Greetings, and welcome to the Piedmont Office Realty Trust Third Quarter 2015 Earnings Conference Call. At this time, all 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, Robert Bowers, Chief Financial Officer. Thank you sir, you may now begin.

Thank you, operator. Good morning and welcome to Piedmont's third quarter 2015 conference call. Last night, we filed our Form 10-Q and an 8-K, which includes our earnings release and our unaudited supplemental information for the third quarter. All of which are available on 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 risk 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 risk associated with forward-looking statements contained in the Company's filings with the SEC. In addition, during the call today 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 the 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. Thank you for joining us as we review our third quarter financial and operational results. This has been a seminal quarter for us in many ways, and I think we’ll reverse the order of our typical quarterly call and start with the most noteworthy transactional events, which we worked on during the third quarter, but did not close until after the September 30th quarter end. These events I am sure are at the forefront of everyone’s mind. Last week we filed an 8-K to announce that we closed on the $712 million sale of Aon Center, a building that we purchased for $465 million in 2003. As I stated previously, this transaction is the culmination of a lot of hard work over the number of years and I believe that is an event that provides an excellent showcase for our operational expertise and discipline. As we have discussed in the past, we were concerned with the high financial concentration in Aon Center with over 10% of our total portfolio’s revenues and operating income deriving from this one large asset. However, a significant amount of releasing was required in order to optimally position the asset for sale and maximize the return to our shareholders. This quarter’s lease with Kraft Heinz for 170,000 square foot headquarters space was the capstone to bring the asset to 87% leased, allowing us to realize our pricing expectations. As anticipated, the net proceeds after divesting various buyer-assumed lease abatements and contractual tenant improvements and leasing commissions was approximately $646 million. Given the continued disconnect between private real estate valuations and evaluations in the equity markets particularly during the third quarter, we determined to use the majority of the anticipated proceeds from the Aon sale for a combination of our stock repurchase program and…

Thank you, Don. While I will discuss some of the highlights of our financial results for the quarter, I again encourage you to please review the 10-Q earnings release and supplemental financial information, which were filed last night for more complete details. For the third quarter of 2015, we reported FFO and core FFO of approximately $0.41 per diluted share. That is an increase of $0.03 over the same metrics last year. The commencement of several significant leases, as well as the continued burn off of operating expense recovery of abatements over the last 12 months were the main reasons for the increase in FFO and core FFO and have driven our economic lease percentage up to 83% versus 79% a year ago. FFO for the third quarter of 2015 was $0.35 per diluted share well above our $0.21 per share dividend, the FFO results reflect the leasing and abatement items, I just mentioned in addition to decreased non-incremental capital expenditures as a result of the completion of certain large tenant build-outs and the effect of straight line rent adjustments related to the expiration of rental abatement periods since the third quarter of last year. As disclosed in our filings as of September 30th, non-incremental commitments for capital for the next five years totaled $52 million however it is important to point that $17 million of that amount was assumed by the buyer of Aon Center. Given the size of Aon Center, the fact that the property was such a significant contributor to our overall operating metrics and as much what we did during the third quarter was in anticipation of that sale. We therefore included at the end of this quarter Supplemental Financial Information on Pages 48 and 49, a pro forma analysis of certain metrics with the Aon…

Thank you. We will now be conducting our question-and-answer session. [Operator Instructions] Our first question comes from the line of Anthony Paolone with JPMorgan. Please proceed with your question.

Don I think it was about a year ago at NAREIT where you talked about the biggest opportunity, I think you thought was out there in the market was for A assets in some of the less prime markets, and it seems like with buying Atlanta and Orlando, you kind of follow through draw on that. And just curious as to how you think that shapes going forward in terms of the key things New York and Los Angeles, or do you plan on shedding other markets and do you continue to see this as the opportunity buying these kind of top assets in some of these other locations.

