Greetings, and welcome to the Piedmont Office Realty Trust First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Robert Bowers, Chief Financial Officer. Thank you, Mr. Bowers, you may begin.

Thank you, operator. Good morning. Welcome to Piedmont's first quarter 2013 conference call. Last night, in addition to posting our earnings release, we also filed our quarterly Form 10-Q and a Form 8-K which includes our unaudited supplemental information. All of this is available on our website, www.piedmontreit.com, under the Investor Relations section. On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters which are subject to risk and uncertainties that may cause the actual results to differ from those we discussed today. Examples of forward-looking statements include those related to Piedmont Office Realty Trust future revenues, operating income and financial guidance, as well as future leasing and investment activity. You should not place any undue reliance on any of these forward-looking statements, and these statements speak only as of the date they are made. We encourage all of our listeners to review the more detailed discussion related to risk associated with forward-looking statements contained in the company's filings with the SEC. In addition, during this call, we'll refer to non-GAAP financial measures such as FFO, Core FFO, AFFO and same-store NOI. The definitions and reconciliations of our non-GAAP measures are contained in the supplemental financial information available on the company's website. We're joined on today's call by several members of management, all of whom can provide their perspective during the question-and-answer portion of the call. I'll now turn the call over to Don Miller, our Chief Executive Officer.

Good morning, everyone. Thanks for taking the time to join us this morning as we review our first quarter financial and operational results, and share our perspectives on the current leasing and transactional environment. First thing, we'll look at this quarter is leasing. The amount of completed leasing activity is quite often less in the first quarter than in the rest of the year in our experience. However, this year is particularly true given that we now have the number of lease expirations to contend with as we have had over the last 3 years. As such, during the first quarter of 2013, we executed just under 500,000 square feet of total leases, 75% of which, was renewal related and the other 25% was with new tenants. To highlight a few of the larger renewals we signed, we signed approximately 150,000 square foot 12-year extension with FedEx at our spectrum LEED asset in Colorado Springs, Colorado; we signed an approximate 70,000 square foot 11-year renewal for the law firm of Miller Canfield at 150 West Jefferson in downtown Detroit; we signed a 50,000 square foot 7-plus-year renewal with Lockheed Martin at 400 Virginia in Washington, DC; and we signed an approximately 45,000 square foot renewal and expansion with Morgan Stanley at 1901 Main Street in Irvine, California. The good news is that the lease expirations over the next 3 calendar years are estimated only to be around 6% or less annually of our revenues. Although we do have a number of big blocks of vacant space yet to fill. That said, except for a few select markets, we're still not seeing economic recovery we would like to see to generate enough demand in the office sector. Looking ahead, we are closely monitoring leasing trends and activity in Washington, DC where…

Thanks, Don. I'll discuss some of our financial results for the quarter but I encourage you all to review the 10-Q, the earnings release and the supplemental financial information, which were filed last night for more complete details. For the quarter, we reported FFO of $0.36, Core FFO of $0.37 per diluted share, AFFO was $0.22 per diluted share, covering our first quarter dividend. The three-month results include an impairment charge of $6.4 million related to our decision to sell the 1111 Durham Avenue property that Don mentioned. We also incurred approximately $1.2 million in acquisition cost associated with the Arlington Gateway and Wayside Road acquisitions, which are adjusted to arrive at our Core FFO for the quarter. The change in our balance sheet assets from year end is primarily due to these acquisitions, which were funded by draws on our $500 million line of credit, bringing the line balance to $412 million at quarter end. Our debt gross assets ratio was 30.8% as of quarter end, with a fixed charge coverage ratio of 4.8x and net debt to core EBITDA ratio of 5.2x. We have no debt maturities in 2013, but we have approximately $575 million in secured debt maturities next year. Looking more closely at individual financial metrics, rental income was up about 4% this quarter compared to the same quarter in the previous year, reflecting the commencement of several significant leases over the previous 12 months as well as the current quarter's acquisitions. We're coming off a multi-year period of very high a lease expirations, renewals and new leasing activity, and we consequently have about a 10% gap between economic occupancy and our reported overall occupancy of approximately 86%. There are 400,000 square feet of leases yet to commence related to currently vacant space, and another 2…

[Operator Instructions] And we will take our first question from Anthony Paolone with JPMorgan. Anthony Paolone - JP Morgan Chase & Co, Research Division: Can you talk about the rent roll downs in the quarter? And kind of what drove them and what we should glean from that for the rest of the portfolio?

