Greetings and welcome to Piedmont Office Realty Trust Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Mr. Robert Bowers. Thank you. You may begin.

Thank you, operator. Good morning and welcome to Piedmont’s fourth quarter 2017 conference call. Last night, we published our quarterly earnings release and filed an 8-K containing our unaudited supplemental information. Both of these items 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 risks and uncertainties that may cause 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, dividends 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 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 recent financial results after Don Miller, our Chief Executive Officer, discusses some of the quarter’s operational highlights. We are also joined today by our entire senior team who will participate as appropriate during the question-and-answer portion of the call. At this time, it is my pleasure to turn the call over to Don Miller.

Good morning, everyone and thank you for joining us on our fourth quarter 2017 call. This call will be a bit different from previous earnings calls given that we have executed the large portfolio sale of the beginning of January and therefore many of our corporate metrics for year end are already obsolete. As a result, we will attempt to be very clear on our communications today to share context for each of the measures that we provide. We want to thank those of you who attended our Las Colinas investor presentation at the beginning of NAREIT in Dallas in November. We hope we achieved our objective of demonstrating the execution of our strategic plan to own assets in high-quality submarkets, or job and rent growth is elevated, corporate presence is strong, amenities are abundant and where Piedmont can succeed based on our operating strength, cost of capital and competitive advantages. Turning to the portfolio as first announced in Dallas, we entered into two binding contracts during the quarter to sell 14 properties, which ultimately closed on January 4, 2018. The total gross sales price was approximately $426 million, with the potential for an additional $4.5 million depending on whether certain leasing activity is completed during the early part of 2018. During the fourth quarter of 2017, we recorded an impairment charge in certain assets in these transactions when we move the assets to the held-for-sale classification on our balance sheet. The nearly offsetting gains will not be reported until we released results for the first quarter when the transaction is closed. I would like to thank Brent Smith and our entire team for their tireless work throughout the third and fourth quarters to ensure these successful transactions. During the fourth quarter, we commenced redeployment of the anticipated disposition proceeds…

Thanks, Don. Well, I will discuss some of our financial highlights for the quarter. Again, I urge you to please review the earnings release and supplemental financial information, which were filed last night from more complete details. For the fourth quarter of 2017, we reported FFO and core FFO of $0.42 per diluted share compared to $0.44 per share for both of those metrics a year ago. Despite being a large net seller during the year, FFO and core FFO for calendar 2017 were both the $1.75 per diluted share and $0.08 per share increase over the year ended 2016 and reflecting the organic growth embedded within the portfolio. AFFO was approximately $43 million for the fourth quarter of 2017 and $200 million for the year, about $80 million above our normalized dividend. Same-store cash NOI was up approximately 9% for the year, 4% for the quarter and up 6% annually on a GAAP basis, 3% for the fourth quarter. This healthy growth was primarily driven by the commencement of new leases and expiration of rental abatements. As Don mentioned for completed leasing activity during the quarter, cash and GAAP rent rollups increased approximately 21% and 25% respectively and have more than 10% and 16% respectively for the year. As disclosed in our quarterly supplemental information, after the close of the 14 property disposition on January 4, our overall lease percentage was approximately 92%, which is comparable to the beginning of 2017 when three completed development projects were placed in service on January 1. Using the proceeds received throughout the year from dispositions and our line of credit, we funded the acquisition that Don environment repurchased our own common stock at what we believe is a substantial discount to our NAV, strengthened our liquidity position and lowered our leverage. Our…

Thank you. At this time we will be conducting the question-and-answer session. [Operator Instructions] Our first question is from Jed Reagan with Green Street Advisors. Please proceed with your question.

Hey, good morning, guys.

Good morning.

Good morning, Jed.

Hi, is there anything else on the disposition docket for this year and just curious how you are thinking about the acquisition or perhaps new development opportunities this year versus additional share buybacks?

