Piedmont Office Realty Trust, Inc. (PDM)

PDM 
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Piedmont Office Realty Trust, Inc. (PDM)

Q4 2011 Earnings Conference Call

February 10, 2012 10:00 ET

Executives

Don Miller – Chief Executive Officer

Robert Bowers – Chief Financial Officer

Ray Owens – Executive Vice President

Laura Moon – Chief Accounting Officer

Bo Reddic – EVP of Real Estate Operations

Eddie Guilbert – VP of Finance and Strategic Planning

Analysts

Michael Knott – Green Street Advisors

Dave Rodgers – RBC Capital Markets

Anthony Paolone – JPMorgan

Brendan Maiorana – Wells Fargo

Chris Caton - Morgan Stanley

Paul Adornato – BMO Capital Market

John Guinee – Stifel Nicolaus

Michael Harmon – Midwest

Presentation

Operator

Greetings, and welcome to the Piedmont Office Realty Trust Fourth Quarter 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instruction) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Robert Bowers, Chief Financial Officer for Piedmont Office Realty Trust. Thank you, Mr. Bowers, you may begin.

Robert Bowers – Chief Financial Officer

Thank you, operator. Good morning. Welcome to Piedmont’s fourth quarter 2011 conference call. Last night, in addition to posting our earnings release, we also filed our Form 8-K, which included our unaudited quarterly and annual supplemental 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 risks and uncertainties that may cause actual results to differ from those discussed 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 acquisition 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 this call, we will refer to non-GAAP financial measures such as funds from operations, core FFO, AFFO, and EBITDA. The definitions and reconciliations of our non-GAAP measures are contained in the supplemental financial information available on the company’s website.

I will review our financial results after Don Miller, our CEO discuses some of this quarter’s activities including progress towards our strategic operating objectives. In addition, we are also joined today by Ray Owens, our EVP of Capital Markets; Laura Moon, our Chief Accounting Officer; Bo Reddic, our EVP of Real Estate Operations; and Eddie Guilbert, our VP of Finance and Strategic Planning. All of whom can provide additional perspective during the question-and-answer portion of the call.

I will now turn the call over to Don Miller.

Don Miller Chief Executive Officer

Good morning, and thanks for joining us as we review our fourth quarter 2011 results. Before I get started I wanted to remind everyone that today is our second anniversary as a publicly traded company and we want to say thank you for your support over the last two years. We are pleased to report the company’s financial and operational results this quarter and we are prepared to update you on our transactional activity as well.

As we begin we want to reinforce that one of our primary operating focus has been on the continued strategic repositioning of our portfolio, into a handful of major markets, while dealing with the releasing of the substantial portion of our properties is approximately 44% of the portfolio was facing lease expirations between 2010 and early 2013. We believe that our disciplined low leverage investment strategy coupled with an aggressive yet prudent leasing approach of creditworthy tenants has served our shareholders particularly well.

Regarding our recent leasing efforts we have been very pleased with the leasing accomplishments in the portfolio. We executed just under 4 million square feet of leases during 2011 with 900,000 square feet taking place during the fourth quarter including 581,000 square feet of new tenant leases. The 4 million square feet leasing transactions represent almost 19% of our office portfolio and outpaces any single previous year in Piedmont’s operating history, although rent continued to bump along the bottom in most markets.

We have continued to be disciplined in our negotiations and have achieved these leasing accomplishments without compromising our effective rent objectives to reach property. Importantly we believe this allow us to continue to maintain enterprise value at the highest level possible given the leasing environment.

Our same store office portfolio was 88.3% leased at December 31, 2011 as compared to 89.1% leased at beginning of the year. The total portfolio including several value-added properties acquired during this year was 86.5% lease at December 31, 2011. And our weighted average lease remaining lease term was 6.4 years.

I will highlight just a few of the more significant leases that were executed in the fourth quarter. Our single largest deal during the quarter was the previously announced 15 year renewal on expansion for up to 400,000 square feet with GE at our 500 West Monroe building in Downtown Chicago. If you’ll recall this is the building that we acquired through the conversation of our mezzanine debt position in first quarter of 2011 in which we inherited significant nearly near–term leasing exposure.

So we’re very fortunate to not only retain but also to expand a high credit anchor tenant for a lengthy term with only a slight roll back in current rents. CBD Chicago it is one of the markets and where we’re seeing positive absorption over the past year, if it whether relatively few large blocks of space remaining effective should go well for not only our remaining space in 500 West Monroe, but also at Aon Center.

The southwestern U.S. has also been an encouraging area for us during the quarter we signed a new 12-year full building lease with U.S. Foods at our River Corporate Center property in the Phoenix market as well as a new 12-year on 105,000 square foot lease with Schlumberger Technology Corporation at our newly acquired 1200 Enclave property in Houston. Both of these leases bring high quality tenants and when combined will provide incremental rental revenue once they commence.

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