions of the particular office market at the time a given lease is negotiated and signed.being negotiated.


There are several other uses of capital that may arise as part of our ongoingtypical operations. Although we currently have no debt maturing until May of 2018, on a longer term basis we expect to use capital to make repayments of our line of credit or other maturing debt obligations as they become due. Additionally, subjectSubject to the identification and availability of attractive investment opportunities within our targeted sub-markets and our ability to consummate such acquisitions on satisfactory terms, acquiring new assets consistent with our investment strategy could also be a significant use of capital. Finally, our Board of Directors has authorized a stock repurchase program, pursuant to which weWe may also use capital resources to repurchase additional shares of our common stock under our stock repurchase program when we believe the stock is trading disparately from timeour peers and at a significant discount to time.net asset value or when we otherwise believe such stock repurchases are prudent. As of September 30, 2022, we had approximately $150.5 million of remaining capacity under the program which may be used for share repurchases through February 2024. Finally, we have two scheduled debt maturities, the $200 Million Unsecured Term Loan Facility and the $350 Million Unsecured Senior Notes, within the next twelve months, which we intend to repay through sales of select properties, debt refinancing, cash on hand, cash flow from operations, and/or draws under our existing $600 Million Unsecured 2022 Line of Credit.


We may also use capital resources to pay dividends to our stockholders. 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; (ii) our expectations of future cash flows; (iii) our determination of near-term cash needs for debt repayments, development projects, and selective acquisitions of new properties; (iv) the timing of significant expenditures for tenant improvements, leasing commissions, building redevelopment projects, and general property capital improvements; (v) long-term dividend payout ratios for comparable companies; (vi) our ability to continue to access additional sources of capital, including potential sales of our properties; and (vii) the amount required to be distributed to maintain our tax status as a REIT. Additionally, given relatively attractive real estate values in recent years, we were a net seller of assets during 2016, and expect to continue to be a net seller of assets in the current year, which may result in large one-time, tax-basis capital gains that cannot be offset by tax-basis capital losses or by tax deferred structures, such as Section 1031 exchanges. As a result, we may make special dividend distributions in addition to our normal quarterly distributions, if such distributions are required to maintain our tax status as a REIT. With the fluctuating nature of cash flows and expenditures, we may periodically borrow funds on a short-term basis to cover timing differences in cash receipts and cash disbursements.


Results of Operations


Overview


We recognizedNet income applicable to common stockholders for the three months ended September 30, 2022 was approximately $3.3 million, or $0.03 per diluted share, as compared with net income applicable to common stockholders of $0.87$11.3 million, or $0.09 per fully diluted share, for the three months ended September 30, 2017,2021. The decrease reflects a $7.3 million increase in depreciation and amortization expense primarily resulting from acquisition activity during the current period, as compared withwell as a net loss of ($0.09) per fully diluted share$4.8 million increase in interest expense. The increase in interest expense was driven by increased interest rates on our variable rate debt, as well as a higher average debt balance outstanding during the quarter. Other income also decreased approximately $2.0 million for the three months ended September 30, 2016. The increase was primarily2022 as compared to the three months ended September 30, 2021 due to the salepayoff of notes receivable due from the Two Independence Square building, generating approximately $109.5 million, or $0.75 per diluted share, in gain on sale of real estate assets during the current period. The remainder of the increase is primarily attributable to the non-recurrence of impairment charges which arose in the prior period, and the recognition of a gain on the salepurchaser of our last unconsolidated joint venture propertyNew Jersey Portfolio in the current period.March of 2022.


27
Comparison of the three months ended September 30, 20172022 versus the three months endedSeptember 30, 20162021


Income from Continuing Operations


The following table sets forth selected data from our consolidated statements of income for the three months ended September 30, 20172022 and 2016,2021, respectively, as well as each balance as a percentage of total revenues for the same periods presented (dollars in millions):


September 30,
2022		% of RevenuesSeptember 30,
2021		% of RevenuesVariance
Revenue:
Rental and tenant reimbursement revenue$139.5 $127.4 $12.1 
Property management fee revenue0.3 0.6 (0.3)
Other property related income4.2 3.0 1.2 
Total revenues144.0 100 %131.0 100 %13.0 
Expense:
Property operating costs59.0 41 %51.7 39 %7.3 
Depreciation34.9 24 %30.5 23 %4.4 
Amortization23.3 16 %20.4 16 %2.9 
General and administrative6.6 5 %7.0 5 %(0.4)
123.8 109.6 14.2 
Other income (expense):
Interest expense(17.2)12 %(12.4)10 %(4.8)
Other income/(expense)0.3 — %2.3 2 %(2.0)
Net income$3.3 2 %$11.3 9 %$(8.0)
 September 30,
2017		 % of Revenues September 30,
2016		 % of Revenues Variance
Revenue:         
Rental income$113.4
   $113.8
   $(0.4)
Tenant reimbursements23.8
   24.2
   (0.4)
Property management fee revenue0.4
   0.5
   (0.1)
Total revenues137.6
 100% 138.5
 100% (0.9)
Expense:         
Property operating costs54.1
 39% 54.9
 40% (0.8)
Depreciation30.0
 22% 31.6
 23% (1.6)
Amortization18.1
 13% 18.6
 13% (0.5)
Impairment loss on real estate assets—
 —% 23.0
 17% (23.0)
General and administrative6.6
 5% 7.4
 5% (0.8)
Real estate operating income28.8
 21% 3.0
 2% 25.8
Other income (expense):         
Interest expense(16.2) 12% (15.5) 11% (0.7)
Other income/(expense)0.3
 —% (0.7) —% 1.0
Equity in income of unconsolidated joint ventures3.7
 3% 0.1
 —% 3.6
Income/(loss) from continuing operations$16.6
 12% $(13.1) 9% $29.7
Gain/(loss) on sale of real estate assets, net$109.5
   $(0.1)   $109.6


Revenue


Rental income decreasedand tenant reimbursement revenue increased approximately $0.4$12.1 million for the three months ended September 30, 2017, as compared to the same period in the prior year. Net property sales activity since July 1, 2016 contributed approximately $2.7 million of the decrease. Net leasing activity commencing during 2016 and 2017 across our portfolio, including our recently constructed 500 TownPark building which became fully operational in 2017, largely offset the decrease.

Tenant reimbursements decreased approximately $0.4 million for the three months ended September 30, 20172022, as compared to the same period in the prior year. The decrease isincrease was primarily attributabledue to netcapital recycling activity (the 1180 Peachtree Street purchase), rental rate increases associated with recent leasing activity across the portfolio, and higher tenant reimbursements as a result of higher recoverable operating expenses as compared to the prior period.

Other property sales activity since July 1, 2016.

Expense

Property operating costs decreasedrelated income increased approximately $0.8$1.2 million for the three months ended September 30, 2017 compared to the same period in the prior year. Net property sales activity since July 1, 2016 contributed approximately $2.0 million of the decrease, offset by higher overall recoverable costs compared to the prior period in our existing portfolio.

Depreciation expense decreased approximately $1.6 million for the three months ended September 30, 2017 compared to the same period in the prior year. Net property sales activity since July 1, 2016 contributed approximately $2.2 million of the decrease, primarily driven by the sale of our Two Independence Square building. This decrease was partially offset by depreciation on additional building and tenant improvements placed in service during the same period.

Amortization expense decreased approximately $0.5 million for the three months ended September 30, 2017 compared to the same period in the prior year. We recognized approximately $2.6 million less amortization expense2022 as compared to the prior period as a result of certain lease intangible assets at our existing properties becoming fully amortized subsequent to July 1, 2016. However,

this decrease was largely offset by additional amortization of intangible lease assets recognized as part of acquiring new properties during 2016.

During the three months ended September 30, 2016, we recognized non-recurring impairment charges related to our 9200 and 9211 Corporate Boulevard buildings in Rockville, Maryland totaling approximately $23.0 million (see Note 7).

General and administrative expenses decreased approximately $0.8 million for the three months ended September 30, 2017 compared to the same period in the prior year primarily due to decreased accruals for potential performance-based stock compensation.increased parking revenue associated with properties acquired during the twelve months ended September 30, 2022 and higher transient parking volume at our buildings during the current period.


Other Income (Expense)Expense


Interest expenseProperty operating costs increased approximately $0.7$7.3 million for the three months ended September 30, 20172022, as compared to the same period in the prior year. Approximately $1.4 million of the increase isThe variance was primarily due to placing our development projects into service in 2017, which causes associated interest to be expensed rather than be capitalizedhigher recoverable operating expenses such as part ofjanitorial and utilities resulting from higher tenant utilization during the development. A net decrease in our average debt outstanding for the three months ended September 30, 2017current period as compared to the prior period, partially offset this increase.period. Higher real estate taxes in certain jurisdictions associated with increased assessed property values also contributed to the increase, as well as acquisition activity completed during the twelve months ended September 30, 2022.


Other income/(expense)Depreciation expense increased approximately $1.0$4.4 million for the three months ended September 30, 20172022 as compared to the same period in the prior year. The increase was primarily due to additional building and tenant improvements placed in service subsequent to July 1, 2021 as well as capital recycling activity during the twelve months ended September 30, 2022.