Yes. So Jed, heading into the year, we had a handful of products we are thinking about selling in 2018, it still are, but obviously with what’s happened with the capital markets last couple of weeks, we are taking little bit of a pause, want to watch and see what’s going to happen there, see if that provides anymore opportunities either on the buy side or impacts pricing up on the sell side that we might impact our thought process. But I think initially with the lease we were thinking there is 3 or 4 projects we are probably planning on bringing to the market early part of the year. And like I said we are going to wait a few weeks to decide whether we are going to still move forward with those or not. On the acquisition front, we are seeing a handful of opportunities. As you know, we are always very focused on just a smattering of buildings that are in the markets that we are trying to acquire in and then we do have some development activity mostly build-to-suit related in Orlando, Atlanta and Dallas that we are chasing. But as you know, we tend to be fairly stringent in our requirements and what we are prepared to do there both from a credit standpoint and a return on cost standpoint. So, we tend not to be as aggressive on lowering our return on causes as others might be.

Okay, that’s helpful. And in the order of magnitude, the 3 or 4 potential disposition candidates you mentioned what sort of dollar value could that amount to?

Let’s see – sorry I am going to look at my schedule here.

I think we are thinking…

This is Brent, Jed. I think we are thinking somewhere in the neighborhood of probably 200, 250 million of disposed this year, borrowing some of the points that Don made around disruption on the capital markets that might impact that.

And those would definitely be in one of the 8 core markets. I think where still potential markets or maybe the kind of outlying markets?

Those would definitely be in one of the core market. I think where we still see potential opportunities that have matured and are at point where they’ are ready to push out of the portfolio. And we find other opportunities that are more compelling to create value as what ways in on that factor.

Okay, that’s helpful. And then just in terms of the share buybacks have you done any so far this quarter that you can talk about. And then how are you thinking about kind of that option versus external growth as we sit here today?

Well, obviously, we believe our NAV is substantially above our current share price, particularly in last week or so, but you saw that we were a fairly active acquirers in the fourth quarter, in the 19s, stock has been in the 19s and 18s since then, so you can imagine that we might be continuing to be an active acquirer and we think that the opportunity gets that much more compelling given where the stock is trading today. So we are pretty excited about that and don’t see that there is very many opportunities on the buy side, they could possibly match the ability to buy our own stock at today’s levels. In fact, I think we all collectively around the stable office REITs in general, not just Piedmont or its incredible value right now.

Jed, I would add to that, I think we feel fortunate to be in a position where our balance sheet is very strong, so we can buy our own stock utilizing the dispo proceeds that we just brought in the door here earlier in January. And I will sort of continue to look for the right strategic opportunities to acquire it.

Okay, that’s helpful. And then maybe related to that just one other for me, you are now near 5 times debt to EBITDA and 30% net leverage post the portfolio sale. Kind of going forward, what sort of range do you intend to operate in for both those metrics?

I think that’s probably on the low end of where we will be operating in the near future and particularly for no other reason you think about the fact that we might be buying shares back that might push your leverage level up a little bit, but as you know we are always committed to keeping leverage levels at a very modest level or below and we are very happy with where we are today. So we are not anxious to necessarily put capital out just for the sake of putting it out, it has to be pretty compelling reason to do so.

Maybe 5 to 6 and 30 to 40 just to kind of pick a range?

Yes, I mean I think 40 would be way on the high-end at this point, maybe 30 to 35 and 5 to 6.

Okay. Thanks a lot guys.

Our next question comes from Dave Rodgers with Robert W. Baird. Please proceed with your question.

Yes, good morning, guys. Maybe a couple of questions on leasing, lease economics definitely were stronger in the fourth quarter, I don’t know if that was just purely driven by Boston and Dallas you are seeing broader economic improvements in kind of your leasing activity, so I was curious on any comments there as well as on the RB Corridor you started to show a little bit more signs of like there and any additional comments about how much more activity might be seeing in the RB?

