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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, 20182019
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)

5565 Glenridge Connector
Ste. 450
Atlanta, Georgia 30342
(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)

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  x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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 company
o☐
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 29, 2018:2019:
128,371,442125,783,408 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
1011
1112
Item 2.
37
Item 3.
5249
Item 4.
5350
PART II.Other Information
Item 1.
5451
Item 1A.
5451
Item 2.
5451
Item 3.
5451
Item 4.
5451
Item 5.
5552
Item 6.
5552


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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 its executive officers on Piedmont’s behalf, may from time to time make forward-looking statements in reports and other documents Piedmont files with the Securities and Exchange Commission or in connection with other written or oral statements made to the press, potential investors, or others. Statements regarding future events and developments and Piedmont’s future performance, as well as management’s expectations, beliefs, plans, estimates, or projections relating to the future, are forward-looking statements. 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.

These statements are based on beliefs and assumptions of Piedmont’s 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, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. The forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond Piedmont’s ability to control or predict. Such factors include, but are not limited to, the following:

•Economic, regulatory, socio-economic changes, and/or socio-economictechnology changes (including accounting standards) that impact the real estate market generally, or that could affect patterns of use of commercial office space;
•The impact of competition on our efforts to renew existing leases or re-let space on terms similar to existing leases;
•
Changes in the economies and other conditions affecting the office sector in general and specifically the eight
•Changes in the economies and other conditions affecting the office sector in general and specifically the seven markets in which we primarily operate where we have high concentrations of our Annualized Lease Revenue (see definition below);
•in which we primarily operate where we have high concentrations of our Annualized Lease Revenue (see definition below);
Lease terminations, lease defaults, or changes in the financial condition of our tenants, particularly by one of our large lead tenants;
The effect on us of adverse•Adverse market and economic conditions, including any resulting 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 identify and consummate suitable acquisitions and divestitures;
•The illiquidity of real estate investments, including regulatory restrictions to which 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 and resultant increased costs and risks;
•Our real estate development strategies may not be successful;
•Future acts of terrorism in any of the major metropolitan areas in which we own properties, or future cybersecurity attacks against us or any of our tenants;
•Costs of complying with governmental laws and regulations;
•Additional risks and costs associated with directly managing properties occupied by government tenants;tenants, including 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 LIBOR rates are determined and the potential phasing out of LIBOR after 2021;
•The effect of future offerings of debt or equity securities or changes in market interest rates on the value of our common stock;
•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;
•Changes in the financial condition of our tenants directly or indirectly resulting from geopolitical developments that could negatively affect international trade, including the United Kingdom's referendum to withdraw from the European Union, the termination or threatened termination of 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;
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•Changes in tax laws impacting real estate investment trusts ("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 (the “Code”) or otherwise adversely affect our stockholders;
•The future effectiveness of our internal controls and procedures; and
•Other factors, including the risk factors discussed under Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2017.2018.

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-U.S. generally accepted accounting principles ("GAAP")non-GAAP measure, is calculated by multiplying (i) 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 wasis currently 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-leased 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 development/re-development properties, if any. ALR should not be viewed as an alternative to rental revenues or net income calculated in accordance with GAAP or as a measurement

4
Table of our operating performance. Piedmont believes that ALR is helpful to investors in assessing the relative magnitude of specific tenants, properties, or other components of our portfolio in relation to each other and to the portfolio as a whole.Contents



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 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 Annual Report on Form 10-K for the year ended December 31, 2017.2018. Piedmont’s results of operations for the nine months ended September 30, 20182019 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)  (Unaudited)
September 30,
2018		 December 31,
2017		September 30,
2019		December 31,
2018
Assets:   Assets:
Real estate assets, at cost:   Real estate assets, at cost:
Land$523,994
 $521,186
Land$506,440  $470,432  
Buildings and improvements, less accumulated depreciation of $797,222 and $728,134 as of September 30, 2018 and December 31, 2017, respectively2,309,803
 2,325,282
Intangible lease assets, less accumulated amortization of $84,268 and $99,145 as of September 30, 2018 and December 31, 2017, respectively65,527
 77,805
Buildings and improvements, less accumulated depreciation of $772,122 and $718,070 as of September 30, 2019 and December 31, 2018, respectivelyBuildings and improvements, less accumulated depreciation of $772,122 and $718,070 as of September 30, 2019 and December 31, 2018, respectively2,327,055  2,121,570  
Intangible lease assets, less accumulated amortization of $77,483 and $87,391 as of September 30, 2019 and December 31, 2018, respectivelyIntangible lease assets, less accumulated amortization of $77,483 and $87,391 as of September 30, 2019 and December 31, 2018, respectively88,371  77,676  
Construction in progress22,753
 11,681
Construction in progress13,866  15,848  
Real estate assets held for sale, net113,918
 448,788
Real estate assets held for sale, net213,094  331,068  
Total real estate assets3,035,995
 3,384,742
Total real estate assets3,148,826  3,016,594  
Amounts due from unconsolidated joint ventures—
 10
Cash and cash equivalents6,807
 7,382
Cash and cash equivalents10,284  4,571  
Tenant receivables, net of allowance for doubtful accounts of $599 and $539 as of September 30, 2018 and December 31, 2017, respectively10,522
 12,139
Tenant receivablesTenant receivables10,091  10,800  
Straight-line rent receivables168,745
 154,384
Straight-line rent receivables147,197  136,762  
Note receivable3,200
 —
Restricted cash and escrows1,374
 1,373
Restricted cash and escrows1,820  1,463  
Prepaid expenses and other assets31,470
 21,222
Prepaid expenses and other assets27,143  24,691  
Goodwill98,918
 98,918
Goodwill98,918  98,918  
Interest rate swaps4,069
 688
Interest rate swaps—  1,199  
Deferred lease costs, less accumulated amortization of $177,412 and $181,579 as of September 30, 2018 and December 31, 2017, respectively250,038
 257,916
Deferred lease costs, less accumulated amortization of $173,490 and $176,919 as of September 30, 2019 and December 31, 2018, respectivelyDeferred lease costs, less accumulated amortization of $173,490 and $176,919 as of September 30, 2019 and December 31, 2018, respectively267,616  236,198  
Other assets held for sale, net12,752
 61,193
Other assets held for sale, net40,036  61,233  
Total assets$3,623,890
 $3,999,967
Total assets$3,751,931  $3,592,429  
Liabilities:   Liabilities:
Unsecured debt, net of discount and unamortized debt issuance costs of $10,382 and $7,689 as of September 30, 2018 and December 31, 2017, respectively$1,524,618
 $1,535,311
Secured debt, net of premiums and unamortized debt issuance costs of $720 and $946 as of September 30, 2018 and December 31, 2017, respectively190,753
 191,616
Accounts payable, accrued expenses, dividends payable, and accrued capital expenditures109,087
 216,653
Unsecured debt, net of discount and unamortized debt issuance costs of $8,207 and $9,879 as of September 30, 2019 and December 31, 2018, respectivelyUnsecured debt, net of discount and unamortized debt issuance costs of $8,207 and $9,879 as of September 30, 2019 and December 31, 2018, respectively$1,689,793  $1,495,121  
Secured debt, net of premiums and unamortized debt issuance costs of $418 and $645 as of September 30, 2019 and December 31, 2018, respectivelySecured debt, net of premiums and unamortized debt issuance costs of $418 and $645 as of September 30, 2019 and December 31, 2018, respectively189,451  190,351  
Accounts payable, accrued expenses and accrued capital expendituresAccounts payable, accrued expenses and accrued capital expenditures114,812  93,739  
Dividends payableDividends payable—  26,972  
Deferred income27,450
 29,582
Deferred income27,985  28,779  
Intangible lease liabilities, less accumulated amortization of $56,876 and $55,847 as of September 30, 2018 and December 31, 2017, respectively37,986
 38,458
Intangible lease liabilities, less accumulated amortization of $49,613 and $59,144 as of September 30, 2019 and December 31, 2018, respectivelyIntangible lease liabilities, less accumulated amortization of $49,613 and $59,144 as of September 30, 2019 and December 31, 2018, respectively34,970  35,708  
Interest rate swaps—
 1,478
Interest rate swaps6,862  839  
Other liabilities held for sale, net—
 380
Other liabilities held for saleOther liabilities held for sale7,275  8,780  
Total liabilities1,889,894
 2,013,478
Total liabilities2,071,148  1,880,289  
Commitments and Contingencies—
 —
Commitments and Contingencies (Note 8)
Commitments and Contingencies (Note 8)
—  —  
Stockholders’ Equity:   Stockholders’ Equity:
Shares-in-trust, 150,000,000 shares authorized; none outstanding as of September 30, 2018 or December 31, 2017—
 —
Preferred stock, no par value, 100,000,000 shares authorized; none outstanding as of September 30, 2018 or December 31, 2017—
 —
Common stock, $.01 par value, 750,000,000 shares authorized; 128,371,442 and 142,358,940 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively1,284
 1,424
Shares-in-trust, 150,000,000 shares authorized; NaN outstanding as of September 30, 2019 or December 31, 2018Shares-in-trust, 150,000,000 shares authorized; NaN outstanding as of September 30, 2019 or December 31, 2018—  —  
Preferred stock, 0 par value, 100,000,000 shares authorized; NaN outstanding as of September 30, 2019 or December 31, 2018Preferred stock, 0 par value, 100,000,000 shares authorized; NaN outstanding as of September 30, 2019 or December 31, 2018—  —  
Common stock, $0.01 par value, 750,000,000 shares authorized; 125,783,408 and 126,218,554 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectivelyCommon stock, $0.01 par value, 750,000,000 shares authorized; 125,783,408 and 126,218,554 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively1,258  1,262  
Additional paid-in capital3,682,209
 3,677,360
Additional paid-in capital3,685,504  3,683,186  
Cumulative distributions in excess of earnings(1,964,135) (1,702,281)Cumulative distributions in excess of earnings(2,007,438) (1,982,542) 
Other comprehensive income12,851
 8,164
Other comprehensive income/(loss)Other comprehensive income/(loss)(283) 8,462  
Piedmont stockholders’ equity1,732,209
 1,984,667
Piedmont stockholders’ equity1,679,041  1,710,368  
Noncontrolling interest1,787
 1,822
Noncontrolling interest1,742  1,772  
Total stockholders’ equity1,733,996
 1,986,489
Total stockholders’ equity1,680,783  1,712,140  
Total liabilities and stockholders’ equity$3,623,890
 $3,999,967
Total liabilities and stockholders’ equity$3,751,931  $3,592,429  
See accompanying notes

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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share and per share amounts)
(Unaudited) (Unaudited)(Unaudited)(Unaudited)
Three Months Ended Nine Months EndedThree Months EndedNine Months Ended
September 30, September 30, September 30,September 30,
2018 2017 2018 2017 2019201820192018
Revenues:       Revenues:
Rental income$101,348
 $108,868
 $304,280
 $345,399
Tenant reimbursements23,170
 24,253
 68,211
 73,375
Rental and tenant reimbursement revenueRental and tenant reimbursement revenue$130,579  $124,518  $382,213  $372,491  
Property management fee revenue368
 454
 1,059
 1,379
Property management fee revenue405  368  2,819  1,059  
Other property related income4,822
 4,012
 15,232
 14,576
Other property related income4,437  4,822  13,993  15,232  
129,708
 137,587
 388,782
 434,729
135,421  129,708  399,025  388,782  
Expenses:       Expenses:
Property operating costs49,679
 54,518
 154,175
 166,635
Property operating costs54,613  49,679  158,798  154,175  
Depreciation26,852
 30,000
 81,112
 90,827
Depreciation27,131  26,852  80,004  81,112  
Amortization14,840
 18,123
 46,818
 57,852
Amortization19,505  14,840  55,666  46,818  
Impairment loss on real estate assetsImpairment loss on real estate assets1,953  —  1,953  —  
General and administrative6,677
 6,190
 21,487
 21,868
General and administrative7,950  6,677  29,736  21,487  
98,048
 108,831
 303,592
 337,182
111,152  98,048  326,157  303,592  
Real estate operating income31,660
 28,756
 85,190
 97,547
Other income (expense):       Other income (expense):
Interest expense(15,849) (16,183) (45,294) (52,661)Interest expense(16,145) (15,849) (46,750) (45,294) 
Other income303
 290
 1,480
 228
Other income263  303  1,292  1,480  
Equity in income of unconsolidated joint ventures—
 3,754
 —
 3,872
Loss on extinguishment of debt—
 —
 (1,680) —
Loss on extinguishment of debt—  —  —  (1,680) 
Gain on sale of real estate assets—
 109,512
 45,186
 115,951
Gain on sale of real estate assets32  —  39,370  45,186  
(15,850) (15,546) (6,088) (308) 
Net income16,114
 126,129
 84,882
 164,937
Net income8,419  16,114  66,780  84,882  
Plus: Net loss applicable to noncontrolling interest—
 4
 4
 10
Net loss applicable to noncontrolling interestNet loss applicable to noncontrolling interest3  —  3  4  
Net income applicable to Piedmont$16,114
 $126,133
 $84,886
 $164,947
Net income applicable to Piedmont$8,422  $16,114  $66,783  $84,886  
Per share information – basic and diluted:       Per share information – basic and diluted:
Net income applicable to common stockholders$0.13
 $0.87
 $0.65
 $1.13
Net income applicable to common stockholders$0.07  $0.13  $0.53  $0.65  
Weighted-average common shares outstanding – basic128,371,062
 145,415,678
 130,837,223
 145,372,182
Weighted-average common shares outstanding – basic125,783,408  128,371,062  125,684,202  130,837,223  
Weighted-average common shares outstanding – diluted128,818,658
 145,719,431
 131,187,127
 145,679,582
Weighted-average common shares outstanding – diluted126,239,744  128,818,658  126,189,851  131,187,127  
See accompanying notes


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

 (Unaudited) (Unaudited)
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
                
Net income applicable to Piedmont  $16,114
   $126,133
   $84,886
   $164,947
Other comprehensive income:               
Effective portion of gain on derivative instruments that are designated and qualify as cash flow hedges (See Note 6)
1,145
   175
   4,408
   307
  
Plus: Reclassification of net (gain)/loss included in net income (See Note 6)
(434)   653
   373
 

 2,936
 

Gain on investment in available for sale securities—
   25
   —
   53
  
Other comprehensive income  711
   853
   4,781
   3,296
Comprehensive income applicable to Piedmont  $16,825
   $126,986
   $89,667
   $168,243
(Unaudited)(Unaudited)
Three Months Ended  Nine Months Ended
 September 30,September 30,
 2019201820192018
Net income applicable to Piedmont$8,422  $16,114  $66,783  $84,886  
Other comprehensive income/(loss):
Effective portion of gain/(loss) on derivative instruments that are designated and qualify as cash flow hedges (See Note 5)
(1,386) 1,144  (6,874) 4,408  
Plus/(less): Reclassification of net loss/(gain) included in net income (See Note 5)
(427) (434) (1,871) 373  
Other comprehensive income/(loss)(1,813) 710  (8,745) 4,781  
Comprehensive income applicable to Piedmont$6,609  $16,824  $58,038  $89,667  


See accompanying notes

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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2017
THREE AND FOR THE NINE MONTHS ENDEDSEPTEMBER 30, 20182019 (UNAUDITED)
(in thousands, except per share amounts)

 Common  StockAdditional
Paid-In
Capital		Cumulative
Distributions
in Excess of
Earnings		Other
Comprehensive
Income/(Loss)		Non-
controlling
Interest		Total
Stockholders’
Equity
 SharesAmount
Balance, December 31, 2018126,219  $1,262  $3,683,186  $(1,982,542) $8,462  $1,772  $1,712,140  
Share repurchases as part of an announced plan(728) (7) —  (12,475) —  —  (12,482) 
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested—  —  (48) (26,375) —  (7) (26,430) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax106  1  2,879  —  —  —  2,880  
Net income applicable to noncontrolling interest—  —  —  —  —  1  1  
Net income applicable to Piedmont—  —  —  50,208  —  —  50,208  
Other comprehensive loss—  —  —  —  (2,795) —  (2,795) 
Balance, March 31, 2019125,597  $1,256  $3,686,017  $(1,971,184) $5,667  $1,766  $1,723,522  
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested—  —  (94) (26,415) —  (13) (26,522) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax186  2  1,958  —  —  —  1,960  
Net loss applicable to noncontrolling interest—  —  —  —  —  (1) (1) 
Net income applicable to Piedmont—  —  —  8,153  —  —  8,153  
Other comprehensive loss—  —  —  —  (4,137) —  (4,137) 
Balance, June 30, 2019  125,783  $1,258  $3,687,881  $(1,989,446) $1,530  $1,752  $1,702,975  
Offering costs—  —  (700) —  —  —  (700) 
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested—  —  (74) (26,414) —  (7) (26,495) 
Shares amortized under the 2007 Omnibus Incentive Plan, net of tax—  —  (1,603) —  —  —  (1,603) 
Net loss applicable to noncontrolling interest—  —  —  —  —  (3) (3) 
Net income applicable to Piedmont—  —  —  8,422  —  —  8,422  
Other comprehensive loss—  —  —  —  (1,813) —  (1,813) 
Balance, September 30, 2019125,783  $1,258  $3,685,504  $(2,007,438) $(283) $1,742  $1,680,783  


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 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, 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(3,133) (31) —
 (61,719) —
 —
 (61,750)
Offering costs—
 —
 (182) —
 —
 —
 (182)
Dividends to common stockholders ($1.34 per share), stockholders of subsidiaries, and dividends reinvested—
 —
 (233) (193,263) —
 (45) (193,541)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax257
 3
 4,647
 —
 —
 —
 4,650
Net loss applicable to noncontrolling interest—
 —
 —
 —
 —
 (15) (15)
Net income applicable to Piedmont—
 —
 —
 133,564
 —
 —
 133,564
Other comprehensive income—
 —
 —
 —
 6,060
 —
 6,060
Balance, December 31, 2017142,359
 1,424
 3,677,360
 (1,702,281) 8,164
 1,822
 1,986,489
Cumulative effect of accounting change (adoption of ASU 2016-01)—
 —
 —
 94
 (94) —
 —
Share repurchases as part of an announced plan(14,343) (143) —
 (264,642) —
 —
 (264,785)
Dividends to common stockholders ($0.63 per share), stockholders of subsidiaries, and dividends reinvested—
 —
 (56) (82,192) —
 (31) (82,279)
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax355
 3
 4,905
 —
 —
 —
 4,908
Net loss applicable to noncontrolling interest—
 —
 —
 —
 —
 (4) (4)
Net income applicable to Piedmont—
 —
 —
 84,886
 —
 —
 84,886
Other comprehensive income—
 —
 —
 —
 4,781
 —
 4,781
Balance, September 30, 2018128,371
 $1,284
 $3,682,209
 $(1,964,135) $12,851
 $1,787
 $1,733,996
PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)
(in thousands, except per share amounts)

Common  StockAdditional
Paid-In
Capital		Cumulative
Distributions
in Excess of
Earnings		Other
Comprehensive
Income/(Loss)		Non-
controlling
Interest		Total
Stockholders’
Equity
SharesAmount
Balance, December 31, 2017142,359  $1,424  $3,677,360  $(1,702,281) $8,164  $1,822  $1,986,489  
Cumulative effect of accounting change (adoption of ASU 2016-01)—  —  —  94  (94) —  —  
Share repurchases as part of an announced plan(12,482) (125) —  (231,763) —  —  (231,888) 
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested—  —  (19) (28,284) —  (8) (28,311) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax148  1  2,900  —  —  —  2,901  
Net loss applicable to noncontrolling interest—  —  —  —  —  (2) (2) 
Net income applicable to Piedmont—  —  —  57,830  —  —  57,830  
Other comprehensive income—  —  —  —  2,569  —  2,569  
Balance, March 31, 2018130,025  $1,300  $3,680,241  $(1,904,404) $10,639  $1,812  $1,789,588  
Share repurchases as part of an announced plan(1,861) (18) —  (32,879) —  —  (32,897) 
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested—  —  (32) (26,950) —  (15) (26,997) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax207  2  918  —  —  —  920  
Net loss applicable to noncontrolling interest—  —  —  —  —  (2) (2) 
Net income applicable to Piedmont—  —  —  10,942  —  —  10,942  
Other comprehensive income—  —  —  —  1,502  —  1,502  
Balance, June 30, 2018  128,371  $1,284  $3,681,127  $(1,953,291) $12,141  $1,795  $1,743,056  
Dividends to common stockholders ($0.21 per share), stockholders of subsidiaries, and dividends reinvested—  —  (5) (26,958) (8) (26,971) 
Shares issued and amortized under the 2007 Omnibus Incentive Plan, net of tax—  —  1,087  —  —  —  1,087  
Net income applicable to Piedmont—  —  —  16,114  —  —  16,114  
Other comprehensive income—  —  —  —  710  —  710  
Balance, September 30, 2018  128,371  $1,284  $3,682,209  $(1,964,135) $12,851  $1,787  $1,733,996  

