Greetings, and welcome to the Piedmont Office Realty Trust First Quarter Earnings Call. At this time all of the participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Robert Bowers, Chief Financial Officer. Thank you, Mr. Bowers. You may begin.

Thank you, operator. Good morning and welcome to Piedmont's first quarter 2014 conference call. Last night, we filed our quarterly earnings release and a Form 8-K which includes our unaudited supplemental information. This information is also available in our Web site piedmontreit.com, under the Investor Relations section. On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters which are subject to risks and uncertainties that may cause the actual results to differ from those we discuss today. Examples of forward-looking statements include those related to Piedmont Office Realty Trust's 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 risks 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 Web site. I'll review our financial results after Don Miller, our Chief Executive Officer, discusses some of this quarter's operational highlights. In addition, we're joined today by various members of our management team, all of whom can provide additional perspective during the question-and-answer portion of the call. I'll now turn the call over to Don.

Good morning, everyone, and thank you for joining us this morning as we review our first quarter financial and operational results. I will begin today with a review of our current leasing activity relative to previous quarters. As we discussed on prior calls, at the time of our listing in 2010, we faced an extremely high lease expiration schedules that extended through December of last year. During that time, we leased a total of 13.5 million square feet or nearly two-thirds of our property portfolio. 2013 brought an end to this intensive lease roll over timeframe for the company in 2014 begins a three-year period of very low lease expiration. Therefore, the majority of our leasing activity for the first quarter is comprised of new leases for currently vacant space. Of the total 415,000 square feet of leasing we completed during the quarter 72% or nearly 300,000 square feet was with new tenants, which is inline with our expectations in our historical quarterly average for leasing new tenants. Our leasing transactions for the quarter include the following large transaction highlights. Preferred Apartment Advisors completed an approximately 62,000 square foot, 11-year lease at our Medici building in Atlanta, Georgia. Amneal Pharmaceuticals signed an approximately 40,000 foot ten plus year lease at 400 Bridgewater Crossing in Bridgewater, New Jersey. In Chicago, R-T Specialty signed an approximate 27,000 square foot, 14 plus year new lease at 500 West Monroe. And JL Buchanan signed an approximately 20,000 square foot 10-plus-year new lease at U.S. Bancorp in Minneapolis. Two renewals worth mentioning are with Harding Loevner, who renewed and expanded its base to approximately 40,000 square feet at 400 Bridgewater Crossing to 2022. And Children's Hospital of Los Angeles completing approximately 23,000 square foot five year renewal through 2021 at our 800 North Brand asset…

Thanks Don. I will discuss some of the highlights of our financial results for the quarter, I encourage you to please review the earnings release and supplemental financial information which were filed last night for further details. We reported core FFO, which excludes the impact of non-recurring items of $0.36 per diluted share for the first quarter of 2014 and is comparable to $0.37 per diluted share for the first quarter of 2013. AFFO for the first quarter of 2014 was $0.21 per diluted share covering our $0.20 quarterly dividend. All of these per share results reflect a reduction at our weighted shares outstanding as a result of the shares repurchased over the previous 12 months that Don discussed earlier. Our total lease percentage increased from 86% a year ago to 86.7% as of the end of the quarter. But, this occupancy percentage reflects a slight decrease when compared to 87.2% at year end with the last significant group of leases expiring at the end of 2013. The stabilized portfolio was 88.8 leased as of quarter end and our weighted average remaining lease term increased to 7.3 years. Economic occupancy has been impacted by the high level of lease roll over that has occurred since our IPO which Don discussed earlier. At the time of our listing, the gap between our reported occupancy of 92% and economic occupancy of 90% was only 2% wide. Today, our economic occupancy is as low as we have ever reported, 74%. And the gap between reported occupancy is as wide as it’s ever been almost 13%. As we have discussed with you for many quarters, our reported cash base of same-store NOI was expected to materially decrease in the first quarter of 2014. That decrease totaled $10.7 million or 14.8% due primarily to the…

Thank you. We will now be conducting the question-and-answer session. (Operator Instructions) Our first question comes from the line of Anthony Paolone with JPMorgan. Go ahead with your question please.

Thanks and good morning. I think the disclosure on pages 15 and 17 of the supplemental are good, in terms of explaining kind of what creates the drag in the same-store. Can you spend a minute maybe talking about what the walk back up looks like, and what some of those replacement dollar amounts might be as these other leases kick in, and just when that kind of occurs? Like is this something we should expect to see improved by 4Q, or does it fully come in, in 2015? Or can you just put some added color around that?