Okay. Thanks Dave. I will try the national side and then let Bob Wiberg jump in on Washington if he is prepared to do so. On the national basis it was – the lease economics obviously were fantastic in the fourth quarter. It was largely driven by a couple of deals namely the Raytheon renewal when we bought that project we knew it was well under leased. And as a result of doing the renewal with Raytheon, we are able to get really compelling economics from a rollup standpoint, so that was contributing. But that’s part of what we have been communicating for some time is that we have fairly lumpy lease economics as we do some of these large leases and as a result some quarters will look unattractive, other quarters will look very attractive which you have to look at sort of long-term trends in our numbers. And that’s why we try to point out in the script that we have done three straight years of double digit plus GAAP rent rollups and positive cash rent rollups. So, we think we have pretty good story to tell there. I would throw it to Bob and let him talk about what we are seeing in Washington DC.

Sure. I think on the RB Corridor, we are continuing to see good activity that we saw in the fourth quarter as well. And we have seen the activity across all that three buildings there that I think are really well positioned for that market. The tenants that we continue to see are mostly technology, media or big data tenants. And the thing that’s I think positive is that we are seeing more urgency among the tenants in actually getting some deals done. Beyond that I think if this budget still gets through in Congress that will help certainly because that will fund some of the defense contractors who really have not been in an expansion mode at all up to-date. Meanwhile, I think that DC remains slow, is a bit more active than it was, but it’s still slower than we would like.

Great. Thanks for that color Bob. Maybe to you on the same-store, can you restate what your same-store guidance was or is for 2018 and any additional changes beside Pierce Place to the pool that we should kind of be aware of whether it’s on clave or something else moving in and out of the pool?

Sure to your first part of the question, you asked what was the same-store guidance, our cash same-store NOI growth is 2% to 5%, on the GAAP side it’s 1% to 4%. And it does include all of our existing assets except what as I noted the Two Pierce Place asset where we are really trying to be fully transparent and tell you we don’t frequently classified asset in redevelopment. I think –as I think back we are in our ninth year now as a publicly traded company and this is only the second time we have moved an asset to redevelopment stage, but with the vacate of Gallagher after 20 years, we have got an opportunity to redevelop and improve the multi-tenant prospects and the revenue potential of that asset, but because of the work that’s being done it will differ the lease up of the building.

Okay, great. And the last one, just wanted to follow-up on Jed’s question about the stock buyback, I think you said $188 million less on the buyback program, is there anything that prohibits you from kind of getting that done here in the near-term, is that something you kind of plan to kind of meter over the year, can you get that done here in the first quarter?

Dave, we obviously the only limitations you have on stock buyback beyond your own decision making is the ability to buyback shares in the market given the limitations that we have on us. And so sometimes I think people think it’s easier to pickup shares than it is because you only buy in the downdraft and you only do a couple of percentage of the shares everyday and things like that. And so it can be relatively difficult to pick up big blocks of shares very quickly. Having said that if we thought it was right decision to move rapidly to buy as much as we could then we would do so. I am not trying to signal that we think we will get $188 million done right away, but we will whack away at it pretty quickly if we fell like that was the right decision. So in my way that doesn’t pursuit our Board from expanding that program either at any point in time, but at least at this point we have the capacity to do 188 million without furthermore approval.

Okay, great. Thanks.

Our next question comes from Anthony Paolone with JPMorgan. Please proceed with your question.

Thanks. Good morning. I think Don, you had mentioned or alluded in one of your comments about maybe build to suites and development things, I know Orlando is an area where you have a lot of land, can you talk about just prospects there to potentially develop and I think market rents maybe weren’t quite there a year or so ago and just maybe an update on that front?

