Greetings and welcome to the Piedmont Office Realty Trust Fourth Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode [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. You may begin.

Thank you, operator. Good morning and welcome to Piedmont’s fourth quarter 2015 conference call. Last night, we published our quarterly earnings release and we filed a Form 8-K containing our un-audited supplemental information. Both are available on our website under the Investor Relations section. On today’s call, the company’s prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters which are subject to risk and uncertainties that may cause the actual results to differ from those we discuss today. Now 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 risk associated with forward-looking statements contained in the company’s filings with the SEC. In addition, during this call, we will refer to non-GAAP financial measures such as 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. I will review our financial results after Don Miller, our Chief Executive Officer, discusses some of the quarter’s operational highlights. In addition, we are also 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 will now turn the call over to Don.

Good morning, everyone and thank you for joining us as we review our quarterly financial and operational results. We continue to exceed our own expectations for leasing and capital recycling in the fourth quarter of 2015. Our comments today will also include our expectations for 2016 and certain assumptions in arriving at those estimates. The fourth quarter’s leasing activity totaled over 800,000 square feet, which brought our total 2015 leasing to more than 3.1 million square feet. As a result, we soundly beat our internal objective of being over 90% leased by year end 2015. Indeed, this year’s leasing has resulted in overall occupancy gains and a year end lease percentage of 91.5%, up from 87.7% a year ago. Also noteworthy is that the majority of the new tenant leasing activity during the fourth quarter centered around vacancies in our Washington D.C. portfolio. I want to acknowledge the hard work of our D.C. based property and leasing teams and the assistance of our new board member, Barbara Lang, the former Head of the D.C. Chamber of Commerce with numerous valuable professional contacts in the area. The Washington, D.C. leases signed during the quarter include the District of Columbia’s 102,000 square foot, 12-year lease at One Independence Square; also at One Independence Square, the Federal Mediation and Conciliation Service is approximately 35,000 square foot, 15-year lease; and MakeOffices’ approximately 40,000 square foot, 12-year lease at 3,100 Clarendon Boulevard in Arlington, Virginia. Our largest fourth quarter renewals included a 7-plus year extension with First Data Corporation for approximately 194,000 square feet at our Glenridge Highlands Two asset in Atlanta; a 10-plus year renewal and contraction with Comdata Inc. for approximately 135,000 square feet at our 5301 Maryland Way asset in Nashville; a 4-year extension with BSH Home Appliance for 67,000 square feet…

Thanks, Don. While I’ll discuss some of the financial highlights for the quarter, I encourage you to please review the earnings release and supplemental financial information, which were filed last night for more complete details. For the fourth quarter 2015, we reported FFO and core FFO of $0.41 per diluted share. That’s increases of $0.01 and $0.02 respectively over those same metrics in the fourth quarter of 2014. Primary drivers for the improved results were the commencement of several significant leases and the expiration of various operating expense abatement periods. General and administrative expenses increased in 2015 as a result of accruals for potential performance based compensation. These accruals relate to improved financial and operating results in the year as well as better relative total stock returns under our 3-year stock performance plans, which included a non-recurring catch-up accrual for prior periods of approximately $1.5 million recorded during the year. I will note as we stated previously, our general and administrative expenses, specifically the compensation expense will fluctuate and will be heavily correlated to the company’s overall performance. Leasing activity that was executed in the fourth quarter that Don mentioned resulted in an approximate 4% increase in cash basis rent and a 15% increase in accrual basis rents, which will benefit future operating results as we head into 2016. Cash basis same-store NOI increased approximately 9% for both the fourth quarter and for the year. I will also note this increase would have been 11% if Aon Center was added back in. Cash NOI is expected in 2016 to increase in a range of 3% to 5% depending, of course on our disposition activity during the coming year. The reported leasing percentage at year end was 91.5%, up 3.8% from a year ago. Included in this percentage are 600,000 square…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jed Reagan from Green Street Advisors. Please go ahead.

