Piedmont Office Realty Trust
Annual Report 2017

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________________________ FORM 10-K _________________________________________________________ (Mark One) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2017 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to to Commission file number 001-34626 _________________________________________________________ PIEDMONT OFFICE REALTY TRUST, INC. (Exact name of registrant as specified in its charter) __________________________________________________________ Maryland (State or other jurisdiction of incorporation or organization) 58-2328421 (I.R.S. Employer Identification Number) 11695 Johns Creek Parkway Ste. 350, Johns Creek, Georgia (Address of principal executive offices) 30097 (Zip Code) (770) 418-8800 (Registrant’s telephone number, including area code) _________________________________________________________ Securities registered pursuant to Section 12 (b) of the Act: Title of each class COMMON STOCK Name of exchange on which registered NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12 (g) of the Act: None (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act). Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No As of June 30, 2017, the aggregate market value of the common stock of Piedmont Office Realty Trust, Inc., held by non-affiliates was $3,044,079,292 based on the closing price as reported on the New York Stock Exchange. As of February 20, 2018, 135,065,720 shares of common stock were outstanding. Registrant incorporates by reference portions of the Piedmont Office Realty Trust, Inc. Definitive Proxy Statement for the 2018 Annual Meeting of Stockholders (Items 10, 11, 12, 13, and 14 of Part III) to be filed no later than April 30, 2018. Documents Incorporated by Reference: FORM 10-K PIEDMONT OFFICE REALTY TRUST, INC. TABLE OF CONTENTS PART I. Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures PART II. Item 5. Item 6. Item 7. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Item 9. Item 9A. Item 9B. PART III. Item 10. Item 11. Item 12. Item 13. Item 14. PART IV. Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Item 15. Exhibits, Financial Statement Schedules Signatures Page No. 2 4 20 21 23 23 24 27 28 44 45 46 46 47 48 48 48 48 48 49 50 [This page intentionally left blank.] CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Form 10-K may constitute forward-looking statements within the meaning of the federal securities laws. In addition, Piedmont Office Realty Trust, Inc. ("Piedmont," "we," "our," or "us"), or its executive officers on Piedmont’s behalf, may from time to time make forward-looking statements in reports and other documents Piedmont files with the Securities and Exchange Commission or in connection with other written or oral statements made to the press, potential investors, or others. Statements regarding future events and developments and Piedmont’s future performance, as well as management’s expectations, beliefs, plans, estimates, or projections relating to the future, are forward-looking statements. Forward- looking statements include statements preceded by, followed by, or that include the words “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Examples of such statements in this report include descriptions of our real estate, financing, and operating objectives; discussions regarding future dividends and share repurchases; and discussions regarding the potential impact of economic conditions on our real estate and lease portfolio. These statements are based on beliefs and assumptions of Piedmont’s management, which in turn are based on information available at the time the statements are made. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding the demand for office space in the markets in which Piedmont operates, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. The forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond Piedmont’s ability to control or predict. Such factors include, but are not limited to, the following: • Economic, regulatory, socio-economic and/or technology changes (including accounting standards) that impact the real estate market generally, or that could affect patterns of use of commercial office space; • The impact of competition on our efforts to renew existing leases or re-let space on terms similar to existing leases; • Changes in the economies and other conditions affecting the office sector in general and specifically the eight markets in which we primarily operate where we have high concentrations of our Annualized Lease Revenue (see definition in Item 1. Business of this Annual Report on Form 10-K); • Lease terminations, lease defaults, or changes in the financial condition of our tenants, particularly by one of our large lead tenants; • The effect on us of adverse market and economic conditions, including any resulting impairment charges on both our long-lived assets or goodwill; • The success of our real estate strategies and investment objectives, including our ability to identify and consummate suitable acquisitions and divestitures; • The illiquidity of real estate investments, including the resulting impediment on our ability to quickly respond to adverse changes in the performance of our properties; • The risks and uncertainties associated with our acquisition of properties, many of which risks and uncertainties may not be known at the time of acquisition; • Development and construction delays and resultant increased costs and risks; • Our real estate development strategies may not be successful; • Future acts of terrorism in any of the major metropolitan areas in which we own properties, or future cybersecurity attacks against us or any of our tenants; • Costs of complying with governmental laws and regulations; • Additional risks and costs associated with directly managing properties occupied by government tenants; • The effect of future offerings of debt or equity securities or changes in market interest rates on the value of our common stock; Potential changes in political environment and reduction in federal and/or state funding of our governmental tenants; • Uncertainties associated with environmental and other regulatory matters; • • The effect of any litigation to which we are, or may become, subject; • Changes in tax laws impacting REITs and real estate in general, as well as our ability to continue to qualify as a REIT under the Internal Revenue Code of 1986 (the “Code”), or otherwise adversely affect our stockholders; • The future effectiveness of our internal controls and procedures; and • Other factors, including the risk factors discussed under Item 1A. of this Annual Report on Form 10-K. Management believes these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and management undertakes no obligation to update publicly any of them in light of new information or future events. 1 ITEM 1. BUSINESS General PART I Piedmont Office Realty Trust, Inc. (“Piedmont," "we," "our," or "us") (NYSE: PDM) is a Maryland corporation that operates in a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes and engages in the acquisition, development, management, and ownership of commercial real estate properties throughout the Eastern-half of the United States, including properties that are under construction, are newly constructed, or have operating histories. Piedmont was incorporated in 1997 and commenced operations in 1998. Piedmont conducts business primarily through Piedmont Operating Partnership, L.P. (“Piedmont OP”), a Delaware limited partnership, as well as performing the management of our buildings through two wholly- owned subsidiaries, Piedmont Government Services, LLC and Piedmont Office Management, LLC. Piedmont owns 99.9% of, and is the sole general partner of, Piedmont OP and as such, possesses full legal control and authority over the operations of Piedmont OP. The remaining 0.1% ownership interest of Piedmont OP is held indirectly by Piedmont through our wholly-owned subsidiary, Piedmont Office Holdings, Inc. ("POH"), the sole limited partner of Piedmont OP. Piedmont OP owns properties directly, through wholly-owned subsidiaries and through various joint ventures. References to Piedmont herein shall include Piedmont and all of its subsidiaries, including Piedmont OP and its subsidiaries and joint ventures. Operating Objectives and Strategy Based on our December 31, 2017 equity market capitalization of $2.8 billion, Piedmont is among the largest office REITs in the United States based on the Bloomberg U.S. Office REIT Index. As of December 31, 2017, we owned and operated 67 in-service office properties comprised of approximately 19 million square feet of primarily Class A office space which was 89.7% leased. During the fourth quarter of 2017, we entered into two binding contracts to sell a total of 14 non-strategic properties, both of which subsequently closed on January 4, 2018 (the "2017 Disposition Portfolio"). As a result, as of the filing date, our portfolio consists of 53 office properties, comprised of approximately 16.5 million rentable square feet which are approximately 91.8% leased. Further, exclusive of the 2017 Disposition Portfolio, approximately 91% of our Annualized Lease Revenue (see definition below) is generated from select sub-markets located primarily within eight major office markets located in the Eastern-half of the United States: Atlanta, Boston, Chicago, Dallas, Minneapolis, New York, Orlando, and Washington, D.C. As we typically lease to larger, credit-worthy corporate tenants, our average lease size is approximately 20,000 square feet with an average lease term remaining of approximately seven years. Our diversified tenant base is primarily comprised of investment grade or nationally recognized corporations or governmental agencies, with the majority of our Annualized Lease Revenue derived from such tenants. No tenant accounts for more than 5% of our Annualized Lease Revenue. Headquartered in metropolitan Atlanta, Georgia, with regional and/or local management offices in each of our eight major markets, Piedmont values operational excellence and is a leading participant 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 85% of our office portfolio (based on Annualized Lease Revenue) have achieved and maintain "Energy Star" efficiency (a designation for the top 25% of commercial buildings in energy consumption efficiency). In addition to operational excellence, we focus on fostering long-term relationships with our high-credit quality, diverse tenant base as evidenced by our approximately 70% tenant retention rate over the past ten years. Our primary objectives are to maximize the risk-adjusted return to our stockholders by increasing cash flow from operations, to achieve sustainable growth in Funds From Operations, and to grow net asset value by 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 office sub-markets. 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 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 to implement best practices and achieve sustainability standards. The strategies we intend to execute to achieve these objectives include: 2 Capitalizing on Acquisition/Investment Opportunities Our overall acquisition/investment strategy focuses on properties within eight major office markets located in the Eastern-half of the United States that were identified based on their positive economic and demographic growth trends so as to position our investments for long-term appreciation. In addition, we concentrate our portfolio in select sub-markets where efficiencies can be gained and our market expertize can be maximized. We believe these sub-markets are generally characterized by their strong amenity base, desired location for large corporate users, above-average job and rental rate growth, proximity to robust housing options, market-leading transportation infrastructure, and limited competitive REIT ownership. Both our acquisition and development activities are targeted towards attractively priced, high quality, Class A office properties that complement our existing portfolio. Proactive Asset Management, Leasing Capabilities and Property Management Our proactive approach to 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 markets in which we have a significant presence; demonstrating our commitment to our tenants by maintaining the high quality of our properties; and driving a significant volume of leasing transactions in a manner that provides optimal returns by using creative approaches, including early extensions, 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 in which we believe value has been maximized, and redeploying the proceeds of those dispositions into new investment opportunities with higher overall return prospects. Financing Strategy We employ a conservative leverage strategy by typically 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 selectively enter into 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, enabling us to creatively acquire and control targeted properties, and allowing us to reduce our investment concentration in 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. Information Regarding Disclosures Presented Annualized Lease Revenue ("ALR"), a non-GAAP measure, is calculated by multiplying (i) rental payments (defined as base rent plus operating expense reimbursements, if payable by the tenant on a monthly basis under the terms of a lease that has been executed, but excluding (a) rental abatements and (b) rental payments related to executed but not commenced leases for space that was covered by an existing lease), by (ii) 12. In instances in which contractual rents or operating expense reimbursements are collected on an annual, semi-annual, or quarterly basis, such amounts are multiplied by a factor of 1, 2, or 4, respectively, to calculate the annualized figure. For leases that have been executed but not commenced relating to un-leased space, ALR is calculated by multiplying (i) the monthly base rental payment (excluding abatements) plus any operating expense reimbursements for the initial month of the lease term, by (ii) 12. 3 Employees As of December 31, 2017, we had 136 employees, with 46 of our employees working in our corporate office located in metropolitan Atlanta, Georgia. Our remaining employees work in regional and/or local management offices located in our eight major markets. These employees are involved in acquiring, developing, leasing, and managing our portfolio of properties. Competition We compete for tenants for our high-quality assets in major U.S. markets by fostering strong tenant relationships and by providing quality customer service including; leasing, asset management, property management, and construction management services. As the competition for high-credit-quality tenants is intense, we may be required to provide rent abatements, incur charges for tenant improvements and other concessions, or we may not be able to lease vacant space timely, all of which may impact our results of operations. We compete with other buyers who are interested in properties we elect to acquire, which may affect the amount that we are required to pay for such properties or may ultimately result in our decision not to acquire such properties. We also compete with sellers of similar properties when we sell properties, which may determine the amount of proceeds we receive from the disposal, or which may result in our inability to dispose of such properties due to the lack of an acceptable return. Financial Information About Industry Segments Our current business primarily consists of owning, managing, operating, leasing, acquiring, developing, investing in, and disposing of office real estate assets. We internally evaluate all of our real estate assets as one operating segment, and, accordingly, we do not report segment information. However, we have provided certain information specific to each of our geographical markets that we believe may be helpful to our investors in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations below. Concentration of Credit Risk We are dependent upon the ability of our current tenants to pay their contractual rent amounts as the rents become due. The inability of a tenant to pay future rental amounts would have a negative impact on our results of operations. As of December 31, 2017, no individual tenant represented 10% or more of our anticipated future revenues under non-cancelable leases. Additionally, no individual tenant represented 5% or more of our revenues for the year ended December 31, 2017. Other Matters We have contracts with various governmental agencies, exclusively in the form of operating leases in buildings we own. See Item 1A. Risk Factors for further discussion of the risks associated with these contracts. Additionally, as the owner of real estate assets, we are subject to environmental risks. See Item 1A. Risk Factors for further discussion of the risks associated with environmental concerns. Web Site Address Access to copies of each of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and other filings with the Securities and Exchange Commission (the "SEC"), including any amendments to such filings, may be obtained free of charge from the following Web site, http://www.piedmontreit.com, or directly from the SEC’s Web site at http://www.sec.gov. These filings are available promptly after we file them with, or furnish them to, the SEC. ITEM 1A. RISK FACTORS Risks Related to Our Business and Operations Economic, regulatory, socio-economic and/or technology changes that impact the real estate market generally, or that could affect patterns of use of commercial office space, may cause our operating results to suffer and decrease the value of our real estate properties. The investment returns available from equity investments in real estate depend on the amount of income earned and capital appreciation generated by the properties, as well as the expenses incurred in connection with the properties. If our properties do not generate income sufficient to meet operating expenses, including debt service and capital expenditures, then our ability to make distributions to our stockholders could be adversely affected. In addition, there are significant expenditures associated with an investment in real estate (such as mortgage payments, real estate taxes, and maintenance costs) that generally do not decline 4 when circumstances reduce the income from the property. The following factors, among others, may adversely affect the operating performance and long- or short-term value of our properties: • • • • • • • • • • • • • changes in the national, regional, and local economic climate, particularly in markets in which we have a concentration of properties; local office market conditions such as employment rates and changes in the supply of, or demand for, space in properties similar to those that we own within a particular area; changes in the patterns of office or parking garage use due to technological advances which may make telecommuting more prevalent or reduce the demand for office workers or parking spaces generally; increased demand for "co-working" or sharing of office space with other companies; increased supply of office space due to the conversion of other asset classes such as shopping malls and other retail establishments to office space; the attractiveness of our properties to potential tenants; changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive or otherwise reduce returns to stockholders; the financial stability of our tenants, including bankruptcies, financial difficulties, or lease defaults by our tenants; changes in operating costs and expenses, including costs for maintenance, insurance, and real estate taxes, and our ability to control rents in light of such changes; the need to periodically fund the costs to repair, renovate, and re-let space; earthquakes, tornadoes, hurricanes and other natural disasters, civil unrest, terrorist acts or acts of war, which may result in uninsured or under insured losses; changes in, or increased costs of compliance with, governmental regulations, including those governing usage, zoning, the environment, and taxes; and significant changes in accounting standards and tax laws. In addition, periods of economic slowdown or recession, rising interest rates, or declining demand for real estate could result in a general decrease in rents or an increased occurrence of defaults under existing leases, which would adversely affect our financial condition and results of operations. Any of the above factors may prevent us from generating sufficient cash flow or maintaining the value of our real estate properties. We face considerable competition in the leasing market and may be unable to renew existing leases or re-let space on terms similar to the existing leases, or we may expend significant capital in our efforts to re-let space, which may adversely affect our operating results. Every year, we compete with a number of other developers, owners, and operators of office and office-oriented, mixed-use properties to renew leases with our existing tenants and to attract new tenants. The competition for credit worthy tenants is intense, and we may have difficulty competing, especially with competitors who have purchased properties