Amortization expense increased approximately $2.9 million for the three months ended September 30, 2022 as compared to the same period in the prior year primarily due to additional amortization associated with property acquisitions during the twelve months ended September 30, 2022, partially offset by certain lease intangible assets at our existing properties becoming fully amortized during the twelve months ended September 30, 2022.

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General and administrative expense decreased approximately $0.4 million for the three months ended September 30, 2022 as compared to the same period in the prior year, primarily reflecting decreased accruals for potential performance-based compensation.

Other Income (Expense)

Interest expense increased approximately $4.8 million for the three months ended September 30, 2022 as compared to the same period in the prior year primarily driven by a higher average debt balance outstanding during the quarter as a result of the purchase of 1180 Peachtree Street, as well as increased interest rates on our variable rate debt.

Other income/(expense) decreased approximately $2.0 million for the three months ended September 30, 2022 as compared to the same period in the prior year due to the non-recurrencepayoff of costs incurred innotes receivable due from the prior period associated with the acquisition of new properties during the three months ended September 30, 2016.

Equity in income of unconsolidated joint ventures increased approximately $3.6 million for the three months ended September 30, 2017 as compared to the same period in the prior year. The increase is due primarily to the recognitionpurchaser of our portionNew Jersey Portfolio in March of the gain on the sale2022.
29
Table of our last unconsolidated joint venture property, the 8560 Upland Drive building in Denver, Colorado.Contents

Results of Operations
Gain on sale of real estate assets, net, during the current year represents the gain recognized on the sale of the Two Independence Square building during the three months ended September 30, 2017.


Comparison of the accompanying consolidated statements of income for the nine months ended September 30, 20172022 versus the nine months endedSeptember 30, 20162021

Income from Continuing Operations


The following table sets forth selected data from our consolidated statements of income for the nine months ended September 30, 20172022 and 2016,2021, respectively, as well as each balance as a percentage of total revenues for the same period presented (dollars in millions):


September 30,
2022		% of RevenuesSeptember 30,
2021		% of RevenuesVariance
Revenue:
Rental and tenant reimbursement revenue$403.6 $380.3 $23.3 
Property management fee revenue1.3 1.9 (0.6)
Other property related income11.6 8.3 3.3 
Total revenues416.5 100 %390.5 100 %26.0 
Expense:
Property operating costs166.3 40 %154.8 40 %11.5 
Depreciation98.8 23 %88.6 23 %10.2 
Amortization67.0 16 %64.0 16 %3.0 
General and administrative21.2 5 %22.4 5 %(1.2)
353.3 329.8 23.5 
Other income (expense):
Interest expense(44.9)11 %(37.4)10 %(7.5)
Other income2.3 — %7.3 2 %(5.0)
Gain on sale of real estate assets50.7 12 %— — %50.7 
Net income$71.3 17 %$30.6 8 %$40.7 
 September 30,
2017		 % of Revenues September 30,
2016		 % of Revenues Variance
Revenue:         
Rental income$361.0
   $340.3
   $20.7
Tenant reimbursements72.3
   70.0
   2.3
Property management fee revenue1.4
   1.5
   (0.1)
Total revenues434.7
 100% 411.8
 100% 22.9
Expense:         
Property operating costs165.3
 39% 161.4
 39% 3.9
Depreciation90.8
 21% 94.9
 23% (4.1)
Amortization57.8
 13% 53.9
 13% 3.9
Impairment loss on real estate assets—
 —% 33.9
 8% (33.9)
General and administrative23.3
 5% 23.5
 6% (0.2)
Real estate operating income97.5
 22% 44.2
 11% 53.3
Other income (expense):         
Interest expense(52.6) 12% (48.3) 12% (4.3)
Other income/(expense)0.2
 —% (0.5) —% 0.7
Equity in income of unconsolidated joint ventures3.9
 1% 0.4
 —% 3.5
Income/(loss) from continuing operations$49.0
 11% $(4.2) 1% $53.2
Gain on sale of real estate assets, net$116.0
   $73.8
   $42.2


Revenue


Rental incomeand tenant reimbursement revenue increased approximately $20.7$23.3 million for the nine months ended September 30, 20172022 as compared to the same period in the prior year. The increase iswas primarily attributabledue to new leases commencing during 2016capital recycling activity, rental rate increases associated with recent leasing activity across the portfolio, and 2017 across our portfolio, partially offset by nethigher tenant reimbursements as a result of higher recoverable operating expenses as compared to the prior period.

Other property sales activity since January 1, 2016.

Tenant reimbursementsrelated income increased approximately $2.3$3.3 million for the nine months ended September 30, 20172022 as compared to the same period in the prior year primarily due to higher transient parking at our buildings during the current period, as compared to the prior period, and additional parking revenue associated with properties acquired during the twelve months ended September 30, 2022.

Expense

Property operating costs increased approximately $11.5 million for the nine months ended September 30, 2022 as compared to the same period in the prior year. The variance was primarily attributabledue to increased average office occupancy and the resulting increase inhigher recoverable operating expenses. In addition,expenses such as janitorial and utilities resulting from higher tenant reimbursements forutilization during the ninecurrent period, and capital recycling activity during the twelve months ended September 30, 2017 includes the non-recurring settlement receipt of approximately $0.6 million of prior period reimbursements as a result of a favorable court ruling on a tenant dispute.2022.


Expense

Property operating costsDepreciation expense increased approximately $3.9$10.2 million for the nine months ended September 30, 20172022 as compared to the same period in the prior year. The increase was primarily due to additional building and tenant improvements acquired and/or placed in service during the twelve months ended September 30, 2022.

Amortization expense increased approximately $3.0 million for the nine months ended September 30, 2022 as compared to the same period in the prior year primarily due to increased average office occupancy andadditional amortization associated with property acquisitions during the resulting increase in recoverable property tax expense ($3.2 million), repairs and maintenance ($1.0 million) and tenant requested services ($0.3 million). These increases were partially offset by a decrease in non-recoverable operating expenses of $0.8 million across our portfolio of properties as compared to the prior period.

Depreciation expense decreased approximately $4.1 million for the ninetwelve months ended September 30, 2017 as compared to the same period in the prior year. Approximately $7.4 million of the decrease was attributable to net property sales activity during 2016 and 2017, of which $5.8 million is attributable to the sale of the Two Independence Square building in July 2017. These decreases were offset by depreciation on additional building and tenant improvements placed in service subsequent to January 1, 2016 across our portfolio of properties, including two development projects and one re-development project placed in service in January 2017.

Amortization expense increased approximately $3.9 million for the nine months ended September 30, 2017 as compared to the same period in the prior year. Of the total variance, approximately $10.4 million of expense is due to additional amortization of intangible lease assets recognized as part of acquiring new properties during 2016. These increases were2022, partially offset by certain lease intangible assets at our existing properties becoming either fully amortized subsequent to January 1, 2016, or sold as part of our net disposition activity.

Duringduring the ninetwelve months ended September 30, 2016, we recognized non-recurring impairment charges related to our 150 West Jefferson building located in Detroit, Michigan, and our 9200, 9211, and 9221 Corporate Boulevard buildings totaling approximately $33.9 million (see Note 7).2022.


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General and administrative expenses decreased approximately $0.2$1.2 million for the nine months ended September 30, 20172022 as compared to the same period in the prior year, primarily due toreflecting decreased accruals for potential performance-based stock compensation, partially offset by higher legal and stockholder communication costs.compensation.


Other Income (Expense)


Interest expense increased approximately $4.3$7.5 million for the nine months ended September 30, 20172022 as compared to the same period in the prior year. Approximately $3.2 millionyear primarily driven by a higher average debt balance outstanding during the current period as a result of the purchase of 1180 Peachtree Street, as well as increased interest rates on our variable rate debt. This increase is due to placing our development projects into service in 2017, which caused associated interest to be expensed rather than be capitalized as part of the development. The remainder of the variance is due towas partially offset by a net$0.5 million increase in our average debt outstanding forcapitalized interest associated with various redevelopment projects in progress during the nine months ended September 30, 2017 as compared to the prior period.2022.


Other income/(expense) increasedincome decreased approximately $0.7$5.0 million for the nine months ended September 30, 20172022 as compared to the same period in the prior year due to incurring costs associated with the acquisitionpayoff of new properties during 2016, which did not occur innotes receivable due from the current year.

Equity in income of unconsolidated joint ventures increased approximately $3.5 million for the nine months ended September 30, 2017 as compared to the same period in the prior year. The increase is due to the recognitionpurchaser of our portionNew Jersey Portfolio in March of the gain on the sale of our last unconsolidated joint venture property, the 8560 Upland Drive building.2022.


Gain on sale of real estate assets net, during the nine months ended September 30, 2017 represents2022 primarily consisted of the gain recognized on the sale of the Sarasota Commerce Center II225 & 235 Presidential Way buildings, which closed in Sarasota, Florida,January of 2022.