Yes. I would say there is nothing imminent to be announced or I wasn’t attempting to signal anything earlier in my comments about pending announcements. We are constantly trolling for opportunities. Orlando is one of the most compelling ones just because of the quality location of that land. But the highway is still not going to be delivered for 2 years or 3 years. And we think we will get the best opportunity to create value on that site as we get closer to the delivery of that highway system. Rents in Orlando have not moved dramatically. They have Dave, I think steadily gone up since we bought there, but there is still is a fairly dramatic difference between new replacement cost rents and existing rents in the marketplace, which is encouraging from our perspective. So we think it gives us a little more room to run in that marketplace before you are going to see much in the way of new construction. And if there is new construction, we think we have got as good site as anybody. So we are optimistic, but I don’t think there is anything impending.

Okay. Thanks. And then for Bobby, I may have missed this, you gave a number of brackets for ‘18, can you give just something on CapEx either sort of leasing capital versus maybe in terms of like redevelopment capital to be spent this year?

Yes. I don’t have that projection in front of me right now. So I am just going to take path and we will look at making public disclosure about that later.

Okay. Thanks. I appreciate it.

Our next question comes from John Guinee with Stifel. Please proceed with your question.

Great. Thank you. Bobby, I guess maybe Don you added this new disclosure on Page 33 with expiring tenant improvement allowances, typically in a lease the quid pro quos you have the rent adjustment downward if a future tenant improvement allowance is not spent, is that the case on this or not?

No John, there is actually – it’s a good question. There is actually several different components to this. As you probably know some leases have sunset provisions in the lease, what we call sunset provisions, which means that the tenant does not call the capital by a certain date that they don’t have a right to call it after that date. So that’s a component of it. There is another component of it is on turnkey build outs, where we may have [indiscernible] or agreed that we expected to spend $60 and we would have reported that we spent $60 in TIs, we only end up spending $55 for example, because the turnkey build out came in under budget, that’s another example. And then the third example where there it’s and this gets fairly technical you are probably familiar with it. But when you commit certain capital and the tenant can use it as free rent as well, then we typically reported this capital on the front end. But then if they converted to free rent, I am going to make sure I get this right as Ed [ph] is looking at me. If they converted to free rent, we don’t then take it out of our CapEx at least when we report to you, but it does then come out of our FFO. So in that case we would be double counting the capital by reporting it to you on the front end and then taking out of FFO as well. So we are in effect extracting that back out as well. So those are the three components of the $50 million plus that we have reported that we spent that we haven’t spent.

And in neither of those instances is there an adjustment to the rental rate as you described Don. Great. Thank you. Nice, nice lease numbers.

Thank you, John.

[Operator Instructions] Our next question comes from Michael Lewis with SunTrust Robinson Humphrey. Please proceed with your question.

Thank you. I wanted to ask about 60 Broad, I realize you might not be able to say much about an ongoing lease negotiation, but if the State of New York was considering going elsewhere, 1Q ‘19 is not that far off, I think that maybe they would have to decide fairly soon, so two questions, do you think it’s fair that each day that goes by maybe you and we should get a little bit more confident there. And then second, do you think if you are able to stabilize that building that maybe it becomes a disposition candidate, before you have another large single tenant roll there?

Hi, Don. This is Brent. Can you repeat the question – sorry Michael? Michael, I appreciate the question. I guess your first point each passing day that goes by I think New York State is a large organization. They take a fair amount of time to make a decision within itself, but keep in mind there are multiple agencies within the envelope of this. It is 480,000 square feet and which is at own entrance towards the building. And they are on the loop if you will. So it takes a lot of time for them to get through the processes that they need to internally. I wouldn’t say you can read a lot into kind of each passing day at this point. But I guess there would be a benefit if they did change buildings and they couldn’t make it there enough time, we might benefit from some holdover rent if they needed to stay longer. Certainly, we are using every kind of tool that we have to work with this data and find an optimal solution for both parties. And we continue to do that each day. So we will keep you up-to-date as new information comes available and it’s proven to share that with you at this time. But I think we still remain cautiously optimistic overall that they are going to stay within the 25 Beaver 60 Broad envelope. Now in terms of your second part of that question with a stabilized building, I would also remind you that right behind the New York State component we do have an opportunity with a significantly below market lease with the New York City that expires in April 2020. That will be our next focus of the building. And we think is a great opportunity to kind of increase cash flow and obviously the value of the building itself. So we will look to kind of work through that with the New York City. And at that point in time you are going to be well into kind of 2020 we will have to evaluate the market at that time and what are the capital allocation options are and where we may be able to realize value relative to with our other opportunities.