Tony, the rent roll down's kind of a curious issue this quarter because what happened was we had relatively modest leasing and we, admittedly out-of-the-box, that we were disappointed we didn't do a little more than 500,000 square feet. We do see the pipeline picking up a little bit. But obviously, 500,000 is what we'd hope -- would've hoped to do. But that also means that the roll down was calculated on a relatively small number of leases. And we add 2 relatively large renewals done in the Miller Canfield lease in Detroit and the FedEx lease in Colorado Springs, both of which were done on a sort of a blended extend basis with very low capital. And so you see our capital numbers are pretty low for the quarter, but also a little larger roll down because we gave them roll back in rent as the concession to extend the lease rather than capital informed the TI. So and we, in fact the FedEx lease was done -- we did that directly as well, so we were able to save the leasing commission on our side. So anyway, the point is, the negative 18 number looks big, but it's in a relatively small number and sort of offset by the capital, the low capital number that we spent on those leases. So we felt pretty good about it, but obviously you can't control the numbers are what the numbers are. Anthony Paolone - JP Morgan Chase & Co, Research Division: Okay. And just on a same matter as you think about the next few quarters and what's coming up, do you think those rolls are as dramatic, particularly as you look at things like, say, Quest [ph] where it looks like they might be giving some space back? And just what should that number look like over the next few quarters?

Yes, we've updated our number, our thought -- best thought process on that, Tony, and our overall portfolio, we believe, is about a 3% roll down. Now, a lot of the -- and so that continues to come down from where we were. Now obviously, some of that is because we've done a fair number of leases that have been at higher roll downs. But at the same time, if we continue to do some early renewals, where we're rolling back rent rather than giving capital, or something like that, the number could be larger than that. A lot of it just depends on what leases you do at what point in time and in which quarter, so that's not like same store NOI or something which is reasonably easy to predict. It's a very volatile number until -- especially for a company with large leases like ours. And so it's very hard to give you any good number prediction on that kind of front. Anthony Paolone - JP Morgan Chase & Co, Research Division: Okay, and if I just ask one other question, can you talk a little bit about like the Arlington acquisition in the quarter, just your decision to go into market like DC, that's kind of challenged at the moment? And just what sort of the economics in place on that asset is given that it's fairly stabilized right now?

Yes, I'll jump in -- I'll lead off and let Bob Wiberg jump in who I think is in the call with us as well. Obviously, we've been saying for a long time that we intend to build our presence up in our 5 -- our 4 concentration markets. Our goal longer-term is north of 60% of our ALR coming from those markets. We're just below 50%. But frankly, we'd be quite a bit -- we'd be probably above 50%, had we not lost the OCC lease because obviously, the percentages are based on AOR not on square footage. So -- but that's very much in keeping with the strategy that we wanted to employ. We also like the RB Corridor very much. Want to continue to get further concentration there, and particularly, given that we now own 2 of the best buildings in Ballston, not that you can drive rents with 2 buildings, but you have a really nice position in what maybe the best, if not arguably the best sub market in Northern Virginia. So Bob I throw you more the details on the numbers, if you jump in?

Sure. And I think just to reiterate what Don said, the RB corridor has been the best performing corridor in the DC metro area over the past 15 years. So it does remain a very attractive place for us to go to. And Arlington Gateway, with 4250 are probably 2 of the 5 best buildings in that market, so we really see this as a long-term position that will continue to get better over the years. Now, in terms of the metrics on this property, the going in cap rate as we have published in our information when we acquired it is about 5.6%. There are leases in here, primarily with about a 5-year term on average, and a number of those tenants have already approached us about renewing, so we think that'll be a good source of activity over the next couple of years as well as some new tenants coming to this market, which is really driven by flight of quality. So these 2 buildings really benefit from that and we continue to see that as being the major driver. And matter of fact, in Washington, DC overall, in the past quarter, there was about only about 50,000 square feet of net absorption, but that was from 500,000 feet of Class A absorption and negative 450,000 feet of Class B and C absorption, so I think this building's really in the right spot to do well.

And next we go to Michael Knott with Green Street Advisors.

Just Bobby or Don, I guess, on the topic of the gap in your lease percentage and economic occupancy, how long do you think it's going to take get something much higher -- it seems like you're going to have some steps forward, some steps backward, so doesn't it seem like it's more kind of 2015 before you really see a giant pop in your same-store NOI as opposed to 2014?