Sometimes it’s hard to predict going out too far what your strategy is going to be in the sense that you’ve got to be responsive also to what you’re seeing going on in the marketplaces. And so, two or three years ago and even up until last year, we probably would have been saying that our focus would have been trying to continue to try to grow in those higher barrier markets. But as opposed to some of the things we’ve seen, some of our competitors do, we just didn’t feel like we could get good value when you’re getting into the two, three, four cap rate range, in some of those places, particularly when we saw similar momentum building in places like Dallas where we went in early and got some good exposure, the Route 128 North market in Boston where we went in early, got some exposure and now Atlanta and Orlando where we’re seeing very good momentum in the markets year and still being able to buy at such big discounts, replacement cost and high quality assets. So that’s the thought process. I think in a perfect world where we’ve continued to build our presence in higher barrier markets, yes that would have been our first choice. We haven’t seen the value there, so we, as you know, we’ve always been aligned to trying to find the best value in the marketplace we can so that’s why you’ve seen us adjust our strategy a little bit to accommodate the market and what we’re seeing in it right now.

Okay.

Yes, I am sorry somebody just reminded me, you brought up the quarter, are we going to be essentially departing some other markets. Yes I think we said almost a year ago now when everyone was in Atlanta for NAREIT that we were likely going to be lining up our Los Angeles portfolio for sale I think we’re now moving very close to doing that. We anticipate having that out into the market in the first of the year, I don’t know when that means it would close but let’s assume it moves expeditiously that’s probably a end of first quarter or early second quarter kind of closing timeframe for us. So we are moving forward on that and that would be a big part of our goal for 2016 sales that Bobby mentioned in the prepared remarks that we’re going to be a net seller in ’16 that would be a big part of that if that was the case.

And then my follow-up is just on the Atlanta and Orlando acquisitions, can you give us some of the basics on cash and GAAP going to yield and so if there is any upside you see to those numbers or some rent mark-to-market those sorts of things?

Yes just in general I don’t know if you’ve had a chance to look at the page that we put together on our Web site that we have a core FFO yield for Galleria 300 of just under 7% and then our core FFO yield on Orlando was lower 6s, low to mid-6s and the rents are somewhere between 8s and I’ll call it 14% below market probably in the Galleria situation. So let’s say on average 10% below market. So I think that probably projects out the stabilized yields in the low to mid-7s. And then relative replacement cost we’re in the 30% plus range on discount replacement cost for both the assets.

Okay, those were GAAP numbers or cash…

No, those were GAAP numbers, yes.

Is there like some -- were some of those leases newer and in some abatement period or is there a big delta between that…?

There is a little bit it’s an abatement in there and so as a result the cash yield, first year cash yield wouldn’t be quite as good but I don’t know, I don’t think I have that in front of me.

Our next question comes from the line of Jed Reagan with Green Street Advisors. Please proceed with your question.

So you talked a little bit Don you mentioned the California portfolio. Can you just sort of help bracket the magnitude of net selling that you guys are thinking about for next year just so we can kind wrap our heads around FFO sort of potentially holding steady on a year-over-year basis?

Yes, so I guess the portfolio on Los Angeles is call it several hundred million dollars in size I think we think we may -- it is a little easier to project dispositions in those acquisitions of course. But if we are in the $500 million to $600 million range on the disposition side, it’s probably a reasonable estimate. On the acquisition side, you never know because it becomes a function of opportunity. And so it’s sort of hard to project that. The number we gave you in terms of comparability on FFO takes into account everything that we’ve announced to-date, but doesn’t take into account any acquisitions or dispositions for 2016 that are not mentioned. So it doesn’t include for example Los Angeles, or any other net selling in ’16. It also doesn’t include any share repurchase.

But you do expect to be -- remain somewhat active and look at acquisition opportunities in ’16, is fair to say?

Yes, but I think that they continue to become a higher bar from a strategic standpoint for us fin terms of things that would be a second phase of the building we already own, or something -- Orlando and Atlanta may not look to be quite as strategic as you think. But I guess we have more time, I could walk you through why we feel like those are very strategic assets for us at this point, even though they’re in -- as I think you reported it technically not in the same submarkets we’re already in, but Orlando is not that bigger market to begin with and there is two places you’d want to be in the next few years and that’s Downtown Orlando and Lake Mary. You don’t want to be a Maitland for the next two years given the iPark and road construction project for example. That’s a market we feel very good about and are seeing very solid growth and momentum in the market with no real new construction there. Atlanta sort of similar story I could go through the details, but I won’t bore you with them right now. But the point is they’re both more strategic than they may appear. But the newer activity that we’ll be looking at will also be very strategic to what we already own.