See accompanying notes

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PIEDMONT OFFICE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) 
(Unaudited)
Nine Months Ended
September 30,
20192018
Cash Flows from Operating Activities:
Net income$66,780  $84,882  
Operating distributions received from unconsolidated joint ventures—  10  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation80,004  81,112  
Amortization of debt issuance costs net of favorable settlement of interest rate swaps419  (215) 
Other amortization52,057  42,882  
Impairment loss on real estate assets1,953  —  
Loss on extinguishment of debt—  1,665  
Stock compensation expense12,365  6,671  
Gain on sale of real estate assets(39,370) (45,186) 
Changes in assets and liabilities:
Increase in tenant and straight-line rent receivables(10,660) (12,361) 
Increase in prepaid expenses and other assets(1,958) (8,496) 
Decrease in accounts payable and accrued expenses(2,496) (10,377) 
Increase/(decrease) in deferred income1,149  (2,265) 
Net cash provided by operating activities160,243  138,322  
Cash Flows from Investing Activities:
Acquisition of real estate assets and intangibles(326,144) (28,176) 
Capitalized expenditures(57,368) (44,998) 
Net sales proceeds from wholly-owned properties180,975  419,554  
Note receivable issuance—  (3,200) 
Deferred lease costs paid(16,632) (15,831) 
Net cash (used in)/provided by investing activities(219,169) 327,349  
Cash Flows from Financing Activities:
Debt issuance and other costs paid(91) (947) 
Proceeds from debt550,000  820,061  
Repayments of debt(358,041) (833,005) 
Costs of issuance of common stock(259) —  
Value of shares withheld for payment of taxes related to employee stock compensation(3,295) (2,219) 
Repurchases of common stock as part of announced plan(16,899) (266,062) 
Dividends paid and discount on dividend reinvestments(106,419) (184,073) 
Net cash provided by/(used in) financing activities64,996  (466,245) 
Net increase/(decrease) in cash, cash equivalents, and restricted cash and escrows6,070  (574) 
Cash, cash equivalents, and restricted cash and escrows, beginning of period6,034  8,755  
Cash, cash equivalents, and restricted cash and escrows, end of period$12,104  $8,181  
 (Unaudited)
 Nine Months Ended
 September 30,
 2018 2017
Cash Flows from Operating Activities:   
Net income$84,882
 $164,937
Operating distributions received from unconsolidated joint ventures10
 —
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation81,112
 90,827
Amortization of debt issuance costs net of favorable settlement of interest rate swaps(215) 1,214
Other amortization42,882
 57,146
Loss on extinguishment of debt1,665
 —
Stock compensation expense6,671
 6,657
Equity in income of unconsolidated joint ventures—
 (3,872)
Gain on sale of real estate assets(45,186) (115,951)
Changes in assets and liabilities:   
Increase in tenant and straight-line rent receivables, net(12,361) (15,040)
Increase in prepaid expenses and other assets(8,496) (5,188)
Decrease in accounts payable and accrued expenses(10,377) (5,863)
(Decrease)/increase in deferred income(2,265) 1,513
Net cash provided by operating activities138,322
 176,380
Cash Flows from Investing Activities:   
Acquisition of real estate assets and related intangibles(28,176) —
Capitalized expenditures(44,998) (65,407)
Net sales proceeds from wholly-owned properties419,554
 375,199
Net sales proceeds from unconsolidated joint ventures—
 12,334
Investments in unconsolidated joint ventures—
 (1,162)
Note receivable issuance(3,200) —
Deferred lease costs paid(15,831) (19,419)
Net cash provided by investing activities327,349
 301,545
Cash Flows from Financing Activities:   
Debt issuance and other costs paid(947) (101)
Proceeds from debt820,061
 147,000
Repayments of debt(833,005) (466,046)
Costs of issuance of common stock—
 (97)
Value of shares withheld for payment of taxes related to employee stock compensation(2,219) (3,385)
Repurchases of common stock as part of announced plan(266,062) (3,895)
Dividends paid and discount on dividend reinvestments(184,073) (122,237)
Net cash used in financing activities(466,245) (448,761)
Net (decrease)/increase in cash, cash equivalents, and restricted cash and escrows(574) 29,164
Cash, cash equivalents, and restricted cash and escrows, beginning of period8,755
 8,204
Cash, cash equivalents, and restricted cash and escrows, end of period$8,181
 $37,368

See accompanying notes

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Table of Contents
PIEDMONT OFFICE REALTY TRUST, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 20182019
(unaudited)

1.Organization
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, development, redevelopment, management, and ownership of commercial real estate properties located primarily in 7 major office markets in the Eastern-half of the United States, including properties that are under construction, are newly constructed, or have operating histories. Piedmont was incorporated in 1997 and commenced operations in 1998. Piedmont conducts business primarily through Piedmont Operating Partnership, L.P. (“Piedmont OP”), a Delaware limited partnership, as well as performing the management of its buildings through two2 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, taxable REIT subsidiary, Piedmont Office Holdings, Inc. ("POH"), the sole limited partner of Piedmont OP. Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through various joint ventures which we control.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, 2018,2019, Piedmont owned 5355 in-service office properties and one1 487,000-square foot redevelopment asset comprising approximately 487,000 square feet.primarily in select sub-markets located within seven major office markets: Atlanta, Boston, Dallas, Minneapolis, New York, Orlando, and Washington, D.C. As of September 30, 2018,2019, Piedmont's 5355 in-service office properties comprisecomprised approximately 16.217.0 million square feet of primarily Class A commercial office space and were approximately 93.2%91.9% leased. As of September 30, 2018, approximately 90% of Piedmont's Annualized Lease Revenue (unaudited) 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.

Piedmont internally evaluates all of its real estate assets as one1 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") for 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 Annual Report on Form 10-K for the year ended December 31, 2017.2018.

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.


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Table of Contents
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. Actual results could differ from those estimates.

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, its 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.

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act ("H.R. 1"), which generally took effect for taxable years that began on or after January 1, 2018 (subject to certain exceptions), made many significant changes to the U.S. federal income tax laws that will profoundly impact the taxation of individuals and corporations (including both regular C corporations and corporations that have elected to be taxed as REITs). For example, H.R. 1 limits the ability of corporations to utilize net operating loss carryforwards and limits the deductibility of business interest for all taxpayers, subject to an exception for taxpayers that are engaged in certain specified real property trades or business who make an irrevocable election not to apply the limitation to a particular real property trade or business and to depreciate their real property investments held in such trade or business using the less favorable alternative depreciation system. To date, the IRS has issued limited guidance with respect to certain of the provisions of H.R. 1, and there are numerous interpretive issues that will require guidance. In addition, changes made by H.R. 1 may require Piedmont to accrue certain income for U.S. federal income tax purposes no later than when such income is taken into account as revenue on its GAAP-based financial statements, unless the income is already subject to certain special methods of accounting under the Code. This could cause Piedmont to recognize taxable income prior to the receipt of the associated cash and accordingly, increase its distribution levels in order to maintain its status as a REIT. H.R. 1 also includes limitations on the deductibility of certain compensation paid to Piedmont's executives, certain interest payments, and certain net operating loss carryforwards, each of which could potentially increase Piedmont's taxable income and its required distributions. Piedmont recorded an approximate $0.2 million reduction to its tax liability related to its taxable REIT subsidiary as a result of the rate reduction included in H.R. 1 during the nine months ended September 30, 2018. Although management is still evaluating the other effects of H.R. 1, Piedmont does not believe that H.R. 1 will significantly impact its financial statements.

Reclassifications

Certain prior period amounts presented in the accompanying consolidated statements of income have been reclassified to conform to the current period financial statement presentation. These amounts included: (i) the reclassification of approximately $4.0 million and $14.6 million for the three and nine months ended September 30, 2017, respectively, of parking, antennae license and fiber income that was previously included in rental income into other property related income, as well as certain other miscellaneous revenue into tenant reimbursements and/or property management fee revenue in conjunction with the adoption of the Revenue Recognition Amendments, as further defined and described below; and (ii) the reclassification of $0.4 million and $1.4 million for the three and nine months ended September 30, 2017, respectively, of expense related to certain regional employees who are primarily engaged in the operation and management of properties that was previously included in general and administrative expense to property operating costs.

Accounting Pronouncements Adopted during the Nine Months Ended September 30, 2018

Revenue Recognition

2019
On January 1, 2018,
Leases

During the nine months ended September 30, 2019, Piedmont adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"("ASU") 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") issued by the Financial Accounting Standards Board (the "FASB"). 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.

Piedmont's revenues which are included in the scope of the Revenue Recognition Amendments include its property management fee revenue, the majority of its parking revenue, as well as certain license agreements which allow third-parties to place their antennas or fiber-optic cabling on or inside Piedmont's buildings. Lease contracts are specifically excluded from the Revenue Recognition Amendments and, Piedmont intends to utilize a leasing practical expedient (see further discussion below) to group certain non-lease components related to operating expense reimbursements with other leasing components, provided they meet certain criteria. Because the timing and pattern of transfer of Piedmont's non-lease related revenue already followed the prescribed method of the Revenue Recognition Amendments, Piedmont was able to effectively adopt these amendments on a full retrospective basis, with no impact to the timing of recognition of the related revenue; however, such non-lease revenues are now being presented as "Other property related income" in the accompanying consolidated statements of income. Further, for comparative purposes, Piedmont reclassified approximately $4.0 million and $14.6 million for the three and nine months ended September 30, 2017, respectively, of parking, antennae license, and fiber income that was previously included in rental income into other property related income, as well as certain other miscellaneous revenue into tenant reimbursements and/or property management fee revenue. Piedmont did not elect to adopt any practical expedients provided by the Revenue Recognition Amendments.

A detail of Piedmont's total revenues for the three months ended September 30, 2018 and 2017 (after reclassifications as a result of the adoption of the Revenue Recognition Amendments), including a detailed description of each line item is as follows:

   (After Adoption of Revenue Recognition Amendments)
 
Three Months Ended
September 30, 2018
 
Three Months Ended
September 30, 2017
Rental income$101,348
 $108,868
Tenant reimbursements23,170
 24,253
Property management fee revenue368
 454
Other property related income4,822
 4,012
Total revenues$129,708
 $137,587


Rental income- consists of revenue from leases with Piedmont's tenants, which is not within the scope of the Revenue Recognition Amendments.

Tenant reimbursements - consists of separately billed revenue derived from reimbursements for services prescribed by leases with Piedmont's tenants separate from, but in conjunction with, the revenue generated from leasing office space. Such income is not within the scope of the Revenue Recognition Amendments.

Property management fee revenue- consists of revenue earned by Piedmont related to operating and managing office properties owned by other third-parties. Such income is within the scope of the Revenue Recognition Amendments; however, because the property management services represent a performance obligation that would be satisfied over the length of the contract, not at any specific point in time, and has the same measure of transfer (time elapsed), property management fee revenue will be recognized over time, consistent with the timing of Piedmont’s historic recognition. Any variable consideration transferred as part of these management agreements will continue to be recognized in the quarter that the underlying cash receipts are collected, consistent with the allocation objective of allocating the transaction price in an amount that depicts the amount of consideration to which Piedmont expects to be entitled in exchange for transferring the promised service to the customer.

Other property related income - consists of all other property related income from Piedmont's customers (tenants) that is not derived from a contract meeting the definition of a lease. Examples of such income include parking revenue and income from licenses with unrelated third-parties to place antennae and/or fiber optic cables in or on Piedmont's buildings. Since these services are substantially the same and have the same pattern of transfer, there is no timing difference between the recognition of other property related income and the recognition of the underlying expense/delivery of “service” under the new Revenue Recognition Amendments. Additionally, no modification to the timing of Piedmont’s previous revenue recognition is necessary, as these items have been recognized historically in accordance with this pattern of transfer.


Gain/(loss) on Sale of Real Estate Assets

On January 1, 2018, Piedmont adopted 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") concurrent with the Revenue Recognition Amendments mentioned above. Piedmont elected to apply the amendments of ASU 2017-05 on a full retrospective basis; however, there were no adjustments to previously recorded gains/(losses) on sale of real estate as a result of the transition.

Equity Investments Held in Non-qualified Deferred Compensation Plan

On January 1, 2018, Piedmont adopted Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), as well as Accounting Standards Update No. 2018-03 Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10) ("ASU 2018-03"). These amendments 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. Investments in trading securities held in a "rabbi trust" by Piedmont are the only securities affected by ASU 2016-01 and ASU 2018-03. As such, Piedmont has made a cumulative-effect adjustment to its consolidated balance sheet and consolidated statements of stockholders' equity of approximately $0.1 million from other comprehensive income ("OCI") to cumulative distributions in excess of earnings, and has recorded changes in fair value in net income for the three and nine months ended September 30, 2018 related to these investment securities.

Interest Rate Derivatives

On January 1, 2018, Piedmont early adopted Accounting Standards Update No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). Piedmont adopted ASU 2017-12 using the modified retrospective transition method; however, no adjustment was necessary to account for the cumulative effect of the change on the opening balance of each affected component of equity in the consolidated balance sheet as of the date of adoption because there was no cumulative ineffectiveness that had been recorded on Piedmont's existing interest rate swaps as of December 31, 2017, and all trades were highly effective. The amended presentation and disclosure guidance which is required to be presented prospectively is provided inNote 6.

Other Recent Accounting Pronouncements

The FASB has issued Accounting Standards Update No. 2016-02, Leases (Topic 842), as well as various associated updates and amendments, which together comprise the requirements for lease accounting under Accounting Standards Codification 842 ("ASU 2016-02"ASC 842"), which. ASC 842 fundamentally changeschanged 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. ASC 842 also prohibits the capitalization of internal direct salary costs associated with negotiating and executing leases. Accounting for leases by lessors is substantially unchanged from prior practice as lessors will continue to recognize lease revenue on a straight-line basis.

Additionally,In conjunction with the FASB has subsequently issued a numberadoption of clarifying and technical corrections to ASU 2016-02 through several Accounting Standards Updates ("ASU")ASC 842, Piedmont adopted the following optional practical expedients, transition amendments, or made accounting policy elections as follows:

•a package of optional practical expedients which precluded: (1) the reassessment of any expired or existing contracts to determine if they contain a lease or to determine lease classification; and (2) the write-off of any unamortized, previously capitalized, initial direct costs for any existing leases;
•an optional practical transition expedient provided by ASU No. 2018-01 which allowed Piedmont to exclude certain land easements in place as of January 1, 2019 from the new guidance;
ASUTitleSummaryAnticipated Impact on Piedmont's Consolidated Financial Statements Based on Management’s Assessment to Date
ASU 2018-01Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842Clarifies that a land easement is required to be evaluated to determine whether it should be accounted for as a lease upon adoption of ASU 2016-02; also provides an optional practical transition expedient allowing entities not currently assessing land easements under existing leasing guidance prior to adoption of ASU 2016-02 to not apply the new guidance to land easements existing at the date of initial adoption of ASU 2016-02.Not applicable as Piedmont has no land easements.
ASU 2018-10Codification Improvements to Topic 842, LeasesClarifications and technical corrections to ASU 2016-02.No material impact expected.
ASU 2018-11Leases (Topic 842) Targeted ImprovementsAllows certain non-lease operating expense reimbursements which are included in the underlying stated lease rate to be accounted for as part of the lease provided certain criteria are met under an optional practical expedient.All of Piedmont’s operating expense reimbursements are expected to qualify to be accounted for as a part of the underlying lease.
•an optional practical expedient provided by ASU No. 2018-11 which allows certain non-lease operating expense reimbursements which are included in the underlying stated lease rate to be accounted for as part of an operating lease where Piedmont is the lessor;

•a transitional amendment which allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), effectively allowing for an initial adoption of ASC 842 (the new leasing guidance) on January 1, 2019 (the "Comparatives Under ASC 840 Option");
Although management continues•an accounting policy election allowed by ASC 842 related to evaluatea recognition and measurement exception for short-term leases (defined as leases which are 12 months or less in duration) where Piedmont is the guidancelessee. Piedmont's short-term lease expense reasonably reflects its lease commitments under such leases; and disclosures required
•an accounting policy election allowed by allASU No. 2018-20 which permits Piedmont to exclude sales and other similar taxes from analysis to ascertain whether they are Piedmont's primary obligation (as lessor), and instead exclude such costs from revenue and account for them as costs of the above ASUs, Piedmont does not anticipate any material impactlessee.
The nature of Piedmont's change in accounting principle relates primarily to its consolidated financial statementsaccounting for operating leases where Piedmont is a lessee for office space, as prescribed by ASC 842. Due to the adoption of the practical expedients outlined above, Piedmont has not adjusted prior-period information retrospectively, and there is a negligible decrease in net income attributable to Piedmont as a result of adoptionaccounting for leases where Piedmont is the lessee under ASC 842 as compared to prior operating lease accounting.

Operating leases where Piedmont is the lessee relate primarily to office space in buildings owned by third parties. Piedmont recorded a right to use asset and corresponding lease liability of approximately $0.2 million using Piedmont's incremental
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borrowing rate as the lease discount rate. For the three and nine months ended September 30, 2019, Piedmont recognized approximately $18,000 and $55,000 of operating lease costs, respectively. As of September 30, 2019, the weighted-average lease term of Piedmont's right of use assets is two years, and the weighted-average discount rate is 3.35%.

Piedmont evaluates contracts at commencement to determine if the contract contains a lease. If a contract is determined to contain a lease, the lease is evaluated to determine whether it is an operating or a financing lease. All of Piedmont's leases where Piedmont is the lessor are for the lessee's use of space in Piedmont's commercial office properties and are classified as operating leases. Lease payments are typically comprised of both fixed base rental payments and separately billed variable lease payments for reimbursement of services performed by Piedmont for the tenant as prescribed by the lease. Fixed base rental payments, as well as any fixed portion of reimbursement income, are recognized on a straight-line basis over the lease term. Tenant reimbursements are recognized as revenue in the period that the related operating cost is incurred. The option to extend or terminate our leases is specific to each underlying tenant agreement; however, generally Piedmont's leases contain penalties for early terminations. None of Piedmont's leases convey the right for the lessee to purchase the underlying property; however, certain leases convey the right of first offer or first refusal on the potential sale of the underlying real estate to the lessee.

Piedmont's future minimum lease payments from lessees under non-cancelable operating leases where Piedmont is the lessor as of September 30, 2019 is presented below (in thousands):

Years ending December 31:
2019 (1)
$98,831  
2020382,738  
2021373,740  
2022357,475  
2023323,709  
Thereafter1,433,272  
Total$2,969,765  

(1)Reflects rental payments for the fiscal period October 1, 2019 through December 31, 2019.

As required under the Comparatives Under ASC 840 Option described above, Piedmont's future minimum rental income from lessees under non-cancelable operating leases where Piedmont is the lessor as of December 31, 2018 is also presented below (in thousands):

Years ending December 31:
2019$370,495  
2020352,541  
2021337,951  
2022324,960  
2023291,603  
Thereafter1,247,649  
Total$2,925,199  


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Piedmont recognized the following fixed and variable lease payments, which together comprised rental and tenant reimbursement revenue in the accompanying consolidated statements of income for the three and nine months ended September 30, 2019, respectively, as follows (in thousands):

Three Months EndedNine Months Ended
September 30, 2019September 30, 2019
Fixed payments$105,207  $311,503  
Variable payments25,372  70,710  
Total Rental and Tenant Reimbursement Revenue$130,579  $382,213  

Additionally, ASU No. 2018-19 clarifies that operating lease receivables are within the scope of ASC 842; therefore, in accordance with ASC 842, effective January 1, 2019, Piedmont elected to evaluate the collectibility of its operating lease receivables on a tenant/lease-specific basis and began recognizing changes in the collectibility assessment of its operating lease receivables as a reduction of rental and tenant reimbursement revenue, rather than as a bad debt expense, a component of property operating costs. Consequently, during the three and nine months ended September 30, 2019, Piedmont recognized approximately $65,000 and $24,000 of uncollectible operating lease receivables as a decrease in rental and reimbursement revenue, respectively, and during the three and nine months ended September 30, 2018, Piedmont recognized approximately $0 and $84,000 of expense related to lessor accounting. However,uncollectible operating lease receivables as additional property operating costs, respectively.

Stock Compensation to Non-employees

During the nine months ended September 30, 2019, Piedmont does anticipate recording an immaterial right-to-use asset and offsetting lease liability under lessee accounting on its balance sheet upon adoption ofadopted ASU 2016-02 on January 1, 2019.

The FASB has issued Accounting Standards Update No. 2018-07, Stock Compensation (Topic 718), Improvements to NonemployeeNon-employee Share-Based Payment Accounting ("ASU 2018-07"). The provisions of ASU 2018-07 align accounting for stock based compensation for non-employees for goods and services with existing accounting for similar compensation for employees. The amendments supersede previous guidance on accountingASU 2018-07 requires an entity to remeasure liability-classified awards that have not been settled by the date of adoption and equity-classified awards for share-based paymentswhich a measurement date has not been established through a cumulative-effect adjustment to non-employees codifiedretained earnings as of January 1, 2019. Piedmont's only awards affected by ASU 2018-07 are equity-classified award grants to its independent board of directors, which have been historically recognized in the FASB'ssame manner prescribed by the newly adopted standard. As such, there was no cumulative effect adjustment recognized upon adoption.