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Issuer and Guarantor Financial Information

Piedmont, through its wholly-owned subsidiary Piedmont Operating Partnership, LP ("Piedmont OP" or the "Issuer"), has issued senior unsecured notes payable of $350 million that mature in 2023, $400 million that mature in 2024, and two separate issuances of $300 million each, that mature in 2030 and 2032, respectively, (collectively, the "Notes"). The Notes are senior unsecured obligations of Piedmont OP and rank equally in right of payment with all of Piedmont OP's other existing and future senior unsecured indebtedness and would be effectively subordinated in right of payment to Piedmont OP’s mortgage or any other future secured indebtedness (to the extent of the value of the collateral securing such indebtedness) and to all existing and future indebtedness and other liabilities of Piedmont OP’s subsidiaries, whether secured or unsecured.

The Notes are fully and unconditionally guaranteed by Piedmont Office Realty Trust, Inc. (the "Guarantor"), the parent entity that consolidates Piedmont OP and all other subsidiaries. By execution of the guarantee, the Guarantor guarantees to each holder of the Notes that the principal and interest on the Notes will be paid in full when due, whether at the maturity dates of the respective loans, or upon acceleration, upon redemption, or otherwise, and interest on overdue principal and interest on any overdue interest, if any, on the Notes and all other obligations of the Issuer to the holders of the Notes will be promptly paid in full. The Guarantor's guarantee of the Notes is its senior unsecured obligation and ranks equally in right of payment with all of the Guarantor's other existing and future senior unsecured indebtedness and guarantees. The Guarantor’s guarantee of the Notes is effectively subordinated in right of payment to any future mortgage or other secured indebtedness or secured guarantees of the Guarantor (to the extent of the value of the collateral securing such indebtedness and guarantees); and all existing and future indebtedness and other liabilities, whether secured or unsecured, of the Guarantor’s subsidiaries.

In the event of the bankruptcy, liquidation, reorganization or other winding up of Piedmont OP or the Guarantor, assets that secure any of their respective secured indebtedness and other secured obligations will be available to pay their respective obligations under the Notes or the guarantee, as applicable, and their other respective unsecured indebtedness and other unsecured obligations only after all of their respective indebtedness and other obligations secured by those assets have been repaid in full.

The non-Guarantors are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes, or to make any funds available therefore, whether by dividends, loans, distributions or other payments.

Pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being Registered, the following tables present summarized financial information for Piedmont OP as Issuer and Piedmont Office Realty Trust, Inc. as Guarantor on a combined basis after elimination of (i) intercompany transactions and balances among the Issuer and the Two Independence Square buildingGuarantor and (ii) equity in earnings from and investments in any subsidiary that is a non-Guarantor (in thousands):

Combined Balances of Piedmont OP and Piedmont Office Realty Trust, Inc. as Issuer and Guarantor, respectively
As of
September 30, 2022
As of
 December 31, 2021
Due from non-guarantor subsidiary$900 $900 
Total assets$358,622 $352,788 
Total liabilities$1,982,165 $1,945,846 
For the Nine Months Ended September 30, 2022
Total revenues$39,419 
Net loss$(37,769)

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Table of Contents
Net Operating Income by Geographic Segment

Our President and Chief Executive Officer has been identified as our chief operating decision maker ("CODM"), as defined by GAAP. Our CODM evaluates Piedmont's portfolio and assesses the ongoing operations and performance of its properties utilizing the following geographic segments: Atlanta, Dallas, Washington, D.C., Boston, Orlando, New York, and Minneapolis. These operating segments are also our reportable segments. As of September 30, 2022, we also owned two properties in Houston that do not meet the definition of an operating or reportable segment as the CODM does not regularly review these properties for purposes of allocating resources or assessing performance. Further, we do not maintain a significant presence or anticipate further investment in this market. These two properties are the primary contributors to NOI included in "Other" below. See Note 12 to the accompanying consolidated financial statements for additional information and a reconciliation of Net income applicable to Piedmont to accrual-based net operating income ("NOI").

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

Three Months EndedNine Months Ended
September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Atlanta$21,627 $15,127 $58,354 $44,725 
Dallas15,325 16,246 47,189 50,267 
Washington, D.C.9,712 9,802 29,851 27,460 
Boston9,646 12,058 29,922 33,829 
Orlando8,865 7,656 26,206 25,743 
New York7,959 7,502 23,901 22,636 
Minneapolis8,072 8,089 23,950 24,556 
Total reportable segments81,206 76,480 239,373 229,216 
Other3,893 2,731 10,794 6,436 
Total NOI$85,099 $79,211 $250,167 $235,652 

Comparison of the Nine Months Ended September 30, 2022 Versus the Nine Months Ended September 30, 2021

Atlanta

NOI increased primarily due to the acquisition of 999 Peachtree Street during the nine months ended September 30, 2017. Forfourth quarter of 2021 and 1180 Peachtree Street during the nine months ended September 30, 2016, gain on salethird quarter of real estate assets, net, is comprised2022.

Dallas

NOI decreased primarily due to a contraction by a tenant at our 750 West John Carpenter Freeway during fourth quarter 2021, as well as an expiration of a lease at our One Galleria Tower property during 2021.

Washington, D.C.

NOI increased due to the commencement of certain leases subsequent to July 1, 2021, primarily at 400 Virginia Avenue and 3100 Clarendon Boulevard.

Boston

NOI decreased primarily due to the disposition of the following sold properties: 1055 East Colorado Boulevard225 and 235 Presidential Way assets in Pasadena, California; Fairway Center IIJanuary 2022.

Other

NOI increased primarily due to the expiration of rental and operating expense abatements associated with the Transocean lease at our Enclave Place building in Brea, California; and 1901 Main Street in Irvine, California.Houston, Texas during the second quarter of 2021.



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Table of Contents
Funds From Operations (“FFO”("FFO"), Core FFO,Funds From Operations ("Core FFO"), and Adjusted Funds fromFrom Operations
(“AFFO”)


Net income calculated in accordance with U.S. generally accepted accounting principles ("GAAP")GAAP is the starting point for calculating FFO, Core FFO, and AFFO. These metrics 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 alone to be insufficient by themselves.insufficient. As a result, we believe that the additive 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 National Association of Real Estate Investment Trusts ("NAREIT") definition. NAREIT currently defines FFO as follows: Net income (computed(calculated 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 investmentsreal estate, gains and losses from the sale of certain real estate assets, gains and losses from change in unconsolidatedcontrol, and impairment write-downs of certain real estate assets and investment in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, along with appropriate adjustments to those reconciling items for joint ventures).ventures, if any. 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 suchthe computation made by other REITs.


We calculate Core FFO by starting with FFO, as defined by NAREIT, and adjusting for gains or losses on the extinguishment of swaps and/or debt acquisition-related expenses, and any significant non-recurring or infrequent items. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our

operating performance. We believe that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain infrequent or non-recurring items which can create significant earnings volatility, but which do not directly relate to our core recurring business operations. As a result, we believe that Core FFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential. Other REITs may not define Core FFO in the same manner as us; therefore, our computation of Core FFO may not be comparable to that ofthe computation made by other REITs.


We calculate AFFO by starting with Core FFO and adjusting for non-incremental capital expenditures and acquisition-related costs and then adding back non-cash items including: non-real estate depreciation, straight-lined rents and fair value lease adjustments, non-cash components of interest expense and compensation expense, and by making similar adjustments for unconsolidated partnerships and joint ventures.ventures, if any. AFFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that AFFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments.investments in new properties or enhancements to existing properties that improve revenue growth potential. Other REITs may not define AFFO in the same manner as us; therefore, our computation of AFFO may not be comparable to thatthe computation of other REITs.



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

 Three Months EndedNine Months Ended
 September 30,
2022
Per
Share(1)
September 30,
2021
Per
Share(1)
September 30,
2022
Per
Share(1)
September 30,
2021
Per
Share(1)
GAAP net income applicable to common stock$3,331 $0.03 $11,306 $0.09 $71,261 $0.58 $30,597 $0.25 
Depreciation of real estate assets34,743 0.28 30,336 0.25 98,262 0.79 87,873 0.71 
Amortization of lease-related costs23,278 0.19 20,362 0.16 66,986 0.54 63,943 0.51 
Gain on sale of real estate assets— — — — (50,674)(0.41)— — 
NAREIT Funds From Operations and Core Funds From Operations applicable to common stock61,352 $0.50 62,004 $0.50 185,835 $1.50 182,413 $1.47 
Adjustments:
Amortization of debt issuance costs, fair market value adjustments on notes payable, and discounts on debt922 849 2,463 2,076 
Depreciation of non real estate assets189 216 537 762 
Straight-line effects of lease revenue(3,268)(2,122)(8,874)(8,627)
Stock-based compensation adjustments1,950 1,637 3,116 5,152 
Amortization of lease-related intangibles(3,542)(2,731)(9,713)(8,192)
Non-incremental capital expenditures (2)
(14,121)(18,640)(42,406)(52,849)
Adjusted Funds From Operations applicable to common stock$43,482 $41,213 $130,958 $120,735 
Weighted-average shares outstanding – diluted123,697 124,627 123,631 124,472 

(1)Based on weighted average shares outstanding – diluted.
(2)We define non-incremental capital expenditures as capital expenditures of a recurring nature related to tenant improvements, leasing commissions, and building capital 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 enhance the rental rates of a building or change the property's underlying classification, such as from a Class B to a Class A property, are excluded from this measure.