Sure. Hey, Tony, thanks. Not surprised that's the first question. Thanks for referencing pages 15 and 17 that's actually what I was gong to direct anybody looking into the call to that we wanted to try to get on the magnitude of the same-store cash decline in the first quarter, we want to make sure we provided some additional color to that. And so as you can see on 15 and 17, we talked through the main components of those items and ask everyone to go and look at. But, at the end there is a couple of points on that and then I will more directly answer your question. On those four items on page 15, to talk about the change in same-store cash NOI, three of them are issues that are either sort of one-time timing issues or our issues of leases that had already been fully renegotiated and those leases are going to be commencing either later this year or already commenced and earn free rent periods. And so the vast majority of the downturn same-store NOI or things that have already been addressed. And so if you actually, look at and I know you can't just take out four major items of same-store cash and call it a fair analysis. But if you were to take those four items out, we actually had growth in same-store cash NOI about 5% in the quarter and actually another 5% growth in debt NOI as well. And so as you take this to the next step and look at what – it looks like for the year. I think Bobby said in the last quarterly call that we expected some more in the 5% to 8% down range from a cash same-store for the year, obviously, starting in the…

Yes, I think it does. Is there any way you can give us, on something like 6021 Connection Drive and Aon Center, like those dollar amounts, what are the replacement dollar amounts, once that are up and running?

When you say the replacement dollar amounts, I'm not sure what you mean?

So, losing BP cost you $7.5 million. The vast majority of that is addressed; it just hasn't really made its way in yet. When it's fully in, like how much of that $7.5 million and similarly with the 6021 Connection Drive, the $1.3 million?

I see what you are saying. Well, the vast majority comes back, we have to look it obviously, there is some roll down on the BP lease to some of the other leases and a very minor roll down on the Nokia situation at 6021 Connection. So the numbers won't be fully back of the 8.7 that you are missing there, they won't be fully back that I would say a substantial portion of it will be back starting in 2015.

Okay

Later on some of it comes back, later on in 2014 as free rent periods burn off and then rest of it comes back in 2015.

Okay. And then just a quick follow-up to that. Any thoughts on upping the buyback program just seem to be burning through the existing one.

Yes. I think right now we are probably going to stand back we have been – as we have been looking at this over the last six or nine months, we have been saying, hey, leverage levels getting up closer to where we want sort of where we think of our maximum leverage levels. And so as we think about buyback going forward, it’s always been, if we can sell enough to use as proceeds for buying back shares, we would do so. I don't think we have any plans to increase the buyback program at this point but we saw $37 million left to spend.

Okay. Thank you.

Okay.

Our next question comes from the line of Michael Knot of Green Street Advisors. Go ahead with your question please.

Hey, Don. You know I'm going to ask about DC and Chicago, your two favorite markets. Just curious what change you've seen at the margin and leasing conditions there, if any. And any specific prospects you can cite for One Independence.

Yes. I love talking about that. Thanks. DC I would tell you that we will probably stay on the negative side of what you are hearing from others in that market. Activity level is still very flat but we have prospects for all of our vacancies including One Independence where we got a couple of media companies looking at the building. But I wouldn't tell you that I'm highly confident a lot of those deals are going to get done. And everything has taken a long time right now in DC. I mean, every deal you are talking about three months ago feels like you are still talking about them. As it’s typical in the bottom of a market, the momentum and the urgency to get things done from the tenant side tends to slow and it just take a long time to get things done. Obviously, getting National Park service done finally was a wonderful step for us and will lead to a nice margin step up for that half in the second quarter. But, its still I would say slow, we will knock out some things an the course of the year goes on. But, I wouldn't tell you – I'm not looking for huge momentum from that market yet. Downtime Chicago, we are seeing a little bit more positive activity if we knocked out a few deals in the quarter. We are working on some deals right now that will full up a little bit additional baking space. We are not knocking up big deals yet. There doesn't seem to be any really big ones out there for us. But we got good momentum one-floor-at a type deals. The last thing I would mention to you is, as frustrated as we are with DC and a little bit of a downtime Chicago, its interesting the rest of our portfolio if you take those two segments out is 93% and we think its going to be 95 plus by the end of the year. So it shows you that markets have a lot to do with your success.

Indeed, that's true. Just curious if you can expand a little bit on your comment on property values appreciating. It seems like in some gateway markets, we've seen values appreciate just in the last month or so, or two. Just curious what you're seeing in terms of values and cap rates just here recently.