Thanks. My second question is property specific too, I think our Enclave in Houston a lot of us have kind of just put aside and oil may not be $100, but it’s not $30 anymore either, I was just wondering if there has been any activity there if maybe there is a little bit more reason for optimism, I think it would be probably a cherry on top if anything happen there at this point?

Yes. Mike I am going to throw it to Joe Pangburn in just a second. But I think big picture, we are seeing a little bit more activity than we have seen. There is some I would say West Houston tenants that are making noise by either expanding or consolidating in those certain locations and we are working on some of those substantially be a beneficiary of them. But I would say overall, we are trying to keep expectations low so that if we do find a way to get something done, we can positively surprise you and not have you asking a question about it every quarter, because it’s a tough slog for sure, but Joe, do you want to give some more color on Houston?

Yes. Just a bit more, clearly with the passage of time you start, we began to see people with 2019 and 2020 expirations move around a bit. Again there is not a whole lot of activity, I don’t think there is, it’s fair to say there is a little bit more. And it doesn’t necessarily matter what – in our view at least from my view what the price of oil is, it’s more of a stability of the price that gets people to act and move on that confidence in terms of what they will do. So the factor that’s $65 a barrel, that’s certainly better than $30. But there needs to be some visibility looking forward in that market for people, so measurably moving and make decisions.

Thanks. I don’t know if I asked the question last Don, but you’re probably right…

I was just teasing you, but it’s just one of those things where I wish we can give you more positive optimism around the site, but there is just enough working that we might get lucky and going out and then I think hopefully everyone will be positively impacted.

Thanks. So just lastly I have kind of a bigger picture open ended question, you guys have done a good job improving the portfolio and the balance sheet and it’s allowed you to repurchase stock. And the next question is always kind of what’s next, so I have been getting the question about Piedmont and I am sure you as well about growth now you have kind of done a lot of the repositioning, where do you go from here? And I am just curious what your answer is to that, do you think we are in kind of a slower growth environment overall, there is not a lot of earnings growth in the office sector overall in 2018 or do you think what are kind of the opportunities that maybe could get you on a higher growth track?

I think that’s a very fair question across the sector, because it’s not lost on any of us that you look at same-store NOI growth for the entire sector next year and they are all low – most are low single-digits. And I think that’s just a reflection of where we are in the cycle. Rents have grown fairly dramatically over the course of time, but now they are starting to flatten out. And so now you have got to make decisions to create value around capital allocation whether that’s development, it’s recycling of capital, because you are probably not going to see the same level of growth in rents that we have been seeing. So having said that, we haven’t had the luxury of being able to issue equity to grow our organization and grow our income stream. So, we have had to do it more creatively, I will call it whether it’s stock buyback or recycling of capital as we pointed out on the script, we sold 17% of the portfolio since we came public, we have sold I think $2.2 billion since 2014 is the number. We have taken those proceeds and bought back about a billion and bought back shares of about 300 million. And so the only thing we know to do is continue to try to create value by recycling capital and creating a more valuable portfolio all the time, but beyond that, I don’t know I have the magic answers for you, Mike, because as you get later in the cycle, it does get harder.

Great. Thank you.

Our next question is from Jed Reagan with Green Street Advisors. Please proceed with your question.

Hi, guys. Just a couple of follow-ups. You touched on the state of New York, can you give an update on what’s left otherwise in terms of larger 19 expirations and how you are feeling on those? And then if you could also just remind us on the timing and size of the RBs move?

