Piedmont Office Realty Trust, Inc. (NYSE: PDM) is an owner, manager, developer and operator of high-quality, Class A office properties located in select sub-markets of eight major Eastern U.S. office markets. Its geographically-diversified, over $5 billion portfolio is comprised of approximately 20 million square feet. The Company is a fully-integrated, self-managed real estate investment trust (REIT) with local management offices in each of its major markets and is investment-grade rated by Standard & Poor’s (BBB) and Moody’s (Baa2).
Operating Objectives and Strategy
Headquartered in metropolitan Atlanta, Georgia, with regional and/or local management offices in each of our eight major markets, Piedmont values operational excellence and ranks first among REITs based on the number of buildings owned and managed with Building Owners and Managers Association ("BOMA") 360 designations. BOMA 360 is a program that evaluates six major areas of building operations and management and benchmarks a building's performance against industry standards. The achievement of such a designation recognizes excellence in building operations and management. We also have focused on environmental sustainability initiatives at our properties, and approximately 87% of our office portfolio (based on Annualized Lease Revenue) maintains Energy Star labels (recognizing the top 25% of commercial buildings in energy consumption efficiency) as of June 30, 2017. In addition to operational excellence, we focus on fostering long-term relationships with our high-credit quality, diverse tenant base as evidenced by our 74% tenant retention rate since 2006.
Our primary objectives are to maximize the risk-adjusted return to our stockholders by increasing cash flow from operations, achieving sustainable growth in Funds from Operations, growing net asset value, and realizing long-term capital appreciation. We manage risk by owning almost exclusively Class A, geographically diverse office properties which are among the most desirable in their respective, select office submarkets. In addition to the creditworthiness of our tenants, we strive to ensure our tenants represent a broad spectrum of industry types with lease maturities that are laddered over many years. Operationally, we maintain a low leverage structure, utilizing primarily unsecured financing facilities, along with laddered maturities. We utilize a national buying platform of property management support services to ensure optimal pricing for landlord and tenant services, as well as for building best practices and sustainability standards. The strategies we intend to execute to achieve these objectives include:
Capitalizing on Acquisition/Investment Opportunities
We target the acquisition of high quality, Class A properties that are attractively priced below replacement value and that complement our existing portfolio from a risk management and diversification perspective with a concentration upon select submarkets where efficiencies can be gained and our market expertize can be maximized. Our overall acquisition/investment strategy focuses on properties in select submarkets within certain major U.S. office markets that generally share the following characteristics:
- Fragmented/limited competitive (public REIT) ownership
- Desired location for large corporate users
- Strong amenity base
- Proximity to executive housing
- Transportation infrastructure/easy accessibility
- Minimum market size; class A scale/liquidity
- Favorable business environment/support of local government
- Diversified economy
- Favorable projectios for market fundamentals (rent growth, limited new supply, office job growth, positive demographics)
Proactive Asset Management, Leasing Capabilities and Property Management
Proactive asset and property management encompasses a number of operating initiatives designed to maximize occupancy and rental rates, including the following: devoting significant resources to building and cultivating our relationships with commercial real estate executives; maintaining local management offices in our eight major markets; demonstrating our commitment to our tenants by maintaining the high quality of our properties; driving a significant volume of leasing transactions in a manner that provides optimal returns by using creative approaches, including early extension, lease wrap-arounds and restructurings. We manage portfolio risk by structuring lease expirations to avoid, among other things, having multiple leases expire in the same market in a relatively short period of time; applying our leasing and operational expertise in meeting the specialized requirements of federal, state and local government agencies to attract and retain these types of tenants; evaluating potential tenants based on third-party and internal assessments of creditworthiness; and using our purchasing power and market knowledge to reduce our operating costs and those of our tenants.
Recycling Capital Efficiently
We use our proven, disciplined capital recycling capabilities to maximize total return to our stockholders by selectively disposing of non-core assets and assets where returns appear to have been maximized, and redeploying the proceeds into new investment opportunities with higher overall return prospects.
We employ a conservative leverage strategy by maintaining a debt-to-gross assets ratio of between 30%-40%. To effectively manage our long-term leverage strategy, we continue to analyze various sources of debt capital to prudently ladder debt maturities and to determine which sources will be the most beneficial to our investment strategy at any particular point in time.
Use of Joint Ventures to Improve Returns and Mitigate Risk
We may enter into a few, select strategic joint ventures with third parties to acquire, develop, improve or dispose of properties, thereby reducing the amount of capital required by us to make investments, diversifying our sources of capital and allowing us to reduce the concentration of certain properties and/or markets without disrupting our operating performance or local operating capabilities.
Redevelopment and Repositioning of Properties
As circumstances warrant, we may redevelop or reposition properties within our portfolio including the creation of additional amenities for our tenants to increase both occupancy and rental rates and thereby improve returns on our invested capital.