Undoubtedly Michael, you are right on target. I think the market is just continuing to escalate from a pricing standpoint. I think some of that a lot of it tends to be related to the fact that people more optimistic on rental rate momentum on a lot of those places. And so broken rental rates can drive valuations in a 10-year discounted cash flow. And so that's what's happening, I think on some of those deals. That's remarkable to us as how much people are paying for building and markets where there isn't a lot of rental rate run, like Washington or some other markets that we are familiar with. And its so surprising to us that prices that we are seeing in those places, we can at least justify and understand what's happening in New York and Boston and San Francisco and places like that.

Thank you.

Our next question comes from the line of Dave Rodgers with Robert W. Baird. Go ahead with your question please.

Yes. Good morning. Don, maybe just following up on those comments; talk a little bit about accelerating asset sales. You've seen it obviously in the first quarter. It sounds like there's more to come. But can you talk about more asset sales in the pipeline?

What we are trying to do Dave is find a good balance, I would say we are running out of asset that's not exactly the case, we are running out of assets that are non-strategic for us. We got a few left in a couple of secondary markets, a couple of buildings up in Detroit and one in Cleveland. And so but we really don't have a lot left to do in that realm. We do have a couple of buildings under contract right now that should move out in the next quarter probably another one in the third quarter we would guess. And then we are going to continue to evaluate some of those next tier of assets that we are thinking about longer term as well as they would be good fits for sale candidates. But, we were trying to balance that with growing income stream and things like that. So we're being thoughtful. But, we still think the best buy out there of course, on the buy side is your own stock, but we will also be continuing to chase after the occasional strategic market deal which we think enhance our aggregation strategy in the key markets that we are trying to grow in. So that's what I was thinking about both the buy and the sell side right now.

And I guess with regard to your confidence in the second-half ramp in occupancy, certainly there's a lot that's already been leased, but still has to take occupancy. It sounds like you're expecting some additional leasing as well. I guess the additional leasing, again depending on where it hits, how does that start to impact kind of how you look at cash flows and AFFO going into 2015? Does the ramp in AFFO follow the ramp that you're talking about in same-store results as we move into 2015? And I guess I'll tie in one more thought for Bobby there, is talk about that with respect to the dividend.

So Dave, let me see if I can, there are two or three questions within there, but let me see if I can address them. As we move through the rest of this year, I think we feel like that leasing activities should stay fairly solidly, so far we are seeing pretty good steady activity for portfolio. Obviously, if we don't have success in DC and Downtown Chicago given that additional portion share of our vacancy, then its going to be harder to continue to make momentum in those other markets because we're getting so full in those other places. Having said that, the number I told you earlier the double-digit growth in those same-store cash NOI next year in double-digit property cash NOI per share. Those numbers were basically on virtually no additional leasing through the rest of this year. So to the extent we get a lot of leasing particularly leasing that pays cash sooner than later those numbers should go up from there. And so we are very optimistic about where 2015 is going to look because we don't have a lot of action that have to take place just to achieve those kinds of numbers. The AFFO number is even more compelling because obviously we have been living with the big rollover for three years. The capital that tends to hit in those rollovers tends to get delayed beyond the timeframes of the leases rolling themselves. And so we are still going to be facing a fair amount of capital hitting this year from leases that have been signed going back a year or two or three. And so 2014, as we have said all along, we don't expect to cover the dividend this year. But we expect a dramatic ramp up in AFFO next year because not only are we getting some accounting benefits from all this three rent burning off and rents starting to get paid next year. So you don't have that impact hitting you. But, you also have less capital going out the door as well. So the percentage growth in AFFO next year, we think its going to be dramatic. And probably the last – the answer to the last question is, we are starting to think about whether that means there is a dividend increase on the horizon.

Okay. Great. Thank you.

Our next question is from the line of Young Ku with Wells Fargo. Go ahead with your question please.

Great, thank you. Just had a question regarding the page 6 of your supplemental. The 2.2 million square feet of leases that are in abatement periods, that's a pretty big, sizable increase from 1.1 million square feet last quarter. I was just wondering if you could help reconcile where the big increase is coming from.

Yes. Young that's one actually fairly easy, the vast majority of that's coming from the BP lease expiring in December of last year. And then the Aon, Thoughtworks and I'm trying to remember what else would be hitting half of that. Federal Home Loan I think was already – yes, no sorry, Federal Home Loan had part of that as well. So a part of the increase probably half was related to that one roll over at least.

Shouldn't that already have been reflected last quarter?

No actually, Young, the free rent periods began January 1. The expiration of the BP leases during December and the free rents began January 1st.