35
 Three Months Ended Nine Months Ended
 September 30, 2017 
Per
Share(1)
 September 30, 2016 
Per
Share(1)
 September 30, 2017 
Per
Share(1)
 September 30, 2016 
Per
Share(1)
GAAP net income applicable to common stock$126,133
 $0.87
 $(13,107) $(0.09) $164,947
 $1.13
 $69,543
 $0.48
Depreciation of real estate assets(2)
29,774
 0.20
 31,451
 0.21
 90,335
 0.62
 94,532
 0.65
Amortization of lease-related costs(2)
18,107
 0.12
 18,640
 0.13
 57,828
 0.40
 53,880
 0.37
Impairment loss on real estate assets—
 —
 22,951
 0.16
 —
 —
 33,901
 0.23
(Gain)/loss on sale - wholly-owned properties, net(109,512) (0.75) 57
 —
 (115,951) (0.80) (73,758) (0.51)
Gain on sale- unconsolidated partnership(3,683) (0.02) —
 —
 (3,683) (0.02) —
 —
NAREIT Funds From Operations applicable to common stock$60,819
 $0.42
 $59,992
 $0.41
 $193,476
 $1.33
 $178,098
 $1.22
Adjustments:               
Acquisition costs—
 —
 955
 0.01
 6
 —
 972
 0.01
Net recoveries from casualty events—
 —
 (34) —
 —
 —
 (34) —
Core Funds From Operations applicable to common stock$60,819
 $0.42
 $60,913
 $0.42
 $193,482
 $1.33
 $179,036
 $1.23
Adjustments:               
Amortization of debt issuance costs, fair market value adjustments on notes payable, and discount on debt634
   653
   1,892
   1,943
  
Depreciation of non real estate assets218
   216
   597
   595
  
Straight-line effects of lease revenue (2)
(3,602)   (4,140)   (15,939)   (15,115)  
Stock-based and other non-cash compensation1,250
   1,931
   4,202
   5,336
  
Net effect of amortization of above and below-market in-place lease intangibles(1,720)   (1,152)   (4,890)   (3,680)  
Acquisition costs—
   (955)   (6)   (972)  
Non-incremental capital expenditures (3)
(5,229)   (6,982)   (21,974)   (23,433)  
Adjusted Funds From Operations applicable to common stock$52,370
   $50,484
   $157,364
   $143,710
  
Weighted-average shares outstanding – diluted145,719
   145,669
   145,680
   145,601
  

Table of Contents

(1)
Based on weighted average shares outstanding – diluted.
(2)
Includes amounts for wholly-owned properties, as well as such amounts for our proportionate ownership in unconsolidated joint ventures.
(3)
We define non-incremental capital expenditures as capital expenditures of a recurring nature related to tenant improvements, leasing commissions, and building capital 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 enhance the rental rates of a building or change the property's underlying classification, such as from a Class B to a Class A property, are excluded from this measure.

Property and Same Store Net Operating Income


Property Net Operating Income ("Property NOI") is a non-GAAP measure which we use to assess our operating results. We calculate Property NOI beginning with Net income (computed(calculated in accordance with GAAP) before interest, taxes, depreciation and amortization and incrementally removing any impairment losses,impairments and gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Furthermore, we adjust forremove general and administrative expense,expenses, income associated with property management performed by us for other organizations, and other income or expense items, such as interest income from loan investments or costs from the pursuit of non-consummated transactions.investments. For Property NOI (cash basis), the effects of non-cash general reserve for uncollectible accounts, straight-lined rents and fair value lease revenue are also eliminated; while such effects are not adjusted in calculating Property NOI (accrual basis). Property NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that Property NOI, on either a cash or accrual basis, is helpful to investors as a supplemental comparative performance measure of income generated by our properties alone without our administrative overhead. Other REITs may not define Property NOI in the same manner as we do; therefore, our computation of Property NOI may not be comparable to that of other REITs.


We calculate Same Store Net Operating Income ("Same Store NOI") as Property NOI applicableattributable to the properties (excluding undeveloped land parcels) that were (i) owned or placed in serviceby us during the entire span of the current and prior year reporting periods; (ii) that were not being developed or redeveloped during those periods; and (iii) for which no operating expenses were capitalized during those periods. Same Store NOI, also excludes amounts applicable to unconsolidated joint venture assets. Same Store NOIon either a cash or accrual basis, is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that Same Store NOI on either a cash or accrual basis is helpful to investors as a supplemental comparative performance measure of the income generated from the same group of properties from one period to the next. Other REITs may not define Same Store NOI in the same manner as we do; therefore, our computation of Same Store NOI may not be comparable to that of other REITs.



36


The following table sets forth a reconciliation from net income calculated in accordance with GAAP to EBITDAre, Core EBITDA, Property NOI, on both a cash and accrual basis, and Same Store NOI, on both a cash and accrual basis, for the three months ended September 30, 20172022 and 2016,2021, respectively (in thousands):


Cash BasisAccrual Basis
Three Months EndedThree Months Ended
September 30,
2022		September 30,
2021		September 30,
2022		September 30,
2021
Net income applicable to Piedmont (GAAP basis)$3,331 $11,306 $3,331 $11,306 
Net loss applicable to noncontrolling interest— (5)— (5)
Interest expense17,244 12,450 17,244 12,450 
Depreciation34,931 30,552 34,931 30,552 
Amortization23,278 20,362 23,278 20,362 
Depreciation and amortization attributable to noncontrolling interests21 21 21 21 
EBITDAre(1) and Core EBITDA(2)
78,805 74,686 78,805 74,686 
General & administrative expenses6,590 6,955 6,590 6,955 
Management fee revenue (3)
(177)(309)(177)(309)
Other income(119)(2,121)(119)(2,121)
Non-cash general reserve/(reversal) for uncollectible accounts(1,000)— 
Straight-line rent effects of lease revenue(3,268)(2,122)
Straight line effects of lease revenue attributable to noncontrolling interests(4)1 
Amortization of lease-related intangibles(3,542)(2,731)
Property NOI77,285 74,359 85,099 79,211 
Net operating income from:
Acquisitions (4)
(5,423)— (7,895)— 
Dispositions (5)
1 (2,308)1 (2,427)
Other investments (6)
211 267 150 324 
Same Store NOI$72,074 $72,318 $77,355 $77,108 
Change period over period in Same Store NOI(0.3)%N/A0.3 %N/A

(1)We calculate Earnings Before Interest, Taxes, Depreciation, and Amortization- Real Estate ("EBITDAre") in accordance with the current NAREIT definition. NAREIT currently defines EBITDAre as net income (computed in accordance with GAAP) adjusted for gains or losses from sales of property, impairment losses, depreciation on real estate assets, amortization on real estate assets, interest expense and taxes, along with the same adjustments for joint ventures. Some of the adjustments mentioned can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. EBITDAre is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that EBITDAre is helpful to investors as a supplemental performance measure because it provides a metric for understanding our results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization) and capitalization and capital structure expenses (such as interest expense and taxes). We also believe that EBITDAre can help facilitate comparisons of operating performance between periods and with other REITs. However, other REITs may not define EBITDAre in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than us; therefore, our computation of EBITDAre may not be comparable to that of such other REITs.
(2)We calculate Core Earnings Before Interest, Taxes, Depreciation, and Amortization ("Core EBITDA") as net income (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and incrementally removing any impairment losses,
37
 Cash Basis Accrual Basis
 Three Months Ended Three Months Ended
 September 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016
        
Net income/(loss) applicable to Piedmont (GAAP basis)$126,133
 $(13,107) $126,133
 $(13,107)
        
Net income applicable to noncontrolling interest(4) (14) (4) (14)
Interest expense16,183
 15,496
 16,183
 15,496
Depreciation (1)
29,993
 31,667
 29,993
 31,667
Amortization (1)
18,107
 18,640
 18,107
 18,640
Acquisition costs—
 955
 —
 955
Impairment loss on real estate assets (1)
—
 22,951
 —
 22,951
Net (recoveries)/loss from casualty events25
 (34) 25
 (34)
(Gain)/loss on sale of real estate assets, net (1)
(113,195) 57
 (113,195) 57
General & administrative expenses(1)
6,631
 7,437
 6,631
 7,437
Management fee revenue(241) (295) (241) (295)
Other income(1)
(315) (235) (315) (235)
Straight-line rent effects of lease revenue(1)
(3,602) (4,140)    
Amortization of lease-related intangibles(1)
(1,720) (1,152)    
        
Property NOI$77,995
 $78,226
 $83,317
 $83,518
        
Net operating income from:       
Acquisitions(2)
(4,584) (2,485) (7,512) (2,779)
Dispositions(3)
(9) (5,724) (12) (5,905)
Other investments(4)
(99) (332) (764) (651)
        
Same Store NOI$73,303
 $69,685
 $75,029
 $74,183
        
Change period over period in Same Store NOI5.2% N/A
 1.1% N/A
gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that Core EBITDA is helpful to investors as a supplemental performance measure because it provides a metric for understanding the performance of our results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization), as well as items that are not part of normal day-to-day operations of our business. Other REITs may not define Core EBITDA in the same manner as us; therefore, our computation of Core EBITDA may not be comparable to that of other REITs.