Reclassifications

Although Piedmont has adopted the transitional amendment under ASC 842 described above, Piedmont has combined the presentation of rental income and tenant reimbursements in the accompanying consolidated statements of income for the prior periods to conform to the current period financial presentation under presentation guidance detailed in Accounting Standards Codification ("ASC") 505-50. ASU 2018-07 is effective205 Presentation of Financial Statements. These amounts included the presentation of approximately $101.3 million of rental income, and $23.2 million of tenant reimbursements for the three months ended September 30, 2018 as rental and tenant reimbursement revenue of $124.5 million. For the nine months ended September 30, 2018, these amounts included the presentation of approximately $304.3 million of rental income, and $68.2 million of tenant reimbursements as rental and tenant reimbursement revenue of $372.5 million. Further, we intend to make a similar reclassification for the years ended December 31, 2018 and 2017 in our Form 10-K for the first quarteryear ending December 31, 2019. We will present approximately $411.7 million of 2019, with early adoption permitted at any time provided thatrental income and $92.7 million of tenant reimbursements for the entity has already adoptedyear ended December 31, 2018 as rental and tenant reimbursement revenue of $504.4 million. We will present approximately $455.1 million of rental income and $98.2 million of tenant reimbursements for the provisionsyear ended December 31, 2017 as rental and tenant reimbursement revenue of ASC 606. Piedmont does not anticipate any material impact$553.3 million. Finally, the subtotal of Revenues less Expenses was removed within the accompanying consolidated statements of income for the three and nine months ended September 30, 2018 to its consolidated financial statements as a result of adoption.correct the prior period presentation, and will also be removed from prior annual periods in subsequent filings.

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Other Recent Accounting Pronouncements

The FASB has issued Accounting Standards UpdateASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, as well as ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and ASU No. 2019-05, Financial Instruments- Credit Losses: Targeted Transition Relief ("ASU 2016-13"collectively the "Credit Loss Amendments"). The provisions of ASU 2016-13the Credit Loss Amendments 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. Further, the FASB has issued ASU 2016-13No. 2018-19 Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which is effective concurrent with the Credit Loss Amendments, and excludes receivables arising from operating leases from the scope of the Credit Loss Amendments. Both ASU 2018-19 and the Credit Loss Amendments are 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.adoption; however, substantially all of Piedmont's receivables are operating lease receivables and as such, Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption of the Credit Loss Amendments and ASU 2018-19.



3. Acquisitions
3.Acquisitions

During the nine months ended September 30, 2018,2019, Piedmont acquired one property3 properties and adjacent developable land using proceeds available as a result of dispositions (see Note 9) in January 2018 and cash on hand as noted below:

Property Metropolitan Statistical Area Date of Acquisition Ownership Percentage Acquired Rentable Square Feet Percentage Leased as of Acquisition 
Net Contractual Purchase Price
 (in millions)
501 West Church Street Orlando, Florida February 23, 2018 100% 182,461
 100% $28.2



4.Debt

During the nine months ended September 30, 2018, Piedmont fully repaid the balances of the $300 Million Unsecured 2013 Term Loan and the $170 Million Unsecured 2015 Term Loan using proceeds from the 2017 Disposition Portfolio (see Note 9) and cash on hand, as well as drawing on its $500 Million Unsecured 2015 Line of Credit.

Additionally, during the nine months ended September 30, 2018, Piedmont replaced its $500 Million Unsecured 2015 Line of Credit ("the 2015 Line of Credit") with a new $500 Million Unsecured Line of Credit (the "$500 Million Unsecured 2018 Line of Credit"). The 2015 Line of Credit was scheduled to expire on June 18, 2019, and was terminated concurrently with the closing of the new facility. The term of the new $500 Million Unsecured 2018 Line of Credit is four years with a maturity date of September 30, 2022, 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. Additionally, under certain terms of the agreement, Piedmont may increase the new facility by up to an additional $500 million, to an aggregate size of $1.0 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 $500 Million Unsecured 2018 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 London Interbank Offered Rate (“LIBOR”) or the Base Rate, defined as the greater of the prime rate, the federal funds rate plus 0.5%, or LIBOR for a one-month period plus 1.0%. LIBOR loans are available with interest periods selected by Piedmont of one, two (if available), three, or six months, or to the extent available from all lenders in each case, one year or periods of less than one month. The stated interest rate spread over LIBOR can vary from 0.775% to 1.45% based upon the greater of the then current credit rating of Piedmont. As of the closing of the $500 Million Unsecured 2018 Line of Credit, based upon Piedmont's current credit rating,as noted below:

PropertyMetropolitan Statistical AreaDate of AcquisitionOwnership Percentage AcquiredRentable Square FeetPercentage Leased as of Acquisition
Net Contractual Purchase Price(1)(in millions)
Galleria 100Atlanta, GeorgiaMay 6, 2019100 %414,293  91 %$95.1  
Galleria 400 and 600Atlanta, GeorgiaAugust 23, 2019100 %863,623  84 %$231.2  

(1)Price for both acquisitions includes the current stated LIBOR spread on the loan is 0.9%, down from 1.0% for the 2015 Linepurchase of Credit.adjacent parcels of developable land, totaling approximately 11.7 acres.

Further, during the nine months ended September 30, 2018, Piedmont amended and restated its $300 Million Unsecured 2011 Term Loan (the "Amended and Restated $300 Million Unsecured 2011 Term Loan") to extend its maturity date 22 months, from January 15, 2020 to November 30, 2021. The amendment also decreases the stated interest rate spread over LIBOR from a range
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Table of 0.9% to 1.90% to a range of 0.85% to 1.65%. The specific spread in effect from time to time is based upon the greater of the credit rating for Piedmont or Piedmont OP. As of the closing of the Amended and Restated $300 Million Unsecured 2011 Term Loan, based upon the Piedmont's current credit rating, the current stated LIBOR spread on the loan was 1.0%, down from 1.15% for the $300 Million Unsecured 2011 Term Loan. All other material terms of the facility remain unchanged.Contents

4. Debt
Finally, during the nine months ended September 30, 2018, Piedmont entered into a $250 million unsecured term loan facility (the “$250 Million Unsecured 2018 Term Loan”) with a consortium of lenders. The term of the $250 Million Unsecured 2018 Term Loan is seven years with a maturity date of March 31, 2025; however, Piedmont may prepay the $250 Million Unsecured 2018 Term Loan, in whole or in part, at any time after March 29, 2020 without premium or penalty. The $250 Million Unsecured 2018 Term Loan has the option to bear interest at varying levels based on either (i) LIBOR for an interest period selected by Piedmont of one, two, three, or six months, or to the extent available from all lenders in each case, one year or periods of less than one month, or (ii) Base Rate, defined as the greater of the prime rate, the federal funds rate plus 0.5%, or LIBOR for a one-month period plus 1%; plus a stated interest rate spread based on the higher credit rating level issued for either Piedmont or Piedmont OP. The stated interest rate spread over LIBOR can vary from 1.45% to 2.40% based upon the then current credit rating of Piedmont or Piedmont OP, whichever is higher. Further, Piedmont entered into three interest rate swap agreements for a total notional amount

of $150 million which effectively fixed $150 million of the $250 Million Unsecured 2018 Term Loan at an interest rate of approximately 4.11%.

The $500 Million Unsecured 2018 Line of Credit, the Amended and Restated $300 Million Unsecured 2011 Term Loan, and the $250 Million Unsecured 2018 Term Loan all have certain financial covenants that require, among other things, the maintenance of an unencumbered interest 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, 20182019 and December 31, 20172018 (in thousands):
Facility (1)
 Stated Rate 
Effective Rate (2)
 Maturity Amount Outstanding as of
 September 30, 2018 December 31, 2017
Secured (Fixed)          
$35 Million Fixed-Rate Loan (3)
 5.55% 3.75% 9/1/2021 $30,033
 $30,670
$160 Million Fixed-Rate Loan (4)
 3.48% 3.58% 7/5/2022 160,000
 160,000
Net premium and unamortized debt issuance costs       720
 946
Subtotal/Weighted Average (5)
 3.81%     190,753
 191,616
Unsecured (Variable and Fixed)          
$170 Million Unsecured 2015 Term Loan LIBOR + 1.125%
 2.54% 5/15/2018 —
 170,000
$300 Million Unsecured 2013 Term Loan LIBOR + 1.20%
 2.78%
(7) 
1/31/2019 —
 300,000
$500 Million Unsecured 2015 Line of Credit (6)
 LIBOR + 1.00%
 3.17% 6/18/2019 —
 23,000
$500 Million Unsecured 2018 Line of Credit (6)
 LIBOR + 0.90%
 3.15% 9/30/2022
(8) 
235,000
 —
Amended and Restated $300 Million Unsecured 2011 Term Loan LIBOR +  1.00%
 3.20%
(7) 
11/30/2021 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
$250 Million Unsecured 2018 Term Loan LIBOR + 1.60%
 4.00%
(9) 
3/31/2025 250,000
 —
Discounts and unamortized debt issuance costs       (10,382)
 (7,689)
Subtotal/Weighted Average (5)
 3.69%     1,524,618
 1,535,311
Total/Weighted Average (5)
 3.71%     $1,715,371
 $1,726,927

(1)
Other than the $35 Million Fixed-Rate Loan, all of Piedmont’s outstanding debt as of September 30, 2018 and December 31, 2017 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 as of September 30, 2018.
(6)
On a periodic basis, Piedmont may select from multiple interest rate options, including the prime rate and various-length LIBOR locks on all or a portion of the principal. All LIBOR selections are subject to an additional spread over the selected rate based on Piedmont’s current credit rating.
(7)
The facility has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of changes in Piedmont's credit rating, the rate to that shown as the effective rate through the maturity date of the interest rate swap agreements (see Note 6 for more detail).
(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 September 29, 2023) provided Piedmont is not then in default and upon payment of extension fees.

(9)
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, $150 million of the principal balance to 4.11% through March 29, 2020, and $100 million of the principal balance to 4.21% from March 30, 2020 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 of the principal. All LIBOR selections are subject to an additional spread 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, 2018.

Facility (1)
Stated Rate
Effective Rate (2)
MaturityAmount Outstanding as of
September 30, 2019December 31, 2018
Secured (Fixed)
$35 Million Fixed-Rate Loan (3)
5.55 %3.75 %9/1/2021$29,033  $29,706  
$160 Million Fixed-Rate Loan (4)
3.48 %3.58 %7/5/2022160,000  160,000  
Net premium and unamortized debt issuance costs418  645  
Subtotal/Weighted Average (5)
3.80 %189,451  190,351  
Unsecured (Variable and Fixed)
Amended and Restated $300 Million Unsecured 2011 Term LoanLIBOR +  1.00%  3.20 %
(7)
11/30/2021300,000  300,000  
$500 Million Unsecured 2018 Line of Credit (6)
LIBOR + 0.90%  2.95 %9/30/2022
(8)
398,000  205,000  
$350 Million Unsecured Senior Notes3.40 %3.43 %6/01/2023350,000  350,000  
$400 Million Unsecured Senior Notes4.45 %4.10 %3/15/2024400,000  400,000  
$250 Million Unsecured 2018 Term LoanLIBOR + 1.60%  3.93 %
(9)
3/31/2025250,000  250,000  
Discounts and unamortized debt issuance costs(8,207) (9,879) 
Subtotal/Weighted Average (5)
3.58 %1,689,793  1,495,121  
Total/Weighted Average (5)
3.61 %$1,879,244  $1,685,472  

(1)Other than the $35 Million Fixed-Rate Loan, all of Piedmont’s outstanding debt as of September 30, 2019 and December 31, 2018 is interest-only until maturity.
(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 as of September 30, 2019.
(6)On a periodic basis, Piedmont may select from multiple interest rate options, including the prime rate and various-length LIBOR locks on all or a portion of the principal. All LIBOR selections are subject to an additional spread over the selected rate based on Piedmont’s current credit rating.
(7)The facility has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of changes in Piedmont's credit rating, the rate to that shown as the effective rate through the maturity date of the interest rate swap agreements (see Note 5 for more detail).
(8)Piedmont may extend the term for up to one additional year (through 2 available six month extensions to a final extended maturity date of September 29, 2023) provided Piedmont is not then in default and upon payment of extension fees.
(9)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, $150 million of the principal balance to 4.11% through March 29, 2020, and $100 million of the principal balance to 4.21% from March 30, 2020 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 of the principal. All LIBOR selections are subject to an additional spread 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, 2019 (see Note 5 for more detail).

Piedmont made interest payments on all debt facilities, including interest rate swap cash settlements, of approximately $17.8 million and $18.0 million for both the three months ended September 30, 20182019 and 2017,2018, respectively, and approximately $48.7 $49.7
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million and $54.0$48.7 million for the nine months ended September 30, 20182019 and 2017,2018, respectively. Also, Piedmont capitalized interest of approximately $375,000$0.5 million and $37,000$0.4 million for the three months ended September 30, 20182019 and 2017,2018, respectively, and approximately $0.8$1.6 million and $0.2$0.8 million for the nine months ended September 30, 20182019 and 2017,2018, respectively. As of September 30, 2018,2019, Piedmont believes it was in compliance with all financial covenants associated with its debt instruments. See Note 76 for a description of Piedmont’s estimated fair value of debt as of September 30, 2018.2019.

5.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 its consolidated VIEs and their related carrying values as of September 30, 2018 and December 31, 2017 is as follows (net carrying amount in millions):

  
Piedmont's
%
   
Net Carrying
Amount as of
 
Net Carrying
Amount as of
  
Entity 
Ownership
of Entity
 
Related
Building
 September 30, 2018 December 31, 2017 Primary Beneficiary Considerations
1201 Eye Street N.W. Associates, LLC 98.6% 1201 Eye Street $89.2
 $81.1
 
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% 1225 Eye Street $64.8
 $65.2
 
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 $256.2
 $263.2
 
The Omnibus Agreement with the previous owner includes equity participation rights upon sale of the property 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.




6.5. Derivative Instruments
Risk Management Objective of Using Derivatives

In addition to operational risks which arise in the normal course of business, Piedmont is exposed to economic risks such as interest rate, liquidity, and credit risk. In certain situations, Piedmont has entered into derivative financial instruments such as interest rate swap agreements and 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 exchange of the underlying notional amount.

As of September 30, 2018,2019, Piedmont was party to interest rate swap agreements, all of which are designated as effective cash flow hedges and fully hedge the variable cash flows covering the entire outstanding balance of the Amended and Restated $300 Million Unsecured 2011 Term Loan, through January 2020, and $150 million of the $250 Million Unsecured 2018 Term Loan. The maximum length of time over which Piedmont is hedging its exposure to the variability in future cash flows for forecasted transactions is 7866 months.

A detail of Piedmont’s interest rate derivatives outstanding as of September 30, 20182019 is as follows:

Interest Rate Derivatives: Number of Swap Agreements Associated Debt Instrument 
Total Notional Amount
(in millions)
 Effective Date Maturity Date
Interest rate swaps 3 Amended and Restated $300 Million Unsecured 2011 Term Loan $300
 11/22/2016 1/15/2020
Interest rate swaps 2 $250 Million Unsecured 2018 Term Loan $100
 3/29/2018 3/31/2025
Interest rate swaps 1 $250 Million Unsecured 2018 Term Loan $50
 3/29/2018 3/29/2020
Total     $450
    


Interest Rate Derivatives:Number of Swap AgreementsAssociated Debt InstrumentTotal Notional Amount
(in millions)		Effective DateMaturity Date
Interest rate swaps3  Amended and Restated $300 Million Unsecured 2011 Term Loan  $300  11/22/20161/15/2020
Interest rate swaps2  $250 Million Unsecured 2018 Term Loan  $100  3/29/20183/31/2025
Interest rate swaps1  $250 Million Unsecured 2018 Term Loan  $50  3/29/20183/29/2020
Total$450  

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, 20182019 and December 31, 2017,2018, respectively, is as follows (in thousands):

Interest rate swaps classified as:September 30,
2018		 December 31,
2017
Gross derivative assets$4,069
 $688
Gross derivative liabilities—
 (1,478)
Net derivative asset/(liability)$4,069
 $(790)

Interest rate swaps classified as:September 30,
2019		December 31,
2018
Gross derivative assets$—  $1,199  
Gross derivative liabilities(6,862) (839) 
Net derivative asset/(liability)$(6,862) $360  

The gain/(loss) on Piedmont's interest rate derivatives, including previously settled forward swaps, that was recorded in OCIother comprehensive income ("OCI") and the accompanying consolidated statements of income as a component of interest expense for the three and nine months ended September 30, 20182019 and 2017,2018, respectively, was as follows (in thousands):
 Three Months Ended Nine Months Ended
Interest Rate Swaps in Cash Flow Hedging RelationshipsSeptember 30,
2018		 September 30,
2017		 September 30,
2018		 September 30,
2017
Amount of gain recognized in OCI$1,145
 $175
 $4,408
 $307
Amount of previously recorded gain/(loss) reclassified from OCI into Interest Expense$434
 $(653) $885
 $(2,936)
Amount of loss recognized on derivatives reclassified from OCI into Loss on Extinguishment of Debt$—
 $—
 $(1,258) $—
        
Total amount of Interest Expense presented in the consolidated statements of income$15,849
 $16,183
 $45,294
 $52,661
Total amount of Loss on Extinguishment of Debt presented in the consolidated statements of income (1)
$—
 $—
 $1,680
 $—
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 Three Months EndedNine Months Ended
Interest Rate Swaps in Cash Flow Hedging RelationshipsSeptember 30,
2019		September 30,
2018		September 30,
2019		September 30,
2018
Amount of gain/(loss) recognized in OCI$(1,386) $1,144  $(6,874) $4,408  
Amount of previously recorded gain reclassified from OCI into Interest Expense$427  $434  $1,871  $885  
Amount of loss recognized on derivatives reclassified from OCI into Loss on Extinguishment of Debt$—  $—  $—  $(1,258) 
Total amount of Interest Expense presented in the consolidated statements of income$(16,145) $(15,849) $(46,750) $(45,294) 
Total amount of Loss on Extinguishment of Debt presented in the consolidated statements of income (1)
$—  $—  $—  $(1,680) 


(1)Includes the write-off of approximately $0.4 million of discounts and unamortized debt issuance costs associated with the repayment of debt.

(1)
Includes the write-off of approximately $0.4 million of discounts and unamortized debt issuance costs associated with the repayment of debt (see Note 4).

Piedmont estimates that approximately $3.6$0.2 million will be reclassified from OCI as a reduction of interest expense over the next twelve months. Piedmont recognized no0 hedge ineffectiveness on its cash flow hedges during the three and nine months ended September 30, 20182019 and 2017,2018, respectively.

Additionally, see Note 76 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. Because all of Piedmont's interest rate swaps are in an asset position, ifIf Piedmont were to breach any of the contractual provisions of the derivative contracts, the settlement ofit could be required to settle its liability obligations under the agreements would not result in a penaltyat their termination value of the estimated fair values plus accrued interest, or approximately $7.1 million as of September 30, 2018.2019. 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.

7.
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, 20182019 and December 31, 2017,2018, respectively (in thousands):

 September 30, 2019December 31, 2018
Financial InstrumentCarrying ValueEstimated
Fair Value		Level Within Fair Value HierarchyCarrying ValueEstimated
Fair Value		Level Within Fair Value Hierarchy
Assets:
Cash and cash equivalents (1)
$10,284  $10,284  Level 1  $4,571  $4,571  Level 1  
Tenant receivables (1)
$10,091  $10,091  Level 1  $10,800  $10,800  Level 1  
Restricted cash and escrows (1)
$1,820  $1,820  Level 1  $1,463  $1,463  Level 1  
Interest rate swaps$—  $—  Level 2  $1,199  $1,199  Level 2  
Liabilities:
Accounts payable and accrued expenses (1)
$14,090  $14,090  Level 1  $47,328  $47,328  Level 1  
Interest rate swaps$6,862  $6,862  Level 2  $839  $839  Level 2  
Debt, net$1,879,244  $1,922,891  Level 2  $1,685,472  $1,698,213  Level 2  

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 September 30, 2018 December 31, 2017
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)
$6,807
 $6,807
 Level 1 $7,382
 $7,382
 Level 1
Tenant receivables, net(1)
$10,522
 $10,522
 Level 1 $12,139
 $12,139
 Level 1
Notes receivable (1)
$3,200
 $3,200
 Level 1 $—
 $—
 Level 1
Restricted cash and escrows(1)
$1,374
 $1,374
 Level 1 $1,373
 $1,373
 Level 1
Interest rate swaps$4,069
 $4,069
 Level 2 $688
 $688
 Level 2
Liabilities:           
Accounts payable and accrued expenses(1)
$14,584
 $14,584
 Level 1 $126,429
 $126,429
 Level 1
Interest rate swaps$—
 $—
 Level 2 $1,478
 $1,478
 Level 2
Debt, net$1,715,371
 $1,714,923
 Level 2 $1,726,927
 $1,759,905
 Level 2
(1)For the periods presented, the carrying value of these financial instruments 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, 20182019 and December 31, 2017;2018; however, to estimate its fair value as disclosed in the table above, Piedmont used widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of the debt facilities, including the period to maturity of each instrument, and observable market-based inputs for similar 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 outstanding debt. Piedmont has not changed its valuation technique for estimating the fair value of its debt.

Piedmont’s interest rate swap agreements presented above (further discussed in Note 65) are classified as “Interest rate swap” assets and liabilities in the accompanying consolidated balance sheets and were carried at estimated fair value as of September 30, 20182019 and December 31, 2017.2018. The estimated fair value of these derivative instruments was determined using widely accepted valuation techniques such as discounted cash flow analysis based on the contractual terms of the derivatives including the period to maturity of each instrument. Observable market-based inputs, including interest rate curves and implied volatilities, were also used.

