Robert Bowers – Chief Financial Officer Don Miller – Chief Executive Officer Robert Wiberg – Executive Vice President, Mid-Atlantic Region Head of Development.

Dave Rodgers – Robert W. Baird.

Greetings, and welcome to the Piedmont Office Realty Trust Second Quarter 2015 Earnings Call. At this time all the participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Robert Bowers, CFO for Piedmont Office Realty Trust.

Thank you sir, you may now begin..

Thank you, operator. Good morning and welcome to Piedmont's second quarter 2015 conference call. Last night, we filed our earnings release and a Form 8-K, which includes our unaudited supplemental information. Both 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 in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters, which are subject to risk and uncertainties that may cause 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 the three month and year-to-date financial results after Don Miller, our Chief Executive Officer, discusses some of this quarter's operational highlights.

In addition, we're also joined today by various members of our management team, who will participate 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 today as we review our second quarter financial and operational results. We're pleased we a lot of activity to cover on this call today, so I’ll jump right in. First of all, our leasing activity across most of the portfolio during the second quarter was strong.

We completed leases totaling approximately 572,000 square feet during the quarter with over half of that or 325,000 square related to new tenant leases and we achieved a positive roll up in both our cash and accrual based rents.

The largest new lease for the quarter was 108,000 square foot, 13 year anchor lease with Continental Casualty Company at 500 TownPark in Lake Mary, Florida. With the signing of this lease we will proceed with the development of 500 TownPark on a portion of the developable land that we purchased late last year.

Other large noteworthy leases this quarter included AT&T; Illinois completed an approximately 78,000 square foot, 12 year lease renewal through 2029 at AON Center in Downtown Chicago.

Norris McLaghlin & Marcus signed an approximately 62,000 square foot, 13 year new lease at 400 Bridgewater Crossing in Bridgewater, New Jersey substantially backfilling the 76,000 square feet of space that is expiring in 2016. Coworker [ph] signed a 40,000 foot, 17 year new lease through 2033 at 60 Broad Street in New York.

In Washington DC we completed a 38,000 square foot 10 year renewal with the International Republican Institute and a 19,000 square foot, 10 plus year new lease with the Economic Policy Institute both at our 1225 Eye Street building, and then also in the Washington Nixon & Vanderhye renewed for approximately 47,000 square feet for 10 plus years at Arlington Gateway.

These are just a few of the more significant transactions during the quarter, but we are seeing meaningful moment in most of our target markets. Please review our supplemental information for more details. We ended the quarter at about 89% leased and approximately 200 basis point improvement over second quarter of the year ago.

Overall, we're pleased with the leasing pipeline and heading into the second half of the year and the economic energy that we are seeing in most of our markets.

As we have no significant lease expirations for the remainder of 2015, we believe the conversion of these prospects into executed leases should continue to drive occupancy gains and allow us to achieve our year-end lease percentage goal of 90% for our current in-service portfolio.

Toward that goal, subsequent to quarter end, we previously disclosed the 170,000 square foot Chicago headquarters lease with the newly merged Kraft Heinz Company at the AON Center there they will occupy five upper bank floors.

Turning now to our development and redevelopment projects; I mentioned our new development projects at 500 TownPark, situated at the intersection of I4 and Highway 417 in Orlando's, Lake Mary submarket. This site is well located within TownPark, which is a live, work, play mixed-use development.

500 TownPark will be a four-storey building consisting of a 135,000 square feet and with the signing of Continental Casualty lease is 80% pre-leased with an option for C&A to take the remainder of the building. The development costs are anticipated to be $28 million to $30 million inclusive of leasing costs.

After the completion of 500 TownPark, our remaining landholdings in the TownPark development could accommodate approximately 400,000 to 500,000 square feet of additional office space.

Looking at the redevelopment at 3100 Clarendon in Washington DC, leasing economics have not changed significantly, but leasing activity has picked up over 2014 levels and we are currently working with a number of leased prospects in the market ranging from 5,000 to 120,000 square feet for the now completed office component of the project.

In Houston, [indiscernible] Enclave place is virtually complete. We anticipate the length of time to achieve stabilized lease up of the 300,000 square foot project and related concessions has increased due to the impact of the lower oil prices on the region’s economy.

But we feel confident we can compete favorably for new construction prospects given our low cost basis. From a transactional standpoint, we are as busy as we have been in several years.

As previously announced, we disposed three assets during the second quarter; 5601 Headquarters Drive in Plano Texas, River Corporate Center in Tempe, Arizona and Copper Ridge in Lyndhurst, New Jersey. These dispositions are detailed in our press release and in our quarterly financial supplement.

During the second quarter, we also entered into binding contracts to sell two more non-strategic properties; first, Eastpoint I &II, sister buildings, which are part one properties holding 91% leased and approximately 171,000 square feet combined. The sale closed earlier this week and marks our exit from the Cleveland Ohio market.

Also pending sale at quarter end was our 3750 Brookside Parkway property, a 105,000 square foot building located in Alpharetta, Georgia and 92% leased to four tenants. It’s expected to close in the first couple of weeks of August.