Mike, I appreciate you understanding that with the size of our tenants, you do get a little bit of variability in between the quarters. And so we do try to provide our guidance on sort of an annual basis. If you looked at our occupancy projections for the year, we think we will actually be up -- we started the year at around 87%, 87.5%. We think we'll be between 88% and 89% in total occupancy. Relative to FFO growth and cash NOI growth, this year we provided the same sort of range as we've provided last year. And you're correct, the growth really will start kicking in as the abatements burn off in 2014 and into 2015.

Michael, more specifically, we see that economic gap lowering as we move through 2013 for reasons you might anticipate. A lot of it is the fact that we've got a lot of these leases either free rent burning off or they're commencing later in the year. So that gap appears to narrow fairly substantially towards the end of this year, then gaps back out again as we have to release 3100 and the BP space in Chicago. And then starts to decline and it maintains a fairly steady decline through the next several years for all the obvious reasons, mostly of which have to do with the amount of lease expiration we have over those few years. But I would say, it'll look better not great later this year, get worse again early '14, and then start a steady improvement which we think probably really narrows up as we move into '15, so I think your premise is probably accurate there.

Michael, to give you -- we're forming a tag team on here -- some perspective, when we did our IPO at the beginning of 2010, that gap was about 2.5%. So you can see being at 10% now over time, we expect that the lease expiration slowing down '14, '15, '16, that gap to comeback within that range.

Okay, that's helpful color, I appreciate it. And Don, I might've missed it, but did you guys give much color on or did Bob on OCC leasing prospects? And if there's anything new on that front?

We haven't, but I'll throw it to Bob and let him answer, if he's still on, I assume he is.

Yes. We've had pretty decent activity in that building, it's not a robust market, of course now, but there are several GSA requirements that seem to fit it pretty well. We have 2 proposals out currently. There's another group that we believe will shortlist us on their prospects. And then in addition, we have 2 Private sector tenants now that we're talking with. And these occupancies really would be anywhere between end of this year, potentially up through '14.

Okay, that's helpful, and last one for me just to touch on, I think Tony asked about this a little bit but the assets you've acquired this year feel like assets you would've bought back when you were a nontraded REIT, so I'm just -- can you help me understand sort of the thought process as you are buying value ads stuff earlier in the cycle, and now you're buying somewhat defensive type lease profile assets, just trying to understand how you're thinking about where these fit in the cycle and your overall capital allocation strategy?

Michael, I don't think we share that view at all. But obviously, beauty is in the eye of the beholder. What we said we were going to do when we became publicly traded, I risk sounding like was a broken record, we said we were going to be moving into those concentration markets and buying the quality of assets we typically would own in those kinds of markets. We also would like to concentrate in those submarkets, which we think have strong longer-term growth prospects. There was obviously, the RB quarter is as good as you get in the Washington, DC area, and yes, we paid very close replacement cost but that quality of asset in that submarket, on a long-term hold, we're very comfortable doing that. Boston, we feel even better about given that we were able to buy substantially below replacement cost, in an asset that is at the top of the market quality wise in Burlington, and submarket that is literally be getting on fire. There was a great article up in Boston today about how strong Walton in Burlington are getting because the technology markets are driving the tenant demand. And I would tell you, if we had space in Burlington right now, we could lease it in a heartbeat, because it's a very hot up there at the moment, and so we're very happy about that transaction as well. So I guess, we just don't share the view that a couple of the sell side analysts have on that issue. This is far from what we were ever doing back before we became publicly traded.

Michael, this is Ray, if I could add something to that. Remember that our value add strategy is really about 10% to 15% of our overall strategy, we've always said we'd take advantage of the opportunities that presented themselves either on building critical mass and those concentration markets we're finding opportunistic deals and those opportunistic markets. We had a lot of success in 2011 finding more opportunistic deals and we harvested one of those. It's very consistent with the strategy that we've outlined which is rather two-pronged. We want to build concentration market presence but we also want to identify value add deals, and that's really about 10% to 15% of our investment strategy.

And next we go to Dave Rodgers with Robert W. Baird. Mathew R. Spencer - Robert W. Baird & Co. Incorporated, Research Division: This is Mat Spencer here with Dave. I was wondering if you could provide some commentary on what type of activity you are seeing in your core markets, maybe with regards to your competition for assets, and maybe what are the best opportunities are?

Yes. I'll start and let either Bo or Ray jump in. I assume you're talking about the investment sales side of things not the leasing side? Mathew R. Spencer - Robert W. Baird & Co. Incorporated, Research Division: Right.