(3)Presented net of related operating expenses incurred to earn such management fee revenue.
(1)
(4)Acquisitions include 999 Peachtree Street, purchased during the fourth quarter of 2021, and 1180 Peachtree Street, purchased during the third quarter of 2022, both located in Atlanta, Georgia.
(5)Dispositions include Two Pierce Place in Itasca, Illinois and 225 and 235 Presidential Way in Woburn, Massachusetts, all sold during the first quarter of 2022.
(6)Other investments include active out-of-service redevelopment and development projects, land, and recently completed redevelopment and development projects. The operating results from 222 South Orange Avenue in Orlando, Florida, are included in this line item.

38
Includes amounts applicable to consolidated properties and our proportionate share of amounts applicable to unconsolidated joint ventures.
(2)
Acquisitions consist of CNL Center I and CNL Center II in Orlando, Florida, purchased on August 1, 2016; One Wayside Road in Burlington, Massachusetts, purchased on August 10, 2016; Galleria 200 in Atlanta, Georgia, purchased on October 7, 2016; and 750 West John Carpenter Freeway in Irving, Texas, purchased on November 30, 2016.
(3)
Dispositions consist of 1055 East Colorado Boulevard in Pasadena, California, sold on April 21, 2016; Fairway Center II in Brea, California, sold on April 28, 2016; 1901 Main Street in Irvine, California, sold on May 2, 2016; 9221 Corporate Boulevard in Rockville, Maryland, sold on July 27, 2016; 150 West Jefferson in Detroit, Michigan, sold on July 29, 2016; 9200 and 9211 Corporate Boulevard in Rockville, Maryland, sold on September 28, 2016; 11695 Johns Creek Parkway in Johns Creek, Georgia, sold on December 22, 2016; Braker Pointe III in Austin, Texas, sold on December 29, 2016; Sarasota Commerce Center II in Sarasota, Florida, sold on June 16, 2017; and Two Independence Square in Washington, D.C., sold on July 5, 2017.
(4)
Other investments consist of our investments in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. The operating results from 3100 Clarendon Boulevard in Arlington, Virginia, Enclave Place in Houston, Texas, and 500 TownPark in Lake Mary, Florida, are included in this line item.

The following table sets forth a reconciliation fromof net income calculated in accordance with GAAP to EBITDAre, Core EBITDA, Property NOI, on both a cash and accrual basis, and Same Store NOI, on both a cash and accrual basis, for the nine months ended September 30, 20172022 and 2016, respectively2021 (in thousands):

Cash BasisAccrual Basis
Nine Months EndedNine Months Ended
September 30,
2022		September 30,
2021		September 30,
2022		September 30,
2021
Net income applicable to Piedmont (GAAP)$71,261 $30,597 $71,261 $30,597 
Net loss applicable to noncontrolling interest(1)(9)(1)(9)
Interest expense44,917 37,375 44,917 37,375 
Depreciation98,799 88,635 98,799 88,635 
Amortization66,986 63,943 66,986 63,943 
Depreciation and amortization attributable to noncontrolling interests65 63 65 63 
Gain on sale of real estate assets(50,674)— (50,674)— 
EBITDAre(1) and Core EBITDA(2)
231,353 220,604 231,353 220,604 
General & administrative expenses21,212 22,417 21,212 22,417 
Management fee revenue (3)
(743)(946)(743)(946)
Other income(1,655)(6,423)(1,655)(6,423)
Non-cash general reserve/(reversal) for uncollectible accounts(2,000)412 
Straight-line effects of lease revenue(8,874)(8,627)
Straight line effects of lease revenue attributable to noncontrolling interests(6)2 
Amortization of lease-related intangibles(9,713)(8,192)
Property NOI229,574 219,247 250,167 235,652 
Net operating (income)/loss from:
Acquisitions (4)
(10,791)— (15,692)— 
Dispositions (5)
(567)(5,724)(638)(6,317)
Other investments (6)
539 624 528 793 
Same Store NOI$218,755 $214,147 $234,365 $230,128 
Change period over period in Same Store NOI2.2 %N/A1.8 %N/A

39
 Cash Basis Accrual Basis
 Nine Months Ended Nine Months Ended
 September 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016
        
Net income applicable to Piedmont (GAAP basis)$164,947
 $69,543
 $164,947
 $69,543
        
Net income applicable to noncontrolling interest(10) (7) (10) (7)
Interest expense52,661
 48,294
 52,661
 48,294
Depreciation (1)
90,933
 95,127
 90,933
 95,127
Amortization (1)
57,828
 53,880
 57,828
 53,880
Acquisition costs6
 972
 6
 972
Impairment loss on real estate assets (1)
—
 33,901
 —
 33,901
Net (recoveries)/loss from casualty events57
 (34) 57
 (34)
Gain on sale of real estate assets, net (1)
(119,634) (73,758) (119,634) (73,758)
General & administrative expenses(1)
23,291
 23,565
 23,291
 23,565
Management fee revenue(724) (810) (724) (810)
Other (income)/expense(1)
(291) 1
 (291) 1
Straight-line rent effects of lease revenue(1)
(15,939) (15,115)    
Amortization of lease-related intangibles(1)
(4,890) (3,680)    
        
Property NOI$248,235
 $231,879
 $269,064
 $250,674
        
Net operating loss/(income) from:       
Acquisitions(2)
(13,201) (2,485) (22,160) (2,779)
Dispositions(3)
(11,403) (27,023) (11,462) (28,042)
Other investments(4)
521
 (362) (1,852) (874)
        
Same Store NOI$224,152
 $202,009
 $233,590
 $218,979
        
Change period over period in Same Store NOI11.0% N/A
 6.7% N/A


(1)
Includes amounts applicable to consolidated properties and our proportionate share of amounts applicable to unconsolidated joint ventures.
(2)
Acquisitions consist of CNL Center I and CNL Center II in Orlando, Florida, purchased on August 1, 2016; One Wayside Road in Burlington, Massachusetts, purchased on August 10, 2016; Galleria 200 in Atlanta, Georgia, purchased on October 7, 2016; and 750 West John Carpenter Freeway in Irving, Texas, purchased on November 30, 2016.
(3)
Dispositions consist of 1055 East Colorado Boulevard in Pasadena, California, sold on April 21, 2016; Fairway Center II in Brea, California, sold on April 28, 2016; 1901 Main Street in Irvine, California, sold on May 2, 2016; 9221 Corporate Boulevard in Rockville, Maryland, sold on July 27, 2016; 150 West Jefferson in Detroit, Michigan, sold on July 29, 2016; 9200 and 9211 Corporate Boulevard in Rockville, Maryland, sold on September 28, 2016; 11695 Johns Creek Parkway in Johns Creek, Georgia, sold on December 22, 2016; Braker Pointe III in Austin, Texas, sold on December 29, 2016; Sarasota Commerce Center II in Sarasota, Florida, sold on June 16, 2017; and Two Independence Square in Washington, D.C., sold on July 5, 2017.
(4)
Other investments consist of our investments in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. The operating results from 3100 Clarendon Boulevard in Arlington, Virginia, Enclave Place in Houston, Texas, and 500 TownPark in Lake Mary, Florida, are included in this line item.

(1)We calculate EBITDAre in accordance with the current NAREIT definition. NAREIT currently defines EBITDAre as net income (computed in accordance with GAAP) adjusted for gains or losses from sales of property, impairment losses, depreciation on real estate assets, amortization on real estate assets, interest expense and taxes, along with the same adjustments for joint ventures. Some of the adjustments mentioned can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. EBITDAre is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that EBITDAre is helpful to investors as a supplemental performance measure because it provides a metric for understanding our results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization) and capitalization and capital structure expenses (such as interest expense and taxes). We also believe that EBITDAre can help facilitate comparisons of operating performance between periods and with other REITs. However, other REITs may not define EBITDAre in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than us; therefore, our computation of EBITDAre may not be comparable to that of such other REITs.

(2)We calculate Core EBITDA as net income (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that Core EBITDA is helpful to investors as a supplemental performance measure because it provides a metric for understanding the performance of our results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization), as well as items that are not part of normal day-to-day operations of our business. Other REITs may not define Core EBITDA in the same manner as us; therefore, our computation of Core EBITDA may not be comparable to that of other REITs.
(3)Presented net of related operating expenses incurred to earn such management fee revenue.
(4)Acquisitions include 999 Peachtree Street, purchased during the fourth quarter of 2021, and 1180 Peachtree Street, purchased during the third quarter of 2022, both located in Atlanta, Georgia.
(5)Dispositions include Two Pierce Place in Itasca, Illinois and 225 and 235 Presidential Way in Woburn, Massachusetts, all sold during the first quarter of 2022.
(6)Other investments include active out-of-service redevelopment and development projects, land, and recently completed redevelopment and development projects. The operating results from 222 South Orange Avenue in Orlando, Florida, are included in this line item.