Good morning guys.

Good morning Jed.

You mentioned the $200 million net selling target, are you able to break that down between dispositions and investment opportunities, acquisitions or development starts?

Yes. Sure glad to do it, Jed. We – I think we have got $500 million to $600 million budgeted for dispositions and we will call it three to – a little more than that for acquisitions. Obviously, you never know when the acquisition side will materialize. So you just sort of throw a marker in there. We do in our own budget have the disposition sort of disproportionately budgeted towards earlier in the year and the acquisitions sort of later in the year, which probably was a little dilutive to our earnings for the projections for the guidance, but that’s sort of how we look at it for the year.

Okay. And can you give a little flavor on the types of opportunities on the acquisition side, you might be most focused on and maybe how you kind of stack that up to alternative uses, additional debt pay downs or share repurchases?

Yes. I would say in descending order, debt pay down is our first priority unless the stock just got extremely compelling again. And then that might move a little above the debt pay down on in terms of order already, but I would say they are 1A and 1B and acquisitions would be priority two. The acquisitions themselves would be things that are very strategic to what we already own, probably very much like the one acquisition that we announced at the end of the quarter, the Glenridge Highlands One building, which was the little brother to our Glenridge Highlands Two building we already owned and allowed us to control that entire park, including the land parcel there. So those kinds of things would be the things we are going to be focusing our attention on. You are probably not going to see us entering a new market or doing thing that’s very different than what we already have today.

Okay. And I don’t think I heard cash same-store NOI outlook for 2016, are you guys able to provide that?

Cash NOI outlook, no same-store we mentioned 3 to 5. You are talking about property – cash property NOI?

Yes.

Let’s work on that just for a second and I will try to answer it for you. The other thing I was going to mention on the acquisition side is we don’t have any share repurchase budgeted in the numbers that we forecast for guidance for the year. So we are not assuming we are buying back any shares.

Alright. Just to be clear, I did mean same-store NOI growth, did you say 3 to 5, Don?

Sorry. We said 3 to 5 in the script.

Okay, sorry. I must have missed that, my apologies.

That’s heavily dependent on the timing of dispositions and acquisitions as you can imagine.

Okay. Thanks. And then just lastly, Don you mentioned seeing some slowing in the leasing markets early this year, I am just wondering if you can give a little more color on what you think is driving that, where you see that happening the most and then maybe what kind of tenants or size of tenants or industries of tenants you might be seeing that more than others?

Yes. I would say starting mid-December, we saw just new activity slowdown. Well, that’s very typical in mid-December, the latter half of the month is typically very slow. And usually start to see the new activity start coming out of second week of January. I would say we have seen a slower list of tenants popping up as new opportunities. Those are the things that don’t end up getting signed for two quarters or three quarters typically. But we are not seeing as many new opportunities. Some of that is just because we are better leased than we have been in a while and so there is fewer vacant spaces to fill. And then the other part of it I think is just a little bit of a slowdown. And I would say it’s relatively across the board. Obviously, Houston is – that is the doornail, but in D.C. is improving but not improving as rapidly as we would like it to be, but it is getting better. And then I would say across the board, the Atlantas, the Dallases, the Phoenixes are all – Austin, those are all pretty active, steady, but not spectacular.

Okay, thank you.

Thank you. Our next question comes from the line of Dave Rodgers from Robert W. Baird. Please go ahead.

Hey, good morning guys. Just wanted to maybe ask a little bit more on the disposition side. I heard you say $500 million to $600 million. Does that include California? And is that something you are looking to exit all at once or on a one-off basis? I guess, a little bit more color on the California sale would be helpful.

Sure. I will start and Ray may jump in. So, we have got all four buildings in the market for sale as we speak. We decided to go with individual marketed packages with the idea that if there is a buyer who wants to do more than one or the entire package, we are going to coordinate putting them together at the centralized level here in Atlanta. But – so East Hill, JLL and C&W are all individually marketing individual buildings in that package and we expect to take offers in the next week or two. And as a result, we should start to get pretty good sense of where things are coming together over that period of time. We are still very optimistic. L.A. is very strong. Rents are still growing there. Capital market activity seems good. So, we remain very optimistic on that sale, but until you get the bids and you never know for sure.