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 for both Piedmont and the counterparties that were at risk as of the valuation date. The credit risks of both Piedmont and its counterparties were factored into the calculation of the estimated fair value of the interest rate swaps; however, as of September 30, 20182019 and December 31, 2017,2018, this credit valuation adjustment did not comprise a material portion of the estimated fair value. Therefore, Piedmont believes that any unobservable inputs (Level 3) 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 instruments to be Level 3 assets or liabilities.


7. Impairment Loss on Real Estate Assets

During the three months ended September 30, 2019, Piedmont reduced The Dupree building's carrying value to reflect its fair value, estimated based on the net contract price of $12.7 million, and recognized an impairment loss on real estate assets of approximately $2.0 million. Piedmont closed on the sale of The Dupree building on September 4, 2019.

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 PiedmontPiedmont to issue corporate or property guarantees to provide funding for capital improvements or other financial obligations. Piedmont classifies its capital improvements into two categories: (i) improvements which maintain the building's existing asset value 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”). As of September 30, 2018, commitments to fund potential non-incremental capital expenditures over the next five years for2019, Piedmont had no individually significant unrecorded tenant improvements totaled approximately $47.0 million related to Piedmont's existing lease portfolio over 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 timing of the actual funding of these tenant improvements is largely dependent upon tenant requests for reimbursement. In some cases, these obligations may expire with the leases without further recourse to Piedmont. As of September 30, 2018, commitments for incremental capital expenditures for tenant improvements associated with executed leases totaled approximately $34.9 million.allowance commitments.

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 recorded $61,000net recoveries of previously recognized reductions in rental and $0reimbursement revenues of such$0.7 million related to tenant audits/disputes during the three and nine months ended September 30, 2019 and approximately $0.1 million and $0.5 million of reductions in rental and reimbursement revenues related to such tenant audits/disputes during the three and nine months ended September 30, 2018, respectively.

9. Related-Party Transactions

During the nine months ended September 30, 2019, Piedmont entered into employment or retirement agreements with certain of its current and 2017, respectively,former executive officers as more fully described in its Definitive Proxy Statement and $0.5 million and $0.3 million of such reductions in reimbursement revenues related to such tenant audits/disputesCurrent Report on Form 8-K filed on March 19, 2019. There were no other related-party transactions during the nine months ended September 30, 2018 and 2017, respectively.

2019.
9.
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10. Assets Held for Sale

As of September 30, 2018,2019, the 800 North Brand Boulevard500 West Monroe Street building in Glendale, California met the criteria for held for sale classification; consequently, its assets and liabilities as of December 31, 2017 have also beenwere reclassified as held for sale in the accompanying consolidated balance sheets for comparability purposes. In addition, during the nine months ended September 30, 2018, Piedmont sold a portfolio of 14 properties (the "2017 Disposition Portfolio") which was also classified as held for sale as of September 30, 2019 and December 31, 20172018. The sale closed on October 28, 2019. Additionally, the One Independence Square building in Washington, D.C. also met the consolidated balance sheets.criteria for held for sale classification as of December 31, 2018 and was sold on February 28, 2019. Details of assets held for sale as of September 30, 20182019 and December 31, 20172018 are presented below (in thousands):

September 30, 2019December 31, 2018
Real estate assets held for sale, net:
Land$36,990  $67,552  
Building and improvements, less accumulated depreciation of $61,579 and $102,476 as of September 30, 2019 and December 31, 2018, respectively176,066  261,463  
Construction in progress38  2,053  
Total real estate assets held for sale, net$213,094  $331,068  
Other assets held for sale, net:
Straight-line rent receivables$26,132  $36,584  
Prepaid expenses and other assets452  1,095  
Deferred lease costs, less accumulated amortization of $7,887 and $9,138 as of September 30, 2019 and December 31, 2018, respectively13,452  23,554  
Total other assets held for sale, net$40,036  $61,233  
Other liabilities held for sale:
Accrued expenses as of September 30, 2019 and December 31, 2018, respectively$7,275  $8,780  
  September 30, 2018 December 31, 2017
Real estate assets held for sale, net:    
Land $23,608
 $98,106
Building and improvements, less accumulated depreciation of $60,434 and $226,188 as of September 30, 2018 and December 31, 2017, respectively 90,281
 348,374
Construction in progress 29
 2,308
Total real estate assets held for sale, net $113,918
 $448,788
     
Other assets held for sale, net:    
Straight-line rent receivables $7,607
 $34,750
Prepaid expenses and other assets 1,157
 1,624
Deferred lease costs, less accumulated amortization of $2,364 and $18,710 as of September 30, 2018 and December 31, 2017, respectively 3,988
 24,819
Total other assets held for sale, net $12,752
 $61,193
     
Other liabilities held for sale, net:    
Intangible lease liabilities, less accumulated amortization of $0 and $935 as of September 30, 2018 and December 31, 2017, respectively $—
 $380


21
10.Table of Contents
11. Stock Based Compensation
The Compensation Committee of Piedmont's Board of Directors has periodically granted deferred stock awardsaward units to all of Piedmont's employees and independent directors. Employee awards typically vest ratably over a multi-year period and independent director awards vest over one year. Certain management employees' long-term equity incentive program is split equally between the time-vested awardsaward units described above and a multi-year performance share program whereby the actual awards are contingent upon Piedmont's total stockholder return ("TSR") relative to a peer group of office REITs' TSR. The long-term equity incentives for these certain employees, as well as the peer group, is predetermined by the Board of Directors, advised by an outside compensation consultant. Any shares earned are awarded at the end of the multi-year performance period and vest upon award. The fair values of the multi-year performance share awards are estimated using a Monte Carlo valuation method.

A rollforward of Piedmont's equity based award activity for the nine months ended September 30, 20182019 is as follows:

 Shares Weighted-Average Grant Date Fair Value
Unvested and Potential Stock Awards as of December 31, 2017868,437
 $21.69
Deferred Stock Awards Granted354,236
 $17.84
Increase in Estimated Potential Share Award313,827
 $23.80
Performance Stock Awards Vested(161,005) $18.47
Deferred Stock Awards Vested(332,019) $19.21
Deferred Stock Awards Forfeited(8,481) $19.77
Unvested and Potential Stock Awards as of September 30, 20181,034,995
 $22.36

SharesWeighted-Average Grant Date Fair Value
Unvested and Potential Stock Awards as of December 31, 20181,227,483  $23.14  
Deferred Stock Awards Granted354,057  $21.02  
Increase in Estimated Potential Share Award based on Performance260,205  $28.31  
Performance Stock Awards Vested(352,404) 
(1)
$25.83  
Deferred Stock Awards Vested(440,450) 
(1)
$19.66  
Deferred Stock Awards Forfeited(14,518) $19.16  
Unvested and Potential Stock Awards as of September 30, 20191,034,373  $25.10  

(1)Includes performance share and deferred stock awards that were settled in cash in July 2019 in conjunction with the senior management transition that occurred on June 30, 2019.

The following table provides additional information regarding stock award activity during the three and nine months ended September 30, 20182019 and 2017,2018, respectively (in thousands, except per share amounts):

 Three Months Ended Nine Months Ended
 September 30,
2018		 September 30,
2017		 September 30,
2018		 September 30,
2017
Weighted-Average Grant Date Fair Value of Deferred Stock Granted During the Period$—
 $—
 $17.84
 $21.38
Total Grant Date Fair Value of Deferred Stock Vested During the Period$16
 $11
 $6,378
 $5,852
Share-based Liability Awards Paid During the Period(1)
$—
 $—
 $2,947
 $2,877

Three Months EndedNine Months Ended
September 30,
2019		September 30,
2018		September 30,
2019		September 30,
2018
Weighted-Average Grant Date Fair Value of Deferred Stock Granted During the Period$—  $—  $21.02  $17.84  
Total Grant Date Fair Value of Deferred Stock Vested During the Period$—  $16  $8,658  $6,378  
Share-based Liability Awards Paid During the Period (1)$3,444  $—  $6,683  $2,947  

(1)
(1)Amounts reflect the issuance of performance share awards related to the 2016-18 and 2015-17 Performance Share Plans during the nine months ended September 30, 2019 and 2018, respectively, as well as performance share award liabilities settled in cash in July 2019 for retirement and separation associated with the senior management transition on June 30, 2019.

22
Amounts reflect the issuance of performance share awards related to the 2014-16 and 2015-17 Performance Share Plans during the nine months ended September 30, 2018 and 2017, respectively.

A detail of Piedmont’s outstanding stock awards as of September 30, 20182019 is as follows:

Date of grant Type of Award 
Net Shares
Granted (1)
 
Grant
Date Fair
Value
 Vesting Schedule Unvested Shares 
January 3, 2014 Deferred Stock Award 72,969
 $16.45
 Of the shares granted, 20% vested or will vest on January 3, 2015, 2016, 2017, 2018, and 2019, respectively. 16,416
 
May 24, 2016 Deferred Stock Award 208,003
 $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. 60,591
 
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. 99,337
(2) 
May 18, 2017 Deferred Stock Award 219,863
 $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. 123,507
 
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. 143,335
(2) 
May 17, 2018 Deferred Stock Award-Board of Directors 31,388
 $17.84
 Of the shares granted, 100% will vest by May 17, 2019. 31,388
 
May 17, 2018 Deferred Stock Award 302,706
 $17.84
 Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 17, 2019, 2020, and 2021, respectively. 239,777
 
May 17, 2018 Fiscal Year 2018-2020 Performance Share Program —
 $23.52
 Shares awarded, if any, will vest immediately upon determination of award in 2021. 320,644
(2) 
Total         1,034,995
 

(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, 2018.
(2)
Estimated based on Piedmont's cumulative TSR for the respective performance period through September 30, 2018. Share estimates are subject to change in future periods based upon Piedmont's relative performance compared to its peer group of office REITs' total stockholder return.

Date of grantType of Award
Net Shares
Granted (1)
Grant
Date Fair
Value		Vesting ScheduleUnvested Shares
May 18, 2017Deferred Stock Award  196,036  $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.40,942  
May 18, 2017Fiscal Year 2017-2019 Performance Share Program  —  $30.45  Shares awarded, if any, will vest immediately upon determination of award in 2020.153,368  
(2)
May 17, 2018Deferred Stock Award  271,169  $17.84  Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 17, 2019, 2020, and 2021, respectively.108,255  
May 17, 2018Fiscal Year 2018-2020 Performance Share Program  —  $23.52  Shares awarded, if any, will vest immediately upon determination of award in 2021.200,674  
(2)
May 15, 2019Deferred Stock Award-Board of Directors  25,974  $20.79  Of the shares granted, 100% will vest by May 15, 2020.25,974  
May 3, 2019Deferred Stock Award  300,825  $21.04  Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 3, 2020, 2021, and 2022, respectively.195,119  
May 3, 2019Fiscal Year 2019-2021 Performance Share Program  —  $29.43  Shares awarded, if any, will vest immediately upon determination of award in 2022.310,041  
(2)
Total1,034,373  

(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, 2019.
(2)Estimated based on Piedmont's cumulative TSR for the respective performance period through September 30, 2019. Share estimates are subject to change in future periods based upon Piedmont's relative performance compared to its peer group of office REITs' TSR.

During the three months ended September 30, 20182019 and 2017,2018, Piedmont recognized approximately $3.8 million and $1.7 million, and $1.3 millionrespectively, of compensation expense related to stock awards all of which is related to the amortization of unvested deferred shares and the fair value adjustment to performance shares. During the nine months ended September 30, 20182019 and 2017,2018, Piedmont recognized approximately $12.0 million and $6.7 million, and $7.0 millionrespectively, of compensation expense related to stock awards of which $5.6$10.5 million and $5.4$5.6 million is related to the amortization of unvested deferred shares respectively.and the fair value adjustment to performance shares. During the nine months endedSeptember 30, 2018,2019, a net total of 355,055292,675 shares were issued to employees. As of September 30, 2018,2019, approximately $5.1$4.5 million of unrecognized compensation cost related to unvested deferred stock awards remained, which Piedmont will record in its consolidated statements of income over a weighted-average vesting period of approximately one year.



23
11.Table of Contents
12. Supplemental Disclosures for the Statement of Consolidated Cash Flows

Certain noncashnon cash investing and financing activities for the nine months ended September 30, 20182019 and 2017,2018, (in thousands) are outlined below:

Nine Months Ended
September 30, 2019September 30, 2018
Accrued capital expenditures and deferred lease costs$29,828  $21,784  
Change in accrued dividends and discount on dividend reinvestments$(26,972) $(101,794) 
Change in accrued share repurchases as part of an announced plan$(4,417) $(1,277) 
Accrued stock issuance costs$441  $—  
 Nine Months Ended
 September 30, 2018 September 30, 2017
Accrued capital expenditures and deferred lease costs$21,784
 $8,590
Change in accrued dividends and discount on dividend reinvestments$(101,794) $(30,531)
Change in accrued share repurchases as part of an announced plan$(1,277) $—
Investment in consolidated joint venture$—
 $63,026


The following table provides a reconciliation of cash, cash equivalents, and restricted cash and escrows as reported, or previously reported, withinpresented in the consolidated balance sheet to theaccompanying consolidated statement of cash flows as offor thenine months ended September 30, 2019 and 2018, and 2017, respectivelyto the consolidated balance sheets for the respective period (in thousands).:

  Nine Months Ended
  September 30, 2018 September 30, 2017
Cash and cash equivalents, beginning of period $7,382
 $6,992
Restricted cash and escrows, beginning of period 1,373
 1,212
Total cash, cash equivalents, and restricted cash and escrows shown in the consolidated statement of cash flows, beginning of period $8,755
 $8,204
     
Cash and cash equivalents, end of period $6,807
 $36,108
Restricted cash and escrows, end of period 1,374
 1,260
Total cash, cash equivalents, and restricted cash and escrows shown in the consolidated statement of cash flows, end of period $8,181
 $37,368

20192018
Cash and cash equivalents as of January 1, 2019 and 2018, respectively$4,571  $7,382  
Restricted cash and escrows as of January 1, 2019 and 2018, respectively1,463  1,373  
Cash, cash equivalents, and restricted cash and escrows, beginning of period, as presented in the accompanying consolidated statement of cash flows$6,034  $8,755  
Cash and cash equivalents as of September 30, 2019 and 2018, respectively$10,284  $6,807  
Restricted cash and escrows as of September 30, 2019 and 2018, respectively1,820  1,374  
Cash, cash equivalents, and restricted cash and escrows, end of period, as presented in the accompanying consolidated statement of cash flows$12,104  $8,181  

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


12.13. Earnings Per Share

There are no adjustments to “Net income applicable to Piedmont” for the diluted earnings per share computations.

Net income per share-basic is calculated as net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Net income per share-diluted is calculated as net income available to common stockholders divided by the diluted weighted average number of common shares outstanding during the period, including 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 deferred stock awards vested and resulted in additional common shares outstanding. Unvested deferred 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, 2019 and 2018, Piedmont calculated and excluded 251 shares and 0 anti-dilutive shares, respectively, and for the nine months ended September 30, 2019 and 2018, Piedmont calculated and excluded 54,372 and 125,941, anti-dilutive shares, 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, 20182019 and 2017,2018, respectively (in thousands):

 Three Months Ended Nine Months Ended
 September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017
Weighted-average common shares – basic128,371 145,416 130,837 145,372
Plus: Incremental weighted-average shares from time-vested deferred and performance stock awards448 303 350 308
Weighted-average common shares – diluted128,819 145,719 131,187 145,680
        
Common stock issued and outstanding as of period end    128,371 145,295



 Three Months EndedNine Months Ended
 September 30, 2019September 30, 2018September 30, 2019September 30, 2018
Weighted-average common shares – basic125,783128,371125,684130,837
Plus: Incremental weighted-average shares from time-vested deferred and performance stock awards457448506350
Weighted-average common shares – diluted126,240128,819126,190131,187
13.

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Table of Contents
14. Guarantor and Non-Guarantor Financial Information

The following condensed consolidating financial information for Piedmont (the "Parent", "Guarantor", and/or "Consolidated"), Piedmont OP (the "Issuer"), and the other directly and indirectly owned subsidiaries of Piedmont as the Guarantor (the "Non-Guarantors") is provided pursuant to the requirements of Rule 3-10 of Regulation S-X regarding financial 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-Guarantors.Non-Guarantor Subsidiaries.

Condensed Consolidating Balance Sheets
As of September 30, 2018
(in thousands)
Piedmont
(Parent)
(Guarantor)
 
Piedmont OP
(the Issuer)
 Non-Guarantors Eliminations 
Piedmont
(Consolidated)
Assets:         
Real estate assets, at cost:         
Land$—
 $36,094
 $487,900
 $—
 $523,994
Buildings and improvements, less accumulated depreciation—
 174,627
 2,135,476
 (300) 2,309,803
Intangible lease assets, less accumulated amortization—
 —
 65,527
 —
 65,527
Construction in progress—
 2,915
 19,838
 —
 22,753
Real estate assets held for sale, net—
 —
 113,918
 —
 113,918
Total real estate assets—
 213,636
 2,822,659
 (300) 3,035,995
Cash and cash equivalents150
 3,024
 3,633
 —
 6,807
Tenant and straight-line rent receivables, net—
 15,757
 163,510
 —
 179,267
Investment in subsidiaries1,734,476
 2,789,292
 168
 (4,523,936) —
Notes receivable—
 810
 147,700
 (145,310) 3,200
Prepaid expenses, restricted cash, escrows, interest rate swaps, and other assets80
 8,971
 27,871
 (9) 36,913
Goodwill—
 98,918
 —
 —
 98,918
Deferred lease costs, net—
 15,625
 234,413
 —
 250,038
Other assets held for sale, net  —
 12,752
 —
 12,752
Total assets$1,734,706
 $3,146,033
 $3,412,706
 $(4,669,555) $3,623,890
Liabilities:         
Debt, net$—
 $1,524,558
 $336,123
 $(145,310) $1,715,371
Accounts payable, accrued expenses, and accrued capital expenditures710
 14,321
 94,065
 (9) 109,087
Deferred income—
 1,853
 25,597
 —
 27,450
Intangible lease liabilities, net—
 —
 37,986
 —
 37,986
Total liabilities710
 1,540,732
 493,771
 (145,319) 1,889,894
Equity:         
Total stockholders’ equity1,733,996
 1,605,301
 2,918,935
 (4,524,236) 1,733,996
Total liabilities and stockholders’ equity$1,734,706
 $3,146,033
 $3,412,706
 $(4,669,555) $3,623,890

Condensed Consolidating Balance Sheets
As of December 31, 2017
(in thousands)
Piedmont
(Parent)
(Guarantor)
 
Piedmont OP
(the Issuer)
 Non-Guarantors Eliminations 
Piedmont
(Consolidated)
Assets:         
Real estate assets, at cost:         
Land$—
 $36,094
 $485,092
 $—
 $521,186
Buildings and improvements, less accumulated depreciation—
 180,886
 2,144,696
 (300) 2,325,282
Intangible lease assets, less accumulated amortization—
 181
 77,624
 —
 77,805
Construction in progress—
 85
 11,596
 —
 11,681
Real estate assets held for sale, net—
 32,815
 415,973
 —
 448,788
Total real estate assets—
 250,061
 3,134,981
 (300) 3,384,742
Cash and cash equivalents150
 3,890
 3,342
 —
 7,382
Tenant and straight-line rent receivables, net, and amounts due from unconsolidated joint ventures—
 16,891
 149,642
 —
 166,533
Advances to affiliates1,674,276
 6,297,632
 —
 (7,971,908) —
Investment in subsidiary3,437,299
 —
 172
 (3,437,471)
—
Notes receivable—
 88,810
 144,500
 (233,310) —
Prepaid expenses, restricted cash, escrows, interest rate swaps and other assets2
 5,094
 18,927
 (740) 23,283
Goodwill—
 98,918
 —
 —
 98,918
Deferred lease costs, net—
 16,611
 241,305
 —
 257,916
Other assets held for sale, net—
 2,266
 58,927
 —
 61,193
Total assets$5,111,727
 $6,780,173
 $3,751,796
 $(11,643,729) $3,999,967
Liabilities:         
Debt, net$—
 $1,535,239
 $424,998
 $(233,310) $1,726,927
Accounts payable, accrued expenses, dividends payable, and accrued capital expenditures104,028
 20,279
 93,086
 (740) 216,653
Advances from affiliates5,277,957
 941,494
 1,850,712
 (8,070,163) —
Deferred income—
 3,631
 25,951
 —
 29,582
Intangible lease liabilities, net—
 —
 38,458
 —
 38,458
Interest rate swaps—
 1,478
 —
 —
 1,478
Liabilities held for sale, net—
 —
 380
 —
 380
Total liabilities5,381,985
 2,502,121
 2,433,585
 (8,304,213) 2,013,478
Equity:         
Total stockholders’ equity(270,258) 4,278,052
 1,318,211
 (3,339,516) 1,986,489
Total liabilities and stockholders’ equity$5,111,727
 $6,780,173
 $3,751,796
 $(11,643,729) $3,999,967


