Greetings and welcome to the Piedmont Office Realty Trust Third Quarter 2016 Earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Robert Bowers, Chief Financial Officer for Piedmont Office Realty Trust. Thank you. You may begin.

Thank you, Operator. Good morning. Welcome to Piedmont’s third quarter 2016 conference call. Last night, we filed our Form 10-Q and an 8-K that includes our earnings release and our unaudited supplemental financial information for the third quarter. All of which are available on our website, 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 by 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 website. I'll review our recent financial results after Don Miller, our Chief Executive Officer, discusses some of the quarter’s operational highlights. In addition, we're 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'll now turn the call over to Don.

Good morning, everyone, and thank you for joining us as we review our third quarter operational results. As you saw seen in our filings last night, the third quarter was an active quarter for us for both the leasing and transactional portfolio, as we continue to make good progress on leasing up currently vacant space within our portfolio and as recycle capital into our each strategic market. I'll start by reviewing our leasing activity for the quarter. It was robust and included activity in all of our major markets. Total square footage leased was over 700,000 feet with almost half of that related to leases with new tenants. The largest individual transaction for the quarter was a 12-year renewal and expansion by Synchronoss Technologies at 200 Bridgewater Crossing in Bridgewater, New Jersey, taking them from 78,000 square feet to almost 120,000 square feet. Our largest number of new leases were in the Washington D.C. and Chicago markets where we have the largest blocks available square footage. In Washington, we completed 11 leases totaling over 180,000 square feet, 135,000 of which new leases for vacant space. This activity includes the technology division of a large multinational company who signed an 88,000 square foot 11-year lease at 4250 North Fairfax in Arlington, Virginia. Also in Arlington, The Cadmus Group signed an approximately 25,000 square foot, 10-plus-year new lease at 3100 Clarendon Boulevard. And in the District of Columbia, The National Association of County & City Health Officials signed an approximately 23,000 square foot, 11-year new lease through 2028 at 1201 Eye Street. In Chicago, we adjust much of our remaining largest vacancy in that market by signing Motorola Solutions to an additional 54,000 square foot, with a new 11-plus-year lease at 500 West Monroe, bringing their total square foot to that building…

Thanks Don. While I'll discuss some of financial highlights for the quarter, I encourage you again to please review the 10-Q, earnings release, and supplemental financial information which were filed last night for complete details. For to the third quarter of 2016, we reported FFO and core FFO of $0.41 and $0.42 per diluted share, respectively. This is comparable to the same metrics last year despite the sale of 12 assets since July 1st of last year for a total $1.2 billion, which included by the way the sale of Aon Center and the loss of its $0.20 per share FFO contribution alone. The decrease in FFO associated with those sales has been offset by the growth in income from our remaining property, as well as, the acquisition of seven replacement assets for total $570 million over the same time period and reduction in both our average outstanding debt and our weighted average shares as a result of our stock repurchase program. Those shares, however, were repurchased during the third quarter. AFFO was $50.5 million for the quarter, comparable for the third quarter of 2015 and well in excess of our dividend payout rate. Same-store NOI for the third quarter of 2016 was 4.5% compared to the third quarter of the previous year, primarily driven by the commencement of new leases and the expiration of rental abatement. We continue to pay down secured debt during the quarter, repaying a $42.5 million maturing mortgage with proceeds from property sales and from our line. Our average net debt to core EBITDA ratio was 6.4 times for the quarter ended September 30th, down from 6.9 times at the beginning of year. Now, turning to our forecast for the year regarding our estimates, we're raising our previously issued annual guidance for 2016 to a range of dollar $1.64 to $1.66 per diluted share for core FFO. This has resulted from stronger income growth and our same-store portfolio, slightly under-budget G&A expenses, and in the timing of our acquisition of disposition activity. We'll follow our usual practice of issuing formal guidance for 2017 during the first quarter of 2017 after we completed our annual budget process this December. However, from a broad perspective, we should see continued growth in our same-store portfolio offset by the FFO impact of any sales. We project continue to be a net seller in this environment, but of course, strategic acquisition opportunities are hard to forecast in both their timing and the volume. I'll now ask the operator to provide our listeners with instructions on how they can submit their questions. We'll attempt to answer all of your questions now and we'll make appropriate later public disclosure, if necessary. Please try to limit yourself to one follow-on question, so that we can address as many of you as possible. Operator?

Thank you. At this time, we'll be conducting question-and-answer session. [Operator Instructions] Our first question comes from the line of Jed Reagan with Green Street Advisors. Please proceed with your question.

Hey good morning guys.