Yes, it's extraordinarily aggressive capital markets environment right now, and I think our Houston sale and some of the transactions that we've been chasing that we haven't been successful on the buy side would indicate that we're -- almost every deal that's coming to market that has some quality and any term structure releases is getting double-digit offers and substantial fights over who's going to try to win the deal. And as a result, we're -- it's very hard to play in that market, we are fortunate enough to sort of preempt the Washington process, and we still believe that price, we could turn around and sell that for a gain today, believe it or not, because we felt like we got a fairly good buy there. And same thing in Boston, although that did go to a formal bidding process it's just -- but it's -- to us, it's just amazing with what's happened with the return to the CMBS market. And the quest for yield, the pricing on real estate, it just gotten extraordinarily aggressive, and there really isn't a market that I would tell you whereas a year ago, we would've said the core concentration markets were really aggressive and the secondary markets were not. I would tell you that we now believe that particularly for quality assets with some term structure releases, we're seeing all markets be extremely aggressive. So we're doing what we can to ramp up our sale disposition pipeline a little bit for some of our nonstrategic assets because we think we can take advantage of that trend. Mathew R. Spencer - Robert W. Baird & Co. Incorporated, Research Division: Something along those lines, are there any assets in your portfolio now similar to the suburban Houston sale where you might want to try monetizing and maybe quantify it in -- how much that might be?

Yes, we've got, I think , 3 or 4 that we would expect we'll be bringing to the market in the next few months, whether you -- of things we've cleaned up some leasing on or we think it's just going to be a better time to bring to market. So I think we have budgeted $300 million or something like that for the year, around $300 million worth of sales activity, some of that depends on 1 or 2 bigger deals that we're trying to debate whether we want to bring to the market or not. But having said that, I would say we'll probably be executing pretty steadily on a handful of deals as the year goes on.

I would have to go with what Don said regarding the competition that's out there. A lot of it's being driven by CMBS, we've heard that even the projections that were originally put out there for CMBS would be more than achieved maybe to the level of a third more than what they had invested, and all that means is that there is a lot more capital that is driving deals and looking for yield. The other thing as Don had mentioned, we will be looking at some of the other assets that we have targeted for sale either this year or possibly next year, and see if there might be an opportunity to move those out sooner rather than later, given how active the capital markets are.

[Operator Instructions] And next we go to Brendan Maiorana with Wells Fargo.

So Bobby, you guys had the known OCC move out which hit the occupancy and I think we had talked a couple of quarters ago about I think it was 250,000 square feet of moveouts on January 1. So if I look at the drop in occupancy in the quarter, was that in line with your expectations? It seemed a little bit higher than what I was guessing. But maybe I was being a little bit too optimistic.

Well, I understand that it's pretty hard to get it accurately what our occupancy's going to be due to the variability of the large leases we have, we have forecasted occupancy for the year to end up between 88%, 89%, and we're still on course for that.

So I may be splitting hairs here a little bit, but I think you said same-store down 3% was the expectation. Was that -- I thought the prior expectation was down 2% to 3%, so I'm not sure if I'm just being a little critical of your comments and maybe it's still down 2% to 3%, or it's actually maybe migrated a little bit lower?

No, actually, thanks to our cash NOI projections for the year, are right at 2%, and I was conservative, you're right in the comments to say 3%, but still forecasting that it's 2%.

Well, you're staying true-to-form I guess with your conservatism.

Brendan, just to give you a quick -- a little more color commentary on the occupancy change, if you look at it very simply, it was 334,000 of OCC moveout, 100,000 are progressing moveout in Cleveland, offset by about 100-some-thousand square feet of new leasing. I mean, if you want to over simplify it, that's about what it looked like.

Yes. Okay. And OCC was -- there was no real NOI impact in the quarter, right? And with that we get in the second quarter, it was just the...

Actually, there was, we lost the rent for March. So we took a third of the hit, if you will, for the quarter, but you're right, obviously, starting second quarter, it will be a 0.

Okay, so it's like $1 million in the quarter and it's $3 million sort of for a full quarter?

That's sounds right, yes.

Okay. And then, sorry, so Don or Ray, it's probably for both of you guys. 1200 Enclave a great round trip on that transaction, probably 80-plus-percent value creation in a couple of years. If I look at the rest of the value add assets on page 37, how would you guys kind of grade yourselves on your value add strategy thus far? And what does that say about the likelihood of doing more or less of those deals going forward?