Condensed Consolidating Balance Sheets
As of September 30, 2019
(in thousands)Piedmont
(Parent)
(Guarantor)		Piedmont OP
(the Issuer)		Non-GuarantorsEliminationsConsolidated
Assets:
Real estate assets, at cost:
Land$—  $36,094  $470,346  $—  $506,440  
Buildings and improvements, less accumulated depreciation—  186,269  2,141,086  (300) 2,327,055  
Intangible lease assets, less accumulated amortization—  —  88,371  —  88,371  
Construction in progress—  1,058  12,808  —  13,866  
Real estate assets held for sale, net—  —  213,094  —  213,094  
Total real estate assets—  223,421  2,925,705  (300) 3,148,826  
Cash and cash equivalents150  5,758  4,376  —  10,284  
Tenant and straight-line rent receivables—  16,514  140,774  —  157,288  
Investment in subsidiaries1,681,492  3,037,093  162  (4,718,747) —  
Notes receivable—  810  144,500  (145,310) —  
Prepaid expenses, restricted cash, escrows, interest rate swaps, and other assets35  6,227  22,710  (9) 28,963  
Goodwill—  98,918  —  —  98,918  
Deferred lease costs, net—  16,567  251,049  —  267,616  
Other assets held for sale, net—  40,036  —  40,036  
Total assets$1,681,677  $3,405,308  $3,529,312  $(4,864,366) $3,751,931  
Liabilities:
Debt, net$—  $1,689,749  $334,805  $(145,310) $1,879,244  
Accounts payable, accrued expenses, and accrued capital expenditures894  16,054  97,873  (9) 114,812  
Deferred income—  3,693  24,292  —  27,985  
Intangible lease liabilities, net—  —  34,970  —  34,970  
Interest rate swaps—  6,862  —  —  6,862  
Liabilities held for sale—  —  7,275  —  7,275  
Total liabilities894  1,716,358  499,215  (145,319) 2,071,148  
Equity:
Total stockholders’ equity1,680,783  1,688,950  3,030,097  (4,719,047) 1,680,783  
Total liabilities and stockholders’ equity$1,681,677  $3,405,308  $3,529,312  $(4,864,366) $3,751,931  
26
Table of Contents
Consolidating Statements of Income
For the three months ended September 30, 2018
(in thousands)
Piedmont
(Parent)
(Guarantor)
 
Piedmont OP
(the Issuer)
 Non-Guarantors Eliminations Consolidated
Revenues:         
Rental income$—
 $8,403
 $93,498
 $(553) $101,348
Tenant reimbursements—
 2,458
 20,853
 (141) 23,170
Property management fee revenue—
 —
 4,296
 (3,928) 368
Other property related income—
 35
 4,787
 —
 4,822
 —
 10,896
 123,434
 (4,622) 129,708
Expenses:         
Property operating costs—
 4,973
 49,328
 (4,622) 49,679
Depreciation—
 2,816
 24,036
 —
 26,852
Amortization—
 446
 14,394
 —
 14,840
General and administrative42
 1,424
 5,211
 —
 6,677
 42
 9,659
 92,969
 (4,622) 98,048
Real estate operating income/(loss)(42) 1,237
 30,465
 —
 31,660
Other income (expense):         
Interest expense—
 (14,119) (3,624) 1,894
 (15,849)
Other income/(expense)—
 40
 2,157
 (1,894) 303
 —
 (14,079) (1,467) —
 (15,546)
Income/(loss) before consolidated subsidiaries(42) (12,842) 28,998
 —

16,114
Income from subsidiaries16,156
 26,787
 —
 (42,943) —
Net income16,114
 13,945
 28,998
 (42,943) 16,114
Plus: Net loss applicable to noncontrolling interest—
 —
 —
 —
 —
Net income applicable to Piedmont$16,114
 $13,945
 $28,998
 $(42,943) $16,114
Condensed Consolidating Balance Sheets
As of December 31, 2018
(in thousands)Piedmont
(Parent)
(Guarantor)		Piedmont OP
(the Issuer)		Non-GuarantorsEliminationsConsolidated
Assets:
Real estate assets, at cost:
Land$—  $36,094  $434,338  $—  $470,432  
Buildings and improvements, less accumulated depreciation—  176,927  1,944,943  (300) 2,121,570  
Intangible lease assets, less accumulated amortization—  —  77,676  —  77,676  
Construction in progress—  5,708  10,140  —  15,848  
Real estate assets held for sale, net—  —  331,068  —  331,068  
Total real estate assets—  218,729  2,798,165  (300) 3,016,594  
Cash and cash equivalents150  —  4,939  (518) 4,571  
Tenant and straight-line rent receivables—  16,143  131,419  —  147,562  
Investment in subsidiaries1,744,122  2,704,337  166  (4,448,625) —  
Notes receivable—  810  144,500  (145,310) —  
Prepaid expenses, restricted cash, escrows, interest rate swaps, and other assets42  5,682  21,653  (24) 27,353  
Goodwill—  98,918  —  —  98,918  
Deferred lease costs, net—  15,158  221,040  —  236,198  
Other assets held for sale, net—  —  61,233  —  61,233  
Total assets$1,744,314  $3,059,777  $3,383,115  $(4,594,777) $3,592,429  
Liabilities:
Debt, net$—  $1,495,065  $335,717  $(145,310) $1,685,472  
Accounts payable, accrued expenses, dividends payable, interest rate swaps and accrued capital expenditures32,174  15,382  74,536  (542) 121,550  
Deferred income—  2,274  26,505  —  28,779  
Intangible lease liabilities, net—  —  35,708  —  35,708  
Liabilities held for sale—  —  8,780  —  8,780  
Total liabilities32,174  1,512,721  481,246  (145,852) 1,880,289  
Equity:
Total stockholders’ equity1,712,140  1,547,056  2,901,869  (4,448,925) 1,712,140  
Total liabilities and stockholders’ equity$1,744,314  $3,059,777  $3,383,115  $(4,594,777) $3,592,429  

          
Consolidating Statements of Income
For the three months ended September 30, 2017
(in thousands)
Piedmont
(Parent)
(Guarantor)
 
Piedmont OP
(the Issuer)
 Non-Guarantors Eliminations Consolidated
Revenues:         
Rental income$—
 $10,185
 $99,109
 $(426) $108,868
Tenant reimbursements—
 2,381
 22,014
 (142) 24,253
Property management fee revenue—
 —
 4,566
 (4,112) 454
Other property related income—
 42
 3,970
 —
 4,012
 —
 12,608
 129,659
 (4,680) 137,587
Expenses:         
Property operating costs—
 5,372
 53,826
 (4,680) 54,518
Depreciation—
 3,199
 26,801
 —
 30,000
Amortization—
 740
 17,383
 —
 18,123
General and administrative77
 1,539
 4,574
 —
 6,190
 77
 10,850
 102,584
 (4,680) 108,831
Real estate operating income/(loss)(77) 1,758
 27,075
 —
 28,756
Other income (expense):         
Interest expense—
 (13,795) (6,354) 3,966
 (16,183)
Other income/(expense)—
 2,404
 1,852
 (3,966) 290
Equity in income of unconsolidated joint ventures—
 3,754
 —
 —
 3,754
Gain/(loss) on sale of real estate assets, net—
 (4) 109,516
 —
 109,512
Net income/(loss)(77) (5,883) 132,089
 —
 126,129
Plus: Net loss applicable to noncontrolling interest—
 —
 4
 —
 4
Net income/(loss) applicable to Piedmont$(77) $(5,883) $132,093
 $—
 $126,133



27
Table of Contents
Consolidating Statements of IncomeConsolidating Statements of Income
For the Three Months Ended September 30, 2019For the Three Months Ended September 30, 2019
(in thousands)(in thousands)Piedmont
(Parent)
(Guarantor)		Piedmont OP
(the Issuer)		Non-GuarantorsEliminationsConsolidated
Revenues:Revenues:
Consolidating Statements of Income
For the nine months ended September 30, 2018
(in thousands)
Piedmont
(Parent)
(Guarantor)
 
Piedmont OP
(the Issuer)
 Non-Guarantors Eliminations Consolidated
Revenues:         
Rental income$—
 $26,456
 $279,292
 $(1,468) $304,280
Tenant reimbursements—
 7,298
 61,247
 (334) 68,211
Rental and tenant reimbursement revenueRental and tenant reimbursement revenue$—  $11,940  $119,385  $(746) $130,579  
Property management fee revenue—
 —
 12,625
 (11,566) 1,059
Property management fee revenue—  —  4,622  (4,217) 405  
Other property related income—
 92
 15,140
 —
 15,232
Other property related income—  40  4,397  —  4,437  
—
 33,846
 368,304
 (13,368) 388,782
—  11,980  128,404  (4,963) 135,421  
Expenses:         Expenses:
Property operating costs—
 14,614
 152,929
 (13,368) 154,175
Property operating costs36  5,507  54,033  (4,963) 54,613  
Depreciation—
 8,527
 72,585
 —
 81,112
Depreciation—  3,062  24,069  —  27,131  
Amortization—
 1,520
 45,298
 —
 46,818
Amortization—  486  19,019  —  19,505  
Impairment loss on real estate assetsImpairment loss on real estate assets—  —  1,953  —  1,953  
General and administrative228
 4,849
 16,410
 —
 21,487
General and administrative(30) 1,547  6,433  —  7,950  
228
 29,510
 287,222
 (13,368) 303,592
6  10,602  105,507  (4,963) 111,152  
Real estate operating income/(loss)(228) 4,336
 81,082
 —
 85,190
Other income (expense):         Other income (expense):
Interest expense—
 (40,093) (10,937) 5,736
 (45,294)Interest expense—  (14,429) (3,610) 1,894  (16,145) 
Other income/(expense)—
 200
 7,016
 (5,736) 1,480
Other income/(expense)—  16  2,141  (1,894) 263  
Loss on extinguishment of debt—
 (1,680) —
 —
 (1,680)
Gain on sale of real estate assets, net—
 1,417
 43,769
 —
 45,186
Gain on sale of real estate assetsGain on sale of real estate assets—  —  32  —  32  
—
 (40,156) 39,848
 —
 (308)
Income/(loss) before consolidated subsidiaries(228) (35,820) 120,930
 —
 84,882
Income/(loss) before consolidated subsidiaries(6) (13,035) 21,460  —  8,419  
Income from subsidiaries85,114
 119,013
 —
 (204,127) —
Income from subsidiaries8,428  22,929  —  (31,357) —  
Net income84,886
 83,193
 120,930
 (204,127) 84,882
Net income8,422  9,894  21,460  (31,357) 8,419  
Plus: Net loss applicable to noncontrolling interest—
 —
 4
 —
 4
Plus: Net loss applicable to noncontrolling interest—  —  3  —  3  
Net income applicable to Piedmont$84,886
 $83,193
 $120,934
 $(204,127) $84,886
Net income applicable to Piedmont$8,422  $9,894  $21,463  $(31,357) $8,422  
Consolidating Statements of Income
For the nine months ended September 30, 2017
(in thousands)
Piedmont
(Parent)
(Guarantor)
 
Piedmont OP
(the Issuer)
 Non-Guarantors Eliminations Consolidated
Revenues:         
Rental income$—
 $32,641
 $314,128
 $(1,370) $345,399
Tenant reimbursements—
 8,352
 65,396
 (373) 73,375
Property management fee revenue—
 —
 13,791
 (12,412) 1,379
Other property related income—
 97
 14,479
 —
 14,576
 —
 41,090
 407,794
 (14,155) 434,729
Expenses:         
Property operating costs—
 17,027
 163,763
 (14,155) 166,635
Depreciation—
 9,943
 80,884
 —
 90,827
Amortization—
 2,399
 55,453
 —
 57,852
General and administrative261
 4,798
 16,809
 —
 21,868
 261
 34,167
 316,909
 (14,155) 337,182
Real estate operating income/(loss)(261) 6,923
 90,885
 —
 97,547
Other income (expense):         
Interest expense—
 (43,049) (20,868) 11,256
 (52,661)
Other income/(expense)—
 6,873
 4,611
 (11,256) 228
Equity in income of unconsolidated joint ventures—
 3,872
 —
 —
 3,872
Gain on sale of real estate assets, net—
 6,430
 109,521
 —
 115,951
Net income/(loss)(261) (18,951) 184,149
 —
 164,937
Plus: Net loss applicable to noncontrolling interest—
 —
 10
 —
 10
Net income/(loss) applicable to Piedmont$(261) $(18,951) $184,159
 $—
 $164,947
28
Table of Contents
Consolidating Statements of Income
For the Three Months Ended September 30, 2018
(in thousands)Piedmont
(Parent)
(Guarantor)		Piedmont OP
(the Issuer)		Non-GuarantorsEliminationsConsolidated
Revenues:
Rental and tenant reimbursement revenue$—  $10,861  $114,351  $(694) $124,518  
Property management fee revenue—  —  4,296  (3,928) 368  
Other property related income—  35  4,787  —  4,822  
—  10,896  123,434  (4,622) 129,708  
Expenses:
Property operating costs—  4,973  49,328  (4,622) 49,679  
Depreciation—  2,816  24,036  —  26,852  
Amortization—  446  14,394  —  14,840  
General and administrative42  1,424  5,211  —  6,677  
42  9,659  92,969  (4,622) 98,048  
Other income (expense):
Interest expense—  (14,119) (3,624) 1,894  (15,849) 
Other income/(expense)—  40  2,157  (1,894) 303  
—  (14,079) (1,467) —  (15,546) 
Income/(loss) before consolidated subsidiaries(42) (12,842) 28,998  —  16,114  
Income from subsidiaries16,156  26,787  —  (42,943) —  
Net income16,114  13,945  28,998  (42,943) 16,114  
Plus: Net loss applicable to noncontrolling interest—  —  —  —  —  
Net income applicable to Piedmont$16,114  $13,945  $28,998  $(42,943) $16,114  



29
Table of Contents
Consolidating Statements of Comprehensive Income
For the Three Months Ended September 30, 2018
(in thousands)
Piedmont
(Parent)
(Guarantor)
 
Piedmont OP
(the Issuer)
 Non-Guarantors Eliminations 
Piedmont
(Consolidated)
Net income$16,114
 $13,945
 $28,998
 $(42,943) $16,114
Effective portion of gain on derivative instruments that are designated and qualify as cash flow hedges1,145
 1,145
 —
 (1,145) 1,145
Plus: Reclassification of gain included in net income(434) (434) —
 434
 (434)
Other comprehensive income711
 711
 —
 (711) 711
          
Comprehensive income$16,825
 $14,656
 $28,998
 $(43,654) $16,825


Consolidating Statements of Income
For the Nine Months Ended September 30, 2019
(in thousands)Piedmont
(Parent)
(Guarantor)		Piedmont OP
(the Issuer)		Non-GuarantorsEliminationsConsolidated
Revenues:
Rental and tenant reimbursement revenue$—  $34,477  $349,886  $(2,150) $382,213  
Property management fee revenue—  —  14,961  (12,142) 2,819  
Other property related income—  117  13,876  —  13,993  
—  34,594  378,723  (14,292) 399,025  
Expenses:
Property operating costs36  15,848  157,206  (14,292) 158,798  
Depreciation—  9,041  70,963  —  80,004  
Amortization—  1,435  54,231  —  55,666  
Impairment loss on real estate assets—  —  1,953  —  1,953  
General and administrative165  4,874  24,697  —  29,736  
201  31,198  309,050  (14,292) 326,157  
Other income (expense):
Interest expense—  (41,590) (10,801) 5,641  (46,750) 
Other income/(expense)—  125  6,808  (5,641) 1,292  
Gain on sale of real estate assets—  128  39,242  —  39,370  
—  (41,337) 35,249  —  (6,088) 
Income/(loss) before consolidated subsidiaries(201) (37,941) 104,922  —  66,780  
Income from subsidiaries66,984  72,012  —  (138,996) —  
Net income66,783  34,071  104,922  (138,996) 66,780  
Plus: Net loss applicable to noncontrolling interest—  —  3  —  3  
Net income applicable to Piedmont$66,783  $34,071  $104,925  $(138,996) $66,783  
Consolidating Statements of Comprehensive Income
For the Nine Months Ended September 30, 2018
(in thousands)Piedmont
(Parent)
(Guarantor)		 Piedmont OP
(the Issuer)		 Non-Guarantors Eliminations Piedmont
(Consolidated)
Net income$84,886
 $83,193
 $120,934
 $(204,127) $84,886
Effective portion of gain on derivatives instruments that are designated and qualify as cash flow hedges4,408
 4,408
 —
 (4,408) 4,408
Plus: Reclassification of net loss included in net income373
 373
 —
 (373) 373
Other comprehensive income4,781
 4,781
 —
 (4,781) 4,781
          
Comprehensive income$89,667
 $87,974
 $120,934
 $(208,908) $89,667
30
Table of Contents
Consolidating Statements of Income
For the Nine Months Ended September 30, 2018
(in thousands)Piedmont
(Parent)
(Guarantor)		Piedmont OP
(the Issuer)		Non-GuarantorsEliminationsConsolidated
Revenues:
Rental and tenant reimbursement revenue$—  $33,754  $340,539  $(1,802) $372,491  
Property management fee revenue—  —  12,625  (11,566) 1,059  
Other property related income—  92  15,140  —  15,232  
—  33,846  368,304  (13,368) 388,782  
Expenses:
Property operating costs—  14,614  152,929  (13,368) 154,175  
Depreciation—  8,527  72,585  —  81,112  
Amortization—  1,520  45,298  —  46,818  
General and administrative228  4,849  16,410  —  21,487  
228  29,510  287,222  (13,368) 303,592  
Other income (expense):
Interest expense—  (40,093) (10,937) 5,736  (45,294) 
Other income/(expense)—  200  7,016  (5,736) 1,480  
Loss on extinguishment of debt—  (1,680) —  —  (1,680) 
Gain on sale of real estate assets—  1,417  43,769  —  45,186  
—  (40,156) 39,848  —  (308) 
Income/(loss) before consolidated subsidiaries(228) (35,820) 120,930  —  84,882  
Income from subsidiaries85,114  119,013  —  (204,127) —  
Net income84,886  83,193  120,930  (204,127) 84,882  
Plus: Net loss applicable to noncontrolling interest—  —  4  —  4  
Net income applicable to Piedmont$84,886  $83,193  $120,934  $(204,127) $84,886  





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Condensed Consolidating Statements of Cash Flows
For the nine months ended September 30, 2018
(in thousands)
Piedmont
(Parent)
(Guarantor)
 
Piedmont OP
(the Issuer)
 Non-Guarantors Eliminations 
Piedmont
(Consolidated)
Net Cash Provided by Operating Activities$89,540
 $89,639
 $164,063
 $(204,920) $138,322
          
Cash Flows from Investing Activities:         
Investment in real estate assets and real estate related intangibles—
 (6,074) (67,100) —
 (73,174)
Intercompany note receivable—
 88,000
 —
 (88,000) —
Net sales proceeds from wholly-owned properties—
 36,572
 382,982
 —
 419,554
Note receivable issuance—
 —
 (3,200) —
 (3,200)
Deferred lease costs paid—
 (1,826) (14,005) —
 (15,831)
Distributions from subsidiaries362,784
 64,633
 —
 (427,417) —
Net cash provided by investing activities362,784
 181,305
 298,677
 (515,417) 327,349
Cash Flows from Financing Activities:         
Debt issuance and other costs paid—
 (947) —
 —
 (947)
Proceeds from debt—
 820,061
 —
 —
 820,061
Repayments of debt—
 (832,000) (1,005) —
 (833,005)
Intercompany note payable—
 —
 (88,000) 88,000
 —
Value of shares withheld for payment of taxes related to employee stock compensation(2,219) —
 —
 —
 (2,219)
Repurchases of common stock as part of announced plan(266,062) —
 —
 —
 (266,062)
Distributions(184,043) (258,907) (373,460) 632,337
 (184,073)
Net cash used in financing activities(452,324) (271,793) (462,465) 720,337
 (466,245)
Net increase/(decrease) in cash, cash equivalents, and restricted cash and escrows—
 (849) 275
 —
 (574)
Cash, cash equivalents, and restricted cash and escrows, beginning of period150
 3,906
 4,699
 —
 8,755
Cash, cash equivalents, and restricted cash and escrows, end of period$150
 $3,057
 $4,974
 $—
 $8,181
Consolidating Statements of Comprehensive Income
For the Three Months Ended September 30, 2019
(in thousands)Piedmont
(Parent)
(Guarantor)		Piedmont OP
(the Issuer)		Non-GuarantorsEliminationsConsolidated
Net income$8,422  $9,894  $21,463  $(31,357) $8,422  
Other comprehensive loss:
Effective portion of loss on derivative instruments that are designated and qualify as cash flow hedges(1,386) (1,386) —  1,386  (1,386) 
Less: Reclassification of net gain included in net income(427) (427) —  427  (427) 
Other comprehensive loss(1,813) (1,813) —  1,813  (1,813) 
Comprehensive income$6,609  $8,081  $21,463  $(29,544) $6,609  

Condensed Consolidating Statements of Cash Flows
For the nine months ended September 30, 2017
(in thousands)
Piedmont
(Parent)
(Guarantor)
 
Piedmont OP
(the Issuer)
 Non-Guarantors Eliminations 
Piedmont
(Consolidated)
Net Cash Provided by/(Used in) Operating Activities$4,335
 $(15,468) $187,513
 $—
 $176,380
          
Cash Flows from Investing Activities:         
Investment in real estate assets, and real estate related intangibles—
 (793) (64,614) —
 (65,407)
Intercompany note receivable—
 —
 (48,710) 48,710
 —
Investments in unconsolidated joint ventures—
 (1,162) —
 —
 (1,162)
Net sales proceeds from wholly-owned properties—
 23,028
 352,171
 —
 375,199
Net sales proceeds received from unconsolidated joint ventures—
 12,334
 —
 —
 12,334
Deferred lease costs paid—
 (858) (18,561) —
 (19,419)
Net cash provided by investing activities—
 32,549
 220,286
 48,710
 301,545
Cash Flows from Financing Activities:         
Debt issuance costs paid—
 (102) 1
 —
 (101)
Proceeds from debt—
 147,000
 —
 —
 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 for payment of taxes 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 affiliates125,271
 197,519
 (322,790) —
 —
Dividends paid and discount on dividend reinvestments(122,229) —
 (8) —
 (122,237)
Net cash provided by/(used in) financing activities(4,335) 5,128
 (400,844) (48,710) (448,761)
Net increase in cash, cash equivalents, and restricted cash and escrows—
 22,209
 6,955
 —
 29,164
Cash, cash equivalents, and restricted cash and escrows, beginning of period150
 3,693
 4,361
 —
 8,204
Cash, cash equivalents, and restricted cash and escrows, end of period$150
 $25,902
 $11,316
 $—
 $37,368


Consolidating Statements of Comprehensive Income
For the Three Months Ended September 30, 2018
(in thousands)Piedmont
(Parent)
(Guarantor)		Piedmont OP
(the Issuer)		Non-GuarantorsEliminationsConsolidated
Net income$16,114  $13,945  $28,998  $(42,943) $16,114  
Other comprehensive income:
Effective portion of gain on derivative instruments that are designated and qualify as cash flow hedges1,144  1,144  —  (1,144) 1,144  
Less: Reclassification of net gain included in net income(434) (434) —  434  (434) 
Other comprehensive income710  710  —  (710) 710  
Comprehensive income$16,824  $14,655  $28,998  $(43,653) $16,824  
14.