Hey, good morning Jed.

I'm sorry if I missed this, but can you just provide a going in cap rate for the Atlanta and Boston acquisitions?

Yes. The going in cap rate let see -- you're talking about cash cap rate not GAAP yield, right?

Correct. Maybe both.

Give us a minute. We'll pull that up. If you have a follow-up question, we'll pull that up while you're looking.

Okay. Can you talk a little bit more about any assets you might have out in the market for sales? And then maybe just in general how much is left in the portfolio at this point that you'd consider clearly non-core?

Yes. We -- its sort -- those are sort of hard definitions because I think things change over time, obviously. We have mentioned about $800 million that we're looking to sell over the next couple of years, some of which I would think we would call non-strategic, some of which we would still think as -- of as in our strategic markets, but opportunities to realize maximum value. So, it’s a little bit hard to sort of distinguish what's core and what isn’t. I mean for example there's been things rumored in the marketplace right now that clearly wasn’t our strategic plan, but our -- we think we've maximized value on. And so that's a little bit harder to set. I would say $400 million to $500 million, but I'm slagging it admittedly Jed.

Okay.

The cash cap rates going in on the two deals are sort of seven on Galleria -- around seven on Galleria and around -- a little higher than that on Wayside. But the GAAP yield is meaningfully higher. I think we reported almost a GAAP cash rate on Wayside and a little under seven going in. Galleria is a little odder because part of the reason for that price per pound being solo was that there were some free rents on the major tenant lease to begin with. So, if you look cash cap rate first year, its low single-digits, but if you look at a GAAP cap rate, when you bet in that free rent, it moves up into the seven range and then a stabilized cap rate is probably closer to nine. So, it's sort of -- you almost get three numbers because of that free rent.

Okay, that’s helpful. And then, just one more if I may, what are you seeing on the general trends from larger corporate users these days? And would you say there’s been any change in the sort of decision making process from that group of tenant this year?

I would say the activity level seems to be comparable, but I would say the decision-making process seems to be slower and I think we can all suspect that may have something to do with the election and worries about interest rates and things like that. I'm not sure we’ve come to a definitive conclusion of what our assessment of that is, but it seems like the decisions are taking a little longer to be made, but there's still a reasonable amount of activity level out there.

And that would be slower versus last year, what say or--?

Yes, slower stay versus 2015.

Great, that’s helpful. Thanks, guys.

Okay.

Thank you. Our next question comes from the line of Michael Lewis with SunTrust Robinson Humphrey. Please proceed with your question.

Thank you. Good morning. So, you list out there’s four leases here that are more than 1% of your revenue each expiring through 1Q 2018. They are all in different markets. It looks like all four are giving you back substantial amount of space, so what should you tell us that in terms of what you expect for downtime potential capital needed or is it too early maybe to give those kind of estimates?

Well, it’s not, but each story is sort of different one. It would, probably Michael take, quite a while to go through, but if you think about -- so Towers, so just really quickly Towers Watson, is giving back 125,000 feet next year that gives us a block of 150,000. Wiberg is on the phone. Glad to have him give some color. I think we would tell we think that’s the best block of space certainly in the Boston, but maybe in all Arlington in terms of quality contiguous space. So, we feel good about that. So, when you feel good about it, you probably suggest there’s six to 12 months downtime and then obviously some free rent after that. The National Park Service likewise in the district, and a high quality building. We've already leased some of the space. This is the remaining space is yet to be leased. Activity level is good. They depart in the third quarter 17 and similarly because we feel good about where things are there, that’s probably a six to 12 month downtime after on average after they depart. The Galleria situation is different in that, they are already moving the substantial part of that operation out of the building soon and we are working together to try to get that space leased to hopefully ameliorate some of their costs before they leave, but also them that would also help us potentially with downtime thereafter. So, a lot of it depends on how much activity we get going forward on that space between now and obviously the time that the lease expires. So, I think it will be some component of that that will have no downtime; in fact, we've already done 20,000 foot lease that took one floor of that space with no downtime. And then, there will some that will have downtime and I say that market is slower than the other two I have mentioned already, so maybe you apply for the part of the space that we get back without having already leased it that will have little more downtime, so let's say 12 to maybe a little more than 12 months. And then Goldman Sachs space, we're not sure it’s leaving yet. They have not signed a lease that we’re aware of anywhere else, but they have indicated and it’s been reported in press that they may be moving to downtown to a building there. There's a lot of things that have to happen for that to work well, but we did want to have that in the press and Dallas that they are leaving and have us not acknowledge it, but we don’t have full knowledge yet of what exactly that’s going to happen there and what the timing of that is. So, it's harder to make estimate on that.