And just hoping you can talk a little bit more on Enclave and 3100 Clarendon just kind of what you’re seeing on the ground in Houston these days and are you moving, asking rents for that project at all? And then on 3100 Clarendon you mentioned some kind of near-term leasing activity, maybe just sort of bracket the size of what’s in the hopper potentially?

Yes, well real quick on 3100 Clarendon I think there have been some misunderstanding by a couple of folks on timing of finishing that project up, sometimes I feel like we’re too honest with you all, all that really happened there is we’re finishing up the backside of the retail component. By the way the retail component is 100% leased, so it has no impact on our office leasing and it has nothing to do with the office leasing momentum that we got going there, and the project is going to finish up in the next few weeks. So there was no additional cost over on. So, I think a couple of people may have overreacted to our saying that the technical finish of it is fourth quarter instead of the third quarter, but I just want to clarify that first. Secondly we’ve got some signed leases early in the fourth quarter that we haven't recorded on at 3100 Clarendon at this point, it would bring our percentage up nicely but not going to -- not earth shattering yet, but there is very good activity in the marketplace and we feel can remain very optimistic we’re going to make a lot of good progress over the next six to nine months in that asset. I can’t say the same in Houston, the market is very quite there is -- the occasional large prospect running around that is looking at everybody and we’re obviously getting those lists as well because the building is such high quality, but I can’t tell you that I’m very optimistic things are going to happen there and it doesn’t really matter what you quote in terms of rates or terms or concessions at this point, when there is no real, genuine activity in the marketplace. Obviously we would be more aggressive than we would ever have been to try to do something there, but I can’t tell you that to translate into optimism that something is going to happen any time soon.

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

This is Stephen Dye here with Dave. Can you go into more depth on the DC leasing, and what kind of tenants are you seeing expanding there and does DC become a market, where kind of like an LA or something where it could be a net disposer possibly in the near future?

Stephen yes I’ll start, and Bob Wiberg, I think is also on the line, and I think that he can provide a lot more quality color than I can, but we’ve seen a very substantial pickup in activity there, as you are already seeing, we are translating that into some nice sized leases, we expect to have some nice announcements in the fourth quarter as well on occupancy pickup in Washington DC. I would say the only negative so to speak is not that we aren’t getting the rates that we would have been anticipated but conception packages are up as some of you noted in our report last night, you will probably see especially as we do Washington DC leasing over the next few quarters, some elevated capital, CapEx per square foot per year lease term, as a result of some of those big Washington leases getting done, but having said that pretty happy about getting them done and the rents are still very strong. So Bob can you provide a little more color on that?

Sure, I think there are really two sectors we’re seeing, one is the government GSA and otherwise it’s back in the market again, the GSA has deferred a lot of releasing over the past couple of years, so they have quite a bit of turnover and we’ve space especially at our 250 E Street project that is very well suited for government and so we’re seeing a lot of that type of activity. Beyond that thought the East end market where we have a couple of buildings, has really been the best market that we have certainly and probably one of the best anyway in the area and we’ve seen quite a bit of activity here and it’s really, largely been among associations that really valued this location, but there are certainly other types groups looking in general but I’d say more on the associations side is a lot of the current activity.

Hey Bob would you comment on the RB Corridor as well?

Sure, RB Corridor, we’re definitely seeing more activity, the leases are still taking a long time to get executed, but much more traffic than there had been I think clearly more optimism about where the market is and what the drivers will be, the cyber security aspect is certainly one that we’re seeing is sort of big data world is another, but also it’s just general recovery in that market, so I think we’ll sign more leases certainly over the next 12 months in the past 12 months as that activity matures.

Thank you. And then did any share repurchases bleed into the fourth quarter, just given the run up in the price are we seeing any more activity there? Thanks.

Sure. You would probably assume less share repurchase activity in the fourth quarter than you would have seen in the third given, the relative difference in pricing and the difference in NAV discount that we will see in the third quarter. So you can assume third quarter was very active fourth quarter not so much.

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

Just to drill down a little bit because you said, you didn’t want to be too honest, but you didn’t you have the cash yield in front of you on Orlando and Atlanta, on one hand the GAAP for Orlando I think you said was in the low sixes and the gap yield in Atlanta was in the high sixes, but then if I look at the capital allocation presentation, you are coming up with what looks to me the core FFO yield, is that core FFO yield, a levered yield, or an unlevered yield?