Subsequent to quarter end, we also entered into a binding contract to sell Chandler Forum, a 150,000 square foot building located in Chandler, Arizona and 100% leased to AmeriCredit Financial Services.

On July 28, we acquired 80 Central Street, and approximately 150,000 square foot Class A office building located adjacent to our existing 90 Central Street asset in Boxborough, Massachusetts for 13.5 million or $90 a square foot.

In addition to the economies of scale in the submarket the two properties share common amenities and building system infrastructures and the acquisition will simplify the marketing and ultimate exit from this submarket. Obviously the most significant transactions subsequent to quarter end is the culmination of many years of effort.

On July 16, we entered into a binding agreement to sell the 2.7 million square foot AON Center in Chicago for $712 million or approximately $260 per square foot to 601w Companies.

As we indicated previously, there was a great deal of interest in this asset by a number of players because of what we believe has been a successful lease up strategy lasting over several years which has transformed this Chicago landmark into one of the most prestigious office addresses in the city.

With distinguished tenants such as AON, KPMG, Microsoft, The United Health Group, Integris, Federal Home Loan Bank of Chicago, AT&T and now Kraft Heinz just to name a few.

In conjunction with the closing early in the fourth quarter, we anticipate receiving net sales proceeds of approximately $640 million net of buyer assumed lease abatements and approximately $48 million in contractual tenant capital improvements and leasing commissions.

We intend to use the proceeds to enhance our balance sheet through the paydown of debt and to position the company to potentially fund strategic acquisitions and/or selective share repurchases depending on the opportunities that arise.

To that point during the second quarter we exhausted the 37 million of capacity on our previous share repurchase program, therefore on June 23, the board authorized up to $200 million in additional repurchases over the next two years.

During the quarter, the company repurchased 2.6 million shares of our stock at an average $17.45 per share bringing total repurchases over the last two years to over 21.5 million shares at an average price of $16.99 a share. Capacity remaining under the current authorized plan is $191 million as of the end of the second quarter.

I will now turn it back over to Bobby to review our financial results and expectations for the remainder of the year.

Bobby?.

Thanks Don. While I will discuss some of the highlights from our financial results for the quarter, I again encourage you to please review the earnings release and supplemental financial information, which were filed last night for more complete details.

In general, I believe our reported operating results for the quarter are largely in line with expectations. The major transactional events discussed today will primarily impact future reporting periods.

For the second quarter of 2015, we reported FFO and core FFO of approximately $60 million or $0.39 per diluted share, an increase of $0.02 per share over the results for the same period last year.

The commencement of several significant leases as well as the burn down of certain operating expense abatements over the last 12 months were the main drivers of the increase.

AFFO for the second quarter of 2015 was $0.30 per diluted share and reflects the items I just mentioned, as well as the decreased non-incremental capital expenditures and the effects of straight-line rent adjustments as a result of the completion of certain large tenant build outs and the expiration of rental abatement periods during the second quarter since last year.

As Don mentioned, our total lease percentage was approximately 89% as of June 30, that's up 100 basis points compared to year-end and up to 200 basis points compared to the second quarter of 2014. And our weighted average remaining lease term was 7.1 years as of quarter end.

As has been the trend the last several quarters’ property NOI and same-store NOI improved, both with an 11% increase over the second quarter of last year, reflecting the occupancy gains and the continued burn down of abatements. Our same-store forecast for the year for the current in-service portfolio was north of 10%.

And when reflecting the sale of AON and removing it from the same-store analysis, we anticipate same-store NOI for the year will improve over the prior year by approximately 8% to 9%.

As of the end of the second quarter, we still have 1.1 million square feet of leases that are still in some form of abatement and another 600,000 square feet of executed leases for currently vacant space that is yet commenced, resulting in a 6.4% GAAP in reported versus economic occupancy.

Don summarized the major transactional activities during the quarter, but the second quarter was also very active from a financing perspective as well. We completed the recast of our $500 million line of credit, locking down a 20 basis point all in improvement in pricing and extending the possible maturity of the facility out to 2020.

Additionally, we entered into $160 million 3.48% seven-year mortgage secured by our 1901 Market Street asset in Philadelphia.

The proceeds from the new $160 million mortgage were used to repay $105 million mortgage on the US Bancorp Center that matured during the second quarter with the excess proceeds paying down on the line of credit/ In conjunction with the issuance of the mortgage, we settled $250 million in outstanding interest rate swaps, and as of June 30, 2015 we still have to $250 million in 10-year forward starting swaps that lock the treasury rate at 2.2%.

Now these swaps can be utilized to hedge a potential debt issuance in 2016. We ended the second quarter with $2.3 billion in outstanding debt and approximately 38.8% total debt to gross assets ratio, in line with where we were at year-end, and our next debt maturity is not until April of 2016.

This time I’d like to review our annual guidance especially in line of all the reported disposition activity. On a standalone basis, the AON Center contributes approximately $0.20 per share on FFO annually to our overall results.