at discounted prices allowing them to offer space at reduced rental rates, or those that have the ability to offer superior amenities. To the extent that we are able to renew leases that are scheduled to expire in the short-term or re-let such space to new tenants, this intense competition may require us to utilize rent concessions and tenant improvements to a greater extent than we have historically. If our competitors offer office accommodations at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants upon expiration of their existing leases. Even if our tenants renew their leases or we are able to re-let the space to new tenants, the terms and other costs of renewal or re-letting, including the cost of required renovations or additional amenities, increased tenant improvement allowances, leasing commissions, declining rental rates, and other potential concessions, may be less favorable than the terms of our current leases and could require significant capital expenditures. If we are unable to renew leases or re-let space in a reasonable time, or if rental rates decline or tenant improvement, leasing commissions, or other costs increase, our financial condition, cash flows, cash available for distribution, value of our common stock, and ability to satisfy our debt service obligations could be adversely affected. Our rental revenues will be significantly influenced by the economies and other conditions of the office market in general and of the specific markets in which we operate. Because our portfolio consists exclusively of office properties, we are subject to risks inherent in investments in a single property type. This concentration exposes us to the risk of economic downturns in the office sector to a greater extent than if our portfolio also included other sectors of the real estate industry. Further, our portfolio of properties is primarily located in eight major metropolitan areas: Atlanta, Boston, Chicago, Dallas, Minneapolis, New York, Orlando, and Washington, D.C. Collectively, these eight metropolitan areas account for approximately 88% of our ALR from our portfolio of properties as of December 31, 2017, 5 and approximately 91% of our ALR after consideration of the 2017 Disposition Portfolio in January 2018. As a result, we are particularly susceptible to adverse market conditions in these particular cities, including the reduction in demand for office properties, industry slowdowns, governmental cut backs, relocation of businesses and changing demographics. Adverse economic or real estate developments in these markets, or in any of the other markets in which we operate, or any decrease in demand for office space resulting from the local or national government and business climates, could adversely affect our rental revenues and operating results. We depend on tenants for our revenue, and accordingly, lease terminations and/or tenant defaults, particularly by one of our significant lead tenants, could adversely affect the income produced by our properties, which may reduce cash flow and harm our operating performance, thereby limiting our ability to make or maintain competitive distributions to our stockholders. The success of our investments materially depends on the financial stability of our tenants, any of whom may experience a change in their business at any time. As a result, our tenants may delay lease commencements, decline to extend or renew their leases upon expiration, fail to make rental payments when due, or declare bankruptcy. Any of these actions could result in the termination of the tenants’ leases, or expiration of existing leases without renewal, and the loss of rental income attributable to the terminated or expired leases. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment and re-letting our property. If significant leases are terminated or defaulted upon, we may be unable to lease the property for the rent previously received or sell the property without incurring a loss. In addition, significant expenditures, related to mortgage payments, real estate taxes, insurance, and maintenance costs, are generally fixed or may not decrease immediately when revenues at the related property decrease. The occurrence of any of the situations described above, particularly if it involves one of our significant lead tenants, could seriously harm our operating performance. As of December 31, 2017, our most substantial non-U.S. governmental lead tenants, based on ALR, were: the State of New York (4.6% of ALR), US Bancorp (4.3% of ALR), Independence Blue Cross (3.3% of ALR), GE (3.0% of ALR), and Nestle (2.2% of ALR); however, the revenues generated by the properties that any of our lead tenants occupy are substantially dependent upon the financial condition of these tenants and, accordingly, any event of bankruptcy, insolvency, or a general downturn in the business of any of these tenants may result in the failure or delay of such tenant’s rental payments, which may have a substantial adverse effect on our operating performance. Some of our leases provide tenants with the right to terminate their leases early, which could have an adverse effect on our cash flow and results of operations. Certain of our leases permit our tenants to terminate their leases of all or a portion of the leased premises prior to their stated lease expiration dates under certain circumstances, such as providing notice by a certain date and, in many cases, paying a termination fee. In certain cases, such early terminations can be effectuated by our tenants with little or no termination fee being paid to us. As of December 31, 2017, approximately 0.82% of our ALR was comprised of leases with tenant-controlled options to exercise early termination rights (including contractions and terminations of whole leases) that could be effected during the subsequent twelve month period. Substantially all of these early termination contraction rights would require the tenant to pay a termination fee upon execution. To the extent that our tenants exercise early termination rights, our cash flow and earnings will be adversely affected, and we can provide no assurances that we will be able to generate an equivalent amount of net rental income by leasing the vacated space to new third party tenants. We may face additional risks and costs associated with directly managing properties occupied by government tenants. We currently own four properties in which some of the tenants in each property are federal government agencies. Lease agreements with these federal government agencies contain certain provisions required by federal law, which require, among other things, that the contractor (which is the lessor or the owner of the property) agree to comply with certain rules and regulations, including but not limited to, rules and regulations related to anti-kickback procedures, examination of records, audits and records, equal opportunity provisions, prohibitions against segregated facilities, certain executive orders, subcontractor costs or pricing data, and certain provisions intending to assist small businesses. Through one of our wholly-owned subsidiaries, we directly manage properties with federal government agency tenants and, therefore, we are subject to additional risks associated with compliance with all such federal rules and regulations. There are certain additional requirements relating to the potential application of the Employment Standards Administration’s Office of Federal Contract Compliance Programs and the related requirement to prepare written affirmative action plans applicable to government contractors and subcontractors. Some of the factors used to determine whether such requirements apply to a company that is affiliated with the actual government contractor (the legal entity that is the lessor under a lease with a federal government agency) include whether such company and the government contractor are under common ownership, have common management, and are under common control. One of our wholly-owned subsidiaries is considered a government contractor, increasing the risk that requirements of these equal opportunity provisions, including the requirement to prepare affirmative action plans, may be determined to be applicable to the entire operations of our company. 6 Adverse market and economic conditions may negatively affect us and could cause us to recognize impairment charges on tangible real estate and related lease intangible assets or otherwise impact our performance. We continually monitor events and changes in circumstances that could indicate that the carrying value of the real estate and related lease intangible assets in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the carrying value of real estate and related lease intangible assets may not be recoverable, we assess the recoverability of these assets by determining whether the carrying value will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, we adjust the real estate and related lease intangible assets to their estimated fair value and recognize an impairment loss. Projections of expected future cash flows require management to make assumptions to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis, including discount rates, could result in an incorrect assessment of the property’s estimated fair value and, therefore, could result in the misstatement of the carrying value of our real estate and related lease intangible assets and our net income. In addition, adverse economic conditions could also cause us to recognize additional asset impairment charges in the future, which could materially and adversely affect our business, financial condition and results of operations. Adverse market and economic conditions could cause us to recognize impairment charges on our goodwill, or otherwise impact our performance. We review the value of our goodwill on an annual basis and when events or changes in circumstances indicate that the carrying value of goodwill may exceed the estimated fair value of such assets. Such interim events could be adverse changes in legal matters or in the business climate, adverse action or assessment by a regulator, the loss of key personnel, or persistent declines in our stock price below our carrying value. Volatility in the overall market could cause the price of our common stock to fluctuate and cause the carrying value of our company to exceed the estimated fair value. If that occurs, our goodwill potentially could be impaired. Impairment charges recognized in order to reduce our goodwill could materially and adversely affect our financial condition and results of operations. Our earnings growth will partially depend upon future acquisitions of properties, and we may not be successful in identifying and consummating suitable acquisitions that meet our investment criteria, which may impede our growth and negatively affect our results of operations. Our business strategy involves the acquisition of primarily high-quality office properties in selected markets. These activities require us to identify suitable acquisition candidates or investment opportunities that meet our criteria and are compatible with our growth strategy. We may not be successful in identifying suitable properties or other assets that meet our acquisition criteria or in consummating acquisitions on satisfactory terms, if at all. Failure to identify or consummate acquisitions could slow our growth. Further, we face significant competition for attractive investment opportunities from a large number of other real estate investors, including investors with significant capital resources such as domestic and foreign corporations and financial institutions, publicly traded and privately held REITs, private institutional investment funds, investment banking firms, life insurance companies and pension funds. As a result of competition, we may be unable to acquire additional properties as we desire, the purchase price may be significantly elevated, or we may have to accept lease-up risk for a property with lower occupancy, any of which could adversely affect our financial condition, results of operations, cash flows and the ability to pay dividends on, and the market price of our common stock. The illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties. Because real estate investments are relatively illiquid and large-scale office properties such as many of those in our portfolio are particularly illiquid, our ability to sell promptly one or more properties in our portfolio in response to changing economic, financial, and investment conditions is limited. The real estate market is affected by many forces, such as general economic conditions, availability of financing, interest rates, and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by us or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot provide any assurances that we will have funds available to correct such defects or to 7 make such improvements. Our inability to dispose of assets at opportune times or on favorable terms could adversely affect our cash flows and results of operations, thereby limiting our ability to make distributions to stockholders. Future acquisitions of properties may not yield anticipated returns, may result in disruptions to our business, and may strain management resources. We intend to continue acquiring high-quality office properties, subject to the availability of attractive properties, to our ability to arrange financing, and to consummate acquisitions on satisfactory terms. In deciding whether to acquire a particular property, we make certain assumptions regarding the expected future performance of that property. However, newly acquired properties may fail to perform as expected. Costs necessary to bring acquired properties up to standards established for their intended market position may exceed our expectations, which may result in the properties’ failure to achieve projected returns. In particular, to the extent that we engage in acquisition activities, they will pose the following risks for our ongoing operations: • we may acquire properties or other real estate-related investments that are not initially accretive to our results upon acquisition or accept lower cash flows in anticipation of longer term appreciation, and we may not successfully manage and lease those properties to meet our expectations; • we may not achieve expected cost savings and operating efficiencies; • we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations; • management attention may be diverted to the integration of acquired properties, which in some cases may turn out to be less compatible with our operating strategy than originally anticipated; • we may not be able to support the acquired property through one of our existing property management offices and may • not successfully open new satellite offices to serve additional markets; the acquired properties may not perform as well as we anticipate due to various factors, including changes in macro- economic conditions and the demand for office space; and • we may acquire properties without any recourse, or with only limited recourse, for liabilities, whether known or unknown, such as clean-up of environmental contamination, unknown/undisclosed latent structural issues or maintenance problems, claims by tenants, vendors or other persons against the former owners of the properties, and claims for indemnification by general partners, directors, officers, and others indemnified by the former owners of the properties. Acquired properties may be located in new markets, where we may face risks associated with investing in an unfamiliar market. We may acquire properties located in markets in which we do not have an established presence. We may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures. As a result, the operating performance of properties acquired in new markets may be less than we anticipate, and we may have difficulty integrating such properties into our existing portfolio. In addition, the time and resources that may be required to obtain market knowledge and/or integrate such properties into our existing portfolio could divert our management’s attention from our existing business or other attractive opportunities. We may invest in mezzanine debt, which is subject to increased risk of loss relative to senior mortgage loans. We may invest in mezzanine debt. These investments, which are subordinate to the mortgage loans secured by the real property underlying the loan, are generally secured by pledges of the equity interests of the entities owning the underlying real estate. As a result, these investments involve greater risk of loss than investments in senior mortgage loans that are secured by real property since they are subordinate to the mortgage loan secured by the building and may be subordinate to the interests of other mezzanine lenders. Therefore, if the property owner defaults on its debt service obligations payable to us or on debt senior to us, or declares bankruptcy, such mezzanine loans will be satisfied only after the senior debt and the other senior mezzanine loans are paid in full, resulting in the possibility that we may be unable to recover some or all of our investment. In addition, the value of the assets securing or supporting our mezzanine debt investments could deteriorate over time due to factors beyond our control, including acts or omissions by owners, changes in business, economic or market conditions, or foreclosure, any of which could result in the recognition of impairment losses. There may also be significant delays and costs associated with the process of foreclosing on the collateral securing or supporting such investments. Our operating results may suffer because of potential development and construction delays and resultant increased costs and risks. From time to time, we engage in various development and re-development projects where we may be subject to uncertainties associated with re-zoning, environmental concerns of governmental entities and/or community groups, and our builders’ ability to build in conformity with plans, specifications, budgeted costs and timetables. A builder’s performance may also be affected or 8 delayed by conditions beyond the builder’s control. Delays in completing construction could also give tenants the right to terminate preconstruction leases. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. Further, we may incur unanticipated additional costs related to disputes with existing tenants during redevelopment projects. These and other factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. Projects with long lead times may increase leasing risk due to changes in market conditions. Our real estate development strategies may not be successful. From time to time, we engage in various development and redevelopment activities to the extent attractive projects become available. When we engage in development activities, we are subject to risks associated with those activities that could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock, including, but not limited to: development projects in which we have invested may be abandoned and the related investment will be impaired; • • we may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use, building, occupancy and other governmental permits and authorizations; • we may not be able to obtain land on which to develop; • we may not be able to obtain financing for development projects, or obtain financing on favorable terms; • construction costs of a project may exceed the original estimates or construction may not be concluded on schedule, making the project less profitable than originally estimated or not profitable at all (including the possibility of errors or omissions in the project's design, contract default, contractor or subcontractor default, performance bond surety default, the effects of local weather conditions, the possibility of local or national strikes and the possibility of shortages in materials, building supplies or energy and fuel for equipment); tenants which pre-lease space or contract with us for a build-to-suit project may default prior to occupying the project; upon completion of construction, we may not be able to obtain, or obtain on advantageous terms, permanent financing for activities that we financed through construction loans; and • • • we may not achieve sufficient occupancy levels and/or obtain sufficient rents to ensure the profitability of a completed project. Moreover, substantial renovation and development activities, regardless of their ultimate success, typically require a significant amount of management’s time and attention, diverting their attention from our other operations. Future terrorist attacks in the major metropolitan areas in which we own properties could significantly impact the demand for, and value of, our properties. Our portfolio of properties is primarily located in eight major metropolitan areas: Atlanta, Boston, Chicago, Dallas, Minneapolis, New York, Orlando, and Washington, D.C., any of which could be, and some of which have recently been, the target of terrorist attacks. Future terrorist attacks and other acts of terrorism or war would severely impact the demand for, and value of, our properties. Terrorist attacks in and around any of the major metropolitan areas in which we own properties also could directly impact the value of our properties through damage, destruction, loss, or increased security costs, and could thereafter materially impact the availability or cost of insurance to protect against such acts. A decrease in demand could make it difficult to renew or re-lease our properties at lease rates equal to or above historical rates. To the extent that any future terrorist attacks otherwise disrupt our tenants’ businesses, it may impair our tenants’ ability to make timely payments under their existing leases with us, which would harm our operating results. We face risks related to the occurrence of cyber incidents, or a deficiency in our cyber-security, which could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results. A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. The risk of a security breach or disruption, particularly through cyber attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Risks that could directly result from the occurrence of a cyber incident include physical harm to occupants of our buildings, physical damage to our buildings, actual cash loss, operational interruption, damage to our relationship with our tenants, potential errors from misstated financial reports, violations of loan covenants, missed reporting deadlines, and private data exposure, among others. Any or all of the preceding risks could have a material adverse effect on our results of operations, financial condition 9 and cash flows. Although we make efforts to maintain the security and integrity of these types of information technology networks, building systems, and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Further, one or more of our tenants could experience a cyber incident which could impact their operations and ability to perform under the terms of their lease with us. Uninsured losses or losses in excess of our insurance coverage could adversely affect our financial condition and our cash flow, and there can be no assurance as to future costs and the scope of coverage that may be available under insurance policies. We carry comprehensive general liability, fire, extended coverage, business interruption rental loss coverage, environmental, cyber- security, and umbrella liability coverage on all of our properties and earthquake, wind, and flood coverage on properties in areas where such coverage is warranted. We believe the policy specifications and insured limits of these policies are adequate and appropriate given the relative risk of loss, the cost of the coverage, and industry practice. However, we may be subject to certain types of losses, those that are generally catastrophic in nature, such as losses due to wars, conventional or cyber terrorism, chemical, biological, nuclear and radiation (“CBNR”) acts of terrorism and, in some cases, earthquakes, hurricanes, and flooding, either because such coverage is not available or is not available at commercially reasonable rates. If we experience a loss that is uninsured or that exceeds policy limits, we could lose a significant portion of the capital we have invested in the damaged property, as well as the anticipated future revenue from the property. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it impractical or undesirable to use insurance proceeds to replace a property after it has been damaged or destroyed. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged. Furthermore, we may not be able to obtain adequate insurance coverage at reasonable costs in the future, as the costs associated with property and casualty renewals may be higher than anticipated. In addition, insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims. Under the Terrorism Risk Insurance Act ("TRIA"), which is effective through 2020, United States insurers cannot exclude conventional (non-CBNR) terrorism losses. These insurers must make terrorism insurance available under their property and casualty insurance policies; however, this legislation does not regulate the pricing of such insurance. In some cases, mortgage lenders may insist that commercial property owners purchase coverage against terrorism as a condition of providing mortgage loans. Such insurance policies may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate coverage for such losses. We have one property located in California, an area that is especially susceptible to earthquakes, which represents approximately 3.1% of our ALR as of December 31, 2017. If an earthquake materially damages, destroys or impairs the use by tenants of this property and the loss is not fully insured, the value of the asset will be reduced by such uninsured loss. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in lower distributions to our stockholders. Should one of our insurance carriers become insolvent, we would be adversely affected. We carry several different lines of insurance, placed with several large insurance carriers. If any one of these large insurance carriers were to become insolvent, we would be forced to replace the existing insurance coverage with another suitable carrier, and any outstanding claims would be at risk for collection. In such an event, we cannot be certain that we would be able to replace the coverage at similar or otherwise favorable terms. Replacing insurance coverage at unfavorable rates and the potential of uncollectible claims due to carrier insolvency could adversely impact our results of operations and cash flows. Our joint venture investments could be adversely affected by a lack of sole decision-making authority and our reliance on joint venture partners’ financial condition. From time to time we enter into strategic joint ventures with institutional investors to acquire, develop, improve, or dispose of properties, thereby reducing the amount of capital required by us to make investments and diversifying our capital sources for growth. Such joint venture investments involve risks not otherwise present in a wholly-owned property, development, or redevelopment project, including but not limited to the following: • • in these investments, we may not have exclusive control over the development, financing, leasing, management, and other aspects of the project, which may prevent us from taking actions that are opposed by our joint venture partners; joint venture agreements often restrict the transfer of a co-venturer’s interest or may otherwise restrict our ability to sell the interest when we desire or on advantageous terms; 10 • we may not be in a position to exercise sole decision-making authority regarding the property or joint venture, which • • • • • could create the potential risk of creating impasses on decisions, such as acquisitions or sales; such co-venturer may, at any time, have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals; such co-venturer may be in a position to take action contrary to our instructions, requests, policies or objectives, including our current policy with respect to maintaining our qualification as a REIT; the possibility that our co-venturer in an investment might become bankrupt, which would mean that we and any other remaining co-venturers would generally remain liable for the joint venture’s liabilities; our relationships with our co-venturers are contractual in nature and may be terminated or dissolved under the terms of the applicable joint venture agreements and, in such event, we may not continue to own or operate the interests or assets underlying such relationship or may need to purchase such interests or assets at a premium to the market price to continue ownership; disputes between us and our co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and efforts on our business and could result in subjecting the properties owned by the applicable joint venture to additional risk; or • we may, in certain circumstances, be liable for the actions of our co-venturers, and the activities of a joint venture could adversely affect our ability to qualify as a REIT, even though we do not control the joint venture. Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce the returns to our investors. Costs of complying with governmental laws and regulations may reduce our net income and the cash available for distributions to our stockholders. All real property and the operations conducted on real property are subject to federal, state, and local laws and regulations relating to environmental protection and human health and safety. Tenants’ ability to operate and to generate income to pay their lease obligations may be affected by permitting and compliance obligations arising under such laws and regulations. Some of these laws and regulations may impose joint and several liability on tenants, owners, or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may hinder our ability to sell, rent, or pledge such property as collateral for future borrowings. Compliance with new laws or regulations or stricter interpretation of existing laws by agencies or the courts may require us to incur material expenditures or may impose additional liabilities on us, including environmental liabilities. In addition, there are various local, state, and federal fire, health, life-safety, and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, liabilities, fines, or damages we must pay will reduce our cash flows and ability to make distributions and may reduce the value of our stockholders’ investment. As the present or former owner or operator of real property, we could become subject to liability for environmental contamination, regardless of whether we caused such contamination. Under various federal, state, and local environmental laws, ordinances, and regulations, a current or former owner or operator of real property may be liable for the cost to remove or remediate hazardous or toxic substances, wastes, or petroleum products on, under, from, or in such property. These costs could be substantial and liability under these laws may attach whether or not the owner or operator knew of, or was responsible for, the presence of such contamination. As a result our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties such as the presence of underground storage tanks or activities of unrelated third parties may affect our properties. Even if more than one party may have been responsible for the contamination, each liable party may be held entirely responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a property for damages based on personal injury, natural resources, or property damage and/or for other costs, including investigation and clean-up costs, resulting from the environmental contamination. The presence of contamination on one of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination, or otherwise adversely affect our ability to sell or lease the property or borrow using the property as collateral. In addition, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants. Some of our properties are adjacent to or near other properties that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances. In addition, certain of our properties are on, adjacent to, or near sites upon which others, including former owners or tenants of our properties, have engaged, or may in the future engage, in activities that have released or may have released petroleum products or other hazardous or toxic substances. 11 The cost of defending against claims of liability, of remediating any contaminated property, or of paying personal injury claims could reduce the amounts available for distribution to our stockholders. As the owner of real property, we could become subject to liability for adverse environmental conditions in the buildings on our property. Some of our properties have building materials that contain asbestos. Environmental laws require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, adequately inform or train those who may come into contact with asbestos, and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. These laws may impose fines and penalties on building owners or operators who fail to comply with these requirements. In addition, environmental laws and the common law may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos. The properties also may contain or develop harmful mold or suffer from other air quality issues. Any of these materials or conditions could result in liability for personal injury and costs of remediating adverse conditions, which could have an adverse effect on our cash flows and ability to make distributions to our stockholders. As the owner of real property, we could become subject to liability for a tenant’s failure to comply with environmental requirements regarding the handling and disposal of regulated substances and wastes or for non-compliance with health and safety requirements, which requirements are subject to change. Some of our tenants may handle regulated substances and wastes as part of their operations at our properties. Environmental laws regulate the handling, use, and disposal of these materials and subject our tenants, and potentially us, to liability resulting from non-compliance with these requirements. The properties in our portfolio also are subject to various federal, state, and local health and safety requirements, such as state and local fire requirements. If we or our tenants fail to comply with these various requirements, we might incur governmental fines or private damage awards. Moreover, we do not know whether or the extent to which existing requirements or their enforcement will change or whether future requirements will require us to make significant unanticipated expenditures, either of which could materially and adversely impact our financial condition, results of operations, cash flows, cash available for distribution to stockholders, the market price of our common stock, and our ability to satisfy our debt service obligations. If our tenants become subject to liability for noncompliance, it could affect their ability to make rental payments to us. We depend on key personnel, each of whom would be difficult to replace. Our continued success depends to a significant degree upon the continued contributions of certain key personnel, each of whom would be difficult to replace. Our ability to retain our management team, or to attract suitable replacements should any member of the management team leave, is dependent on the competitive nature of the employment market. The loss of services of one or more key members of our management team could adversely affect our results of operations and slow our future growth. While we have planned for the succession of each of the key members of our management team, our succession plans may not effectively prevent any adverse effects from the loss of any member of our management team. We have not obtained and do not expect to obtain “key person” life insurance on any of our key personnel. We may be subject to litigation, which could have a material adverse effect on our financial condition. From time to time, we may be subject to legal action arising in the ordinary course of our business or otherwise. Such action could result in additional expenses which, if uninsured, could adversely impact our earnings and cash flows, thereby impacting our ability to service our debt and make quarterly distributions to our stockholders. There can be no assurance that our insurance policies will fully cover any payments or legal costs associated with any potential legal action. Further, the ultimate resolution of such action could impact the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors. If our disclosure controls or internal control over financial reporting is not effective, investors could lose confidence in our reported financial information, which could adversely affect the perception of our business and the trading price of our common stock. The design and effectiveness of our disclosure controls and procedures and our internal control over financial reporting may not prevent all errors, misstatements, or misrepresentations. Although management will continue to review the effectiveness of our disclosure controls and procedures and our internal control over financial reporting, there can be no guarantee that these processes will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weakness, in our internal control over financial reporting which may occur in the future could result in misstatements of our results of operations, 12 restatements of our financial statements, a decline in the trading price of our common stock, or otherwise materially adversely affect our business, reputation, results of operations, financial condition, or liquidity. Compliance or failure to comply with the Americans with Disabilities Act and other similar regulations could result in substantial costs. Under the Americans with Disabilities Act, places of public accommodation must meet certain federal requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If we are required to make unanticipated expenditures to comply with the Americans with Disabilities Act, including removing access barriers, then our cash flows and the amounts available for distributions to our stockholders may be adversely affected. Although we believe that our properties are currently in material compliance with these regulatory requirements, we have not conducted an audit or investigation of all of our properties to determine our compliance, and we cannot predict the ultimate cost of compliance with the Americans with Disabilities Act or other legislation. If one or more of our properties is not in compliance with the Americans with Disabilities Act or other legislation, then we would be required to incur additional costs to achieve compliance. If we incur substantial costs to comply with the Americans with Disabilities Act or other legislation, our financial condition, results of operations, the market price of our common stock, cash flows, and our ability to satisfy our debt obligations and to make distributions to our stockholders could be adversely affected. Risks Related to Our Organization and Structure Our organizational documents contain provisions that may have an anti-takeover effect, which may discourage third parties from conducting a tender offer or seeking other change of control transactions that could involve a premium price for our common stock or otherwise benefit our stockholders. Our charter and bylaws contain provisions that may have the effect of delaying, deferring, or preventing a change in control of our company (including an extraordinary transaction such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for our common stock or otherwise be in the best interest of our stockholders. These provisions include, among other things, restrictions on the ownership and transfer of our stock, advance notice requirements for stockholder nominations for directors and other business proposals, and our board of directors’ power to classify or reclassify unissued shares of common or preferred stock and issue additional shares of common or preferred stock. In order to preserve our REIT status, our charter limits the number of shares a person may own, which may discourage a takeover that could result in a premium price for our common stock or otherwise benefit our stockholders. Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT for federal income tax purposes. Unless exempted by our board of directors, no person may actually or constructively own more than 9.8% (by value or number of shares, whichever is more restrictive) of the outstanding shares of our common stock or the outstanding shares of any class or series of our preferred stock, which may inhibit large investors from desiring to purchase our stock. This restriction may have the effect of delaying, deferring, or preventing a change in control, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for our common stock or otherwise be in the best interest of our stockholders. Our board of directors can take many actions without stockholder approval. Our board of directors has overall authority to oversee our operations and determine our major corporate policies. This authority includes significant flexibility. For example, our board of directors can do the following: • • • within the limits provided in our charter, prevent the ownership, transfer, and/or accumulation of stock in order to protect our status as a REIT or for any other reason deemed to be in our best interest and the interest of our stockholders; issue additional shares of stock without obtaining stockholder approval, which could dilute the ownership of our then- current stockholders; amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue, without obtaining stockholder approval; classify or reclassify any unissued shares of our common or preferred stock and set the preferences, rights and other terms of such classified or reclassified shares, without obtaining stockholder approval; amend our bylaws; employ and compensate affiliates; direct our resources toward investments, which ultimately may not appreciate over time; change creditworthiness standards with respect to our tenants; change our investment or borrowing policies; • • • • • • 13 • • determine that it is no longer in our best interest to attempt to qualify, or to continue to qualify, as a REIT; and suspend, modify or terminate the dividend reinvestment plan. Any of these actions could increase our operating expenses, impact our ability to make distributions, or reduce the value of our assets without giving our stockholders the right to vote. Our charter permits our board of directors to issue stock with terms that may subordinate the rights of our common stockholders, which may discourage a third party from acquiring us in a manner that could result in a premium price for our common stock or otherwise benefit our stockholders. Our board of directors may, without stockholder approval, issue authorized but unissued shares of our common or preferred stock and amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue. In addition, our board of directors may, without stockholder approval, classify or reclassify any unissued shares of our common or preferred stock and set the preferences, rights and other terms of such classified or reclassified shares. Thus, our board of directors could authorize the issuance of preferred stock with terms and conditions that could have priority with respect to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Such preferred stock also could have the effect of delaying, deferring, or preventing a change in control, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for our common stock, or otherwise be in the best interest of our stockholders. Our board of directors could elect for us to be subject to certain Maryland law limitations on changes in control that could have the effect of preventing transactions in the best interest of our stockholders. Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under certain circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of such shares, including: • • “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or any affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and thereafter impose supermajority voting requirements on these combinations; and “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, except solely by virtue of a revocable proxy, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares. Our bylaws contain a provision exempting any acquisition by any person of shares of our stock from the control share acquisition statute, and our board of directors has adopted a resolution exempting any business combination with any person from the business combination statute. As a result, these provisions currently will not apply to a business combination or control share acquisition involving our company. However, our board of directors may opt into the business combination provisions and the control share provisions of Maryland law in the future. Our charter, our bylaws, the limited partnership agreement of our operating partnership, and Maryland law also contain other provisions that may delay, defer, or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. In addition, the employment agreements with our named executive officers contain, and grants under our incentive plan also may contain, change-in-control provisions that might similarly have an anti-takeover effect, inhibit a change of our management, or inhibit in certain circumstances tender offers for our common stock or proxy contests to change our board. Our rights and the rights of our stockholders to recover claims against our directors and officers are limited, which could reduce our recovery and our stockholders’ recovery against them if they negligently cause us to incur losses. Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interest and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter eliminates our directors’ and officers’ liability to us and our stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property, 14 or services or active and deliberate dishonesty established by a final judgment and which is material to the cause of action. Our charter and bylaws require us to indemnify our directors and officers to the maximum extent permitted by Maryland law for any claim or liability to which they may become subject or which they may incur by reason of their service as directors or officers, except to the extent that the act or omission of the director or officer was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, the director or officer actually received an improper personal benefit in money, property, or services, or, in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law, which could reduce our and our stockholders’ recovery from these persons if they act in a negligent manner. In addition, we may be obligated to fund the defense costs incurred by our directors and officers (as well as by our employees and agents) in some cases. Risks Related to Our Common Stock Any change in our dividend policy could have a material adverse effect on the market price of our common stock. Distributions are authorized and determined by our board of directors in its sole discretion and depend upon a number of factors, including: • • • • • • • • cash available for distribution; our results of operations and anticipated future results of operations; our financial condition, especially in relation to our anticipated future capital needs of our properties; the level of reserves we establish for future capital expenditures; the distribution requirements for REITs under the Code; the level of distributions paid by comparable listed REITs; our operating expenses; and other factors our board of directors deems relevant. We expect to continue to pay quarterly distributions to our stockholders; however, we bear all expenses incurred by our operations, and our funds generated by operations, after deducting these expenses, may not be sufficient to cover desired levels of distributions to our stockholders. Any change in our distribution policy could have a material adverse effect on the market price of our common stock. There are significant price and volume fluctuations in the public markets, including on the exchange which we listed our common stock. The U.S. stock markets, including the NYSE on which our common stock is listed, have historically experienced significant price and volume fluctuations. The market price of our common stock may be highly volatile and could be subject to wide fluctuations and investors in our common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. If the market price of our common stock declines significantly, stockholders may be unable to resell their shares at or above their purchase price. We cannot assure stockholders that the market price of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect our stock price or result in fluctuations in the price or trading volume of our common stock include, but are not limited to, the following: • • actual or anticipated variations in our quarterly operating results; changes in our earnings estimates or publication of research reports about us or the real estate industry, although no assurance can be given that any research reports about us will be published or the accuracy of such reports; changes in our dividend policy; future sales of substantial amounts of our common stock by our existing or future stockholders; increases in market interest rates, which may lead purchasers of our stock to demand a higher yield; changes in market valuations of similar companies; adverse market reaction to any increased indebtedness we incur in the future; additions or departures of key personnel; actions by institutional stockholders; • • • • • • • • material, adverse litigation judgments; • • speculation in the press or investment community; and general market and economic conditions. 15 Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which would dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may adversely affect the market price of our common stock. We may attempt to increase our capital resources by making additional offerings of debt or equity securities, including medium term notes, senior or subordinated notes and classes of preferred or common stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock or both. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their proportionate ownership. Market interest rates may have an effect on the value of our common stock. One of the factors that investors may consider in deciding whether to buy or sell our common stock is our distribution rate as a percentage of our share price, relative to market interest rates. If market interest rates increase, prospective investors may desire a higher yield on our common stock or seek securities paying higher dividends or yields. It is likely that the public valuation of our common stock will be based primarily on our earnings and cash flows and not from the underlying appraised value of the properties themselves. As a result, interest rate fluctuations and capital market conditions can affect the market value of our common stock. For instance, if interest rates rise, it is possible that the market price of our common stock will decrease, because potential investors may require a higher dividend yield on our common stock as market rates on interest-bearing securities, such as bonds, rise. If securities analysts do not publish research or reports about our business or if they downgrade our common stock or our sector, the price of our common stock could decline. The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrades our shares or our industry, or the stock of any of our competitors, the price of our shares could decline. If one or more of these analysts ceases coverage of our company, we could lose attention in the market, which in turn could cause the price of our common stock to decline. Federal Income Tax Risks Our failure to qualify as a REIT could adversely affect our operations and our ability to make distributions. We are owned and operated in a manner intended to qualify us as a REIT for U.S. federal income tax purposes; however, we do not have a ruling from the IRS as to our REIT status. In addition, we own all of the common stock of a subsidiary that has elected to be treated as a REIT, and if our subsidiary REIT were to fail to qualify as a REIT, it is possible that we also would fail to qualify as a REIT unless we (or the subsidiary REIT) could qualify for certain relief provisions. Our qualification and the qualification of our subsidiary REIT as a REIT will depend on satisfaction, on an annual or quarterly basis, of numerous requirements set forth in highly technical and complex provisions of the Code for which there are only limited judicial or administrative interpretations. A determination as to whether such requirements are satisfied involves various factual matters and circumstances not entirely within our control. The fact that we hold substantially all of our assets through our operating partnership and its subsidiaries further complicates the application of the REIT requirements for us. No assurance can be given that we, or our subsidiary REIT, will qualify as a REIT for any particular year. If we, or our subsidiary REIT, were to fail to qualify as a REIT in any taxable year for which a REIT election has been made, the non-qualifying REIT would not be allowed a deduction for dividends paid to its stockholders in computing our taxable income and would be subject to U.S. federal income tax on its taxable income at corporate rates. Moreover, unless the non-qualifying REIT were to obtain relief under certain statutory provisions, the non-qualifying REIT also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would reduce our net earnings available for investment or distribution to our stockholders because of the additional tax liability to us for the years involved. As a result of such additional tax liability, we might need to borrow funds or liquidate certain investments on terms that may be disadvantageous to us in order to pay the applicable tax. 16 Changes in tax laws may eliminate the benefits of REIT status, prevent us from maintaining our qualification as a REIT, or otherwise adversely affect our stockholders. New legislation, regulations, administrative interpretations or court decisions could change the tax laws or interpretations of the tax laws regarding qualification as a REIT, or the federal income tax consequences of that qualification, in a manner that is materially adverse to our stockholders. In particular, the Tax Cuts and Jobs Act ("H.R. 1"), which generally takes effect for taxable years beginning on or after January 1, 2018 (subject to certain exceptions), makes many significant changes to the U.S. federal income tax laws that will profoundly impact the taxation of individuals and corporations (including both regular C corporations and corporations that have elected to be taxed as REITs). A number of changes that affect noncorporate taxpayers will expire at the end of 2025 unless Congress acts to extend them. These changes will impact us and our stockholders in various ways, some of which may be adverse or potentially adverse compared to prior law. H.R. 1 may also have an adverse effect on our current or potential tenants or the real estate industry generally, which could have an indirect impact on us. For example, H.R. 1 limits the ability of corporations to utilize net operating loss carryforwards and limits the deductibility of business interest for all taxpayers, subject to an exception for taxpayers that are engaged in certain specified real property trades or business who make an irrevocable election not to apply the limitation to a particular real property trade or business and to depreciate their real property investments held in such trade or business using the less favorable alternative depreciation system. To date, the IRS has issued only limited guidance with respect to certain of the provisions of H.R. 1, and there are numerous interpretive issues that will require guidance. It is highly likely that technical corrections legislation will be needed to clarify certain aspects of the new law and give proper effect to Congressional intent. There can be no assurance, however, that technical clarifications or changes needed to prevent unintended or unforeseen tax consequences will be enacted by Congress in the near future. Additional changes to tax laws are likely to continue to occur in the future. Accordingly, there is no assurance that we can continue to operate with the current benefits of our REIT status or that a change to the tax laws will not adversely affect the taxation of our stockholders. If there is a change in the tax laws that prevents us from qualifying as a REIT, that eliminates REIT status generally, or that requires REITs generally to pay corporate level income taxes, our results of operations may be adversely affected and we may not be able to make the same level of distributions to our stockholders, and changes to the taxation of our stockholders could have an adverse effect on an investment in our common stock. Even if we qualify as a REIT, we may incur certain tax liabilities that would reduce our cash flow and impair our ability to make distributions. Even if we maintain our status as a REIT, we may be subject to U.S. federal income taxes or state taxes, which would reduce our cash available for distribution to our stockholders. For example, we will be subject to federal income tax on any undistributed taxable income. Further, if we fail to distribute during each calendar year at least the sum of (a) 85% of our ordinary income for such year, (b) 95% of our net capital gain income for such year, and (c) any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess of the required distribution over the sum of (i) the amounts actually distributed by us, plus (ii) retained amounts on which we pay income tax at the corporate level. If we realize net income from foreclosure properties that we hold primarily for sale to customers in the ordinary course of business, we must pay tax thereon at the highest corporate income tax rate, and if we sell a property, other than foreclosure property, that we are determined to have held for sale to customers in the ordinary course of business, any gain realized would be subject to a 100% “prohibited transaction” tax. The determination as to whether or not a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. We cannot guarantee that sales of our properties would not be prohibited transactions unless we comply with certain safe-harbor provisions. The need to avoid prohibited transactions could cause us to forgo or defer sales of properties that might otherwise be in our best interest to sell. In addition, we own interests in certain taxable REIT subsidiaries that are subject to federal income taxation and we and our subsidiaries may be subject to state and local taxes on our income or property. Differences between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the distribution requirements of the Code. We intend to make distributions to our stockholders to comply with the requirements of the Code for REITs and to minimize or eliminate our corporate tax obligations; however, differences between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the distribution requirements of the Code. Certain types of assets generate substantial disparity between taxable income and available cash, such as real estate that has been financed through financing structures which require some or all of available cash flows to be used to service borrowings. In addition, changes made by H.R. 1 may require us to accrue certain income for U.S. federal income tax purposes no later than when such income is taken into account as revenue on our financial statements, unless the income is already subject to certain special methods of accounting under the Code. This could cause us to recognize taxable income prior to the receipt of the associated cash. H.R. 1 also includes limitations on the deductibility of certain compensation paid to our executives, certain interest payments, and certain net operating loss carryfowards, each of which could potentially increase our taxable income and our required distributions. 17 As a result, the requirement to distribute a substantial portion of our taxable income could cause us to: (1) sell assets in adverse market conditions, (2) borrow on unfavorable terms, or (3) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures, or repayment of debt, in order to comply with REIT requirements. Any such actions could increase our costs and reduce the value of our common stock. Further, we may be required to make distributions to our stockholders when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with REIT qualification requirements may, therefore, hinder our ability to operate solely on the basis of maximizing profits. Distributions made by REITs do not qualify for the reduced tax rates that apply to certain other corporate distributions. The maximum income tax rate for dividends paid by corporations to individuals, trusts and estates is generally 20%. Dividends paid by REITs, however, (other than distributions we properly designate as capital gain dividends or as qualified dividend income) are taxed at the normal income tax rate applicable to the individual recipient (currently a maximum rate of 37%) rather than the 20% preferential rate, subject to a deduction equal to 20% of the amount of certain “qualified REIT dividends” that is available to noncorporate taxpayers through 2025, which has the effect of reducing the maximum effective income tax rate on qualified REIT dividends to 29.6%. The more favorable rates applicable to regular corporate dividends could cause investors who are individuals to perceive investments in REITs to be relatively less attractive than investments in non-REIT corporations that make distributions, particularly after the scheduled expiration of the 20% deduction applicable to qualified REIT dividends on December 31, 2025. A recharacterization of transactions undertaken by our operating partnership may result in lost tax benefits or prohibited transactions, which would diminish cash distributions to our stockholders, or even cause us to lose REIT status. The IRS could recharacterize transactions consummated by our operating partnership, which could result in the income realized on certain transactions being treated as gain realized from the sale of property that is held as inventory or otherwise held primarily for the sale to customers in the ordinary course of business. In such event, the gain would constitute income from a prohibited transaction and would be subject to a 100% tax. If this were to occur, our ability to make cash distributions to our stockholders would be adversely affected. Moreover, our operating partnership may purchase properties and lease them back to the sellers of such properties. While we will use our best efforts to structure any such sale-leaseback transaction such that the lease will be characterized as a “true lease,” thereby allowing us to be treated as the owner of the property for federal income tax purposes, we can give stockholders no assurance that the IRS will not attempt to challenge such characterization. In the event that any such sale-leaseback transaction is challenged and recharacterized as a financing transaction or loan for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction were so recharacterized, the amount of our adjusted REIT taxable income could be recalculated, which might cause us to fail to meet the distribution requirement for a taxable year. We also might fail to satisfy the REIT qualification asset tests or income tests and, consequently, lose our REIT status. Even if we maintain our status as a REIT, an increase in our adjusted REIT taxable income could cause us to be subject to additional federal and state income and excise taxes. Any federal or state taxes we pay will reduce our cash available for distribution to our stockholders. We face possible adverse changes in tax laws including changes to state tax laws regarding the treatment of REITs and their stockholders, which may result in an increase in our tax liability. From time to time, changes in state and local tax laws or regulations are enacted, including changes to a state’s treatment of REITs and their stockholders, which may result in an increase in our tax liability. Any shortfall in tax revenues for states and municipalities may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional taxes on our assets or income. These increased tax costs could adversely affect our financial condition and results of operations and the amount of cash available for payment of dividends. Risks Associated with Debt Financing We have incurred and are likely to continue to incur mortgage and other indebtedness, which may increase our business risks. As of December 31, 2017, we had total outstanding indebtedness of approximately $1.7 billion and a total debt to gross assets ratio of 34.3%. Although the instruments governing our unsecured and secured indebtedness limit our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. We may incur additional indebtedness to acquire properties or other real estate-related investments, to fund property improvements, and other capital expenditures or for other corporate purposes, such as to repurchase shares of our common stock through repurchase programs that our board of directors have authorized or to fund future distributions to our stockholders. 