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Consolidating Statements of Comprehensive Income
For the Nine Months Ended September 30, 2019
(in thousands)Piedmont
(Parent)
(Guarantor)		Piedmont OP
(the Issuer)		Non-GuarantorsEliminationsConsolidated
Net income$66,783  $34,071  $104,925  $(138,996) $66,783  
Other comprehensive loss:
Effective portion of loss on derivative instruments that are designated and qualify as cash flow hedges(6,874) (6,874) —  6,874  (6,874) 
Less: Reclassification of net gain included in net income(1,871) (1,871) —  1,871  (1,871) 
Other comprehensive loss(8,745) (8,745) —  8,745  (8,745) 
Comprehensive income$58,038  $25,326  $104,925  $(130,251) $58,038  


Consolidating Statements of Comprehensive Income
For the Nine Months Ended September 30, 2018
(in thousands)Piedmont
(Parent)
(Guarantor)		Piedmont OP
(the Issuer)		Non-GuarantorsEliminationsConsolidated
Net income$84,886  $83,193  $120,934  $(204,127) $84,886  
Other comprehensive income:
Effective portion of gain on derivative instruments that are designated and qualify as cash flow hedges4,408  4,408  —  (4,408) 4,408  
Plus: Reclassification of net loss included in net income373  373  —  (373) 373  
Other comprehensive income4,781  4,781  —  (4,781) 4,781  
Comprehensive income$89,667  $87,974  $120,934  $(208,908) $89,667  

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Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 2019
(in thousands)Piedmont
(Parent)
(Guarantor)		Piedmont OP
(the Issuer)		Non-GuarantorsEliminationsConsolidated
Net Cash Provided by Operating Activities$72,694  $43,676  $182,344  $(138,471) $160,243  
Cash Flows from Investing Activities:
Investment in real estate assets and intangibles—  (13,561) (369,951) —  (383,512) 
Net sales proceeds from wholly-owned properties—  128  180,847  —  180,975  
Deferred lease costs paid—  (1,210) (15,422) —  (16,632) 
Distributions from subsidiaries54,151  215,231  —  (269,382) —  
Net cash provided by/(used in) investing activities54,151  200,588  (204,526) (269,382) (219,169) 
Cash Flows from Financing Activities:
Debt issuance and other costs paid—  (91) —  —  (91) 
Proceeds from debt—  550,000  —  —  550,000  
Repayments of debt—  (357,000) (1,041) —  (358,041) 
Costs of issuance of common stock(259) —  —  —  (259) 
Value of shares withheld to pay tax obligations related to employee stock compensation(3,295) —  —  —  (3,295) 
Repurchases of common stock as part of announced plan(16,899) —  —  —  (16,899) 
Distributions(106,392) (431,416) 23,018  408,371  (106,419) 
Net cash provided by/(used in) financing activities(126,845) (238,507) 21,977  408,371  64,996  
Net increase/(decrease) in cash, cash equivalents, and restricted cash and escrows—  5,757  (205) 518  6,070  
Cash, cash equivalents, and restricted cash and escrows, beginning of period150  32  6,370  (518) 6,034  
Cash, cash equivalents, and restricted cash and escrows, end of period$150  $5,789  $6,165  $—  $12,104  
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Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 2018
(in thousands)Piedmont
(Parent)
(Guarantor)		Piedmont OP
(the Issuer)		Non-GuarantorsEliminationsConsolidated
Net Cash Provided by Operating Activities$89,540  $89,639  $164,063  $(204,920) $138,322  
Cash Flows from Investing Activities:
Investment in real estate assets and intangibles—  (6,074) (67,100) —  (73,174) 
Intercompany note receivable—  88,000  —  (88,000) —  
Net sales proceeds from wholly-owned properties—  36,572  382,982  —  419,554  
Note receivable issuance—  —  (3,200) —  (3,200) 
Deferred lease costs paid—  (1,826) (14,005) —  (15,831) 
Distributions from subsidiaries362,784  64,633  —  (427,417) —  
Net cash provided by investing activities362,784  181,305  298,677  (515,417) 327,349  
Cash Flows from Financing Activities:
Debt issuance costs paid—  (947) —  —  (947) 
Proceeds from debt—  820,061  —  —  820,061  
Repayments of debt—  (832,000) (1,005) —  (833,005) 
Intercompany note payable—  —  (88,000) 88,000  —  
Value of shares withheld to pay tax obligations related to employee stock compensation(2,219) —  —  —  (2,219) 
Repurchases of common stock as part of announced plan(266,062) —  —  —  (266,062) 
Distributions(184,043) (258,907) (373,460) 632,337  (184,073) 
Net cash used in financing activities(452,324) (271,793) (462,465) 720,337  (466,245) 
Net increase/(decrease) in cash, cash equivalents, and restricted cash and escrows—  (849) 275  —  (574) 
Cash, cash equivalents, and restricted cash and escrows, beginning of period150  3,906  4,699  —  8,755  
Cash, cash equivalents, and restricted cash and escrows, end of period$150  $3,057  $4,974  $—  $8,181  

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15. Subsequent Events


Fourth Quarter Dividend Declaration

On October 30, 2018,2019, the Board of Directors of Piedmont declared dividendsa dividend for the fourth quarter 2018of 2019 in the amount of $0.21 per common share outstanding to stockholders of record as of the close of business on November 30, 2018.29, 2019. Such dividends are todividend will be paid on January 3, 2019.2020.



TransactionalDisposition Activity

On October 25, 2018,28, 2019, Piedmont purchased 9320 Excelsior Boulevard in Hopkins, Minnesotaclosed on the sale of the 500 West Monroe Street building with an unrelated third party for $49.4 million. 9320 Excelsior Boulevard is a 7-story,$412 million ($426 per square foot). The 500 West Monroe Street building, an approximately 268,000967,000 square foot Class AA office building, situated on 5.84 acres in close proximity to Piedmont's Norman Pointe I building acquired in 2017. 9320 Excelsior Boulevard is 100% leased to Cargill, Inc.leased.

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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 Annual Report on Form 10-K for the year ended December 31, 2017.2018.

Liquidity and Capital Resources

We intend to use cash flows generated from the operation of our properties, proceeds from selective property dispositions, including approximately $160.0 million of anticipated net sales proceeds related to the disposition of 800 North Brand Boulevard, which we anticipate closing during the fourth quarter of 2018, and proceeds from our recently obtained $500 Million Unsecured 2018 Line of Credit as our primary sources of immediate liquidity. As of the date of this filing, date, we have $202.0approximately $484 million of unused capacity under our line of credit. When necessary, we may seek secured or unsecured borrowings from third party lenders or issue securities as additional sources of capital. The availability and attractiveness of terms for these additional sources of capital will be highly dependent on market conditions at the time.

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, 20182019 and 20172018 we incurred the following types of capital expenditures (in thousands):

Nine Months Ended
September 30, 2019September 30, 2018
Capital expenditures for redevelopment/renovations$10,119  $7,637  
Other capital expenditures, including building and tenant improvements47,249  37,361  
Total capital expenditures (1)
$57,368  $44,998  
 Nine Months Ended
 September 30, 2018 September 30, 2017
Capital expenditures for new development$32
 $4,794
Capital expenditures for redevelopment/renovations7,546
 1,006
Capital expenditures previously credited as part of property acquisition—
 9,254
Other capital expenditures, including building and tenant improvements37,420
 50,353
Total capital expenditures(1)
$44,998
 $65,407


(1)
Of the total amounts paid, approximately $2.0 million and $1.2 million and $0.2 million relates to soft costs such as capitalized interest, payroll, and other general and administrative expenses for the nine months ended September 30, 2018 and 2017, respectively.

"Capital expenditures for new development" relate to new office development projects. During the nine months ended September 30, 2017, such expenditures primarily related to the construction of 500 TownPark, our now complete, approximately 134,000 square foot, 100% leased, four-story office building located adjacent to our existing 400 TownPark building in Lake Mary, Florida.2019 and 2018, respectively.

"Capital expenditures for redevelopment/renovations" during the nine months ended September 30, 20182019 primarily relaterelated to thea redevelopment project to upgrade amenities at our US Bancorp building in Minneapolis, Minnesota, as well as a redevelopment project to upgrade common areas, as well as amenities, and parking, at our Two Pierce Place building in Itasca, Illinois, while such expendituresIllinois. Expenditures during the nine months ended September 30, 20172018 related to a now-completethe redevelopment project that convertedto upgrade amenities and parking at our 3100 Clarendon Boulevard building in Arlington, Virginia from governmental use into Class A private sector office space.Two Pierce Place building.

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

We classify our tenant and building improvements into two categories: (i) improvements which maintain the building's existing asset value 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”). As of September 30, 2018, commitments for funding non-incremental capital expenditures for tenant improvements over the next five years related to our existing lease portfolio total approximately $47.0 million. The timing of the funding 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 with the respective lease, without further recourse to us. Additionally, commitments for incremental capital expenditures for tenant improvements associated with executed leases totaled approximately $34.9 million as of September 30, 2018.

For example, for leases executed during the nine months ended September 30, 2018, we committed to spend approximately $5.61 per square foot per year of lease term for tenant improvement allowances and lease commissions (net of expiring lease commitments), and for those executed during the nine months ended September 30, 2017, we committed to spend approximately $4.74 per square foot per year of lease term for tenant improvement allowances and lease commissions (net of expiring lease commitments). In addition to the amounts described above that we have already committed to as a part of executed leases, we 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. Given that our operating model frequently results in leases for large blocks of space to credit-worthy tenants, our leasing success can result in capital outlays which vary from one reporting period to another based upon the specific leases executed. For example, for leases executed during the nine months ended September 30, 2019, we committed to spend approximately $5.10 per square foot per year of lease term for tenant improvement allowances and lease commissions (net of expiring lease commitments) as compared to $5.61 (net of expired lease commitments) for the nine months ended September 30, 2018. As of September 30, 2019, we have no individually significant capital outlays.tenant improvement commitments. However, in addition to the amounts that 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. Both the timing and magnitude of expenditures related to future leasing activity are highly dependent on the competitive market conditions at the time of lease negotiations of the particular office market within which a given lease is signed. For example, the New York State Commissioner of General Services recently executed an approximately 20-year, 523,000 square foot renewal and expansion on behalf of our largest tenant, the State of New York at our 60 Broad Street building in New York City. In conjunction with that lease, we anticipate expending approximately $7.00 per square foot per year of lease term over the next five years for market-based tenant improvement allowances and leasing commissions.

There are other uses of capital that may arise as part of our typical operations. Subject to the identification and availability of attractive investment opportunities and our ability to consummate such acquisitions on satisfactory terms, acquiring new assets compatible with our investment strategy could also be a significant use of capital. Further, weWe may continue toalso use capital resources to
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repurchase additional shares of our common stock under our stock repurchase program.program when we believe the stock is trading at a significant discount to net asset value. As of September 30, 2018,2019, we had approximately $123.5$74.1 million of board-authorized capacity remaining for future stock repurchases. Finally, after replacing our $500 Million Unsecured 2015 Line of Credit with the $500 Million Unsecured 2018 Line of Credit, as well as extending our Amended and Restated $300 Million 2011 Term Loan, during the three months ended September 30, 2018,although we currently have no scheduled debt maturities until 2021; however,the third quarter of 2021, on a longer term basis we expect to use capital to repay debt obligations when they become due.

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, 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 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

Net income applicable to common stockholders for the three months ended September 30, 20182019 was $16.1$8.4 million, or $0.13$0.07 per diluted share, as compared with net income applicable to common stockholders of $126.1$16.1 million, or $0.87$0.13 per diluted share, for the three months ended September 30, 2017. Net income applicable2018. The decrease is mainly due to common stockholders forhigher amortization expense associated with recently acquired properties, as well as an impairment loss of approximately $0.02 per share recognized in conjunction with the decision to sell The Dupree building during the three months ended September 30, 2017 included approximately $113.2 million, or $0.77 per diluted share, of gains on sales of both a wholly-owned property, as well as an equity interest in a joint venture, whereas the current quarter had no sales or related gains. The current quarter's results did reflect increased operating income as a result of higher overall occupancy in the portfolio in the current period, rental rate growth, and the operational results of properties acquired since September 2017.2019.


Comparison of the three months ended September 30, 20182019 versus the three months ended September 30, 20172018

Income from Continuing Operations

The following table sets forth selected data from our consolidated statements of income for the three months ended September 30, 20182019 and 2017,2018, respectively, as well as each balance as a percentage of total revenues for the same periods presented (dollars in millions):

September 30,
2019		% of RevenuesSeptember 30,
2018		% of RevenuesVariance
Revenue:
Rental and tenant reimbursement revenue$130.6  $124.5  $6.1  
Property management fee revenue0.4  0.4  —  
Other property related income4.4  4.8  (0.4) 
Total revenues135.4  100 %129.7  100 %5.7  
Expense:
Property operating costs54.6  41 %49.7  38 %4.9  
Depreciation27.1  20 %26.9  21 %0.2  
Amortization19.5  15 %14.8  11 %4.7  
Impairment loss on real estate assets2.0  1 %—  — %2.0  
General and administrative8.0  6 %6.7  6 %1.3  
111.2  98.1  13.1  
Other income (expense):
Interest expense(16.1) 12 %(15.8) 12 %(0.3) 
Other income0.3  — %0.3  — %—  
Gain on sale of real estate assets—  — %—  — %—  
Net income$8.4  6 %$16.1  12 %$(7.7) 

38
 September 30,
2018		 % of Revenues September 30,
2017		 % of Revenues Variance
Revenue:         
Rental income$101.3
   $108.9
   $(7.6)
Tenant reimbursements23.2
   24.2
   (1.0)
Property management fee revenue0.4
   0.5
   (0.1)
Other property related income4.8
   4.0
   0.8
Total revenues129.7
 100% 137.6
 100% (7.9)
Expense:         
Property operating costs49.7
 38% 54.5
 40% (4.8)
Depreciation26.9
 21% 30.0
 22% (3.1)
Amortization14.8
 12% 18.1
 13% (3.3)
General and administrative6.7
 5% 6.2
 4% 0.5
Real estate operating income31.6
 24% 28.8
 21% 2.8
Other income (expense):         
Interest expense(15.8) 12% (16.2) 12% 0.4
Other income0.3
 —% 0.3
 —% —
Equity in income of unconsolidated joint ventures—
 —% 3.7
 3% (3.7)
Gain on sale of real estate assets, net—
 —% 109.5
 80% (109.5)
Net income$16.1
 12% $126.1
 92% $(110.0)
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Revenue

Rental income decreasedand tenant reimbursement revenue increased approximately $7.6$6.1 million for the three months ended September 30, 2018,2019, as compared to the same period in the prior year. Approximately $8.3The variance was primarily due to $2.6 million of the decrease was attributableincreased reimbursement revenue recognized as a result of higher recoverable property operating costs and higher overall average occupancy, as well as $2.2 million of increased rental revenue due to net dispositionacquisition activity subsequent to September 30, 2017; however, that decreaseJuly 1, 2018. The remainder of the increase was partially offset by increases due to increased rental ratesnew leases commencing during 2018 and occupancy in the2019 across our portfolio.

Tenant reimbursements decreasedExpense

Property operating costs increased approximately $1.0$4.9 million for the three months ended September 30, 20182019, as compared to the same period in the prior year. Approximately $2.2The variance was primarily due to increased recoverable property tax expense, repairs and maintenance, janitorial expenses, parking expenses, and administrative costs of approximately $2.7 million across our existing portfolio of properties. Further, approximately $1.3 million of the decreaseincrease was due to net dispositionacquisition activity subsequent to September 30, 2017; however, that decrease was partially offset by higher recoveries related toJuly 1, 2018.

Depreciation expense increased property taxes at certain of our existing properties as well as increased occupancy in the portfolio.

Expense

Property operating costs decreased approximately $4.8$0.2 million for the three months ended September 30, 2018,2019 as compared to the same period in the prior year. Approximately $4.0 million of the decreaseThe increase was primarily due to net disposition activity subsequent to September 30, 2017. Additionally, approximately $2.4 million of the decrease was attributable to a reduction in recoverable operating expenses, primarily property tax expense due to favorable tax appeals at certain of our properties during the current period. These decreases were partially offset by other operating expenses, particularly higher recoverable repairs and maintenance costs.

Depreciation expense decreased approximately $3.1 million for the three months ended September 30, 2018 as compared to the same period in the prior year. Approximately $3.6 million of the decrease was attributable to net disposition activity subsequent

to September 30, 2017; however, this decrease was partially offset by depreciation on additional building and tenant improvements placed in service subsequent to September 30, 2017July 1, 2018 across our existing portfolio of properties.

Amortization expense decreasedincreased approximately $3.3$4.7 million for the three months ended September 30, 20182019 as compared to the same period in the prior year. The decrease is primarily attributableApproximately $6.9 million of the variance was due to certainan increase in the amortization of lease intangible assets associated with properties acquired subsequent to July 1, 2018. This increase was partially offset by approximately $2.4 million of lease intangible assets or other deferred costs at our existing properties becoming fully amortized either as a result of the expiration or early termination of leases subsequent to July 1, 2018.

During the three months ended September 30, 2017, as well as the recognition of accelerated amortization for lease terminations/modifications in the prior year2019, we recognized an impairment loss on real estate assets of approximately $0.5 million.$2.0 million in conjunction with the decision to sell The Dupree building in Atlanta, Georgia (see Note 7 for details).

General and administrative expense increased approximately $0.5$1.3 million for the three months ended September 30, 20182019 as compared to the same period in the prior year primarily due to increased accrualaccruals for expenses associated with potential performance-based compensation.equity compensation as a result of our relative stock performance during the current period.

Other Income (Expense)

Interest expense decreasedincreased approximately $0.4$0.3 million for the three months ended September 30, 20182019 as compared to the same period in the prior year. The decrease isincrease was primarily attributable to capitalizinga higher average balance on our $500 Million Unsecured 2018 Line of Credit as a result of purchasing the Galleria 400 and Galleria 600 buildings, and approximately 10 acres of developable land. We repaid substantially all of these borrowings with proceeds from the sale of the 500 West Monroe Street disposition on October 28, 2019. The increase was partially offset by higher capitalized interest expense in the current period as part of the redevelopment project to upgrade amenities and parkingprojects at our US Bancorp Center and Two Pierce Place building.buildings.

Equity in income
39
Table of unconsolidated joint ventures decreased approximately $3.7 million for the three months ended September 30, 2018 as compared to the same period in the prior year. The decrease is due to the sale of our last unconsolidated joint venture property, the 8560 Upland Drive building in Denver, Colorado in the prior period, and the recognition of our portion of the related gain on sale.Contents

Gain on sale of real estate assets, net, during the three months ended September 30, 2017 represent the gain recognized on the sale of the Two Independence Square building located in Washington, D.C. There were no sales of real estate assets during the three months ended September 30, 2018.