Assuming an October closing and the proceeds are initially used to reduce outstanding debt, the sell will likely impact 2015 results by only $0.02 per share.

Despite this impact, we believe our overall financial results are improving for 2015, which leads us to narrow our previous guidance and increase our midpoint for 2015 core FFO to a range of $1.50 to $1.62 per diluted share. With that I'll now ask the operator to provide our listeners with instructions on how they can submit their questions.

We will attempt to answer all of your questions now or will 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. Thank you.

Operator?.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Dave Rodgers from Baird..

Hey good morning guys.

Don maybe dive a little bit deeper on some of the DC vacancy, I think on the last call you said that the velocity there picking up, I saw that you did some deals in the quarter, but maybe talk about the remaining vacancies and what you are seeing in terms of demand and economic?.

Okay, Dave, glad to. I’ll start and Bob Wiberg may want to jump in. I think we are seeing very solid improvement in activity in DC as we speak. In fact I think every quarter we’re seeing a little bit more getting done there.

We’ve had some good activity on some of the vacancies that we've got going on in the market right now and we would anticipate a pretty steady stream of announcements over the next two quarters for occupancy pick up in the market.

Probably the highest level piece of data that is encouraging to us at this point is, as you remember we’ve been pretty bearish on that market for some time now, is the 12 month job growth number of 68,000 that we reported in the last few days, I think was far in excess of what people were expecting, and the best news within that 68,000 job growth number was the fact that a big percentage of those jobs were in professional services, which tends to be in in the DC area lease government contractor.

So I think all of that bodes well for the future for future activity in DC, but let me turn it over to Bob for a second and see what color commentary he’d like to add..

Sure, I think I’d just say that the East Dan market has been very active. Our other markets are increasing activity certainly as well, particularly Arlington and interestingly the 250 East Street building has seen a lot more government procurement activity.

They really backed up a lot of their requirements over the past several years, so there are a lot of pending expiration and we have considerably more activity there than we have had previously, particularly with the government entities..

Great. That’s helpful.

And maybe a multi-part follow-up if I could, but I guess what I’m trying to figure out is kind of how you feel about acquisitions versus the share repurchase today, how you’re thinking about allocating the capital between those two choices if you think you’ll split it, if there is enough acquisition activity out there that you can go that route or if your appetite is really around the share buyback continuing?.

Dave, great question. That’s the $64,000 question for us this quarter; obviously we are putting a lot of thought into where we’re heading with that. I think in a perfect world, we’d like to buy some assets and be able to redeploy those assets into large strategic markets.

On having said that if our share price stays low we’ll have to seriously consider buying some shares back, so I think all options are still on the table.

In a perfect world, I think we’d have some of both maybe, but at this point it’s really a little too early to tell and the good news is that we’re 90 days away from having to make any decisions probably because the closing of the deal probably doesn't happen until sometime in the month of October, likely late October, rather than early October, so we’ve got some time to noodle on it and we’re working hard at making sure that we have our [indiscernible] in terms of how we place that money.

Let me step back, I think we probably ran into a bus throughout the day because Boston Properties is doing their call at the same time, we are, so we don't have a lot of question activity.

So Dave, what I may do is also try to address a question I think that most, was on a lot of people's minds relative to the difference between gross and net sales proceeds on AON, so everybody can get clarity on that as well. We reported a face number of 712 gross sales price, which obviously is accurate.

Of course the deal hasn’t closed yet, so we want to be respectful to the buyer in terms of how much we disclose.

But the difference between the 712 and the roughly 640 of net proceeds was approximately $38 million of free rent that has always been disclosed in our supplemental for quite some time and then roughly $25 million of capital that we've been disclosing and is disclosed in the second quarter report as part of the future capital commitments of the firm.

The remainder of that, the $560 million after that is closing cost. So hopefully that helps any listeners on the call reconciled the difference between the 712 and the 640.

The second question on that probably relates to what is the buyer buying it at, and rather getting into what we think their cap rate, I think we would like to report sort of what we think we’re giving up because I think that’s the more pertinent information.

We have about $31 million of FFO expected for 2016 coming out of AON Center, that’s about a 4.9-ish, little less than 4.9 yield on the building based on the net sales price.

And then if you look at AFFO yield for 2016, it’s actually negligible because there's a fair amount of non-incremental capital coming out of the building next year, so as a result we have less than 1% return on AFFO return from AON for 2016.

So as you can see, there's not a huge first 12 month impact on us relative to what you might expect from the asset because of the nature of where those leases stood at the time of the sale..

[Operator Instructions] We appear to have no further questions. I will turn the call back over to Mr. Miller for closing comment..

Well this will be a good lesson for us, we’ll make sure we don’t overlap with BXP and our quarterly call going forward, but obviously I’m sure there is going to be a lot of questions from people related to the sale of AON and our use of proceeds.

I’m sure some of you will follow-up and we’ll try to give some color commentary to the extent we can around those decisions going forward. So thank you for your time and interest and we look forward to talking to everyone. Take care. Bye bye..

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