That's an unlevered yield John.

Okay. All right that makes all the sense in the world. Thank you. Okay.

John, I do have just -- so that you don't think that there is any transparency concerns the AFFO yields are in the low 5s the first year, but they jump up substantially because that free rent burn off, obviously REITs can’t take free rent as a massively, we’re getting that massive leased income to us as a offset for the credit of the price. But you can’t counter towards your income stream so that comes out of your AFFO, so that number is low 5s combined.

We hear you, even if you didn’t have the cash yields in front of you, we knew you know what the cash yields are right?

Well, actually no, I had to go look to be honest with you.

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

So you guys gave great detail on the lease commitments and rent abatements. But the spread between the leased and economic lease percentages widened a little bit in 2Q. Obviously there is puts and takes in any given quarter. But can you talk a little bit about how abatements for leases you’re signing today compared with the year ago and then based on that, how you think that spread could narrow over the next year keeping in mind of course Aon Center I realize is a big chunk of that?

Yes actually yes I think we noticed in your write up last night that you have pointed that percentage it actually increased in the quarter, and we were surprised by that ourselves, so we looked back at it and found out in fact you’re right. But what we realized is a lot of that is those two or three big chunky leases we did in the quarter that obviously wouldn’t have commenced yet that would have driven that number up and it wasn’t offset completely by new tenants coming in and taking economically occupied space, so that had a big chunk of why that went up by about 100 basis points in the quarter. I think we all agree around here that that number should come down pretty materially over the next few quarters, particularly with Aon Center gone.

Yes I mean I basically have two out of three of the pieces right, so I’ve got the schedule of the abatements I’ve got I know how much Aon Center is going to take out. But is there anything generally you could say about as you sign leases now have abatements kind of eased a little bit or is it similar to what you’ve been doing the last couple of years, I would imagine it’s improving?

It is improving Michael obviously that’s a market-by-market issue, Washington DC the abatements would still be sort of where they’ve been historically. But in places like Atlanta and Dallas and other places, we’re seeing abatement start to compress a little bit, and so it’s getting a little better. But I would say in general because a lot of our bigger leasing that’s going to get done over the next year or so is probably still Washington DC because that’s where a lot of our vacancy is, some of that economic lease percentage won’t grow as fast as you otherwise would expect because you will have higher free rent periods in that market.

And my last question and I probably missed a lot on this at the end of Bobby’s comments I’ll go back to the transcript. But in talking about FFO next year being comparable to this year, the consensus is implying some growth there maybe they haven’t completely caught on to the Aon Center sale. But I know the acquisitions and repurchases mitigate that a bit. So, what’s kind of the biggest growth drivers, and then what’s kind of weighing on that growth for 2016? I realize you’re not giving specific guidance but I am just curious since it doesn’t include the LA sale, what’s kind of from a big picture going on in there?

So, if you think about it, obviously there was a fair amount of growth before the Aon Center and Gatehall dispositions were announced. So, Aon Center was close to $0.20 a share, Gatehall was I think $0.07 or $0.08 a share, and then we offset that with some of these acquisitions to the tune of call it $0.07 to $0.10. So net-net, we’re losing almost $0.20 in dispositions between Aon and Gatehall, and yet still producing number that’s pretty comparable to this year’s number. So the growth would have been substantial but for that. That growth was coming from a combination of occupancy improvements, obviously other leasing getting done, the share buyback programs. Anything else anybody can think of? Those are probably the three biggest drivers.

Our next question comes from the line of Vance Edelson with Morgan Stanley. Please proceed with your question.

Given the ongoing sale of non-core assets, could you just give us your insight on the strengths of private bidding for the more urban versus the more suburban properties, do you get the sense that the search for yield is starting to drive more private interest in some of the less CBD like properties? And how do you think those capital flows might shape your decisions on what to sell down the road?