18 Significant borrowings by us increase the risks of an investment in us. Our ability to make payments on and to refinance our indebtedness and to fund our operations, working capital and capital expenditures, depends on our ability to generate cash in the future. Our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors, many of which are beyond our control. If there is a shortfall between the cash flow from properties and the cash flow needed to service our indebtedness, then the amount available for distributions to stockholders may be reduced. Our failure to pay amounts due with respect to any of our indebtedness may constitute an event of default under the instrument governing that indebtedness, which could permit the holders of that indebtedness to require the immediate repayment of that indebtedness in full and, in the case of secured indebtedness, could allow them to sell the collateral securing that indebtedness and use the proceeds to repay that indebtedness. For example, defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. Although we believe no such instances exist as of December 31, 2017, in those cases, we could lose the property securing the loan that is in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but we would not receive any cash proceeds. Moreover, any acceleration of, or default, with respect to any of our indebtedness could, in turn, constitute an event of default under other debt instruments or agreements, thereby resulting in the acceleration and required repayment of that other indebtedness. In addition, while we do not currently anticipate doing so, we may give full or partial guarantees to lenders of mortgage debt on behalf of the entities that own our properties if circumstances warrant that action. If we were to give a guaranty on behalf of an entity that owns one of our properties, we would be responsible to the lender for satisfaction of the debt if it were not paid by such entity. If any mortgages or other indebtedness contain cross-collateralization or cross-default provisions, a default on a single loan could affect multiple properties. If any of our properties are foreclosed on due to a default, our ability to pay cash distributions to our stockholders will be limited. We cannot give any assurance that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. Our ability to refinance our indebtedness or obtain additional financing will depend on, among other things our financial condition, results of operations and market conditions at the time; and restrictions in the agreements governing our indebtedness. As a result, we may not be able to refinance our indebtedness on commercially reasonable terms, or at all. If we do not generate sufficient cash flow from operations, and additional borrowings or refinancings or proceeds of assets sales or other sources of cash are not available to us, we may not have sufficient cash to enable us to meet all of our obligations. Accordingly, if we cannot service our indebtedness, we may have to take actions such as seeking additional equity financing, delaying capital expenditures or strategic acquisitions and alliances. Any of these events or circumstances could have a material adverse effect on our financial condition, results of operations, cash flows, the trading price of our securities and our ability to satisfy our debt service obligations. High mortgage rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income, and the amount of cash distributions we can make. If mortgage debt is unavailable at reasonable rates, we may not be able to finance the purchase of properties. If we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the loans become due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance our properties, our income could be reduced. We may be unable to refinance properties. If any of these events occur, our cash flow could be reduced. This, in turn, could reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by issuing more stock or by borrowing more money. Agreements governing our existing indebtedness contain, and future financing arrangements will likely contain, restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders. We are subject to certain restrictions pursuant to the restrictive covenants of our outstanding indebtedness, which may affect our distribution and operating policies and our ability to incur additional debt. Loan documents evidencing our existing indebtedness contain, and loan documents entered into in the future will likely contain, certain operating covenants that limit our ability to further mortgage the property or discontinue insurance coverage. In addition, the agreements governing our existing indebtedness contain financial covenants, including certain coverage ratios and limitations on our ability to incur secured and unsecured debt, make dividend payments, sell all or substantially all of our assets, and engage in mergers and consolidations and certain acquisitions. 19 Covenants under our existing indebtedness do, and under any future indebtedness likely will, restrict our ability to pursue certain business initiatives or certain acquisition transactions. In addition, failure to meet any of these covenants, including the financial coverage ratios, could cause an event of default under and/or accelerate some or all of our indebtedness, which would have a material adverse effect on us. Increases in interest rates would increase the amount of our variable-rate debt payments and could limit our ability to pay dividends to our stockholders. Currently, the outstanding draws on our $500 Million Unsecured 2015 Line of Credit are our only debt instruments that bear interest at a floating rate. All of our other debt is either fixed rate or has been effectively fixed through interest rate swap agreements. In addition, the outstanding draws under the $500 Million Unsecured 2015 Line of Credit, are subject to various length LIBOR locks; however, increases in interest rates could increase our interest costs associated with this variable rate debt to the extent our current locks expire and new balances are drawn under the facility. Such increases would reduce our cash flows and could impact our ability to pay dividends to our stockholders. In addition, if we are required to repay existing debt during periods of higher interest rates, we may need to sell one or more of our investments in order to repay the debt, which might not permit realization of the maximum return on such investments. Changes in interest rates could have adverse effects on our cash flows as a result of our interest rate derivative contracts. We have entered into various interest rate derivative agreements to effectively fix our exposure to interest rates under certain of our existing debt facilities. To the extent interest rates are higher than the fixed rate in the respective contract, we would realize cash savings as compared to other market participants. However, to the extent interest rates are below the fixed rate in the respective contract, we would make higher cash payments than other similar market participants, which would have an adverse effect on our cash flows as compared to other market participants. Additionally, there is counterparty risk associated with entering into interest rate derivative contracts. Should market conditions lead to insolvency or make a merger necessary for one or more of our counterparties, or potential future counterparties, it is possible that the terms of our interest rate derivative contracts will not be honored in their current form with a replacement counterparty. The potential termination or renegotiation of the terms of the interest rate derivative contracts as a result of changing counterparties through insolvency or merger could result in an adverse impact on our results of operations and cash flows. A downgrade in our credit rating could materially adversely affect our business and financial condition. The credit ratings assigned to our debt securities could change based upon, among other things, our results of operations and financial condition. If any of the credit rating agencies that have rated our debt securities downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could have a material adverse effect on our costs and availability of capital, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows and our ability to satisfy our debt service obligations. ITEM 1B. UNRESOLVED STAFF COMMENTS There were no unresolved SEC staff comments as of December 31, 2017. 20 ITEM 2. PROPERTIES Overview As of December 31, 2017, we owned interests in 67 in-service office properties and approximately 88% of our ALR was generated from select sub-markets located primarily within eight major office markets located in the Eastern-half of the United States: Atlanta, Boston, Chicago, Dallas, Minneapolis, New York, Orlando, and Washington, D.C. As of December 31, 2017 and 2016, our in-service portfolio was 89.7% and 94.2% leased, respectively, with an average lease term remaining as of each period end of approximately seven years. However, the 94.2% leased percentage as of December 31, 2016 decreased to approximately 91.9% on January 1, 2017 when two development properties and one re-development property (totaling approximately 700,000 square feet) were placed into service. ALR (see Item 1. Business - "Information Regarding Disclosures Presented" above) related to our in-service portfolio was $561.3 million, or $32.84 per leased square foot, as of December 31, 2017 as compared with $576.1 million, or $32.39 per leased square foot, as of December 31, 2016. These rental rates are presented before consideration of the fact that several of our largest tenants self-perform various aspects of their building management; and therefore, we do not count those expenses in our gross rent calculations. If the costs of these functions are added to these leases, our average gross rent as of December 31, 2017, increases to almost $34.00 per leased square foot. During the fourth quarter of 2017, Piedmont entered into two binding contracts to sell a total of 14 non-strategic properties, which subsequently closed on January 4, 2018 (the "2017 Disposition Portfolio"). As a result, as of the filing date, our portfolio consists of 53 office properties, comprised of approximately 16.5 million rentable square feet which are approximately 91.8% leased. As detailed below, approximately 91% of our ALR is now generated from our eight core markets listed above, with only three projects remaining outside of those core markets. Our average lease term remaining is still approximately seven years and our average lease size is approximately 20,000 square feet. Our diversified tenant base is primarily comprised of investment grade or nationally recognized corporations or governmental agencies, with 64.1% of our ALR derived from such tenants. No tenant accounts for more than 5% of our ALR, and our five largest tenants are State of New York, U.S. Bancorp, Independence Blue Cross, GE, and Nestle. The tables below include statistics for our in-service properties that we owned directly or through our consolidated joint ventures as of December 31, 2017, after giving effect to the sale of the 2017 Disposition Portfolio. See further discussion of the 2017 Disposition Portfolio in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations below. 21 Property Statistics The following table shows the geographic diversification of our in-service portfolio as of December 31, 2017 after giving effect to the 2017 Disposition Portfolio: Location Washington, D.C. New York Atlanta Minneapolis Dallas Chicago Boston Orlando Other(1) Annualized Lease Revenue (in thousands) Rentable Square Feet (in thousands) $ 69,693 68,909 59,913 56,000 55,589 52,768 48,391 48,277 47,522 1,947 1,771 2,249 1,833 2,114 1,453 1,594 1,573 1,942 Percentage of Annualized Lease Revenue (%) 13.8 Percent Leased (%) 72.2 13.6 11.8 11.0 11.0 10.4 9.5 9.5 9.4 98.7 96.4 93.8 93.2 96.3 98.6 95.5 84.5 91.8 $ 507,062 16,476 100.0 (1) Includes 1901 Market Street in Philadelphia, Pennsylvania; 1430 Enclave Parkway and Enclave Place in Houston, Texas; and 800 North Brand Boulevard in Glendale,California. The following table shows lease expirations of our in-service office portfolio as of December 31, 2017 after giving effect to the 2017 Disposition Portfolio, during each of the next twelve years and thereafter, assuming no exercise of renewal options or termination rights: Year of Lease Expiration Available space $ 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Thereafter Annualized Lease Revenue (in thousands) Percentage of Annualized Lease Revenue (%) — 38,056 58,894 43,637 30,291 39,124 31,362 54,415 21,612 27,420 45,505 34,437 21,232 61,077 $ 507,062 — 7.5 11.6 8.6 6.0 7.7 6.2 10.7 4.3 5.4 9.0 6.8 4.2 12.0 100.0 Certain Restrictions Related to our Properties Only two of our properties are held as collateral for debt. In addition, 2001 N.W. 64th Street, which was sold subsequent to December 31, 2017 as part of the 2017 Disposition Portfolio, was subject to a ground lease. Refer to Schedule III listed in the index of Item 15(a) of this report, which details the two properties held as collateral for debt facilities and one property subject to a ground lease as of December 31, 2017. 22 ITEM 3. LEGAL PROCEEDINGS Piedmont is not subject to any material pending legal proceedings. However, we are subject to routine litigation arising in the ordinary course of owning and operating real estate assets. Our management expects that these ordinary routine legal proceedings will be covered by insurance and does not expect these legal proceedings to have a material adverse effect on our financial condition, results of operations, or liquidity. Additionally, management is not aware of any legal proceedings contemplated by governmental authorities. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 23 PART II ITEM 5. ISSUER PURCHASES OF EQUITY SECURITIES MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND Market Information and Holders Our common stock is listed on the New York Stock Exchange under the symbol “PDM.” As of February 20, 2018, there were 10,554 common stockholders of record of our common stock. The high and low sales prices for our common stock, unadjusted for any dividends declared, and the dividends declared on our outstanding common stock to stockholders during 2017 and 2016 were as follows: High (1) Low (1) Dividend per common share (1) High Low Dividend per common share First Second Third Fourth 2017 Quarters $ $ $ $ $ $ 23.08 20.42 0.21 First 20.49 16.93 0.21 $ $ $ $ $ $ 22.74 20.80 0.21 $ $ $ 21.48 19.75 0.21 2016 Quarters Second Third 21.54 19.36 0.21 $ $ $ 22.28 20.34 0.21 $ $ $ $ $ $ 20.54 19.10 0.71 (2) Fourth 21.76 18.61 0.21 (1) (2) The closing sales prices for each period listed above in fiscal year ended December 31, 2017, represent the actual closing prices and have not been adjusted to reflect dividends paid. On December 13, 2017, Piedmont's board of directors declared a special dividend of $0.50 per share. The record date was December 26, 2017, and the payment was made on January 9, 2018. 24 Performance Graph The following graph compares the cumulative total return of Piedmont’s common stock with the S&P 500 Index, the FTSE NAREIT Equity REITs Index, and the FTSE NAREIT Equity Office Index for the period beginning on December 31, 2012 through December 31, 2017. The graph assumes a $100 investment in each of Piedmont and the three indices, and the reinvestment of any dividends. Comparison of Cumulative Total Return of One or More Companies, Peer Groups, Industry Indices, and/or Broad Markets Piedmont Office Realty Trust, Inc. S&P 500 FTSE NAREIT Equity REITs FTSE NAREIT Equity Office As of the year ended December 31, 2012 2013 2014 2015 2016 $ 100.00 $ 95.63 $ 113.93 $ 119.60 $ 138.28 $ $ 100.00 $ 132.39 $ 150.51 $ 152.59 $ 170.84 $ $ 100.00 $ 102.47 $ 133.35 $ 137.61 $ 149.33 $ $ 100.00 $ 105.57 $ 132.87 $ 133.25 $ 150.80 $ 2017 138.41 208.14 157.14 158.71 The performance graph above is being furnished as part of this Annual Report solely in accordance with the requirement under Rule 14a-3(b)(9) to furnish Piedmont’s stockholders with such information and, therefore, is not deemed to be filed, or incorporated by reference in any filing, by Piedmont under the Securities Act of 1933 or the Securities Exchange Act of 1934. 25 Purchases of Equity Securities By the Issuer and Affiliated Purchasers During the quarter ended December 31, 2017, we repurchased and retired 2,937,660 shares of our common stock (at an average price of $19.68(1) per share) as part of our stock repurchase plan. The remaining capacity of this plan is as follows for the quarter ended December 31, 2017: Total Number of Shares Purchased (in 000’s) Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Program (in 000’s) (2) Maximum Approximate Dollar Value of Shares Available That May Yet Be Purchased Under the Program (in 000’s) 925 577 1,436 2,938 $ $ $ $ 19.38 19.78 19.84 19.68 $ $ $ 925 577 1,436 2,938 228,177 216,751 188,249 (2) Period October 1, 2017 to October 31, 2017 November 1, 2017 to November 30, 2017 December 1, 2017 to December 31, 2017 Total (1) (2) On December 13, 2017, Piedmont's board of directors declared a special dividend of $0.50 per share. The record date was December 26, 2017, and the payment was made on January 9, 2018. The average price paid per share has not been adjusted to reflect the special dividend. Amounts available for purchase relate only to our stock repurchase plan, which was authorized on May 2, 2017. Our Board of Directors authorized the repurchase of up to $250 million of shares of our common stock pursuant to the stock repurchase plan between May 2, 2017 and May 2, 2019. See Note 19 to our accompanying consolidated financial statements for more information. 