Overview


Our portfolio is a diverse geographical portfoliolocated within identified growth submarkets in large metropolitan cities concentrated primarily located in select sub-markets within eight major office markets located in the Eastern-half of the U.S.Sunbelt. We typically lease space to large, credit-worthycreditworthy corporate or governmental tenants on a long-term basis. OurAs of September 30, 2022, our average lease iswas approximately 21,00015,000 square feet with 6.5approximately six years of lease term remaining as of September 30, 2017. As a result,remaining. Consequently, leased percentage, as well as rent roll ups and roll downs, which we experience as a result of re-leasing, can fluctuate widely between markets, between buildings and between tenants, within a given market depending on when a particular lease is scheduled to commence or expire.


Leased Percentage


Our current in-service portfolio of 66 office properties was 89.2%86.8% leased as of September 30, 2017, down from 93.4%2022, as compared to 85.5% leased as of September 30, 2016, due primarily to placing three development/re-development properties totaling 700,000 square feet in service during the current year,December 31, 2021 and the expiration of two tenant leases and sale of a 100% leased asset in our Washington, D.C. portfolio during the three months ended September 30, 2017, as well as net leasing activity. As of September 30, 2017, scheduled lease expirations for the portfolio as a whole for the remainder of 20172022 and 2018 were 0.6% and 7.9%, respectively,2023 represent less than 10% of our ALR.ALR, some portion of which may renew. To the extent the square footage from new leases for currently vacant space outweighexceed or fall short of scheduledthe square footage associated with non-renewing expirations, such leases would increase or decrease our overall leased percentage, respectively. Our leased percentage may also fluctuate from the impact of various occupancy levels in our net acquisition and disposition activity.


Impact of Downtime, Abatement Periods, and Rental Rate Changes


Commencement of new leases typically occurs 6-18 months after the lease execution date, after refurbishment of the space is completed. The downtime between a lease expiration and the new lease's commencement can negatively impact Property NOI and Same Store NOI comparisons (both accrual and cash basis). In addition, office leases, both new and lease renewals,renewal, often contain upfront rental and/or operating expense abatement periods which delay the cash flow benefits of the lease even after the new lease or renewal has commenced and will continue to negatively impact Property NOI and Same Store NOI on a cash basis until such abatements expire. As of September 30, 2017,2022, we had approximately 421,0001.2 million square feet of executed leases related to currentlyfor vacant space that had not yet commenced andto commence or under rental abatement, representing approximately 1.1$38 million square feet of commenced leases that were in some form of rental and/or operating expense abatement.additional annual cash revenue.


If we are unable to replace expiring leases with new or renewal leases at rental rates equal to or greater than the expiring rates, rental rate roll downs could occur and negatively impact Property NOI and Same Store NOI comparisons. As mentioned above, our geographically diverse portfolio and large block tenant modelthe magnitude of some of our tenant's leased space can result in rent roll ups and roll downs that can
40
fluctuate widely on a building-by-building and a quarter-to-quarter basis. During the three months ended September 30, 2022, we experienced a 33.1% and 37.6% roll up in cash and accrual rents, respectively, on executed leases related to space vacant one year or less. Both increases for the quarter were impacted by a lease renewal and extension executed with a tenant at our Three Galleria Tower building in Dallas, Texas during the three months ended September 30, 2022. If the effects of this lease transaction were to be removed, the percentage change in cash and accrual rents for the three months ended September 30, 2022 would be 9.9% and 12.6%, respectively. During the nine months ended September 30, 2022, we experienced a 10.5% and 18.5% roll up in cash and accrual rents, respectively.


Same Store NOI increased 5.2% and 1.1%was effectively flat on a cash and accrual basis, respectively, duringfor the three months ended September 30, 20172022 as compared to the same period in the prior year. However, Same Store NOI increased 2.2% and 11.0% and 6.7%1.8% on aan cash and accrual basis, respectively, duringfor the nine months ended September 30, 2017,2022 as compared to the same periodsperiod in the prior year. TheseThe primary drivers of the increases are primarily the result of lease commencements (accrual basis)in both metrics were increased rental rates and the expiration of rental abatements associated with new leases (cash basis). In addition, Same Store NOI on both an accrual and cash basis were favorably impacted by the receiptat certain of one-time restructuring fees and the recovery of prior year reimbursement income as a result of the resolution of a tenant dispute during the nine months ended September 30, 2017.our properties. Property NOI and Same Store NOI comparisons for any given period may still fluctuate as a result of the mix of net leasing activity in individual properties during the respective period.


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 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 POH, aone of our wholly-owned subsidiary of Piedmont,subsidiaries as a taxable REIT subsidiary. POHThis subsidiary performs non-customary services for tenants of buildings that we own including solar power generation,and real estate and non-real estate related-services; however, any earnings related to such services

performed by our taxable REIT subsidiary are subject to federal and state income taxes. In addition, for us to continue to qualify as a REIT, our investments in taxable REIT subsidiaries cannot exceed 25% (20% for taxable years beginning after 2017)20% of the value of our total assets.


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 allowances. 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. As of September 30, 2017, our off-balance sheet arrangement consists of an operating lease obligation related to a ground lease at one of our properties. For further information regarding our commitments under operating lease obligations, see the Contractual Obligations table below.

Application of Critical Accounting PoliciesEstimates


Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgmentjudgement in the application of accounting policies, including making estimates and assumptions. These judgmentsjudgements 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 judgmentjudgement 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. TheRefer to our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of our critical accounting policies outlined belowand estimates. There have been discussed with members of the Audit Committee of the Board of Directors.

Investment in Real Estate Assets

We are requiredno material changes 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 applicable to Piedmont. The estimated useful lives of our assets by class are as follows:

Buildings40 years
Building improvements5-25 years
Land improvements20-25 years
Tenant allowancesLease term
Furniture, fixtures, and equipment3-5 years
Intangible lease assetsLease term

Fair Value of Assets and Liabilities of Acquired Properties

Upon the acquisition of real properties, we record the relative fair value of properties to acquired tangible assets, consisting of land and buildings, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, based on their estimated fair values.

The estimated fair values of the tangible assets of an acquired property (which includes land and building) 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 management’s determination of the relative fair value of these assets. We rely on a sales comparison approach using closed land sales and listings in determining the land value, and determine the as-if-vacant estimated fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costspolicies during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes 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.

The estimated fair values of above-market and below-market in-place leases are recorded based on the present value (using an interest rate which 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) management’s estimate of market rates for the corresponding in-place leases, measured over a period equal to the remaining terms of the leases, taking into consideration the probability of renewals for any below-market leases. The capitalized above-market and below-market lease values are recorded as intangible lease assets or liabilities and amortized as an adjustment to rental revenues over the remaining terms of the respective leases.

The estimated fair values of in-place leases include an estimate of the direct costs associated with obtaining the acquired or "in place" tenant, estimates of opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease. The amount capitalized as direct costs associated with obtaining a 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 lease origination 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. 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.

Estimating the fair values of the tangible and intangible assets requires us to estimate market lease rates, property operating expenses, carrying costs during lease-up periods, discount and capitalization 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 would impact the amount of our reported net income attributable to Piedmont.

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. For wholly owned properties, when indicators of potential impairment are present, or when a sale in the near term is considered more than 50% probable, we assess whether the respective carrying values including a proportionate amount of goodwill, if applicable, will be recovered from the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition for assets held for use, or from the estimated fair value, less costs to sell, for assets held for sale. In the event that the expected undiscounted future cash flows for assets held for use or the estimated fair value, less costs to sell, for assets held for sale do not exceed the respective asset carrying value, we adjust such assets to the respective estimated fair values and recognize an impairment loss. For our investments in unconsolidated joint ventures, we assess the estimated fair value of our investment, as compared to our carrying amount. If we determine that the carrying value is greater than the estimated fair value at any measurement date, we must also determine if such a difference is temporary in nature. Value fluctuations which are “other than temporary” in nature are then recorded to adjust the carrying value to the estimated fair value amount.

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 estimated fair value and, therefore, could result in the misstatement of the carrying value of our real estate and related intangible assets and our reported net income attributable to Piedmont.

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. 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 estimated 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. The first step involves comparing the estimated fair value of the entity to its carrying value, including goodwill. Estimated fair value is determined by adjusting the trading price of the stock for a control premium, if necessary, multiplied by the common shares outstanding. If such calculated estimated fair value exceeds the carrying value, no further procedures or analysis is 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 estimated fair value of all tangible and intangible net assets of the entity from the entity’s estimated fair value calculated in step one of the test. If the implied value of the goodwill (the remainder left after deducting the estimated fair values of the entity from its calculated overall estimated 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 through the process noted above that there are no issues of impairment related to our goodwill as of September 30, 2017.