Interesting question Vance, we’re seeing generally pretty solid bidder pools across the board for high quality assets. When you move into something that’s a little lower quality or suburban and frankly we don’t have any of those, but we have sold a couple of those recently, the bidder pools are fairly thin but still there is enough good activity that we’re able to contract for those deals as well. So I guess I would say overall very good capital markets activity clearly urban high barrier markets are the deepest urban secondary markets will be less deep but still strong and then as you move into suburban tertiary obviously become less strong. But still as good as you might see anywhere and anytime in the cycle. Ray, would you add anything to that?

Yes, sure I echo that because there is a still a lot of capital involved, looking for a home as evidenced by the performance we had with Aon, with 60 people that were really interested, 18 people that did first round bids. So that’s indicative of the urban high quality core type of assets. The other thing that we did sell were more regional type of buyers, but actually well capitalized regional type of buyers. One thing that we have continued to see is those folks were able to get some financing on their deals, so that has helped that situation some too. But it really gets down to what kind of quality you have in those assets, that you’re selling in those suburban markets and we have been successfully giving reasonable bids on those.

The only other thing I’d add to that is if you think about what we’re doing with California and why we’re doing it although all four of those assets would be considered some form of either urban infill or suburban, with what’s happening in LA right now and the bidder pool there, we expect a very strong bid pool on that kind of asset.

And then my second question, the new lease with GreenSky Trade it seems to be relatively short duration, a bit of an outlier versus your other signings during the quarter. Was that a tenant driven need, or did you see some upside from keeping it relatively short given the likelihood that that rents will rise?

Actually you have probably given us too much credit there Vance, what happened was Wells Fargo was a tenant in 35,000 feet in a building that they never ended up occupying, so we had 35,000 square feet with the termination option coming up, GreenSky came in and took -- wanted to take the space longer term into a wrap around the termination option for Wells Fargo that only wanted the space for about six years. And so we ended up -- we're able to do a nice rollup on the deal, get a partial termination penalty and extend that out the lease. So we felt really good about that, but it was not -- they didn’t want to go as long-term as you otherwise might expect for a 35,000 footer.

Our final question comes from the line of Young Ku with Wells Fargo. Please proceed with your question.

Just want to go back to 2 Gatehall sell. It looks like you guys provided some short-term sort of financing with expiration in June ’16. If they were to try to refinance that with permanent debt, would that be contingent on the property getting some backfill leasing at the Key Bank space? I am just wondering if I can get some background on that.

Yes so Young it’s sort of an interesting deal, the building has obviously 50% of the tenancy leaving in February of ’16, and it is a value-added play if you will for the buyer coming in. So what they wanted to do is -- and we had some leasing activity going at the property which we are in the process of converting. And so that will obviously help their financing status going forward. So, what we decided to do is collect a very large earnest money deposit with them going hard to secure a certainty of their closings but then agree to allow them take the solid financing for a short period of time to allow them to get their best financing situation put in place. So that’s why it was done the way it was, and very confident the deal will close but at the meantime we will collect a little bit of extra income if they decide to extend out that closing.

And your kind of dilution estimate to fund this property it was based on that 7% coupon for half the year pretty much?

Do you remember guys? No. So the 7% is not in our numbers, or it is in our numbers?

The GAAP number is at 7.6 but not including new financings.

And so the financing is not in our GAAP numbers.

Correct.

Okay.

Okay, so that’s that a little bit, okay. Got you, and I just wanted to go back to the Comdata lease that you mentioned so there was a short-term extension for that 200,000 square foot space, what do you think will be the outcome of that lease once it expires in ’17?

They had an option to extend the lease out for a period of time on their own and they decided to do that with the idea that they’re in the process of negotiating a downsizing and long-term extension at the building, but this gave them more time to have the ability to flexibly do that. So that’s why they chose to take that interim step as a tenant to extend out for a year while we’re finishing off the negotiation of the extension on the majority of the space.

So your expectation is that they will stand down once it goes beyond current lease number?

That’s our current expectation, yes.

Thank you. We have reached the end of the question-and-answer session. Mr. Miller, I would now like to turn the floor back over to you for closing comments.

Thank you, operator. We just -- we want to thank you as always for your interest and participating in the call, and hopefully you share our enthusiasm for how well things have gone here for us in the last year or so, and capped off by a lot of really strong capital markets activity that we think continues to position the firm exactly the way we over the long-haul told you we would. So we hope you appreciate that effort, and we’re excited about where we’re headed. So thank you very much for attending.