26 ITEM 6. SELECTED FINANCIAL DATA The following sets forth a summary of our selected financial data as of and for the years ended December 31, 2017, 2016, 2015, 2014, and 2013 (in thousands except for per-share data). Our selected financial data is prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), except as noted below. Statement of Income Data: Total revenues Property operating costs Depreciation and amortization Impairment loss on real estate assets General and administrative expenses Other income/(expense), inclusive of interest expense Income from continuing operations Income, impairment loss, and gain on sale of real estate assets from discontinued operations Gain on sale of real estate assets not classified as discontinued operations Net loss/(income) applicable to noncontrolling interest Net income applicable to Piedmont Per-Share Data: Per weighted-average common share data: 2017 2016 2015 2014 2013 $ 574,173 $ 555,715 $ 584,769 $ 566,252 $ 549,610 $ 218,934 $ 202,852 33,901 $ 29,244 $ $ 220,965 $ 220,630 $ 194,655 $ 166,070 46,461 $ — $ 31,130 21,695 $ (63,622) $ (64,477) $ (72,158) $ (67,742) $ (68,682) $ 72,198 $ 242,022 $ 195,389 43,301 $ 30,346 $ $ 239,431 $ 195,175 $ $ — $ $ 23,825 17,675 40,079 1,553 6,307 $ $ $ $ $ $ 115,874 $ 15 $ 133,564 — $ $ $ $ — $ 83 $ 129,683 $ $ 131,304 $ $ (15) $ $ $ 1,216 870 $ (15) $ $ 42,150 20,798 — (15) 92,981 93,410 15 99,732 Income from continuing operations per share—basic and diluted Income from discontinued operations per share—basic and diluted Net income applicable to Piedmont per share—basic and diluted Cash dividends declared per common share Weighted-average shares outstanding—basic (in thousands) Weighted-average shares outstanding—diluted (in thousands) $ $ $ $ 0.92 $ 0.69 $ 0.87 $ — $ 0.92 1.34 $ $ — $ 0.69 0.84 $ $ — $ 0.87 0.84 $ $ 0.26 0.01 0.27 0.81 $ $ $ $ 0.44 0.13 0.57 0.80 145,044 145,380 145,230 145,635 150,538 150,880 154,452 154,585 165,013 165,137 Balance Sheet Data (at period end): Total assets Total stockholders’ equity Outstanding debt Ratio of Earnings to Fixed Charges NAREIT Funds from Operations Data (1): GAAP net income applicable to common stock Depreciation and amortization Loss on consolidation Impairment loss Gain on sale- wholly-owned properties and unconsolidated partnerships NAREIT Funds From Operations applicable to common stock (1) Acquisition costs Loss on settlement of swaps Net loss/(recoveries) of casualty loss and litigation settlements Core Funds From Operations applicable to common stock (1) Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on Senior Notes Depreciation of non real estate assets Straight-line effects of lease revenue and net effect of amortization of below-market in-place lease intangibles Stock-based and other non-cash compensation Acquisition costs Non-incremental capital expenditures Adjusted Funds From Operations applicable to common stock (1) $3,999,967 $1,986,489 $1,726,927 2.9 $4,368,168 $2,097,703 $2,020,475 2.4 $4,361,511 $2,123,420 $2,029,510 2.7 $4,756,496 $2,280,677 $2,269,922 1.5 $4,627,189 $2,431,019 $1,993,446 2.1 $ 133,564 193,904 $ 99,732 202,268 $ 131,304 194,943 $ 42,150 195,345 $ 92,981 170,158 — 46,461 (119,557) $ 254,372 6 — — $ 254,378 — 33,901 (93,410) $ 242,491 976 — (34) $ 243,433 — 43,301 (129,682) $ 239,866 919 38 278 $ 241,101 — — (963) $ 236,532 560 — (6,992) $ 230,100 898 13,381 (26,880) $ 250,538 1,763 — (11,828) $ 240,473 2,496 809 2,610 841 2,547 755 2,632 508 2,664 406 (28,067) 6,139 (6) (35,437) $ 200,312 (26,609) 5,620 (976) (35,568) $ 189,351 (20,305) 7,090 (919) (44,136) $ 186,133 (33,848) 3,975 (560) (84,630) $ 118,177 (23,375) 1,590 (1,763) (102,977) $ 117,018 (1) Net income calculated in accordance with GAAP is the starting point for calculating Funds from Operations, Core Funds From Operations, and Adjusted Funds From Operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 27 — Funds from Operations, Core Funds from Operations, and Adjusted Funds From Operations" below for a description and reconciliation of the calculations as presented. ITEM 7. OPERATIONS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF The following discussion and analysis should be read in conjunction with the Selected Financial Data in Item 6, Selected Financial Data, above and our audited consolidated financial statements and notes thereto as of December 31, 2017 and 2016, and for the years ended December 31, 2017, 2016, and 2015, included elsewhere in this Annual Report on Form 10-K. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I of this report and “Risk Factors” set forth in Item 1A. of this report. Overview Over the last several years, we have been actively managing the composition of our portfolio to further concentrate our holdings in selected sub-markets within the following markets: Atlanta, Boston, Chicago, Dallas, Minneapolis, New York, Orlando, and Washington, D.C. We recently substantively completed this strategy by disposing of 14 non-strategic properties on January 4, 2018 (the "2017 Disposition Portfolio") for approximately $426 million in gross proceeds, with the potential for an additional $4.5 million depending upon whether certain leasing activity is completed during early 2018. The net proceeds from the 2017 Disposition Portfolio were used to repay debt, to repurchase shares of our common stock pursuant to our stock repurchase plan, and to acquire Norman Pointe I, a $35 million value-add asset located in close proximity to our existing Minneapolis assets (see Note 3 to our accompanying consolidated financial statements). Liquidity and Capital Resources We intend to use cash flows generated from the operation of our properties, proceeds from selective property dispositions, and proceeds from our $500 Million Unsecured 2015 Line of Credit as our primary sources of immediate liquidity. Using the net proceeds from the 2017 Disposition Portfolio mentioned above, as well as cash on hand and borrowings under our $500 Million Unsecured 2015 Line of Credit, we repaid on January 4, 2018, without penalty, $470 million of unsecured term loans, which were scheduled to mature in 2018 and 2019, thereby reducing our total debt-to-gross assets ratio to approximately 30%. As of the filing date, we have $178.0 million of unused capacity under our line of credit. When necessary, we may renew and extend our line of credit, and seek secured or unsecured borrowings from third party lenders or issue securities as additional sources of capital. The availability and attractiveness of terms for these additional sources of capital are highly dependent on market conditions. Our most consistent use of capital has historically been, and we believe will continue to be, to fund capital expenditures for our existing portfolio of properties. During the years ended December 31, 2017 and 2016, we incurred the following types of capital expenditures (in thousands): Capital expenditures for new development Capital expenditures for redevelopment/ renovations Other capital expenditures, including tenant improvements Total capital expenditures (1) December 31, 2017 6,490 $ December 31, 2016 18,886 980 72,361 79,831 $ 8,532 82,810 110,228 $ $ (1) Of the total amounts paid, approximately $0.3 million and $7.1 million related to soft costs such as capitalized interest, payroll, and other general and administrative expenses for the year ended December 31, 2017 and 2016, respectively. "Capital expenditures for new development" relate to new office development projects. During the years ended December 31, 2017 and 2016, such expenditures primarily related to the construction of 500 TownPark, our now complete, approximately 134,000 square foot, approximately 90% leased, four-story office building located adjacent to our existing 400 TownPark building in Lake Mary, Florida. "Capital expenditures for redevelopment/renovations" during both the year ended December 31, 2017 and 2016 related to a now- complete redevelopment project that converted our 3100 Clarendon Boulevard building in Arlington, Virginia from governmental use into Class A private sector office space. "Other capital expenditures" include all other capital expenditures during the period and are typically comprised of tenant and building improvements necessary to lease or maintain our existing portfolio of office properties. 28 Piedmont classifies its tenant and building improvements into two categories: (i) improvements which maintain the building's existing asset value and its revenue generating capacity (“non-incremental capital expenditures”) and (ii) improvements which incrementally enhance the building's asset value by expanding its revenue generating capacity (“incremental capital expenditures”). After excluding the properties sold in January 2018 as part of the 2017 Disposition Portfolio, commitments for funding non- incremental capital expenditures for tenant improvements over the next five years related to our existing lease portfolio total approximately $38.6 million. The timing of the funding of these commitments is largely dependent upon tenant requests for reimbursement; however, we anticipate that a significant portion of these improvement allowances may be requested over the next three years based on when the underlying leases commence. In some instances, these obligations may expire with the respective lease, without further recourse to us. Additionally, commitments for incremental capital expenditures (exclusive of the 2017 Disposition Portfolio) for tenant improvements associated with executed leases totaled approximately $14.1 million as of December 31, 2017. In addition to the amounts described above that we have already committed to as a part of executed leases, we anticipate continuing to incur similar market-based tenant improvement allowances and leasing commissions in conjunction with procuring future leases for our existing portfolio of properties, including recently completed development and redevelopment projects. Given that our operating model frequently results in leases for large blocks of space to credit-worthy tenants, our leasing success can result in significant capital outlays. For example, for leases executed during year ended December 31, 2017, we committed to spend approximately $3.11 and $1.54 per square foot per year of lease term for tenant improvement allowances (net of expiring lease commitments) and leasing commissions, respectively, and for those executed during the year ended December 31, 2016, we committed to spend approximately $3.54 and $1.57 per square foot per year of lease term for tenant improvement allowances (net of expiring lease commitments) and leasing commissions, respectively. Both the timing and magnitude of expenditures related to future leasing activity are highly dependent on the competitive market conditions at the time of lease negotiations of the particular office market within which a given lease is signed. There are several other uses of capital that may arise as part of our typical operations. Subject to the identification and availability of attractive investment opportunities and our ability to consummate such acquisitions on satisfactory terms, acquiring new assets compatible with our investment strategy could also be a significant use of capital. Further, our Board of Directors has authorized a stock repurchase program, pursuant to which we may use capital resources to repurchase shares of our common stock from time to time. During the fourth quarter 2017, we repurchased 2.9 million shares at an average unadjusted price per share of $19.68. As of December 31, 2017, we had approximately $188.2 million of capacity for future stock repurchases. Finally, with the payoff of $470 million of debt on January 4, 2018, we have no scheduled debt maturities over the next 15 months; however, on a longer term basis, we expect to use capital to pay down our line of credit and to repay other debt obligations when they become due. The amount and form of payment (cash or stock issuance) of future dividends to be paid to our stockholders will continue to be largely dependent upon (i) the amount of cash generated from our operating activities; (ii) our expectations of future cash flows; (iii) our determination of near-term cash needs for debt repayments, development projects, and selective acquisitions of new properties; (iv) the timing of significant expenditures for tenant improvements, building redevelopment projects, and general property capital improvements; (v) long-term payout ratios for comparable companies; (vi) our ability to continue to access additional sources of capital, including potential sales of our properties; and (vii) the amount required to be distributed to maintain our status as a REIT. On January 9, 2018 we paid a one-time special dividend of approximately $71.5 million, or $0.50 per share to our stockholders of record on December 26, 2017. The payment of the special dividend was a direct result of an approximately $120 million taxable gain realized from our sale of the Two Independence Square asset located in Washington, D.C. during the year ended December 31, 2017. With the fluctuating nature of cash flows and expenditures, we may periodically borrow funds on a short-term basis to cover timing differences in cash receipts and cash disbursements. 29 Results of Operations (2017 vs. 2016) Overview Income from continuing operations and gain on sale of real estate assets per share on a fully diluted basis increased from $0.69 for the year ended December 31, 2016 to $0.92 for the year ended December 31, 2017 due to $115.9 in gain on sale of real estate assets due primarily to the significant gain recognized on the sale of the Two Independence Square building of $109.5 million during the year ended December 31, 2017, as compared to the gain on sale of eight properties sold during 2016 totaling $93.4 million. The increase was also due to a $15.9 million increase in rental income for the year ended December 31, 2017 as compared to the year ended December 31, 2016 as a result of new leases commencing during 2016 and 2017 across our portfolio. Comparison of the accompanying consolidated statements of income for the year ended December 31, 2017 vs. the year ended December 31, 2016 The following table sets forth selected data from our consolidated statements of income for the years ended December 31, 2017 and 2016, respectively, as well as each balance as a percentage of total revenues for the years presented (dollars in millions): December 31, 2017 % of Revenues December 31, 2016 % of Revenues Variance Revenue: Rental income Tenant reimbursements Property management fee revenue Total revenues Expense: Property operating costs Depreciation Amortization Impairment losses on real estate assets General and administrative Real estate operating income Other income (expense): Interest expense Other income/(expense) Net recoveries from casualty events Equity in income of unconsolidated joint ventures Income from continuing operations Gain on sale of real estate assets $ $ Revenue $ 475.8 $ 459.9 $ 96.7 1.7 574.2 220.6 119.3 75.4 46.5 31.1 81.3 (68.1) 0.7 — 3.8 17.7 115.9 93.9 1.9 555.7 218.9 127.7 75.1 33.9 29.3 70.8 (64.9) — — 0.4 6.3 93.4 100% 38% 21% 13% 8% 6% 14% 12% —% —% 1% 3% $ $ 100% 39% 23% 14% 6% 5% 13% 12% —% —% —% 1% $ $ 15.9 2.8 (0.2) 18.5 1.7 (8.4) 0.3 12.6 1.8 10.5 (3.2) 0.7 — 3.4 11.4 22.5 Rental income increased approximately $15.9 million for the year ended December 31, 2017 as compared to the same period in the prior year. The increase is primarily attributable to new leases commencing during 2016 and 2017 across our portfolio, partially offset by net property sales activity since January 1, 2016. Tenant reimbursements increased approximately $2.8 million for the year ended December 31, 2017 as compared to the same period in the prior year. The variance was primarily attributable to increased average economic occupancy and the resulting increase in recoverable operating expenses. In addition, tenant reimbursements for the year ended December 31, 2017 include the non- recurring settlement receipt of approximately $0.6 million of prior period reimbursements as a result of a favorable court ruling related to a tenant dispute. 30 Expense Property operating costs increased approximately $1.7 million for the year ended December 31, 2017 as compared to the same period in the prior year, primarily due to increased average economic occupancy and the resulting increase in recoverable operating expenses, namely property tax expense of approximately $2.5 million. This increase was partially offset by a decrease in non- recoverable operating expenses of $0.8 million across our portfolio of properties as compared to the prior period. Depreciation expense decreased approximately $8.4 million for the year ended December 31, 2017 compared to the same period in the prior year due primarily to the sale of the 606,000 square foot, Two Independence Square building in July 2017. Amortization expense increased approximately $0.3 million for the year ended December 31, 2017 compared to the same period in the prior year. Of the total variance, approximately $10.3 million of expense is due to additional amortization of intangible lease assets recognized as part of acquiring new properties during 2016 and 2017. This increase was almost entirely offset by certain lease intangible assets at our existing properties becoming fully amortized subsequent to January 1, 2016, or sold as part of our net property sales activity. During the year ended December 31, 2017, we recognized a non-recurring impairment charge related to the 2017 Disposition Portfolio totaling approximately $46.5 million, which closed in January 2018. During the year ended December 31, 2016, we recognized non-recurring impairment charges related to our 150 West Jefferson building located in Detroit, Michigan, and our 9200, 9211, and 9221 Corporate Boulevard buildings located in Rockville, Maryland totaling approximately $33.9 million (see Note 9 for details). General and administrative expenses increased approximately $1.8 million for the year ended December 31, 2017 compared to the same period in the prior year primarily due to increased accruals for potential performance-based stock compensation. Other Income (Expense) Interest expense increased approximately $3.2 million for the year ended December 31, 2017 as compared to the same period in the prior year. Approximately $4.4 million of the increase is due to placing our development projects into service in 2017, which caused associated interest to be expensed rather than be capitalized as part of the development. This increase is offset by lower net interest resulting from repayments of debt during the current year, specifically the secured debt on our 1201 and 1225 Eye Street buildings in Washington, D.C. Equity in income of unconsolidated joint ventures increased approximately $3.4 million for the year ended December 31, 2017 as compared to the same period in the prior year. The increase is primarily due to the recognition of our portion of the gain on the sale of our last unconsolidated joint venture property, the 8560 Upland Drive building in Denver, Colorado. Gain on sale of real estate assets, net, during the year ended December 31, 2017 represents the gain recognized on the sale of the Sarasota Commerce Center II in Sarasota, Florida and the Two Independence Square building. During the year ended December 31, 2016, gain on sale of real estate assets, net, is comprised of the following sold properties: 1055 East Colorado Boulevard in Pasadena, California; Fairway Center II in Brea, California; 1901 Main Street in Irvine, California; 9221 Corporate Boulevard; 150 West Jefferson; 9200 and 9211 Corporate Boulevard; 11695 Johns Creek Parkway in Johns Creek, Georgia, and Braker Pointe III in Austin, Texas. 31 Results of Operations (2016 vs. 2015) Overview Income from continuing operations and gain on sale of real estate assets per share on a fully diluted basis decreased from $0.87 for the year ended December 31, 2015 to $0.69 for the year ended December 31, 2016 primarily due to gains recognized on the sale of several of our properties, including Aon Center in Chicago, Illinois, during 2015 of $129.7 million as compared to gains recognized on sale transactions during 2016 of $93.4 million. The decrease was partially offset by a $9.1 million decrease in interest expense for the year ended December 31, 2016 as compared to the year ended December 31, 2015 as a result of a net decrease in our average debt outstanding. Comparison of the accompanying consolidated statements of income for the year ended December 31, 2016 vs. the year ended December 31, 2015 The following table sets forth selected data from our consolidated statements of income for the years ended December 31, 2016 and 2015, respectively, as well as each balance as a percentage of total revenues for the years presented (dollars in millions): December 31, 2016 % of Revenues December 31, 2015 % of Revenues Variance Revenue: Rental income Tenant reimbursements Property management fee revenue Total revenues Expense: Property operating costs Depreciation Amortization Impairment loss on real estate assets General and administrative expense Real estate operating income Other income (expense): Interest expense Other income/(expense) Net loss from casualty events Equity in income of unconsolidated joint ventures Income from continuing operations Income from discontinued operations Gain on sale of real estate assets $ $ $ Revenue $ 459.9 $ 93.9 1.9 555.7 218.9 127.7 75.1 33.9 29.3 70.8 (64.9) — — 0.4 6.3 — 93.4 468.9 113.9 2.0 584.8 242.0 134.5 60.9 43.3 30.4 73.7 (74.0) 1.6 (0.3) 0.6 1.6 0.1 $ 100% 41% 23% 11% 7% 5% 13% 13% —% —% —% —% $ $ $ (9.0) (20.0) (0.1) (29.1) (23.1) (6.8) 14.2 (9.4) (1.1) (2.9) 9.1 (1.6) 0.3 (0.2) 4.7 (0.1) (36.3) $ 129.7 100% 39% 23% 14% 6% 5% 13% 12% —% —% —% 1% $ $ Rental income decreased approximately $9.0 million for the year ended December 31, 2016 as compared to the same period in the prior year primarily due to net property sales activity since January 1, 2015, which included the sale of our then-largest asset, Aon Center, during the fourth quarter of 2015. The net property sales activity contributed approximately $24.9 million to the variance; however, new leases commencing during 2015 and 2016 across our portfolio provided additional revenue of approximately $15.5 million which substantially offset the decrease. Tenant reimbursements decreased approximately $20.0 million for the year ended December 31, 2016 as compared to the same period in the prior year. The decrease was primarily driven by net property sales activity during 2015 and 2016, which contributed approximately $24.5 million to the variance. This decrease in reimbursement income was partially offset by the expiration of operating expense abatements for certain of our tenants, coupled with increased reimbursements due to occupancy gains across our portfolio. 