And then I guess on the acquisition target of about $300 million, is that because you feel really good about the opportunities out there? Is that purely just a function of 1031 and need indeed that money back out into the market?

Yes. There is actually no need to get any money out from a 1031 standpoint. As you may have heard in the call, we did some reverse 1031s on some of the dispose that we did – sorry, some of the acquisitions we did at the end of last year. So, we are pretty well covered on some of the disposition gains that we expect to deliver out of Los Angeles. And so as a result, there is no pressure to do any acquisitions. So, our budget is like I said earlier it’s just a marker. We don’t know what’s going to happen during the course of the year. That’s why we back-ended it a little bit. We expected if pricing does get more attractive we will be more active. If pricing doesn’t get more attractive, we may not be as active and maybe we will be a bigger net seller than the $200 million, but that’s so hard to tell at this point in time given where we are during the year.

Okay. Maybe one more on development, I know you have got a couple of parcels, Glenridge is one, I think you have got some in Dallas as well. Have you thought about any additional development starts? Are you penciling anything out for this year or is that going to be a longer term focus?

It’s going to continue to be a longer term focus, but I would say, the development activity is going to be almost exclusively build-to-suit or largely pre-leased that I was going to say the places that we are most active right now would be continuing to be in Orlando. We are seeing a lot of good activity in our land there. George Wells, our head of our region here in Atlanta is working on some things in Atlanta, but I think they are probably a little further off and we also have some things in preliminary stages in Dallas, but I would say very unlikely you are going to see much in the way of now, maybe we had another deal down this year, but it’s not going to be a flood by any stretch of the imagination.

No spec?

And no spec.

Okay, great. Thanks, guys.

Sure.

Thank you. [Operator Instructions] Our next question comes from the line of Steve Manaker from Oppenheimer. Please go ahead.

Hi, good morning. This is Amit Nihalani with Steve. And my question is pertaining to the dispositions and acquisitions are you able to comment on the expected cap rates on both dispositions and acquisitions?

Yes, be glad to. I think that as we budget acquisitions and Ray might have to help me a little bit here, I think we are expecting cap rates in the 6s and FFO, initial FFO yields probably in the low 7s, Ray, is that about right?

Yes, high 6s, low 7s.

High 6s, low 7s on the acquisition side. I would say depending on what assets you are selling, you would see cap rates all over the board, but I think without being too specific about what we are expecting on our L.A. assets, we think cap rates will be very low on that portfolio, not only because those assets are very high-quality but also because the rents are well below market there. So, we would expect much lower cap rates going out on those dispositions. And then if you go to the other end of the extreme maybe a Detroit, you probably see acquisition or disposition yields above what we are buying property at, but not materially as a lot of those secondary markets have improved quite a bit. And if we are successful in selling a couple of Detroit assets probably a little bit above what we are expecting on the acquisition yields, but not dramatically.

Great. And just one more question regards to 2016 guidance, can we expect G&A to be similar in 2016 as it was in 2015?

Yes, if we were doing a model, obviously, it doesn’t flow in evenly throughout the year due to when we issued stock things like that, but I would model in about a 7, 7.25 per quarter, so that would put you around $29 million for 2016 G&A.

Got it. Thank you. That’s it for me.

Thank you.

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I would like to turn the floor back over to Mr. Miller for closing remarks.

Well, again thank you so much for attending the quarterly call. We, as you can tell, we are very enthused about how things have been going here. The markets continue to be have winded our back and it’s been a nice time to be a office REIT, which is we can’t always say throughout the cycle in our business, but we continue to see a lot of opportunities to create value for our shareholders and we are thrilled you are part of that. So, thank you for participating. Have a good day.