Comparison of the accompanying consolidated statements of income for the nine months ended September 30, 20182019 versus the nine months ended September 30, 20172018

Income from Continuing Operations

The following table sets forth selected data from our consolidated statements of income for the nine months ended September 30, 20182019 and 2017,2018, respectively, as well as each balance as a percentage of total revenues for the same period presented (dollars in millions):

September 30,
2019		% of RevenuesSeptember 30,
2018		% of RevenuesVariance
Revenue:
Rental and tenant reimbursement revenue$382.2  $372.5  $9.7  
Property management fee revenue2.8  1.1  1.7  
Other property related income14.0  15.2  (1.2) 
Total revenues399.0  100 %388.8  100 %10.2  
Expense:
Property operating costs158.8  40 %154.2  40 %4.6  
Depreciation80.0  20 %81.1  21 %(1.1) 
Amortization55.7  14 %46.8  12 %8.9  
Impairment loss on real estate assets2.0  1 %—  — %2.0  
General and administrative29.7  7 %21.5  5 %8.2  
326.2  303.6  22.6  
Other income (expense):
Interest expense(46.7) 12 %(45.3) 12 %(1.4) 
Other income1.3  — %1.5  — %(0.2) 
Loss on extinguishment of debt—  — %(1.7) — %1.7  
Gain on sale of real estate assets39.4  10 %45.2  12 %(5.8) 
Net income$66.8  17 %$84.9  22 %$(18.1) 
 September 30,
2018		 % of Revenues September 30,
2017		 % of Revenues Variance
Revenue:         
Rental income$304.3
   $345.4
   $(41.1)
Tenant reimbursements68.2
   73.4
   (5.2)
Property management fee revenue1.1
   1.4
   (0.3)
Other rental income15.2
   14.5
   0.7
Total revenues388.8
 100% 434.7
 100% (45.9)
Expense:         
Property operating costs154.2
 40% 166.6
 38% (12.4)
Depreciation81.1
 21% 90.8
 22% (9.7)
Amortization46.8
 12% 57.9
 13% (11.1)
General and administrative21.5
 5% 21.9
 5% (0.4)
Real estate operating income85.2
 22% 97.5
 22% (12.3)
Other income (expense):         
Interest expense(45.3) 12% (52.7) 12% 7.4
Other income1.5
 —% 0.2
 —% 1.3
Equity in income of unconsolidated joint ventures—
 —% 3.9
 1% (3.9)
Loss on extinguishment of debt(1.7) —% —
 —% (1.7)
Gain on sale of real estate assets, net45.2
 12% 116.0
 27% (70.8)
Net income$84.9
 22% $164.9
 38% $(80.0)


Revenue

Rental income decreasedand tenant reimbursement revenue increased approximately $41.1$9.7 million for the nine months ended September 30, 20182019 as compared to the same period in the prior year. Substantially allThe variance was primarily due to new leases at higher overall rental rates commencing during 2018 and 2019 in our existing portfolio. Further, we recognized increased reimbursement revenue as a result of higher recoverable property operating costs, contributing an additional $3.4 million to the decrease is attributable to net property disposition activity subsequent to January 1, 2017.increase.

Tenant reimbursements decreasedProperty management fee revenue increased approximately $5.2$1.7 million for the nine months ended September 30, 20182019 as compared to the same period in the prior year. Net disposition activity subsequentThe increase was primarily due to January 1, 2017 contributed approximately $8.1 million toconstruction management fees received from one of our former Independence Square properties during the decrease; however, this variance was partially offsetnine months ended September 30, 2019, with such fees varying from period-to-period due to the expirationvariability of abatements and an increase in recoverable operating expenses at certain of our existing properties.construction activity.

Expense

Property operating costsOther property related income decreased approximately $12.4$1.2 million for the nine months ended September 30, 20182019 as compared to the same period in the prior year. The decrease is due to parking revenue earned in the prior period at the 800 North Brand Boulevard building which was sold in November 2018.

Expense

Property operating costs increased approximately $4.6 million for the nine months ended September 30, 2019 as compared to the same period in the prior year. Approximately $17.4$5.1 million of the decreaseincrease was due to net disposition activity subsequent to January 1, 2017; however, this variance was partially offset by higher overall recoverable utility, administrative,costs in our existing portfolio, particularly property tax expense and repairs and maintenance costs at certain of our existing properties. This increase was partially offset by lower overall expenses resulting from net disposition activity subsequent to January 1, 2018.

Depreciation expense decreased approximately $9.7$1.1 million for the nine months ended September 30, 20182019 as compared to the same period in the prior year. Approximately $12.1$4.1 million of the decrease was attributable to net disposition activity subsequent to
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January 1, 2017;2018; however, this decrease was partiallysubstantially offset by depreciation on additional building and tenant improvements placed in service subsequent to January 1, 2017.2018.

Amortization expense decreasedincreased approximately $11.1$8.9 million for the nine months ended September 30, 20182019 as compared to the same period in the prior year. The decrease is attributableApproximately $14.8 million of the increase was due to net disposition activity andthe amortization of lease intangible assets associated with properties acquired subsequent to January 1, 2018. This increase was substantially offset by certain lease intangible assets or other deferred costs at our existing properties becoming fully amortized as a result of the expiration of leases subsequent to January 1, 2017, as well as2018.

During the recognitionnine months ended September 30, 2019, we recognized an impairment loss on real estate assets of accelerated amortizationapproximately $2.0 million in conjunction with the decision to sell The Dupree building (see Note 7 for lease terminations/modifications in the prior year.details).

General and administrative expenses decreasedincreased approximately $0.4$8.2 million for the nine months ended September 30, 2018 as compared to the same period in the prior year, primarily due to a decrease in state and local tax expense as a result of a reduction in property-related deferred tax liabilities. This decrease was partially offset by increased accruals for potential performance-based compensation.

Other Income (Expense)

Interest expense decreased approximately $7.4 million for the nine months ended September 30, 2018 as compared to the same period in the prior year. The decrease is primarily attributable to lower average debt outstanding in the current period, specifically due to the repayment of debt subsequent to January 1, 2017, including the $140 million of secured debt on our 1201 and 1225 Eye Street buildings in Washington, D.C. paid off in August 2017, and two of our unsecured term loans totaling $470 million paid off in January 2018, offset partially by a new $250 million seven-year term loan obtained in March 2018.

Other income increased approximately $1.3 million for the nine months ended September 30, 20182019 as compared to the same period in the prior year due to $3.2 million of retirement and separation expenses associated with the salesenior management transition that occurred in June 2019. The remainder of solar renewable energy certificatesthe increase is due primarily to increased accruals of expense associated with potential performance-based equity compensation as a third-party, as well as interest and fee income forresult of our relative stock performance during the administration of certain debt instruments.current period.

Equity in income of unconsolidated joint ventures decreasedOther Income (Expense)

Interest expense increased approximately $3.9$1.4 million for the nine months ended September 30, 20182019 as compared to the same period in the prior year primarily as a result of higher average balances outstanding during the current year. The decrease is primarily duevariance was partially offset by an increase in capitalized interest in the current year, as compared to the recognition of our portion of the gain on the sale of our last unconsolidated joint venture property, the 8560 Upland Drive buildingsame period in the prior period.year, of approximately $0.8 million.

The $1.7 million loss on extinguishment of debt isfor the nine months ended September 30, 2018 was associated with the early repayment of our $170 Million Unsecured 2015 Term Loan and our $300 Million Unsecured 2013 Term Loan. The loss includesincluded the write-off of unamortized debt issuance costs, discounts, and costs related to the termination of interest rate swap agreements associated with the debt.

Gain on sale of real estate assets net,during the nine months ended September 30, 2019 reflected an approximate $33.2 million gain recognized on the sale of the One Independence Square building in Washington, D.C. that closed in February 2019, as well as an approximate $6.1 million adjustment of the gain on sale for the Two Independence Square building related to the reimbursement of certain previously disputed tenant improvement overages. Gain on sale of real estate assets during the nine months ended September 30, 2018 representsreflected the gain recognized on the sale of the 2017 Disposition Portfolio comprised of 14 properties in various markets that closed in January 2018. Gain on sale

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Table of real estate assets, net, during the nine months ended September 30, 2017 represent the gain recognized on the sales of the Sarasota Commerce Center II building located in Sarasota, Florida and the Two Independence Square building.Contents



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

Net income calculated in accordance with GAAP is the starting point for calculating FFO, Core FFO, and AFFO. 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 to be insufficient by themselves.alone. 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 in accordance with GAAP), excluding gains or losses from sales of propertydepreciable real estate and impairment charges, (including our proportionate shareplus the add back of any impairment charges and/or gains or losses from sales of property related to investments in unconsolidated joint ventures), plus depreciation and amortization on real estate assets (including our proportionate share of depreciation and amortization related to investments in unconsolidated joint ventures).assets. Other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than we do; therefore, our computation of FFO may not be comparable to such other REITs.

We calculate Core FFO 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 of 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-line rent adjustments 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.expense. 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 that of other REITs.



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

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 Three Months Ended Nine Months Ended
 September 30, 2018 
Per
Share(1)
 September 30, 2017 
Per
Share(1)
 September 30, 2018 
Per
Share(1)
 September 30, 2017 
Per
Share(1)
GAAP net income applicable to common stock$16,114
 $0.13
 $126,133
 $0.87
 $84,886
 $0.65
 $164,947
 $1.13
Depreciation of real estate assets (2)
26,668
 0.21
 29,774
 0.20
 80,531
 0.61
 90,335
 0.62
Amortization of lease-related costs (2)
14,828
 0.11
 18,107
 0.12
 46,773
 0.35
 57,828
 0.40
Gain on sale - wholly-owned properties—
 —
 (109,512) (0.75) (45,186) (0.34) (115,951) (0.80)
Gain on sale- unconsolidated partnership—
 —
 (3,683) (0.02) —
 —
 (3,683) (0.02)
NAREIT Funds From Operations applicable to common stock$57,610
 $0.45
 $60,819
 $0.42
 $167,004
 $1.27
 $193,476
 $1.33
Adjustments:               
Acquisition costs—
 —
 —
 —
 —
 —
 6
 —
Loss on extinguishment of debt—
 —
 —
 —
 1,680
 0.02
 —
 —
Core Funds From Operations applicable to common stock$57,610
 $0.45
 $60,819
 $0.42
 $168,684
 $1.29
 $193,482
 $1.33
Adjustments:               
Amortization of debt issuance costs, fair market value adjustments on notes payable, and discount on debt550
   634
   1,561
   1,892
  
Depreciation of non real estate assets176
   218
   558
   597
  
Straight-line effects of lease revenue (2)
(3,210)   (3,602)   (11,489)   (15,939)  
Stock-based and other non-cash compensation1,661
   1,250
   4,462
   4,202
  
Net effect of amortization of above and below-market in-place lease intangibles(2,006)   (1,720)   (5,636)   (4,890)  
Acquisition costs—
   —
   —
   (6)  
Non-incremental capital expenditures (3)
(9,276)   (5,229)   (27,407)   (21,974)  
Adjusted Funds From Operations applicable to common stock$45,505
   $52,370
   $130,733
   $157,364
  
Weighted-average shares outstanding – diluted128,819
   145,719
   131,187
   145,680
  
Common stock issued and outstanding as of period end128,371
   145,295
   128,371
   145,295
  
 Three Months EndedNine Months Ended
 September 30, 2019
Per
Share(1)
September 30, 2018
Per
Share(1)
September 30, 2019
Per
Share(1)
September 30, 2018
Per
Share(1)
GAAP net income applicable to common stock$8,422  $0.07  $16,114  $0.13  $66,783  $0.53  $84,886  $0.65  
Depreciation of real estate assets26,909  0.21  26,668  0.21  79,346  0.63  80,531  0.61  
Amortization of lease-related costs19,491  0.15  14,828  0.11  55,622  0.44  46,773  0.35  
Impairment loss on real estate assets1,953  0.02  —  —  1,953  0.01  —  —  
Gain on sale of real estate assets(32) —  —  —  (39,370) (0.31) (45,186) (0.34) 
NAREIT Funds From Operations applicable to common stock$56,743  $0.45  $57,610  $0.45  $164,334  $1.30  $167,004  $1.27  
Adjustments:
Retirement and separation expenses associated with senior management transition in June 2019—  —  —  —  3,175  —  —  —  
Loss on extinguishment of debt—  —  —  —  —  —  1,680  0.02  
Core Funds From Operations applicable to common stock$56,743  $0.45  $57,610  $0.45  $167,509  $1.33  $168,684  $1.29  
Adjustments:
Amortization of debt issuance costs, fair market value adjustments on notes payable, and discounts on debt526  550  1,574  1,561  
Depreciation of non real estate assets214  176  634  558  
Straight-line effects of lease revenue(1,531) (3,210) (7,437) (11,489) 
Stock-based compensation adjustments(3,015) 1,661  1,949  4,462  
Net effect of amortization of above and below-market in-place lease intangibles(1,923) (2,006) (6,009) (5,636) 
Non-incremental capital expenditures (2)
(14,352) (9,276) (27,410) (27,407) 
Adjusted Funds From Operations applicable to common stock$36,662  $45,505  $130,810  $130,733  
Weighted-average shares outstanding – diluted126,240  128,819  126,190  131,187  


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

43
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 in accordance with GAAP) before interest, income-related federal, state, and local taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of any 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. For Property NOI (cash basis), the effects of 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 applicable to the properties owned or placed in service during the entire span of the current and prior year reporting periods. Same Store NOI also excludes amounts applicable to unconsolidated joint venture assets. Same Store 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 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.




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The following table sets forth a reconciliation from net income calculated in accordance with GAAP to 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, 20182019 and 2017,2018, respectively (in thousands):

Cash BasisAccrual Basis
Three Months EndedThree Months Ended
September 30,
2019		September 30,
2018		September 30,
2019		September 30,
2018
Net income applicable to Piedmont (GAAP basis)$8,422  $16,114  $8,422  $16,114  
Net income applicable to noncontrolling interest(3) —  (3) —  
Interest expense16,145  15,849  16,145  15,849  
Depreciation27,124  26,844  27,124  26,844  
Amortization19,491  14,828  19,491  14,828  
Impairment loss on real estate assets1,953  —  1,953  —  
Gain on sale of real estate assets(32) —  (32) —  
General & administrative expenses7,950  6,677  7,950  6,677  
Management fee revenue (1)
(203) (181) (203) (181) 
Other income(47) (87) (47) (87) 
Straight-line rent effects of lease revenue(1,531) (3,210) 
Amortization of lease-related intangibles(1,923) (2,006) 
Property NOI$77,346  $74,828  $80,800  $80,044  
Net operating income from:
Acquisitions (2)
(5,546) (431) (6,876) (694) 
Dispositions (3)
(296) (7,019) (280) (6,811) 
Other investments (4)
(896) (132) (889) (141) 
Same Store NOI$70,608  $67,246  $72,755  $72,398  
Change period over period in Same Store NOI5.0 %N/A0.5 %N/A  

(1)Presented net of related operating expenses incurred to earn such management fee revenue.
(2)Acquisitions consist of 501 West Church Street in Orlando, Florida, purchased on February 23, 2018; 9320 Excelsior Boulevard in Hopkins, Minnesota, purchased on October 25, 2018; 25 Burlington Mall Road in Burlington, Massachusetts, purchased on December 12, 2018; Galleria 100 and land in Atlanta, Georgia, purchased on May 6, 2019; and Galleria 400, Galleria 600 and land in Atlanta, Georgia, purchased on August 23, 2019.
(3)Dispositions consist of a 14-property portfolio sold on January 4, 2018 (comprised of 2300 Cabot Drive in Lisle, Illinois; Windy Point I and II in Schaumburg, Illinois; Suwanee Gateway One and land in Suwanee, Georgia; 1200 Crown Colony Drive in Quincy, Massachusetts; Piedmont Pointe I and II in Bethesda, Maryland; 1075 West Entrance Drive and Auburn Hills Corporate Center in Auburn Hills, Michigan; 5601 Hiatus Road in Tamarac, Florida; 2001 NW 64th Street in Ft. Lauderdale, Florida; Desert Canyon 300 in Phoenix, Arizona; 5301 Maryland Way in Brentwood, Tennessee; and 2120 West End Avenue in Nashville, Tennessee); 800 North Brand Boulevard in Glendale, California, sold on November 29, 2018; One Independence Square in Washington, D.C., sold on February 28, 2019; and The Dupree in Atlanta, Georgia, sold on September 4, 2019.
(4)Other investments consist of 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 Two Pierce Place in Itasca, Illinois, are included in this line item.

45
 Cash Basis Accrual Basis
 Three Months Ended Three Months Ended
 September 30,
2018		 September 30,
2017		 September 30,
2018		 September 30,
2017
        
Net income applicable to Piedmont (GAAP basis)$16,114
 $126,133
 $16,114
 $126,133
        
Net loss applicable to noncontrolling interest—
 (4) —
 (4)
Interest expense15,849
 16,183
 15,849
 16,183
Depreciation (1)
26,844
 29,993
 26,844
 29,993
Amortization (1)
14,828
 18,107
 14,828
 18,107
Net loss from casualty events—
 25
 —
 25
Gain on sale of real estate assets (1)
—
 (113,195) —
 (113,195)
General & administrative expenses (1)
6,677
 6,202
 6,677
 6,202
Management fee revenue (2)
(181) (253) (181) (253)
Other income (1)
(87) (171) (87) (171)
Straight-line rent effects of lease revenue (1)
(3,210) (3,602)    
Amortization of lease-related intangibles (1)
(2,006) (1,720)    
        
Property NOI$74,828
 $77,698
 $80,044
 $83,020
        
Net operating income from:       
Acquisitions (3)
(958) —
 (1,292) —
Dispositions (4)
(122) (8,001) (122) (7,675)
Other investments (5)
(659) (2,339) (827) (2,301)
        
Same Store NOI$73,089
 $67,358
 $77,803
 $73,044
        
Change period over period in Same Store NOI8.5% N/A
 6.5% N/A

(1)Table of Contents
Includes amounts applicable to consolidated properties and our proportionate share of amounts applicable to unconsolidated joint ventures.
(2)
Presented net of related operating expenses incurred to earn the revenue.
(3)
Acquisitions consist of Norman Pointe I in Bloomington, Minnesota, purchased on December 28, 2017; and 501 West Church Street in Orlando, Florida, purchased on February 23, 2018.
(4)
Dispositions consist of Sarasota Commerce Center II in Sarasota, Florida, sold on June 16, 2017; Two Independence Square in Washington, D.C., sold on July 5, 2017; and the 14-property, 2017 Disposition Portfolio sale completed on January 4, 2018.
(5)
Other investments consist of our interests 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 500 TownPark in Lake Mary, Florida, and Two Pierce Place in Itasca, Illinois, are included in this line item.


The following table sets forth a reconciliation from net income calculated in accordance with GAAP to 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, 20182019 and 2017,2018, respectively (in thousands):
Cash BasisAccrual Basis
Nine Months EndedNine Months Ended
September 30,
2019		September 30,
2018		September 30,
2019		September 30,
2018
Net income applicable to Piedmont (GAAP basis)$66,783  $84,886  $66,783  $84,886  
Net income applicable to noncontrolling interest(3) (4) (3) (4) 
Interest expense46,750  45,294  46,750  45,294  
Loss on extinguishment of debt—  1,680  —  1,680  
Depreciation79,982  81,090  79,982  81,090  
Amortization55,622  46,773  55,622  46,773  
Impairment loss on real estate assets1,953  —  1,953  —  
Gain on sale of real estate assets(39,370) (45,186) (39,370) (45,186) 
Retirement and separation expenses associated with senior management transition in June 20193,175  —  3,175  —  
General & administrative expenses26,561  21,487  26,561  21,487  
Management fee revenue (1)
(2,226) (531) (2,226) (531) 
Other income(165) (475) (165) (475) 
Straight-line rent effects of lease revenue(7,437) (11,489) 
Amortization of lease-related intangibles(6,009) (5,636) 
Property NOI$225,616  $217,889  $239,062  $235,014  
Net operating income from:
Acquisitions (2)
(12,610) (1,038) (14,974) (1,653) 
Dispositions (3)
(4,931) (18,368) (3,479) (16,845) 
Other investments (4)
(1,181) (1,456) (1,159) (1,292) 
Same Store NOI$206,894  $197,027  $219,450  $215,224  
Change period over period in Same Store NOI5.0 %N/A2.0 %N/A  

(1)Presented net of related operating expenses incurred to earn such management fee revenue.
(2)Acquisitions consist of 501 West Church Street in Orlando, Florida, purchased on February 23, 2018; 9320 Excelsior Boulevard in Hopkins, Minnesota, purchased on October 25, 2018; 25 Burlington Mall Road in Burlington, Massachusetts, purchased on December 12, 2018; Galleria 100 and land in Atlanta, Georgia, purchased on May 6, 2019; and Galleria 400, Galleria 600 and land in Atlanta, Georgia, purchased on August 23, 2019.
(3)Dispositions consist of a 14-property portfolio sold on January 4, 2018 (comprised of 2300 Cabot Drive in Lisle, Illinois; Windy Point I and II in Schaumburg, Illinois; Suwanee Gateway One and land in Suwanee, Georgia; 1200 Crown Colony Drive in Quincy, Massachusetts; Piedmont Pointe I and II in Bethesda, Maryland; 1075 West Entrance Drive and Auburn Hills Corporate Center in Auburn Hills, Michigan; 5601 Hiatus Road in Tamarac, Florida; 2001 NW 64th Street in Ft. Lauderdale, Florida; Desert Canyon 300 in Phoenix, Arizona; 5301 Maryland Way in Brentwood, Tennessee; and 2120 West End Avenue in Nashville, Tennessee); 800 North Brand Boulevard in Glendale, California, sold on November 29, 2018; One Independence Square in Washington, D.C., sold on February 28, 2019; and The Dupree in Atlanta, Georgia, sold on September 4, 2019.
(4)Other investments consist of active or recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods and land. The operating results from Two Pierce Place in Itasca, Illinois, are included in this line item.