Let me start and Ray will jump in. Obviously, if they get an A+ on Houston, I would give us an incomplete on the rest of the portfolio at this point. We have some stories that are starting to develop that are going to be very positive. I mean, I think a couple of the deals we just bought so inexpensively, that it almost doesn't matter whether we lease some up, we're still going to make a lot of money. And then just there 1 or 2 for example, the smaller one in suburban Atlanta, where I think it's jury's still out whether we're going to have a really nice story there or just a very modest story there. But we don't think any of these based on what we bought them for are major risks to not doing pretty well, and things like 500 West Monroe and Medici and depending on what happens with a couple of leases working on Town Park, all of which could still be very, very positive stories for us.

And Brendan, we appreciate you giving us kudos for the performance on Houston. But I would hope that we would not be held to that high standard every deal, because it's going to depend on what the momentum of the leasing environment is in each particular sub market, but the thing that we hold our head on is that we bought high-quality and a very good basis so that we could fight the leasing game and get our fair share of leasing and then however long that takes, we decide when we want to round trip those properties.

Do you guys think you do more value add deals over the next 12 months or so?

I think only to the extent we can find something that makes some sense. If you remember, we had a pretty disciplined return on cost model built into these deals where we felt like we needed to be at a certain return on cost to get to make sense out of them. And frankly, as others have sort of seen our story and other deals get done, there seems to be a lot more capital chasing those deals today. So it's going to be hard to get those deals done to be honest with you, Brendan, maybe knock out 1 or 2, but it's not going to be easy.

And next we'll go to Vance Edelson with Morgan Stanley.

What's your level of optimism going forward on backfilling the vacated space, especially the big blocks, do you think the tech or energy or healthcare industries might step up? Or will it be more conventional and what kind of concessions do think might be needed?

Vance, we've got ballpark say 15 blocks of space that are 50,000 square feet and greater in the portfolio. And to give you a sort of a sense of optimism, we've almost have to go individual group of space by group of space. But I would say that some markets like if we had space in Texas markets, we'd have no problem knocking out a block of space. If we had more space in Boston available, no problem knocking out a block of space. Unfortunately, a lot of our blocks of space are not in the better markets at the moment and so I would say we have a balanced view on that. We are seeing more activity than we're seeing 6 months ago, and I think we've told you many times that it's sort of a six-month process from the time we started seeing activity to when we are executing it, given the size of leases we typically work on. And we have definitely seen a pickup in last 30 to 45 days in leasing activity, so we are optimistic that it will translate in to some good activity in the third and fourth quarters of this year from a leasing standpoint. But obviously, it's still too early to tell for certain. I wish we were seeing more activity on our big blocks of space in downtown Chicago for example. We're not seeing as much as we'd like, and same thing in Washington, not seeing as much as we would like there. Having said that, I think we're going to have some successes here in the next couple of quarters because of the level of activity we've got going.

Okay, that's helpful, and then just as a follow-up on the nonstrategic assets side, are you still eyeing Philadelphia as maybe the best candidate for divestitures or have some other markets come more into the picture?

You know what, the Philadelphia asset is one we go back and forth on. We like the asset an awful lot, the location is probably the premier location in downtown Philadelphia in some respect, at least within a block or so, either way depending how you look at it. And obviously we've got a great tenant in there. So we go back and forth on that one. That might often be affected by other things going on within the portfolio on that individual decision. But having a downtown tower in Philadelphia long-term lease to a great credit is not the worst thing that have ever happened to anybody. So we feel good about that one, but we have publicly said that that's something we're evaluating and we continue to do so as we move closer to the 10-year mark on the lease.

And it appears there are no further questions at this time. Mr. Miller, I would like to turn the conference back over to you for any additional or closing remarks.

So I think we -- I think our perception of the quarter was more positive maybe than the market's perception based on some of the overnight reading we did and the quick reaction this morning to the stock. I don't think we feel like the stories is not a good one. In fact, we're very pleased with sort of where we're headed. We would've liked to see a little bit more leasing in the quarter, and I think 1 or 2 of the numbers like the roll down had an overly dramatic impact on people's perceptions when it was on, like I explained earlier, on a very light number of square feet and was a result of not spending as much capital on a couple of big leases. So we actually felt better about those and to maybe the market has reacted this morning. But overall, we continue to be a very optimistic as we move into '14 and '15. And I know a lot of you are just trying to figure out what the right time is to own the stock, because as we do, we feel like this is a great opportunity longer term. And we're excited to be here. So thank you very much for your time and energy watching and listening to the call. Have a good day.

And that does conclude today's conference. We do thank you for your participation. Have a wonderful day.