That’s very helpful. Did I -- so, you guys have just one mortgage maturing in 2017, did I just hear Bobby say that you intend to just pay it down or is there going to be refi there?

So, the intention would to be to pay that secured loan off.

Okay. I thought so. And then, just my last one is on leasing at the two developments that are in lease-up. I was in use in the Enclave, talked to some brokers, The Enclave sounds like a great building, obviously, in a tough market. Is there a point where in 2017 do you have to bite the bullet or are you seeing signs of maybe a little bit of improvement, are people poking around that asset? And then on 3100 Clarendon, it looks like there's been some activity may be you can talk a little bit about that as well?

I think clearly we're more optimistic on 3100 Clarendon. We are already seeing nice progress. I think we're in the -- for the office tower, we're already in the 45% range, but got that correct, signed another -- nice lease this quarter and we're seeing there's lot of good small tenant activity in that building. So, we feel like we'll make nice progress on that. So, that's one that we have spent a lot of time being concerned about. The Enclave building probably a different situation all together. There's virtually no activity in the Far East part of the corridor in Houston. Obviously, all of Houston is very difficult and so we're just going to continue to try to be creative in ways to -- is there a seller -- or a buyer that comes along, they want to own the building as a user or is there a synthetic lease that could be done or is there a way to expand existing tenant we got next door, whatever. So, we're working on all those options, but as I've told you in the last couple of quarters, I wouldn’t start plugging in income streams from that asset anytime soon.

Thank you.

Thank you. Our next question comes from the line of Dave Rodgers with Robert W. Baird. Please proceed with your question.

Yes. Good morning, guys. May be Don or Bob could tackle this, but may be a little more color on the D.C. market. I mean it seems like everybody that operates in DC feels like the market is definitely getting a little bit better and strengthening a little bit. But is that just a relative to where it was or is that relative to what you are seeing in the rest of the country and may be some incremental examples will be helpful.

So, I'll throw that to Bob, but just to lead-off I would say, we frankly have exceed our own expectations this year in terms of whacking away the activity that we're getting done. 130,000 feet of new leases in one quarter is pretty nice chunk of space to knock out. However, we do have couple of spaces coming back to us. So, we're going to have to -- its sort of two steps forward, one, one and half steps back. But I think, overall, we do feel like activity is picking up particularly among associations, technology companies, and to a lesser degree, we're starting to see some government activity as well again for the first time in a while. So, Bob, do you want to give more detail to that color?

Sure. I think we're continuing to see good job growth numbers here which is a building block for absorption. About half of the new jobs are office using. So, that's a positive as well. But the offset like with our Towers Watson deal is a lot of big tenants are compressing. And so you advance on one side with some job growth and you -- some of that is taken away by the densification. But I'd say, overall, we're feeling better about the properties. The RB corridor is pretty active on the tour side right now and as Don mentioned in the Southwest, which have been dormant, we're definitely seeing more activity in that sub market and then our buildings in the east end have always had pretty good activity and we continue to see that.

Goes without saying Dave that obviously concessions are high and -- but base rates have held and so I think that sort of -- hopefully that gives you a good summary.

It does. And may be just to touch on the asset sales. You kind of addressed I think the strategic versus non-strategic and I think you said $400 million to $500 million, but would you put like 500 West Monroe now that you've stabilized it in there in that bucket or something you might want to move out?

No, I don’t think so yet. There's certainly lots of term left in leases in that building and as you've seen, if we were to ever consider putting something in the market, it usually means we're -- it's either non-strategic or we feel like we have gotten the lease terms down close to that 10-year mark. As we told everybody in the market, we don't see a lot of change in cap rate from the 10 to 12 or 13 -year mark in most assets. And as a result, we like the hold them from 13-year term hold period down to closer to 10 before we want to sell them because we think we capture the income without paying the price on a cap rate basis. So, we're probably not inclined to do anything with that asset anytime soon. And frankly it's been a great asset for us. It's worked really well and it’s a pretty core holding in some respects. So, I don't think that’s an asset we'll put on the market anytime soon.

Okay. Thanks. Last question may be for Bobby, I think the economic lease percentage had a nice recovery in the quarter up quite a bit. And I guess so the question ultimately is that going to kind of make its way in the same-store cash NOI to AFFO or was that impacted at all by the asset sales? And thanks.

The economic lease percentage actually grew because of the abatements burning off. Now, what I'd originally projected that it would narrow down the two or three. With all those leasing activity, I think it's going to stay maybe a 5% GAAP to our overall occupancy for the next year or so.