32 Expense Property operating costs decreased approximately $23.1 million for the year ended December 31, 2016 as compared to the same period in the prior year due to net property sales activity during 2015 and 2016. Depreciation expense decreased approximately $6.8 million for the year ended December 31, 2016 compared to the same period in the prior year. Approximately $14.3 million of the variance was attributable to net property sales activity during 2015 and 2016, partially offset by approximately $5.0 million of depreciation on additional tenant and building improvements placed in service subsequent to January 1, 2015, as well as a $1.2 million increase in expense in the current year associated with accelerated depreciation due to lease modifications or terminations as compared to the prior year. Amortization expense increased approximately $14.2 million for the year ended December 31, 2016 compared to the same period in the prior year. Of the total variance, approximately $20.2 million of expense is due to additional amortization of intangible lease assets recognized as part of acquiring new properties during 2015 and 2016. This increase was partially offset by certain lease intangible assets at our existing properties becoming fully amortized subsequent to January 1, 2015. During the year ended December 31, 2016, we recognized impairment charges to adjust the carrying values of our 150 West Jefferson building and our 9200, 9211, and 9221 Corporate Boulevard buildings to their estimated fair values in conjunction with changes in hold period assumptions for these assets. The total impairment loss recognized during the year ended December 31, 2016 was approximately $33.9 million (see Note 9 for details). During the year ended December 31, 2015, we recognized impairment charges of $43.3 million related to our 2 Gatehall Drive building in Parsippany, New Jersey and our Eastpoint I & II buildings in Mayfield Heights, Ohio. General and administrative expenses decreased approximately $1.1 million for the year ended December 31, 2016 compared to the same period in the prior year primarily due to decreased accruals for potential performance-based stock compensation. Other Income (Expense) Interest expense decreased approximately $9.1 million for the year ended December 31, 2016 as compared to the prior year, primarily as a result of a net decrease in our average debt outstanding as we used a portion of the proceeds from our disposition activity in both 2015 and 2016 to pay down secured debt and borrowings under our line of credit. Other income/(expense) decreased approximately $1.6 million for the year ended December 31, 2016 as compared to the prior year. The variance is attributable to interest income recognized on a note receivable extended to the purchaser of our Copper Ridge Center building located in Lyndhurst, New Jersey during 2015, which was repaid in full in February 2016. During the year ended December 31, 2016, gain on sale of real estate assets, net, is comprised of the following sold properties: 1055 East Colorado Boulevard; Fairway Center II; 1901 Main Street; 9221 Corporate Boulevard; 150 West Jefferson; 9200 and 9211 Corporate Boulevard; 11695 Johns Creek Parkway; and Braker Pointe III. During the year ended December 31, 2015, gain on sale of real estate assets, net, is comprised of the following sold properties: 3900 Dallas Parkway in Plano, Texas; 5601 Headquarters Drive in Plano, Texas; River Corporate Center in Tempe, Arizona; Copper Ridge Center in Lyndhurst, New Jersey; Eastpoint I & II in Mayfield Heights, Ohio; 3750 Brookside Parkway in Alpharetta, Georgia; Chandler Form in Chandler, Arizona; Aon Center in Chicago, Illinois; and 2 Gatehall Drive in Parsippany, New Jersey. Funds From Operations ("FFO"), Core Funds From Operations ("Core FFO"), and Adjusted Funds From Operations (“AFFO”) Net income calculated in accordance with GAAP is the starting point for calculating FFO, Core FFO, and AFFO. These metrics are non-GAAP financial measures and should not be viewed as an alternative measurement of our operating performance to net income. Management believes that accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the additive use of FFO, Core FFO, and AFFO, together with the required GAAP presentation, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. We calculate FFO in accordance with the current National Association of Real Estate Investment Trusts ("NAREIT") definition. NAREIT currently defines FFO as follows: Net income (computed in accordance with GAAP), excluding gains or losses from 33 sales of property and impairment charges (including our proportionate share of any impairment charges and/or gains or losses from sales of property related to investments in unconsolidated joint ventures), plus depreciation and amortization on real estate assets (including our proportionate share of depreciation and amortization related to investments in unconsolidated joint ventures). Other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than we do; therefore, our computation of FFO may not be comparable to such other REITs. We calculate Core FFO by starting with FFO, as defined by NAREIT, and adjusting for gains or losses on the extinguishment of swaps and/or debt, acquisition-related expenses, and any significant non-recurring items. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to our core recurring business operations. As a result, we believe that Core FFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential. Other REITs may not define Core FFO in the same manner as us; therefore, our computation of Core FFO may not be comparable to that of other REITs. We calculate AFFO by starting with Core FFO and adjusting for non-incremental capital expenditures and acquisition-related costs and then adding back non-cash items including: non-real estate depreciation, straight-lined rents and fair value lease adjustments, non-cash components of interest expense and compensation expense, and by making similar adjustments for unconsolidated partnerships and joint ventures. AFFO is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that AFFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments. Other REITs may not define AFFO in the same manner as us; therefore, our computation of AFFO may not be comparable to that of other REITs. 34 Reconciliations of net income to FFO, Core FFO, and AFFO are presented below (in thousands except per share amounts): GAAP net income applicable to common stock $ Depreciation of real assets (2) Amortization of lease-related costs (2) Impairment loss on real estate assets Gain on sale- wholly-owned properties Gain on sale- unconsolidated partnerships NAREIT Funds From Operations applicable 2017 133,564 118,577 75,327 46,461 (115,874) (3,683) Per Share (1) 0.92 $ $ 0.82 0.52 0.32 (0.80) (0.03) 2016 99,732 127,129 75,139 33,901 (93,410) — Per Share(1) 0.69 $ $ 0.87 0.52 0.23 (0.64) — 2015 131,304 133,992 60,951 43,301 (129,682) — Per Share(1) 0.87 $ 0.89 0.40 0.29 (0.86) — to common stock Adjustments: Acquisition costs Loss on settlement of swaps Net loss/(recoveries) from casualty events Core Funds From Operations applicable to common stock Adjustments: Amortization of debt issuance costs, fair market adjustments on notes payable, and discount on Unsecured Senior Notes Depreciation of non real estate assets Straight-line effects of lease revenue (2) Stock-based and other non-cash compensation Net effect of amortization of below-market in-place lease intangibles Acquisition costs Non-incremental capital expenditures (3) Adjusted Funds From Operations applicable to common stock $ 254,372 $ 1.75 $ 242,491 $ 1.67 $ 239,866 $ 1.59 6 — — — — — 976 — (34) — — — 919 38 278 0.01 — — $ 254,378 $ 1.75 $ 243,433 $ 1.67 $ 241,101 $ 1.60 2,496 809 (21,492) 6,139 (6,575) (6) (35,437) 2,610 841 (21,544) 5,620 (5,065) (976) (35,568) 2,547 755 (15,734) 7,090 (4,571) (919) (44,136) $ 200,312 $ 189,351 $ 186,133 Weighted-average shares outstanding – diluted 145,380 145,635 150,880 (1) (2) (3) Based on weighted-average shares outstanding—diluted. Includes adjustments for wholly-owned properties (including discontinued operations), as well as such adjustments for our proportionate ownership in unconsolidated joint ventures. Piedmont defines non-incremental capital expenditures as capital expenditures of a recurring nature related to tenant improvements, leasing commissions, and building capital that do not incrementally enhance the underlying assets' income generating capacity. Tenant improvements, leasing commissions, building capital and deferred lease incentives incurred to lease space that was vacant at acquisition, leasing costs for spaces vacant for greater than one year, leasing costs for spaces at newly acquired properties for which in-place leases expire shortly after acquisition, improvements associated with the expansion of a building, and renovations that either enhance the rental rates of a building or change the property's underlying classification, such as from a Class B to a Class A property, are excluded from this measure. 35 Property and Same Store Net Operating Income Property Net Operating Income ("Property NOI") is a non-GAAP measure which we use to assess our operating results. We calculate Property NOI beginning with Net income (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Furthermore, we adjust for general and administrative expense, income associated with property management performed by us for other organizations, and other income or expense items such as interest income from loan investments or costs from the pursuit of non-consummated transactions. For Property NOI (cash basis), the effects of straight-lined rents and fair value lease revenue are also eliminated; while such effects are not adjusted in calculating Property NOI (accrual basis). Property NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that Property NOI, on either a cash or accrual basis, is helpful to investors as a supplemental comparative performance measure of income generated by our properties alone without our administrative overhead. Other REITs may not define Property NOI in the same manner as we do; therefore, our computation of Property NOI may not be comparable to that of other REITs. We calculate Same Store Net Operating Income ("Same Store NOI") as Property NOI applicable to the properties owned or placed in service during the entire span of the current and prior year reporting periods. Same Store NOI also excludes amounts applicable to unconsolidated joint venture assets. Same Store NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that Same Store NOI, on either a cash or accrual basis is helpful to investors as a supplemental comparative performance measure of the income generated from the same group of properties from one period to the next. Other REITs may not define Same Store NOI in the same manner as we do; therefore, our computation of Same Store NOI may not be comparable to that of other REITs. 36 The following table sets forth a reconciliation from net income calculated in accordance with GAAP to Property NOI, on both a cash and accrual basis, and Same Store NOI, on both a cash and accrual basis, for the years ended December 31, 2017 and December 31, 2016, respectively (in thousands): Cash Basis Accrual Basis December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 Net income applicable to Piedmont (GAAP basis) $ 133,564 $ 99,732 $ 133,564 $ 99,732 Net income applicable to noncontrolling interest Interest expense Depreciation (1) Amortization (1) Acquisition costs Impairment loss on real estate assets (1) Net recoveries from casualty events Gain on sale of real estate assets, net (1) General & administrative expenses(1) Management fee revenue Other income(1) Straight-line rent effects of lease revenue(1) Amortization of lease-related intangibles(1) (15) 68,124 119,386 75,327 6 46,461 — (119,557) 31,186 (872) (303) (21,492) (6,575) (15) 68,124 119,386 75,327 6 46,461 — (119,557) 31,186 (872) (303) (15) 64,860 127,970 75,139 976 33,901 (34) (93,410) 29,306 (1,034) (458) (21,544) (5,065) (15) 64,860 127,970 75,139 976 33,901 (34) (93,410) 29,306 (1,034) (458) Property NOI $ 325,240 $ 310,324 $ 353,307 $ 336,933 Net operating income from: Acquisitions(2) Dispositions(3) Other investments(4) (18,385) (11,431) (371) (7,333) (32,550) (497) (29,216) (11,491) (2,987) (9,175) (33,761) (1,311) Same Store NOI $ 295,053 $ 269,944 $ 309,613 $ 292,686 Change period over period in Same Store NOI 9.3% N/A 5.8% N/A (1) (2) (3) (4) Includes amounts attributable to consolidated properties, including discontinued operations, and our proportionate share of amounts attributable to unconsolidated joint ventures. Acquisitions consist of CNL Center I and CNL Center II in Orlando, Florida, purchased on August 1, 2016; One Wayside Road in Burlington, Massachusetts, purchased on August 10, 2016; Galleria 200 in Atlanta, Georgia, purchased on October 7, 2016; 750 West John Carpenter Freeway in Irving, Texas, purchased on November 30, 2016; and Norman Pointe I in Bloomington, Minnesota, purchased on December 28, 2017. Dispositions consist of 1055 East Colorado Boulevard in Pasadena, California, sold on April 21, 2016; Fairway Center II in Brea, California, sold on April 28, 2016; 1901 Main Street in Irvine, California, sold on May 2, 2016; 9221 Corporate Boulevard in Rockville, Maryland, sold on July 27, 2016; 150 West Jefferson in Detroit, Michigan, sold on July 29, 2016; 9200 and 9211 Corporate Boulevard in Rockville, Maryland, sold on September 28, 2016; 11695 Johns Creek Parkway in Johns Creek, Georgia, sold on December 22, 2016; Braker Pointe III in Austin, Texas, sold on December 29, 2016; Sarasota Commerce Center II in Sarasota, Florida, sold on June 16, 2017; and Two Independence Square in Washington, D.C., sold on July 5, 2017. Other investments consist of our investments in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. The operating results from 3100 Clarendon Boulevard in Arlington, Virginia, Enclave Place in Houston, Texas, and 500 TownPark in Lake Mary, Florida, are included in this line item. 37 Overview Our portfolio is a diverse geographical portfolio primarily located in select sub-markets within eight major office markets located in the Eastern-half of the United States. Property NOI attributable to each of our geographical regions for the years ended December 31, 2017 and 2016 was as follows: Cash Basis Accrual Basis December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 Washington, D.C. $ 44,795 $ 49,181 $ 53,125 $ New York Chicago Atlanta Minneapolis Dallas Boston Orlando Other (1) 40,884 36,014 33,216 26,300 29,901 35,914 25,206 53,010 39,335 29,489 28,930 24,686 26,907 34,451 16,728 60,617 39,617 37,570 39,378 24,932 31,461 40,721 30,384 56,119 60,878 37,567 33,064 33,871 23,713 27,518 34,381 19,671 66,270 $ 325,240 $ 310,324 $ 353,307 $ 336,933 (1) Includes amounts attributable to corporate entities, as well as properties outside of our core operating markets. We typically lease space to large, credit-worthy corporate or governmental tenants on a long-term basis. As of December 31, 2017, our average lease was approximately 20,000 square feet with approximately seven years of lease term remaining. Consequently, leased percentage, as well as rent roll ups and roll downs, which we experience as a result of re-leasing, can fluctuate widely between markets, between buildings, and between tenants within a given market depending on when a particular lease is scheduled to expire. Leased Percentage As of December 31, 2017, our in-service portfolio of 67 office properties was 89.7% leased, down from 94.2% leased as of December 31, 2016, due primarily to placing three recently completed development properties totaling 700,000 square feet in service on January 1, 2017, as well as the expiration of two large tenant leases and sale of a 100% leased, 606,000 square foot, asset in our Washington, D.C. portfolio during the year ended December 31, 2017. Our occupancy increased to 91.8% after the close of the 2017 Disposition Portfolio on January 4, 2018. As of December 31, 2017, scheduled lease expirations for the portfolio as a whole for 2018 after consideration of the 2017 Disposition Portfolio were modest, representing approximately 7.5% of our ALR. To the extent new leases for currently vacant space outweigh or fall short of scheduled expirations, such leases would increase or decrease our leased percentage, respectively. Our leased percentage may also fluctuate from the impact of various occupancy levels associated with our net acquisition and disposition activity. Impact of Downtime, Abatement Periods, and Rental Rate Changes Commencement of new leases typically occurs 6-18 months after the lease execution date, after refurbishment of the space is completed. The downtime between a lease expiration and the new lease's commencement can negatively impact Property NOI and Same Store NOI comparisons (both accrual and cash basis). In addition, office leases, both new and lease renewals, often contain upfront rental and/or operating expense abatement periods which delay the cash flow benefits of the lease even after the new lease or renewal has commenced and will continue to negatively impact Property NOI and Same Store NOI on a cash basis until such abatements expire. As of December 31, 2017, we had approximately 400,000 square feet of executed leases related to currently vacant space that had not yet commenced and approximately 1.2 million square feet of commenced leases that were in some form of rental and/or operating expense abatement. If we are unable to replace expiring leases with new or renewal leases at rental rates equal to or greater than the expiring rates, rental rate roll downs could occur and negatively impact Property NOI and Same Store NOI comparisons. As mentioned above, our geographically diverse portfolio and larger than industry average tenant model result in rent roll ups and roll downs that can fluctuate widely on a building-by-building and a quarter-to-quarter and year over year basis. 38 Same Store NOI increased 9.3% and 5.8% on a cash and accrual basis, respectively, during the year ended December 31, 2017, as compared to the same period in the prior year. These increases are primarily the result of lease commencements (accrual basis) and the expiration of rental abatements associated with new leases (cash basis). In addition, Same Store NOI on both an accrual and cash basis were favorably impacted by the receipt of restructuring fees and the recovery of prior year reimbursement income as a result of the resolution of a tenant dispute during the year ended December 31, 2017. Property NOI and Same Store NOI comparisons for any given period may still fluctuate as a result of the mix of net leasing activity in individual properties during the respective period. Election as a REIT We have elected to be taxed as a REIT under the Code and have operated as such beginning with our taxable year ended December 31, 1998. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our adjusted REIT taxable income, computed without regard to the dividends-paid deduction and by excluding net capital gains attributable to our stockholders, as defined by the Code. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we may be subject to federal income taxes on our taxable income for that year and for the four years following the year during which qualification is lost and/or penalties, unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and intend to continue to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for federal income tax purposes. We have elected to treat POH, a wholly-owned subsidiary of Piedmont, as a taxable REIT subsidiary. POH performs non-customary services for tenants of buildings that we own, including solar power generation, real estate and non-real estate related-services; however, any earnings related to such services performed by our taxable REIT subsidiary are subject to federal and state income taxes. In addition, for us to continue to qualify as a REIT, our investments in taxable REIT subsidiaries cannot exceed 25% (20% for taxable years beginning after 2017) of the value of our total assets. Inflation We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that are intended to protect us from, and mitigate the risk of, the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax, and insurance reimbursements on a per square-foot basis, or in some cases, annual reimbursement of operating expenses above certain per square-foot allowance. However, due to the long-term nature of the leases, the leases may not readjust their reimbursement rates frequently enough to fully cover inflation. Off-Balance Sheet Arrangements We are not dependent on off-balance sheet financing arrangements for liquidity. Our off-balance sheet arrangements are discussed in Note 10 “Commitments and Contingencies” (specifically related to Operating Lease Obligations) of the accompanying consolidated financial statements. For further information regarding our commitments under operating lease obligations, see the notes of our accompanying consolidated financial statements, as well as the table found in Contractual Obligations below. Application of Critical Accounting Policies Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. The critical accounting policies outlined below have been discussed with members of the Audit Committee of the Board of Directors. 