Okay, okay. Maybe I can catch you guys off-line for that. Just one for you, if you can talk about your 2015 a little bit further. I know you guys have roughly 50,000 square feet of contraction in National Park, and I was wondering if there are any other potential move-outs or contractions that you see for the year.

Yes. 2015 looks pretty compelling for us because the only two large leases that come up next year are Comcast least from Chicago and an AMD lease in Boston. And we feel confident that those are pretty good situations for us, where we've got good relationship with the tenants. And we are actively talking to them. A number of the other smaller leases that are coming up next year are already in process of renewal. And so we feel really good about our 2015 expiration schedule, obviously, if not big to begin with and then the ones that are coming up, there doesn't appear to be a lot of moves out on horizon for those.

Okay, that's helpful. And one last for me. We've been hearing that the government agencies have been looking to consolidate space. And I was wondering if some of your government tenants have been coming to you to potentially renegotiate some of their lease terms, and so forth.

Actually Young, we were down to only a couple of government leases at this point -- from a GSA standpoint and the one -- the main one is the NASA lease which has 15 plus years of lease term left on it. So no, there really hasn't been any of that type of activity. We have more broadly seen a fair amount of GSA consolidating activity in DC, obviously, that's negative overall for the market for sure. It could be sort of weird sort of way a positive for us because there could be some consolidations that could need a broad or bigger footprint or space. And obviously, One Independence asset could fit that very well but that – at this point that's not imminent.

Great. Got it. Thank you.

(Operator Instructions) Our next question comes from the line of Vance Edelson with Morgan Stanley. Go ahead with your question please.

Hi, guys. Thanks. If you found strategic acquisitions which I know is a challenge, given the capital flowing into the space, would the buybacks take an immediate breather of viewing the acquisitions as a better use of capital? Or would you instead look to ratchet up some of those non-core dispositions kind of the second tier, as you phrased it to fund any acquisitions?

I think more of the latter Vance would be likely strategy for us. Obviously, finding a lot of really compelling stories on the strategic market front is going to be difficult. But to the extent we – we are working on one or two right now that we are optimistic about. But, soon we get those done they probably be funded out of sales or secondary market as if we don't look to try to grow our leverage level at this point.

Okay, got it. And then some of the economic headlines yesterday were that economic growth almost stalled nationwide during the first quarter. Did you feel any sort of macro headwinds during the quarter, versus what you experienced last year? And whatever you did see during the March quarter, would you say that there's been any noticeable changes in April?

That's an interesting question Vance. We really haven't seen it. Actually, I would say economic momentum has been at least strong this year as it was in any time of 2013. I think we have always going to believe, we are at the first quarter number was understated due to a lot of the weather concerns and things like that. We haven't mentioned by the way, I know most of our peer group has, we haven't mentioned that that we had a minor impact to our first quarter numbers from snow removal and increased utility charges as a result of what was going on up there. But, we didn't have a major impact so we didn't spend a lot of time talking about it. But, fortunately because most of our portfolio is in pretty good shape up there, we really didn't have much of an impact. But, I would say the economic question is that, we feel like a market actually is strong as it has been in some time, and feel – absent the Washington DC, challenge – feel pretty good about the momentum in the economy at this point.

Okay, great. And then on the weather impact, I guess it was small, but it was significant enough to call out in the press release. Probably tough to isolate the impact, but can you quantify at all the impact on NOI, for example?

Yes. Well, its little hard to break it down on NOI because you have to go through tenant by tenant analysis on who is in base year and who is in net rent, and things like that. It was an increase of $1.3 million of expenses of which probably a majority of that – half, to a majority of that probably close due to the tenants and we might even half of that. So maybe it's half a penny in impact towards some like that.

Okay, makes sense. Thanks a lot.

Okay.

Our next question comes from the line of John Guinee with Stifel, Nicolaus. Go ahead with your question please.

Great, great. Can you help everyone understand the whole redevelopment process? Maybe, Bobby, if you look at 3100 Clarendon, you're going to put $180 to $200 a square foot into the building. Probably half is base building, and then half is TIs and leasing commissions. If you look at what the DIA, Defense Intelligence Agency, was paying when they left, do you have that number handy, on a gross and a net basis?

Bob Wiberg, can you help us with that? I'm not sure. I think we have that number. It was upper 30 gross if I remember, correctly, John.

Yes.

And I think your numbers are a little high on the overall rework at 3100, but Bob if you want to give him some ballpark, that would be helpful.

Yes. I think our total – we have a break out of it – big building cost versus the tenant work, which really drives the total investment. But I think end of the day we are going to be in that project about 450 a foot, when we complete the whole redevelopment project.