46
 Cash Basis Accrual Basis
 Nine Months Ended Nine Months Ended
 September 30,
2018		 September 30,
2017		 September 30,
2018		 September 30,
2017
        
Net income applicable to Piedmont (GAAP basis)$84,886
 $164,947
 $84,886
 $164,947
        
Net loss applicable to noncontrolling interest(4) (10) (4) (10)
Interest expense45,294
 52,661
 45,294
 52,661
Loss on extinguishment of debt1,680
 —
 1,680
 —
Depreciation (1)
81,090
 90,933
 81,090
 90,933
Amortization (1)
46,773
 57,828
 46,773
 57,828
Acquisition costs—
 6
 —
 6
Net loss from casualty events—
 57
 —
 57
Gain on sale of real estate assets (1)
(45,186) (119,634) (45,186) (119,634)
General & administrative expenses (1)
21,487
 21,907
 21,487
 21,907
Management fee revenue (2)
(531) (762) (531) (762)
Other income (1)
(475) (146) (475) (146)
Straight-line rent effects of lease revenue (1)
(11,489) (15,939)    
Amortization of lease-related intangibles (1)
(5,636) (4,890)    
        
Property NOI$217,889
 $246,958
 $235,014
 $267,787
        
Net operating income from:       
Acquisitions (3)
(2,540) —
 (3,424) —
Dispositions (4)
(509) (39,077) (500) (36,331)
Other investments (5)
(3,096) (6,277) (3,309) (7,079)
        
Same Store NOI$211,744
 $201,604
 $227,781
 $224,377
        
Change period over period in Same Store NOI5.0% N/A
 1.5% N/A

(1)Table of Contents
Includes amounts applicable to consolidated properties and our proportionate share of amounts applicable to unconsolidated joint ventures.
(2)
Presented net of related operating expenses incurred to earn the revenue.
(3)
Acquisitions consist of Norman Pointe I in Bloomington, Minnesota, purchased on December 28, 2017; and 501 West Church Street in Orlando, Florida, purchased on February 23, 2018.
(4)
Dispositions consist of Sarasota Commerce Center II in Sarasota, Florida, sold on June 16, 2017; Two Independence Square in Washington, D.C., sold on July 5, 2017; and the 14-property, 2017 Disposition Portfolio sale completed on January 4, 2018.
(5)
Other investments consist of our interests 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 500 TownPark in Lake Mary, Florida, and Two Pierce Place in Itasca, Illinois, are included in this line item.

Overview

Our portfolio is a geographically diverse geographical portfoliogroup of properties primarily located in select sub-markets within eightseven major office markets located in the Eastern-half of the United States. We typically lease space to large, credit-worthy corporate or governmental tenants on a long-term basis. As of September 30, 2018,2019, our average lease was almostis approximately 20,000 square feet with approximately sevenover six years of lease term remaining. Consequently, leased percentage, as well as rent roll ups and roll downs, whichwhich we experience as a result of re-leasing, can fluctuate widely between buildings and between tenants, depending on when a particular lease is scheduled to commence or expire.

Leased Percentage

Our current in-service portfolio of 5355 office properties was 93.2%91.9% leased as of September 30, 2018, up from 89.2% leased2019 and 93.3% as of September 30, 2017, and scheduledDecember 31, 2018. Scheduled lease expirations for the portfolio as a whole for the remainder of 2018 and 2019 were 1.6% and 11.9%7.3% of our ALR, respectively.Annualized Lease Revenue as of September 30, 2019. The majority of those expirations related to the lease with our largest tenant, State of New York, at our 60 Broad Street building that was recently executed by the New York State Commissioner of General Services on behalf of the State of New York. To the extent new leases for currently vacant space outweigh or fall short of scheduled expirations, such leases would increase or decrease our leased percentage, respectively. Our leased percentage may also fluctuate from the impact of occupancy levels associated with our net acquisition and disposition activity.activity, such as the acquisition of the Galleria 400 and Galleria 600 buildings in August 2019 with an average leased percentage of 84%.

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, 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, 2018,2019, we had approximately 547,000591,000 square feet of executed leases related to currently vacant space that had not yet commenced (301,000 square feet of which relates to a new, full-building lease at our Enclave Place building in Houston, Texas) and approximately 759,000468,000 square feet of commenced leases that were in some form of rental and/or operating expense abatement.

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 the magnitude of some of our tenant's leased space can result in rent roll ups and roll downs that can fluctuate widely on a building-by-building and a quarter-to-quarter basis.

Same Store NOI increased 8.5%5.0% and 6.5%0.5% on a cash and accrual basis, respectively, for the three months ended September 30, 20182019 as compared withto the three months ended September 30, 2017. In addition to general increases2018. The increase in occupancy levels and improved rental rates,cash basis Same Store NOI (cash basis) was favorably impacted byattributable to the expiration of several large lease abatements at certain properties andabatements. The slight increase in accrual basis Same Store NOI (accrual basis) was favorably impacted byrelated to the commencement of several large leases throughout the portfolio.with higher straight-line rents, offset by down times between leases at 200 South Orange Avenue and 1155 Perimeter Center West, and lower overall occupancy levels. 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, a wholly-owned subsidiary of Piedmont, as a taxable REIT subsidiary. POH performs non-customary services for tenants of buildings that we own, including solar power generation, real estate and non-real estate
47
Table of Contents
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 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, 2018,2019, we had no off-balance sheet arrangements. For further information regarding our commitments under our debt obligations, see the Contractual Obligations table below.included in Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2018.

Application of Critical Accounting Policies

Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. Refer to our Annual Report on Form 10-K for the year ended December 31, 20172018 for a discussion of our critical accounting policies. There have been no material changes to these policies during the nine months ended September 30, 2018.2019.

Accounting Pronouncements Adopted during the Nine Months Ended September 30, 2018

Revenue Recognition

2019
On January 1, 2018, we adopted 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") issued by the Financial Accounting Standards Board (the "FASB"). 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.

Leases
Our revenues which are included in
During the scope of the Revenue Recognition Amendments include our property management fee revenue, the majority of our parking revenue, as well as certain license agreements which allow third-parties to place their antennas or fiber-optic cabling on or inside our buildings. Lease contracts are specifically excluded from the Revenue Recognition Amendments and, we intend to utilize a leasing practical expedient to group certain non-lease components related to operating expense reimbursements with other leasing components, provided they meet certain criteria. Because the timing and pattern of transfer of our non-lease related revenue already followed the prescribed method of the Revenue Recognition Amendments, we were able to effectively adopt these amendments on a full retrospective basis, with no impact to the timing of recognition of the related revenue; however, such non-lease revenues are now being presented as "Other property related income" in the accompanying consolidated statements of income. Further, for comparative purposes, we reclassified approximately $4.0 million and $14.6 million of parking, antennae license, and fiber income that was previously included in rental income into other property related income, as well as certain other miscellaneous revenue into tenant reimbursements and/or property management fee revenue during the three and nine months ended September 30, 2017, respectively. We did not elect to adopt any practical expedients provided by the Revenue Recognition Amendments. For further details, see Note 2 to our accompanying consolidated financial statements.

Gain/(loss) on Sale of Real Estate Assets

On January 1, 2018,2019, we adopted 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") concurrent with the Revenue Recognition Amendments mentioned

above. We elected to apply the amendments of ASU 2017-05 on a full retrospective basis; however, there were no adjustments to previously recorded gains/(losses) on sale of real estate as a result of the transition.

Equity Investments Held in Non-qualified Deferred Compensation Plan

On January 1, 2018, we adopted Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), as well as Accounting Standards Update No. 2018-03 Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10) ("ASU 2018-03"). These amendments 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. Investments in trading securities held in a "rabbi trust" by us are the only securities affected by ASU 2016-01 and ASU 2018-03. As such, we have made a cumulative-effect adjustment to our consolidated balance sheet and consolidated statements of stockholders' equity of approximately $0.1 million from other comprehensive income to cumulative distributions in excess of earnings, and have recorded changes in fair value in net income for the three and nine months ended September 30, 2018 related to these investment securities.

Interest Rate Derivatives

On January 1, 2018, we early adopted Accounting Standards Update No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12").We adopted ASU 2017-12 using the modified retrospective transition method; however, no adjustment was necessary to account for the cumulative effect of the change on the opening balance of each affected component of equity in the consolidated balance sheet as of the date of adoption because there was no cumulative ineffectiveness that had been recorded on our existing interest rate swaps as of December 31, 2017, and all trades were highly effective. The amended presentation and disclosure guidance which is required to be presented prospectively is provided inNote 6 to our accompanying consolidated financial statements.

Other Recent Accounting Pronouncements

The FASB has issued Accounting Standards Update No. 2016-02, Leases (Topic 842), as well as various associated updates and amendments, which together comprise the requirements for lease accounting under Accounting Standards Codification 842 ("ASU 2016-02"ASC 842"), which. ASC 842 fundamentally changeschanged 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. ASC 842 also prohibits the capitalization of internal direct payroll costs associated with negotiating and executing leases. Accounting for leases by lessors is substantially unchanged from prior practice as lessors will continue to recognize lease revenue on a straight-line basis.


Additionally, the FASB has subsequently issued a number of clarifying and technical corrections to ASU 2016-02 through several Accounting Standards Updates ("ASU") as follows:

ASUTitleSummaryAnticipated Impact on Piedmont's Consolidated Financial Statements Based on Management’s Assessment to Date
ASU 2018-01Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842Clarifies that a land easement is required to be evaluated to determine whether it should be accounted for as a lease upon adoption of ASU 2016-02; also provides an optional practical transition expedient allowing entities not currently assessing land easements under existing leasing guidance prior to adoption of ASU 2016-02 to not apply the new guidance to land easements existing at the date of initial adoption of ASU 2016-02.Not applicable as we have no land easements.
ASU 2018-10Codification Improvements to Topic 842, LeasesClarifications and technical corrections to ASU 2016-02.No material impact expected.
ASU 2018-11Leases (Topic 842) Targeted ImprovementsAllows certain non-lease operating expense reimbursements which are included in the underlying stated lease rate to be accounted for as part of the lease provided certain criteria are met under an optional practical expedient.All of our operating expense reimbursements are expected to qualify to be accounted for as a part of the underlying lease.

Although management continues to evaluate the guidance and disclosures required by Substantially all of our leases are with tenants (as lessees) in buildings owned and operated by us (as lessor). Operating leases where we are the above ASUs,lessee consist primarily of office space in buildings owned by a third party. The accounting for these leases resulted in recording immaterial right-of-use assets and lease liabilities.
In conjunction with adopting ASC 842, we do not anticipate any material impactadopted certain optional practical expedients, transition amendments, or made accounting policy elections as further detailed in Note 2 to our accompanying consolidated financial statements as a result of adoption relatedstatements.
Stock Compensation to lessor accounting. However,Nonemployees

During the nine months ended September 30, 2019, we do anticipate recording an immaterial right-to-use asset and offsetting lease liability under lessee accounting on our balance sheet upon adoption ofadopted ASU 2016-02 on January 1, 2019.

The FASB has issued Accounting Standards Update No. 2018-07, Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"). The provisions of ASU 2018-07 align accounting for stock based compensation for non-employees for goods and services with existing accounting for similar compensation for employees. The amendments supersede previous guidance on accountingASU 2018-07 requires an entity to remeasure liability-classified awards that have not been settled by the date of adoption and equity-classified awards for share-based paymentswhich a measurement date has not been established through a cumulative-effect adjustment to non-employees codifiedretained earnings as of January 1, 2019. Our only awards affected by ASU 2018-07 are equity-
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classified award grants to our independent board of directors, which have been historically recognized in the FASB'ssame manner prescribed by the newly adopted standard. As such, there was no cumulative effect adjustment recognized upon adoption.

Other Recent Accounting Standards Codification ("ASC") 505-50. ASU 2018-07 is effective in the first quarter of 2019, with early adoption permitted at any time provided that the entity has already adopted the provisions of ASC 606. We do not anticipate any material impact to our consolidated financial statements as a result of adoption.Pronouncements

The FASB has issued Accounting Standards UpdateASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, as well as ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and ASU No. 2019-05, Financial Instruments- Credit Losses: Targeted Transition Relief ("ASU 2016-13"collectively the "Credit Loss Amendments"). The provisions of ASU 2016-13the Credit Loss Amendments 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. Further, the FASB has issued ASU 2016-13No. 2018-19 Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which is effective concurrent with the Credit Loss Amendments, and excludes receivables arising from operating leases from the scope of the Credit Loss Amendments. Both ASU 2018-19 and the Credit Loss Amendments are 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.adoption; however, substantially all of our receivables are operating lease receivables and as such, we do not anticipate any material impact to our consolidated financial statements as a result of adoption of the Credit Loss Amendments and ASU 2018-19.

Related-Party Transactions and Agreements

During the nine months ended September 30, 2019, we entered into employment or retirement agreements with certain of our current and former executive officers as more fully described in our Definitive Proxy Statement and Current Report on Form 8-K filed on March 19, 2019. There were no other related-party transactions during the nine months ended September 30, 2019.

Contractual Obligations

There were no related-party transactionsmaterial changes in our contractual obligations during the three and nine months ended September 30, 2018.


Contractual Obligations
We have had significant changes2019. For further information, see our annual disclosures related to our debt structure during the nine months ended September 30, 2018. As such, our contractual obligations related to long-term debt asin Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2018.
September 30, 2018 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)
$1,725,033
 $1,000
 $29,033

$1,045,000
(2)(3) 
$650,000
(4) 

(1)
Amounts include principal payments only and balances outstanding as of September 30, 2018, 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 $48.7 million during the nine months ended September 30, 2018, and expect to pay interest in future periods on outstanding debt obligations based on the rates and terms disclosed herein and in Note 4 to our accompanying consolidated financial statements.
(2)
Includes the balance outstanding as of September 30, 2018 of the new $500 Million Unsecured 2018 Line of Credit. However, we may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of September 29, 2023) provided we are not then in default and upon payment of extension fees.
(3)
Includes the Amended and Restated $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 3.20% through January 15, 2020. As such, we estimate incurring, exclusive of changes to our credit rating, approximately $9.6 million per annum in total interest (comprised of combination of variable contractual rate and settlements under interest rate swap agreements) through January 2020.
(4)
Includes the $250 Million Unsecured 2018 Term Loan, which has a stated variable rate; however, we entered into $100 million in notional amount of seven-year interest rate swap agreements and $50 million in notional amount of two-year interest rate swap agreements, resulting in an effectively fixed interest rate on $150 million of the term loan at 4.11% through March 29, 2020 and on $100 million of the term loan at 4.21% from March 30, 2020 through the loan's maturity date of March 31, 2025, assuming no change in our credit rating. For the portion of the $250 Million Unsecured 2018 Term Loan that continues to have a variable interest rate, we 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 (1.60% as of March 31, 2018) over the selected interest rate based on our then current credit rating.


Commitments and Contingencies
We are subject to certain commitments and contingencies with regard to certain transactions. Refer to Note 8 of our consolidated financial statements for further explanation. Examples of such commitments and contingencies include:
•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. Our potential for exposure to market risk includes interest rate fluctuations in connection with borrowings under our $500 Million Unsecured 2018 Line of Credit, our Amended and Restated $300 Million Unsecured 2011 Term Loan, and the $250 Million Unsecured 2018 Term Loan. As a result, the primary market risk to which we believe we are exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control contribute to interest rate risk.risk, including changes in the method pursuant to which the LIBOR rates are determined and the potential phasing out of LIBOR after 2021. 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 Million Unsecured 2018 Line of Credit and $100 million of our $250 Million Unsecured 2018 Term Loan 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.

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The estimated fair value of our debt was approximately $1.7 billion and $1.8$1.9 billion as of September 30, 20182019 and $1.7 billion as of December 31, 2017, respectively.2018. Our interest rate swap agreements in place atas of both September 30, 20182019 and December 31, 20172018 carried a notional amount totaling $450 million and $600 million with a weighted-average fixed interest rate (not including the corporate credit spread) of 2.30% and 1.89% , respectively..


As of September 30, 2018,2019, our total outstanding debt subject to fixed, or effectively fixed, interest rates totaling approximately $1.4 billion has an average effective interest rate of approximately 3.79% per annum with expirations ranging from 2021 to 2025. 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, 2018,2019, we had $235$398 million outstanding on our $500 Million Unsecured 2018 Line of Credit. However, we used the sales proceeds from the sale of 500 West Monroe Street on October 28, 2019 to repay substantially all of the outstanding balance on our $500 Million Unsecured 2018 Line of Credit. Our $500 Million Unsecured 2018 Line of Credit currently has a stated rate of LIBOR plus 0.90% per annum (based on our current corporate credit rating) or the prime rate, at our discretion,, resulting in an total interest rate of 3.15%2.95%. The current stated interest rate spread on $100 million of the $250 Million Unsecured 2018 Term Loan that is not effectively fixed through interest rate swaps is LIBOR plus 1.60% (based on our current corporate credit rating), which, as of September 30, 2018, results2019, resulted in a totalan interest rate of 3.84%3.64%. To the extent that we borrow additional funds in the future under the $500 Million Unsecured 2018 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, 20182019 would increase interest expense approximately $3.4$5.0 million on a per annum basis.


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

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 20182019 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.LEGAL PROCEEDINGS
ITEM 1. LEGAL PROCEEDINGS

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 Annual Report on Form 10-K for the year ended December 31, 2017.2018.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
There were no unregistered sales of equity securities during the third quarter 2018There were no unregistered sales of equity securities during the third quarter of 2019.
(b)Not applicable.
(c)During the three months ended September 30, 2019, we repurchased shares of our common stock in the open market solely in order to reissue such shares under our dividend reinvestment plan (the "DRP"). Such stock repurchases for the quarter ended September 30, 2019 are as follows:
PeriodTotal Number of
Shares Purchased
(in thousands)		Average Price Paid
per Share
Total Number of
Shares  Purchased
as Part of
Publicly Announced
Plan
(in thousands) (1)
Maximum Approximate
Dollar Value of Shares
Available That May
Yet Be Purchased
Under the Plan
(in thousands)		 
July 1, 2019 to July 31, 2019—  $—  —  $74,089  
August 1, 2019 to August 31, 2019—  $—  —  $74,089  
September 1, 2019 to September 30, 2019178  $20.35  —  $74,089  
(1)
Total178  $20.35  —  

(1)Amounts available for purchase relate only to our Board-authorized stock repurchase plan under our current authorization to repurchase shares of our common stock through February 21, 2020.

(b)Not applicable.
(c)During the third quarter 2018, 12,922 shares (at an average price of $18.95 per share) were purchased by our transfer agent on the open market and conveyed to participants in our Amended and Restated Dividend Reinvestment Plan ("DRP") cumulatively for the third quarter 2018 dividend (paid on September 21, 2018). Such stock repurchases for the quarter ended September 30, 2018 are as follows:
Period
Total Number of
Shares Purchased
(in thousands)
 
Average Price Paid
per Share
 
Total Number of
Shares  Purchased
as Part of
Publicly Announced
Plan
(in thousands) (1)
 
Maximum Approximate
Dollar Value of Shares
Available That May
Yet Be Purchased
Under the Plan
(in thousands)
 
July 1, 2018 to July 31, 2018—
 $—
 —
 $123,464
 
August 1, 2018 to August 31, 2018—
 $—
 —
 $123,464
 
September 1, 2018 to September 30, 2018 (2)
13
 $18.95
 —
 $123,464
(1) 
Total13
 $18.95
 —
   

(1)
Amounts available for purchase relate only to our Board-authorized stock repurchase plan, and no repurchases were made during the current quarter. As of September 30, 2018, we have $123.5 million of availability remaining under our current authorization to repurchase shares of our common stock through February 21, 2020. The share repurchase plan is separate from shares purchased for DRP issuance.
(2)
Under our 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.
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ITEM 5. OTHER INFORMATION
None.

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
10.131.1 
10.2
Revolving Credit Agreement Dated as Of September 28, 2018 by and Among Piedmont Operating Partnership, LP, as Borrower, Piedmont Office Realty Trust, Inc., as Parent, JPMorgan Chase Bank, N.A., SunTrust Robinson Humphrey, Inc., U.S. Bank National Association and PNC Capital Markets LLC, as Joint Lead Arrangers and Joint Bookrunners, JPMorgan Chase Bank, N.A., as Administrative Agent, SunTrust Bank, U.S. Bank National Association and PNC Bank, National Association, as Syndication Agents, Bank Of America, N.A., BMO Harris Bank, N.A., Branch Banking and Trust Company, Morgan Stanley Senior Funding, Inc., TD Bank, N.A., The Bank Of Nova Scotia and Wells Fargo Bank, N.A. as Documentation Agents, and the other financial institutions initially signatory thereto and their assignees (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on October 2, 2018)
10.3
Amended and Restated Term Loan Agreement Dated as Of September 28, 2018 by and among Piedmont Operating Partnership, LP, as Borrower, Piedmont Office Realty Trust, Inc., as Parent, JPMorgan Chase Bank, N.A., and SunTrust Robinson Humphrey, Inc., as Co-Lead Arrangers and Book Managers, JPMorgan Chase Bank, N.A., as Administrative Agent, SunTrust Bank as Syndication Agent, and the other financial institutions initially signatory thereto and their assignees (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed on October 2, 2018)
31.1
Certification of ChiefPrincipal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
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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:PIEDMONT OFFICE REALTY TRUST, INC.
(Registrant)
Dated:October 30, 20182019By:/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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