Investment in Variable Interest Entities

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 estimated 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. See Note 4 to our accompanying consolidated financial statements for further detail on our investment in variable interest entities.

Interest Rate Derivatives

We periodically enter into interest rate derivative agreements to hedge our exposure to changing interest rates on variable rate debt instruments. As required by GAAP, we record all derivatives on the balance sheet at estimated fair value. We reassess the effectiveness of our derivatives designated as cash flow hedges on a regular basis to determine if they continue to be highly effective and also to determine if the forecasted transactions remain highly probable. Currently, we do not use derivatives for trading or speculative purposes.

The changes in estimated fair value of interest rate swap agreements designated as effective cash flow hedges are recorded in other comprehensive income (“OCI”), and subsequently reclassified to earnings when the hedged transactions occur. Changes in the estimated fair values of derivatives designated as cash flow hedges that do not qualify for hedge accounting treatment, if any, would be recorded as gain/(loss) on interest rate swap in the consolidated statements of income. The estimated fair value of the interest rate derivative agreement is recorded as interest rate derivative asset or as interest rate derivative liability in the accompanying consolidated balance sheets. Amounts received or paid under interest rate derivative agreements are recorded as interest expense in the consolidated income statements as incurred. When Piedmont settles forward starting swap agreements for gains/losses, the result is recorded as accumulated other comprehensive income and is amortized as an offset/increase to interest expense over the term of the respective notes on a straight line basis (which approximates the effective interest method). All of our interest rate derivative agreements as of September 30, 2017 are designated as effective cash flow hedges. See Note 5 to our accompanying consolidated financial statements for further detail on our interest rate derivatives.

Stock-based Compensation

We have issued stock-based compensation in the form of restricted stock to our employees and directors. For employees, such compensation has been issued pursuant to our Long-term Incentive Compensation ("LTIC") program. The LTIC program is comprised of an annual deferred stock grant component and a multi-year performance share component. Awards granted pursuant to the annual deferred stock component are considered equity awards and expensed straight-line over the vesting period, with issuances recorded as a reduction to additional paid in capital. Awards granted pursuant to the performance share component are considered liability awards and are expensed over the service period, with issuances recorded as a reduction to accrued expense. The compensation expense recognized related to both of these award types is recorded as property operating costs for those employees whose job is related to property operation and as general and administrative expense for all other employees and

directors in the accompanying consolidated statements of income. See Note 10 to our accompanying consolidated financial statements for further detail on our stock-based compensation.

Recent Accounting Pronouncements

The Financial Accounting Standards Board (the "FASB") has issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") and Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08"). The amendments in ASU 2014-09, which are further clarified in ASU 2016-08, as well as Accounting Standards Update 2016-10, Accounting Standards Update 2016-12, and Accounting Standards Update 2016-20 (collectively the "Revenue Recognition Amendments"), change the criteria for the recognition of certain revenue streams to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services using a five-step determination process. Steps 1 through 5 involve (i) identifying contracts with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations, and (v) recognizing revenue as an entity satisfies a performance obligation. The revenues impacted by the Revenue Recognition Amendments include a portion of our tenant reimbursement revenues and property management fee revenues. Lease contracts and reimbursement revenues associated with property taxes and insurance are specifically excluded from the Revenue Recognition Amendments. The Revenue Recognition Amendments are effective in the first quarter of 2018 for us. Management has substantially completed its initial assessment of the impact of adoption of the Revenue Recognition Amendments. Approximately 90% of our total revenues are derived from either long-term leases with our tenants or reimbursement of property tax and insurance expenses, which are excluded from the scope of the Revenue Recognition Amendments. In addition, based on management's assessment to date, we do not expect the timing of the recognition of reimbursement revenue and revenue from management agreements to change as a result of the new guidance, though certain classifications will change between rental revenue and tenant reimbursements. Finally, management has determined, and the FASB has confirmed, that the evaluation of non-lease components under the new Revenue Recognition Amendments will not be effective until Accounting Standards Update No. 2016-02, Leases (Topic 842), ("ASU 2016-02") becomes effective (see further discussion below), which will be first quarter of 2019 for us. Although management continues to evaluate the guidance and disclosures required by the Revenue Recognition Amendments, we do not anticipate any material impact to our consolidated financial statements as a result of adoption.

The FASB has issued Accounting Standards Update No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"). The provisions of ASU 2017-05 define the term "in substance nonfinancial asset" as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) is concentrated in nonfinancial assets. Further, it states that nonfinancial assets should be derecognized once the counterparty obtains control. Finally, the amendments provide clarification for partial sales of nonfinancial assets. ASU 2017-05 is effective concurrent with the Revenue Recognition Amendments (detailed above), which will be the first quarter of 2018 for us. Although management continues to evaluate the guidance and disclosures required by ASU 2017-05, we do not anticipate a material change in how we recognize, measure, and classify the gain or loss on the disposition of real estate in our consolidated financial statements as a result of adoption.

The FASB has issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). The amendments in ASU 2016-01 require equity investments, except those accounted for under the equity method of accounting, to be measured at estimated fair value with changes in fair value recognized in net income. Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments, and eliminates certain disclosure requirements. The amendments in ASU 2016-01 are effective in the first quarter of 2018, and we do not anticipate any material impact to our consolidated financial statements as a result of adoption.

The FASB has issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230),Restricted Cash (a consensus of the FASB Emerging Issues Task Force) ("ASU 2016-18"). The provisions of ASU 2016-18 require entities to show changes in restricted cash and cash equivalents in addition to cash and cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between restricted and unrestricted cash in the statement of cash flows. Disclosures are required to reconcile the amount presented on the statement of cash flows to the balance sheet, as well as disclosing the nature of restriction on the restricted cash balances. ASU 2016-18 is effective for us in the first quarter of 2018, with early adoption permitted. We do not anticipate any material impact to our consolidated financial statements as a result of adoption.

The FASB has issued ASU 2016-02, which fundamentally changes the definition of a lease, as well as the accounting for operating leases by requiring lessees to recognize assets and liabilities which arise from the lease, consisting of a liability to make lease payments (the lease liability) and a right-of-use asset, representing the right to use the leased asset over the term of the lease. Accounting for leases by lessors is substantially unchanged from prior practice as lessors will continue to recognize lease revenue

on a straight-line basis; however, ASU 2016-02 defines certain tenant reimbursements as non-lease components which will be subject to the guidance under ASU 2014-09. The amendments in ASU 2016-02 are effective in the first quarter of 2019, and we are currently evaluating the potential impact of adoption.

The FASB has issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326),Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The provisions of ASU 2016-13 replace the "incurred loss" approach with an "expected loss" model for impairing trade and other receivables, held-to-maturity debt securities, net investment in leases, and off-balance-sheet credit exposures, which will generally result in earlier recognition of allowances for credit losses. Additionally, the provisions change the classification of credit losses related to available-for-sale securities to an allowance, rather than a direct reduction of the amortized cost of the securities. ASU 2016-13 is effective in the first quarter of 2020, with early adoption permitted as of January 1, 2019. We are currently evaluating the potential impact of adoption.

The FASB has issued Accounting Standards Update No. 2017-04, Intangibles—Goodwill and Other (Topic 350),Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). The provisions of ASU 2017-04 simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test, which is generally performed annually unless events or circumstances arise which would necessitate evaluating the carrying value for impairment in the interim. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a entity’s goodwill with the carrying amount of that goodwill by determining the fair value of its assets and liabilities (including unrecognized assets and liabilities) following the procedures that would be required in a business combination. Under the provisions of ASU 2017-04, an entity would instead recognize an impairment charge for the amount by which the carrying amount exceeds the entity’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that entity. ASU 2017-04 is effective in the first quarter of 2020, with early adoption permitted as of the first interim or annual impairment test of goodwill after January 1, 2017. We are currently evaluating the potential impact of adoption.

Related-Party Transactions and Agreements

There were no related-party transactions during the three and nine months ended September 30, 2017.2022.


Contractual Obligations
Our contractual obligations as of September 30, 2017 were as follows (in thousands):
 Payments Due by Period 
Contractual ObligationsTotal 
Less than
1 year
 1-3 years 3-5 years 
More than
5 years
 
Long-term debt (1)
$1,710,903
 $170,869
 $602,058
(2)(3) 
$187,976
 $750,000
 
Operating lease obligations (4)
2,834
 93
 186
 187
 2,368
 
Total$1,713,737
 $170,962
 $602,244
 $188,163
 $752,368
 

(1)
Amounts include principal payments only and balances outstanding as of September 30, 2017, not including unamortized issuance discounts, debt issuance costs paid to lenders, or estimated fair value adjustments. We made interest payments, including payments under our interest rate swaps, of approximately $54.0 million during the nine months ended September 30, 2017, and expect to pay interest in future periods on outstanding debt obligations based on the rates and terms disclosed herein and in Note 3 of our accompanying consolidated financial statements.
(2)
Includes the $300 Million Unsecured 2013 Term Loan which has a stated variable rate; however, we have entered into interest rate swap agreements which effectively fix, exclusive of changes to our credit rating, the rate on this facility to 2.78% through maturity. As such, we estimate incurring, exclusive of changes to our credit rating, approximately $8.3 million per annum in total interest (comprised of combination of variable contractual rate and settlements under interest rate swap agreements) through maturity in January 2019.
(3)
Includes the $300 Million Unsecured 2011 Term Loan which has a stated variable rate; however, we have entered into interest rate swap agreements which effectively fix, exclusive of changes to our credit rating, the rate on this facility to 3.35% through maturity. As such, we estimate incurring, exclusive of changes to our credit rating, approximately $10.1 million per annum in total interest (comprised of combination of variable contractual rate and settlements under interest rate swap agreements) through maturity in January 2020.
(4)
The 2001 NW 64th Street building in Ft. Lauderdale, Florida is subject to a ground lease with an expiration date in 2048. The aggregate remaining payments required under the terms of this operating lease as of September 30, 2017 are presented above.