Yes. So, overall the 19 expirations, let me say were fairly optimistic on majority of them. The only one that has made any sort of announcement that they are departing is RBs, they are in 125,000 feet building with the purchase of Buffalo Wild Wings and some other activities they have got going on, they just needed more space. So, they ended up signing a lease for 161,000 feet at a building across the street. That’s probably the vacancy that we could most afford to take just as the quality and location of the building and the fact we have already got a lot of other lease activity sort of poking around on that particular building, so that one didn’t upset us too much. The others I think Brent has given you a perspective on New York state, of course we have gotten Raytheon done and the remainder are all 120,000 down to say 50,000 and we are in some form of active negotiation on virtually all of them, but nothing is imminent to announce. So I am not sure for competitive reasons, I want to go much further beyond that.

Okay, fair enough. Thank you. And you mentioned encouraging initial leasing activity so far this year, have you seen or do you expect to see a pickup in velocity or maybe growth or expansion plans for companies given tax reform and kind of broader improving economic signals?

You know Jed, I would have said, a week and a half ago that we are very bullish on the fact that we are seeing a lot of tenants indicating that they were heading towards taking more space in 2018 and the early indications are that, that continues to be the case. Having said that, anytime I see the kind of drop we saw in the market last week and the increased level of volatility in the equity market, it always makes me nervous that people start slowing the decision making down and could that impact leasing activity levels way too early to tell obviously and so – but I am a little more cautious on my optimism than I would have been 2 weeks ago, because of that change in the capital markets.

Would you characterize that as sort of incremental optimism versus where things felt like say 6 months ago?

Well, I would say, I am more optimistic than I was 6 months ago just because I just didn’t feel like before the tax law was passed that we had a catalyst for continued economic prosperity. I think with the tax law in place and some of the – as everybody calls it the animal spirits of moving the market along that we were getting pretty optimistic, we are continuing to see really good growth in office occupancies. I am more incrementally cautious now because of what’s happened the last week.

Sure. That makes sense. And I guess the last one from me as a landlord that focuses on the corporate user, I am curious if you are seeing the rise of co-working starting to push that crowd more to flexible leases. So, you are having new and renewal conversations with those types of tenants, is that something they are trying to negotiate for more shorter lease terms, more flexible types of lease arrangements that sort of thing?

Hey, Jed, this is Brent. We have talked about co-working a little bit in the past. I think for the larger corporate users that we, I’d say, are bread-and-butter, I am not seeing that impact and the desire for flexibility based upon traditional landlords. I do think you are going to continue to see companies like IBM, etcetera, who have a fluid workforce, utilized some portion of this type of I guess the landlord if you will as a means of controlling the workforce in their space, so maybe call it, 10%, 15% over a longer term period, but we are – I think we have seen more of an impact in the market, it’s been that smaller tenant, 3,000 to 5,000 square footers where they would often come to us and want to do, they try to push on a shorter term say maybe bit of a traditional 10 trying to push for 3, we maybe land somewhere 5 to 7, that’s tougher to come by and that’s created the need for the prebuilt suite scenario that you continue to see in a lot of more CBD and dense locations from landlord as a means to attract that tenants to do a direct lease to the landlord, but no doubt that the co-working phenomenon has had an impact on that smaller sized tenant, but we are not seeing that near as much in the corporate side.

When you say it’s tougher to come by for that smaller tenant, just harder to get them to sign up to that 5 or 7 year lease now?

Yes. Now, unfortunately that’s not very impactful on our overall portfolio if you do recall our average tenant size is more in that 20,000 square foot range.

Sure, okay. Alright, I appreciate all the color, guys. Thanks.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Mr. Don Miller for closing comments.

Thank you operator. As always, we very much appreciate everyone’s time and attention on the call and thank you for the long list of questions. We had obviously a fairly eventful quarter and wanted to try to be as precise in our communication as we could, we hope we have achieved that and we hope that we have answered your questions satisfactorily. So, thank you again and we look forward to seeing you no later than May or sorry – no later than June in NAREIT.

This concludes today’s investor call. You may disconnect your lines at this time and we thank you for your participation.