Is somebody chasing you, Bob?

Sorry. No. I wasn't. Yes. That was the fire truck going by.

Yes. That's what they all say. Okay. So what do you think the gross ramp for DIA, you think was in the high 30s and then what do you think it will be – what's your pro forma re-leasing this, sometime in 2015?

Great. Mid-40s on the re-lease.

So essentially what happens is if you're looking this on a before-and-after, essentially I'm just looking at Page 38, and your estimated capital is about $180 to $200 a foot. And the net-net is you think that you can raise your net rents $5 or $6?

Yes. I'd say that's probably right – I could make that comparison to what's the market would be without the redevelopment. I don't know the expiring rent for DIA off-hand.

Okay. And then on One Independence Square, that's most likely – well, maybe it won't go to a GSA, but the GSA is now very LEED-certified, blast-proofing, defense-oriented. What do you think the base building dollar you'd have to spend to get that GSA-compliant? And then what sort of TI leasing commission package do you think it will take to backfill One Independence?

From the interest we have seen so far really have not been any blast proofing that type of requirements associated with the users. We have seen that maybe different of Homelands Security or someone else come along. So we don't anticipate really a large base building project to comply. We have done work in the building which is just to make it appeal more toward the private sector modernization of the facility. But, we don't anticipate a lot more base building cost. The GSA generally does not have huge tenant allowances built into their leases. Now, there maybe additional funding that they have to come up with. But, I think on the GSA side, we probably be in it for another $50 a foot maybe in TIs plus commission.

Does that give them turnkey space, $50 in TIs?

It may not give them. But they may have to come up with some funding on their own, which has happened with other transactions we have looked in.

Great. All right. Thank you.

Our next question comes from the line of Michael Knott with Green Street Advisors. Go ahead with your question please.

I'm sorry. You made some comments on National Park Service earlier. Do you feel like this is a precursor to them vacating the building? Can you just – I'm sorry, reiterate that answer?

I never get into the business of predicting what the GSA will do or an agency because things change for them fairly frequently. I know that at least one of the reasons why they were considering doing a shorter term renewal with us initially was because they just weren't sure whether they were going to ultimately combine into the Department of Interior at some point. I know that there is rumor in the marketplace that they may continue to do that. But I have learned not to traffic in rumors in Washington DC, on GSA tenants, and believe them very closely because those change rapidly. So I think the answer is, I'm not suggesting that we are optimistic we are going to keep them, but we just don't know.

Okay, thanks. And then just to follow up earlier, when I asked about One Independence, I thought I heard you say that there were of couple of media company prospects. I've never thought of Southwest DC as anything other than an administrative, government part of town. Can you help me understand that?

Yes. I think that we are fairly close to the Capitol. And as a result people may not realize that where our buildings are situated. We got a really nice use of the Capitol, One Independence. And media companies like to have proximity to the Capitol. Some of the Capitol buildings don't have the same quality of improvements that we have. And so I think the media companies have been attracted to that proximity and view to the Capitol and things like that. So we have that some of the other buildings that they would look at don't.

So they're not more interested in that sort of Mount Vernon triangle, north of Massachusetts area, on the other side of the Capitol?

They could be – but in some cases they wouldn't get the views they are looking for. And obviously, we have a great big block of space. There a couple of them up in NoMa as well but I don't think they have the same of the Capitol that we have.

Okay. And then one last one for me. Your cousins, so to speak, over at Columbia recently acquired a building in San Francisco at seemingly a pretty low cap rate. I know they were already there, and you're not. But just curious if you – if expanding to San Francisco is something we might see you guys do.

I don't think you will see us expanding to San Francisco any time soon particularly if that's what it takes to get in there.

Okay, thanks.

Thank you. There are no further questions in the queue. So I would like to turn it back over to Mr. Miller for closing remarks.

Thank you very much for everybody. Obviously, we knew we are going to have a challenging same-store NOI discussion this quarter and hopefully we have answered that satisfactorily for everyone. I think the one thing that haven't come up that we spent a little time talking about on earnings call, but want to just make sure we reinforce, as we did a lot of rework at the balance sheet this quarter. And really did a good job of getting a fair amount of that those loans restructured. And did so at the same time by doing some swaps and adding 10x to the NAV of the company by bringing $50 million of swap proceed. So I hope everyone will make sure that they take a look at that because I think we have done a really good job of reladdering the maturity schedule on our debt, and getting some really good, long-term aggressive debt in the portfolio. So, thanks again for everybody's time. We appreciate your interest.

Thank you. This will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.