Commitments and Contingencies
We are subject to certain commitments and contingencies with regard to certain transactions. Refer to Note 87 of to our consolidated financial statements for further explanation. Examples
41
Commitments Under Existing Lease Agreements; and
Contingencies Related to Tenant Audits/Disputes.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows, and estimated fair values of our financial instruments depend in part upon prevailing market interest rates. Market risk is the exposure to loss resulting from changes in interest rates, foreign currency, exchange rates, commodity prices, and equity prices. OurAs of September 30, 2022, our potential for exposure to market risk includes interest rate fluctuations in connection with borrowings under our $500$600 Million Unsecured 20152022 Line of Credit, $150 million of our $300$250 Million Unsecured 2011 Term Loan, the $300 Million Unsecured 20132018 Term Loan, and the $170$200 Million Unsecured 2015 Term Loan.Loan Facility. 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. risk, including changes in the method pursuant to which LIBOR rates and SOFR rates are determined. Furthermore, the United Kingdom Financial Conduct Authority, which regulates LIBOR, has announced that USD LIBOR will no longer by published after June 30, 2023. Piedmont has completed an initial evaluation of its credit agreements which reference LIBOR and determined that each of these agreements already contain "fallback" language allowing for the establishment of an alternate rate of interest that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the U.S. at that time by Piedmont and the respective agent, as defined in the respective agreements.

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, all of our debt other than the $500$600 Million Unsecured 20152022 Line of Credit, and $170$150 million of our $250 Million Unsecured 20152018 Term Loan and our $200 Million Unsecured Term Loan Facility is currently based on fixed or effectively-fixed interest rates to hedge against volatility in the credit markets.

We do not enter into derivative or interest rate transactions for speculative purposes, as such all of our debt and derivative instruments were entered into for other than trading purposes.

The estimated fair value of our debt was approximately $1.7$2.0 billion and $2.0$1.9 billion as of September 30, 20172022 and December 31, 2016,2021, respectively. Our interest rate swap agreements in place atas of September 30, 20172022 and December 31, 20162021 carried a notional amount totaling $600$100 million with a weighted-average fixed interest rate (not including the corporate credit spread) of 1.89%3.56%.


As of September 30, 2017,2022, our total outstanding debt subject to fixed, or effectively fixed, interest rates totaling approximately $1.6 billion has an average effective interest rate of approximately 3.59%3.58% per annum with expirations ranging from 20182023 to 2024.2032. A change in the market interest rate impacts the net financial instrument position of our fixed-rate debt portfolio but has no impact on interest incurred or cash flows.flows for that portfolio.


As of September 30, 2017,2022, we had no amounts$162.0 million outstanding on our $500$600 Million Unsecured 20152022 Line of Credit. Our $500$600 Million Unsecured 20152022 Line of Credit currently has a stated rate of LIBORAdjusted SOFR plus 1.00%0.85% per annum (based on our current corporate credit rating) or the prime, resulting in a total interest rate at our discretion.of 3.86%. The current stated interest rate spread on $150 million of the $170$250 Million Unsecured 20152018 Term Loan that is not effectively fixed through interest rate swaps is LIBOR plus 1.125%0.95% (based on our current corporate credit rating), which, as of September 30, 2017, results2022, resulted in a total interest rate on $150 million of the $250 Million Unsecured 2018 Term Loan of 4.07%. Our $200 Million Unsecured Term Loan Facility has a stated rate of Adjusted SOFR plus 1.00% per annum (based on our current corporate credit rating), resulting in a total interest rate of 2.37%4.13%. To the extent that we borrow additional funds in the future under the $500$600 Million Unsecured 20152022 Line of Credit 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. Additionally, a 1.0% increase in variable interest rates on our existing outstanding borrowings as of September 30, 20172022 would increase interest expense approximately $1.7$5.1 million on a per annum basis.



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ITEM 4.CONTROLS AND PROCEDURES
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 RuleRules 13a-15(e) and 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, 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION


ITEM 1.
ITEM 1.    LEGAL PROCEEDINGS

Piedmont is
We are not subject to any material pending legal proceedings. However, we are subject to routine litigation arising in the ordinary course of owning and operating real estate assets. Our management expects that these ordinary routine legal proceedings will be covered by insurance and does not expect these legal proceedings to have a material adverse effect on our financial condition, results of operations, or liquidity. Additionally, management is not aware of any legal proceedings against Piedmont contemplated by governmental authorities.


ITEM 1A.RISK FACTORS
ITEM 1A.    RISK FACTORS
There have been no known material changes from the risk factors previously disclosed in our Amended Annual Report on Form 10-K/A10-K for the year ended December 31, 2016.2021.


ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)There were no unregistered sales of equity securities during the third quarter 2017.
(b)Not applicable.
(c)
During the three months ended September 30, 2017, we repurchased shares of our common stock in the open market in order to reissue such shares under our dividend reinvestment plan (the "DRP"), as well as repurchasing and retiring shares as part of our stock repurchase plan.
Of the 253,280 shares repurchased during the third quarter 2017, 195,341of 2022.
(b)Not applicable.
(c)There were no repurchases of shares (at an average price of $19.92 per share) related to repurchases of our common stock pursuant toduring the third quarter of 2022. As of September 30, 2022, approximately $150.5 million remains available under our stock repurchase plan, and 57,939 shares (at an average priceprogram to make share repurchases through February 2024, at the discretion of $19.89 per share) related to shares purchased by our transfer agent on the open market and conveyed to participants in the DRP. The aggregate stock repurchases for the quarter ended September 30, 2017 are as follows:management.

Period
Total Number of
Shares Purchased
(in 000’s)
 
Average Price Paid
per Share
 
Total Number of
Shares  Purchased
as Part of
Publicly Announced
Plan
(in 000’s) (1)
 
Maximum Approximate
Dollar Value of Shares
Available That May
Yet Be Purchased
Under the Plan
(in 000’s)
 
July 1, 2017 to July 31, 2017—
 $—
 —
 $250,000
 
August 1, 2017 to August 31, 2017195
 $19.92
 195
 $246,105
 
September 1, 2017 to September 30, 2017(2)
58
 $19.89
 —
 $246,105
(1) 
Total253
 $19.89
 195
   

(1)
Amounts available for purchase relate only to our stock repurchase plan, which was authorized on May 2, 2017. Our Board of Directors authorized the repurchase of up to $250 million of shares of our common stock pursuant to the stock repurchase plan between May 2, 2017 and May 2, 2019. The share repurchase plan is separate from shares purchased for DRP issuance.
(2)
Under our amended and restated DRP, as set forth in a Current Report on Form 8-K filed February 24, 2011, 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.


ITEM 3.
ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
Not applicable.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.


ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.    OTHER INFORMATION
On November 1, 2022, Piedmont entered into an employment agreement with its Executive Vice-President and Chief Operating Officer, George M. Wells. The terms of the agreement are substantially the same as the terms of other employment agreements that Piedmont has previously entered into with certain of its executive officers, including: annual renewal unless either party gives 90 day written notice; a claw back provision if Piedmont is required to prepare an accounting restatement due to Piedmont’s material noncompliance, as a result of misconduct, with any financial reporting requirement under the securities laws; and one-year of severance under certain circumstances in the event that his employment is terminated. For additional information, please refer to the description of Piedmont’s employment agreements with its executive officers included in Piedmont’s 2022 Proxy Statement filed on March 18, 2022 and the text of Mr. Wells’ employment agreement filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

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Table of Contents
ITEM 6.    EXHIBITS
ITEM 5.OTHER INFORMATION
None.


ITEM 6.EXHIBITS
Exhibit
Number

Description of Document
3.1
3.2
3.3
3.4
3.5
3.6 
31.1
10.1 
10.2 
10.3 
10.4 
22.1 
31.1 
31.2
32.1
32.2
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
 

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

PIEDMONT OFFICE REALTY TRUST, INC.
(Registrant)
Dated:November 2, 2022PIEDMONT OFFICE REALTY TRUST, INC.
By:(Registrant)
Dated:November 1, 2017By:/s/ Robert E. Bowers
Robert E. Bowers
Chief Financial Officer and Executive Vice President
(Principal Financial Officer and Duly Authorized Officer)


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