Okay. Thanks guys.

Thank you. [Operator Instructions] Our next question comes from the line of Barry Oxford with D.A. Davidson. Please proceed with your question.

Great. Thanks guys. Real quick, getting back onto the development, you guys are going to be consolidating that Jan 1, does that mean the pro rata interest from the capitalized interest is going to be running through the P&L, is that how to think about it?

Yes, that's correct. So, what we thought we try to do is since the -- and I know not everybody does it this way, but since we're fully Op-Coed [ph] on both 3100 Clarendon and Enclave and have been actively trying to market them for some time with obviously some success of 3100 Clarendon and no success with Enclave, we felt like the only thing -- right thing to do is bring them in to the same-store pool starting January 1st, 2017. Then on top of that, the 500 TownPark asset that is scheduled to deliver it's -- we think we'll get a CO in the next few weeks in Orlando and so the tenant will then be obligated to commence and before the end of the year, we believe and as a result we might as well go ahead and put that into the same-store pool since its 80% leased. So, I know a lot people -- others wait a little longer to do that and keep capitalizing expenses. We just didn’t feel like that's the right thing to do, so went ahead and throw them all into the pool right away.

Okay, great. In 2017, do you guys see starting any new developments?

I think the best opportunity we would have would be substantial preleased opportunities in the Southeast where we are chasing build-to-suit activity Orlando, Atlanta, to a lesser degree, Dallas, we're seeing activity in each of those markets, but I would say Orlando is probably the highest chance of opportunity and we're actively pursuing multiple things along those lines there. So, yes, it's possible, but I wouldn’t say we would say that's the highest -- really high likelihood.

Right. Thanks guys. Appreciate it.

Sure.

Thank you. Our next question comes from the line of Anthony Paolone with JPMorgan. Please proceed with your question.

Thanks. Good morning. Just basically following-up on Barry's item about the couple of developments and the redevelopment coming in and perhaps maybe being a drag into 2017. I guess in the flipside, you also have very little lease exposure compared to prior years. What do you think the sort of net of that is as you look out into next year? I understand you haven't given guidance yet, but just trying to understand how manageable that drag is against the opportunity to lease in a low expiration year?

So, Tony are you -- are you asking for occupancy, same-store, or FFO?

Really earnings I guess when it comes down to some of the drag less interest expense.

Yes. So, I think if you look at our early takes, and obviously, we're not providing guidance for next quarter or maybe early than that. But I would say our early take is if we were to sort of stand path with where we stand today, we've got a pretty nice growth in FFO going into next year. However, as a respective net sell or going into next year, it's possible that we sell enough that we may not grow FFO next year meaningfully because of the number of sales activity. So, a lot of it depends on how much net sale activity we get done. But I think our range is no worse that we are for this year and maybe a pretty nice growth pattern if we don't get a lot of dispositions done.

And you say no worse than this year meaning just the level of earnings, not necessarily the growth rate--?

Correct. The absolute level of earnings. But obviously, if we only maintain our level of earnings in 2017, our balance sheet will have improved dramatically.

Right. And I know these things can change and you still have a few items, but just any -- like when do you think you'll come to any major conclusions on sales in terms of whether it’s a bigger number, smaller number?

That will be a sort of a series of events over the course of the next six months as we have things in the market and they either get done or they don't. I think you probably gotten a pretty good feel for how we go about those things now. If we feel like we've gotten our price, we'll sell it, if we don't, we'll back it off. But we have a pretty steady flow of things coming to the market over the next six months and that will probably indicate how successful we'll be in that process.

Okay. Thank you.

Thank you. Mr. Miller, there are no further questions. At this time, I'd like to turn the floor back to you for any final remarks.

Well, thank you Mellissa. Before everyone drops off, just one thing I wanted to announce in addition of going to NAREIT in Phoenix in a couple of weeks, so those of you who have not contacted us yet about a time, we would be glad. We still have a few things -- few times open, so we'd be glad to try to fit you all in. But maybe more importantly, we're going to try to do an Orlando Investor Day, the day after Martin Luther King Day in January, so, January 17th and 18th. We may have a co-host on that and some of you -- most of you should be getting an announcement on that event here in the next week or two. But we plan on touring everyone through our downtown assets and thinking about the Lake Mary and showing them our build-to-suit and other activity going on out there. We hope it will be a very good use of your time and we too want to get it on your calendar early. So, you should be getting a save the date in the near future. Thank you for attending the call. And we look forward to catching up with everyone. Have a good day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.