Piedmont Office Realty Trust, Inc. (PDM)

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Piedmont Office Realty Trust (PDM)

Q4 2012 Earnings Call

February 08, 2013 10:00 am ET


Robert E. Bowers - Chief Financial Officer, Executive Vice President and Treasurer

Carroll A. Reddic - Executive Vice President of Real Estate Operations, Assistant Secretary, Member of Executive Committee and Member of Investment Committee

Raymond L. Owens - Executive Vice President of Capital Markets

Robert K. Wiberg

Donald A. Miller - Chief Executive Officer, President and Director

Eddie Guilbert


David B. Rodgers - Robert W. Baird & Co. Incorporated, Research Division

Anthony Paolone - JP Morgan Chase & Co, Research Division

Michael Knott - Green Street Advisors, Inc., Research Division

John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division

Young Ku - Wells Fargo Securities, LLC, Research Division

Brendan Maiorana - Wells Fargo Securities, LLC, Research Division



Greetings, and welcome to the Piedmont Office Realty Trust Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Robert Bowers, Chief Financial Officer. Thank you, Mr. Bowers, you may begin.

Robert E. Bowers

Good morning, and thank you, all, for taking time to join as we review our fourth quarter and year ended 2012 financial and operational results, as we also share our perspectives on the current leasing and transactional environment. Last night, in addition to posting our earnings release, we also filed a Form 8-K, which included our unaudited supplemental financial information. This information is available for your review on our website at www.piedmontreit.com, under the Investor Relations section.

On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters which are subject to risk and uncertainties that may cause the actual results to differ from those we discuss today. Examples of forward-looking statements include those related to Piedmont Office Realty Trust future revenues, operating income and financial guidance, as well as future leasing and investment activity. You should not place any undue reliance on any of these forward-looking statements, and these statements speak only as of the date they are made. We encourage all of our listeners to review the more detailed discussion related to risk associated with forward-looking statements contained in the company's filings with the SEC.

In addition, during the call, we'll refer to some non-GAAP financial measures such as FFO, Core FFO and same-store NOI. The definitions and reconciliations of these non-GAAP measures are contained in the supplemental financial information available on the company's website.

I'll review our financial results after Bo Reddic, our EVP of Real Estate Operations, reviews our leasing results; and Ray Owens, our EVP of Capital Markets, updates us on Piedmont's investment activities. In addition, we're also joined today by Bob Wiberg, our EVP of Development and Head of the Mid-Atlantic Region; Brent Smith, Senior Vice President of Capital Markets; Laura Moon, Chief Accounting Officer; and Eddie Guilbert, Vice President of Finance and Strategic Planning. All will be available during the question-and-answer portion of the call. Don Miller, our CEO, plans to limit his participation today, as he's recovering from some recent planned surgery. I'll now turn the call over to Bo.

Carroll A. Reddic

Good morning, everyone. I'm please to speak to you today about this quarter's leasing results. Our leasing activity for the fourth quarter totaled approximately 900,000 square feet, which brings our total leasing activity for 2012 to almost 3.4 million square feet. Combined with the record leasing year we had in 2011, approximately 4 million square feet, that translates into leasing more than 1/3 of our total portfolio's square footage during the last 2 years.

We're even more pleased to have maintained our historical average tenant retention ratio of approximately 70%, despite the tepid job growth environment and economic uncertainty the U.S. has experienced during this time period, particularly affecting large corporate tenants. You may recall that our primary customers are large creditworthy tenants, as evidenced by approximately 80% of our portfolio being leased to tenants taking over 40,000 square feet, and over 66% of our annual lease revenue comes from investment-grade rated companies.

Our continued leasing success has increased our overall occupancy metrics by 100 basis points, or more, when compared to the previous year. Total portfolio was 87.5% leased at year end, versus 86.5% at the beginning of last year. And our stabilized lease percentage was 90.5% at year end, up from 89.1% a year earlier.

In the fourth quarter, the larger completed leasing transactions included a 395,000 square foot 10-year renewal in Minneapolis for U.S. Bancorp's headquarters, a 5-year renewal of Lockheed Martin's 115,000 square foot requirement at 9221 Corporate Boulevard in the Washington, D.C. market, an approximately 41,000 square-foot new lease for 12 years with Standard Parking at Aon Center in Chicago and a lease for 45,000 square feet has been signed for 5-plus years with Wells Fargo at our Glenridge Highlands Building in Atlanta.

During the year, we've seen meaningful positive net absorption in our portfolio, and importantly, the lease up of several large blocks of formerly vacant space, such as 133,000 square feet with the U.S. Foods at River Corporate Center in Phoenix, 145,000 square feet with Schlumberger at 1200 Enclave Parkway in Houston and 301,000 square feet with Catamaran at Windy Point II in Chicago. We strongly believe a contributing factor towards our leasing momentum is that our properties are consistently among the highest quality assets within their respective submarkets.

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