39 Investment in Real Estate Assets We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income applicable to Piedmont. The estimated useful lives of our assets by class are as follows: Buildings Building improvements Land improvements Tenant allowances Furniture, fixtures, and equipment Intangible lease assets 40 years 5-25 years 20-25 years Lease term 3-5 years Lease term Fair Value of Assets and Liabilities of Acquired Properties Upon the acquisition of real properties, we record the fair value of properties (plus any related acquisition costs) allocated based on relative fair value as tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, based on their estimated fair values. The estimated fair values of the tangible assets of an acquired property (which includes land and building) are determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and building based on management’s determination of the relative fair value of these assets. We rely on a sales comparison approach using closed land sales and listings in determining the land value, and determine the as-if-vacant estimated fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. We also estimate the cost to execute similar leases including leasing commissions, legal, and other related costs. The estimated fair values of above-market and below-market in-place leases are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of market rates for the corresponding in-place leases, measured over a period equal to the remaining terms of the leases, taking into consideration the probability of renewals for any below-market leases. The capitalized above-market and below-market lease values are recorded as intangible lease assets or liabilities and amortized as an adjustment to rental revenues over the remaining terms of the respective leases. The estimated fair values of in-place leases include an estimate of the direct costs associated with obtaining the acquired or "in place" tenant, estimates of opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease. The amount capitalized as direct costs associated with obtaining a tenant include commissions, tenant improvements, and other direct costs and are estimated based on management’s consideration of current market costs to execute a similar lease. These direct lease origination costs are included in deferred lease costs in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These lease intangibles are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. Estimating the fair values of the tangible and intangible assets requires us to estimate market lease rates, property operating expenses, carrying costs during lease-up periods, discount and capitalization rates, market absorption periods, and the number of years the property is held for investment. The use of inappropriate estimates would result in an incorrect assessment of our purchase price allocations, which would impact the amount of our reported net income attributable to Piedmont. Valuation of Real Estate Assets and Investments in Joint Ventures which Hold Real Estate Assets We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate and related intangible assets, both operating properties and properties under construction, in which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. For wholly owned properties, when indicators of potential impairment are present, or when a sale in the near term is considered more than 50% probable, we assess whether the respective carrying values including a proportionate amount of goodwill, if applicable, will be recovered from the undiscounted 40 future operating cash flows expected from the use of the asset and its eventual disposition for assets held for use, or from the estimated fair value, less costs to sell, for assets held for sale. In the event that the expected undiscounted future cash flows for assets held for use or the estimated fair value, less costs to sell, for assets held for sale do not exceed the respective asset carrying value, we adjust such assets to the respective estimated fair values and recognize an impairment loss. Projections of expected future cash flows require that we estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis, including capitalization and discount rates, could result in an incorrect assessment of the property’s estimated fair value and, therefore, could result in the misstatement of the carrying value of our real estate and related intangible assets and our reported net income attributable to Piedmont. Goodwill Goodwill is the excess of cost of an acquired entity over the amounts specifically assigned to assets acquired and liabilities assumed in purchase accounting for business combinations. We test the carrying value of our goodwill for impairment on an annual basis, or on an interim basis if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Such interim circumstances may include, but are not limited to, significant adverse changes in legal factors or in the general business climate, adverse action or assessment by a regulator, unanticipated competition, the loss of key personnel, or persistent declines in an entity’s stock price below carrying value of the entity. We first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of the reporting unit is less than its carrying amount. We internally evaluate our consolidated financial position and all of our operations as one reporting unit. In conjunction with performing the annual impairment test of goodwill as of December 31, 2017, we early adopted the provisions of the Accounting Standards Update No. 2017-04 Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment ("ASU 2017-04") issued by the Financial Accounting Standards Board (the "FASB"). Beginning with the 2017 annual test of goodwill impairment, we will no longer perform a "Step 2" analysis if, after assessing the totality of events or circumstances, we conclude that the goodwill balance may be impaired for any reporting unit. A Step 2 analysis requires an entity to calculate the implied fair value of existing goodwill, as compared to its carrying amount. Instead, if we determine during the qualitative analysis that it is more likely than not that the goodwill is impaired, then we will recognize a goodwill impairment loss by the excess of the reporting unit’s carrying amount over its estimated fair value (not to exceed the total goodwill allocated to that reporting unit). We have determined through the process noted above that there are no issues of impairment related to our goodwill as of December 31, 2017, and there were no changes in the carrying amount of our goodwill during the year ended December 31, 2017. Investment in Variable Interest Entities Variable Interest Entities (“VIEs”) are defined by GAAP as entities in which equity investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. If an entity is determined to be a VIE, it must be consolidated by the primary beneficiary. The primary beneficiary is the enterprise that has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, absorbs the majority of the entity’s expected losses, or receives a majority of the entity’s expected residual returns. Generally, expected losses and expected residual returns are the anticipated negative and positive variability, respectively, in the estimated fair value of the VIE’s net assets. When we make an investment, we assess whether the investment represents a variable interest in a VIE and, if so, whether we are the primary beneficiary of the VIE. Incorrect assumptions or assessments may result in an inaccurate determination of the primary beneficiary. The result could be the consolidation of an entity acquired or formed in the future that would otherwise not have been consolidated or the non-consolidation of such an entity that would otherwise have been consolidated. We evaluate each investment to determine whether it represents variable interests in a VIE. Further, we evaluate the sufficiency of the entities’ equity investment at risk to absorb expected losses, and whether as a group, the equity has the characteristics of a controlling financial interest. See Note 6 to our accompanying consolidated financial statements for further detail on our investment in variable interest entities. Interest Rate Derivatives We periodically enter into interest rate derivative agreements to hedge our exposure to changing interest rates on variable rate debt instruments. As required by GAAP, we record all derivatives on the balance sheet at estimated fair value. We reassess the effectiveness of our derivatives designated as cash flow hedges on a regular basis to determine if they continue to be highly effective and also to determine if the forecasted transactions remain highly probable. Currently, we do not use derivatives for trading or speculative purposes. 41 The changes in estimated fair value of interest rate swap agreements designated as effective cash flow hedges are recorded in other comprehensive income (“OCI”), and subsequently reclassified to earnings when the hedged transactions occur. Changes in the estimated fair values of derivatives designated as cash flow hedges that do not qualify for hedge accounting treatment, if any, would be recorded as gain/(loss) on interest rate swap in the consolidated statements of income. The estimated fair value of the interest rate derivative agreement is recorded as interest rate derivative asset or as interest rate derivative liability in the accompanying consolidated balance sheets. Amounts received or paid under interest rate derivative agreements are recorded as interest expense in the consolidated income statements as incurred. When Piedmont settles forward starting swap agreements for gains/losses, the result is recorded as accumulated other comprehensive income and is amortized as an offset/increase to interest expense over the term of the respective notes on a straight line basis (which approximates the effective interest method). All of our interest rate derivative agreements as of December 31, 2017 are designated as effective cash flow hedges. See Note 7 to our accompanying consolidated financial statements for further detail on our interest rate derivatives. Stock-based Compensation We have issued stock-based compensation in the form of restricted stock to our employees and directors. For employees, such compensation has been issued pursuant to our Long-term Incentive Compensation ("LTIC") program. The LTIC program is comprised of an annual deferred stock grant component and a multi-year performance share component. Awards granted pursuant to the annual deferred stock component are considered equity awards and expensed straight-line over the vesting period, with issuances recorded as a reduction to additional paid in capital. Awards granted pursuant to the performance share component are considered liability awards and are expensed over the service period, with issuances recorded as a reduction to accrued expense. The compensation expense recognized related to both of these award types is recorded as property operating costs for those employees whose job is related to property operation and as general and administrative expense for all other employees and directors in the accompanying consolidated statements of income. See Note 11 to our accompanying consolidated financial statements for further detail on our stock-based compensation. Accounting Pronouncements Adopted during the Year Ended December 31, 2017 As mentioned in Goodwill above, we early adopted the provisions of ASU 2017-04 on a prospective basis beginning with the annual test of impairment as of December 31, 2017. The provisions in ASU 2017-04 simplify the testing of goodwill for impairment and the implementation did not result in any change to current or previously reported information. Additionally, as of December 31, 2017, we early adopted the provisions of FASB Accounting Standards Update No. 2016-18 Statement of Cash Flows (Topic 230), Restricted Cash (a consensus of the FASB Emerging Issues Task Force) in the accompanying consolidated statements of cash flows for all years presented on a retrospective basis. See Note 15 to our accompanying consolidated financial statements for additional required disclosures. Other Recent Accounting Pronouncements The Financial Accounting Standards Board (the "FASB") has issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). The amendments in ASU 2014-09, which are further clarified in ASUs 2016-08,10, 12, 20 and 2017-13 and 14 (collectively the "Revenue Recognition Amendments"), change the criteria for the recognition of certain revenue streams to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services using a five-step determination process. Substantially all of our total revenues are derived from either long-term leases with our tenants or reimbursement of operating expenses, which are excluded, or expected to be excluded, from the scope of the Revenue Recognition Amendments. Our revenues which fall under the scope of the Revenue Recognition Amendments, which are effective in the first quarter of 2018 for us, include our property management fee revenues and certain of our parking and fiber or antennae fee income arrangements. Lease contracts and reimbursement revenues (provided certain conditions are met) are specifically excluded, or expected to be excluded, from the scope of the Revenue Recognition Amendments. Management has substantially completed its assessment of the impact of adoption of the Revenue Recognition Amendments and based on its assessment to date, we do not anticipate any material impact to our consolidated financial statements as a result of adoption. The FASB has issued Accounting Standards Update No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"). The provisions of ASU 2017-05 define the term "in substance nonfinancial asset" as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) is concentrated in nonfinancial assets. Further, it states that nonfinancial assets should be derecognized once the counterparty obtains control. Finally, the amendments provide clarification for partial sales of nonfinancial assets. ASU 2017-05 is effective concurrent with the Revenue Recognition Amendments (detailed above), which will be the first quarter of 2018 for us. Although management continues to evaluate the guidance and disclosures required by ASU 2017-05, we do not anticipate a material change 42 in how we recognize, measure, or classify the gains or losses on the disposition of real estate in our consolidated financial statements as a result of adoption. The FASB has issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). The amendments in ASU 2016-01 require equity investments, except those accounted for under the equity method of accounting, to be measured at estimated fair value with changes in fair value recognized in net income. Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments, and eliminates certain disclosure requirements. The amendments in ASU 2016-01 are effective in the first quarter of 2018, and we do not anticipate any material impact to our consolidated financial statements as a result of adoption. The FASB has issued ASU 2016-02, which fundamentally changes the definition of a lease, as well as the accounting for operating leases by requiring lessees to recognize assets and liabilities which arise from the lease, consisting of a liability to make lease payments (the lease liability) and a right-of-use asset, representing the right to use the leased asset over the term of the lease. Accounting for leases by lessors is substantially unchanged from prior practice as lessors will continue to recognize lease revenue on a straight-line basis; however, ASU 2016-02 currently defines certain tenant reimbursements as non-lease components which will be subject to the guidance under ASU 2014-09; however under proposed Topic 842, lessors may elect a practical expedient not to separate components in a lease contract provided certain components are met. The amendments in ASU 2016-02 are effective in the first quarter of 2019, and we are currently evaluating the potential impact of adoption. The FASB has issued Accounting Standards Update No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for us in first quarter 2019, with early adoption, including adoption in an interim period, permitted. ASU 2017-12 requires a modified retrospective transition method in which we will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. While management continues to assess all potential impacts of the standard, we do not anticipate any material impact to our consolidated financial statements as a result of adoption. The FASB has issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The provisions of ASU 2016-13 replace the "incurred loss" approach with an "expected loss" model for impairing trade and other receivables, held-to-maturity debt securities, net investment in leases, and off-balance-sheet credit exposures, which will generally result in earlier recognition of allowances for credit losses. Additionally, the provisions change the classification of credit losses related to available-for-sale securities to an allowance, rather than a direct reduction of the amortized cost of the securities. ASU 2016-13 is effective in the first quarter of 2020, with early adoption permitted as of January 1, 2019. We are currently evaluating the potential impact of adoption. Related-Party Transactions and Agreements There were no related-party transactions during the three years ended December 31, 2017, other than a consulting agreement with our former Chief Investment Officer ("CIO"), Raymond L. Owens. Mr. Owens retired effective June 30, 2017, but will remain a consultant for us over the next three years and will earn $18,500 per month. During the year ended December 31, 2017, we incurred approximately $111,000 related to this consulting agreement. Contractual Obligations Our contractual obligations as of December 31, 2017 were as follows (in thousands): Contractual Obligations Total Less than 1 year 1-3 years 3-5 years More than 5 years Long-term debt (1) $ 1,733,670 $ 170,882 (2) $ 625,086 (3) (4) (5) $ 187,702 $ 750,000 Operating lease obligations (6) Total 2,811 93 186 186 2,346 $ 1,736,481 $ 170,975 $ 625,272 $ 187,888 $ 752,346 Payments Due by Period (1) Amounts include principal payments only and balances outstanding as of December 31, 2017, not including unamortized issuance discounts, debt issuance costs paid to lenders, or estimated fair value adjustments. We made interest payments, including payments under our interest rate swaps, of approximately $67.6 million during the year ended December 31, 2017, and expect to pay interest in 43 (2) (3) (4) (5) (6) future periods on outstanding debt obligations based on the rates and terms disclosed herein and in Note 5 of our accompanying consolidated financial statements. Includes the balance of the $170 Million Unsecured 2015 Term Loan as of December 31, 2017; however, on January 4, 2018, Piedmont fully repaid the balance of this facility without penalty. Includes the balance outstanding as of December 31, 2017 of the $500 Million Unsecured 2015 Line of Credit. However, Piedmont may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of June 18, 2020) provided Piedmont is not then in default and upon payment of extension fees. Includes the balance of the $300 Million Unsecured 2013 Term Loan as of December 31, 2017; however, on January 4, 2018, Piedmont fully repaid the balance of this facility without penalty. Includes the $300 Million Unsecured 2011 Term Loan which has a stated variable rate; however, we have entered into interest rate swap agreements which effectively fix, exclusive of changes to our credit rating, the rate on this facility to 3.35% through maturity. As such, we estimate incurring, exclusive of changes to our credit rating, approximately $10.1 million per annum in total interest expense (comprised of combination of variable contractual rate and settlements under interest rate swap agreements) through maturity in January 2020. The 2001 NW 64th Street building in Ft. Lauderdale, Florida is subject to a ground lease with an expiration date in 2048. The aggregate remaining payments required under the terms of this operating lease as of December 31, 2017 is presented above. On January 4, 2018, Piedmont closed on the sale of the 2001 NW 64th Street building as part of a portfolio disposition (see Note 14). The purchaser assumed the ground lease and, as such, Piedmont will have no future operating lease obligations associated with this property. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Our future income, cash flows, and estimated fair values of our financial instruments depend in part upon prevailing market interest rates. Market risk is the exposure to loss resulting from changes in interest rates, foreign currency, exchange rates, commodity prices, and equity prices. Our potential for exposure to market risk includes interest rate fluctuations in connection with borrowings under our $500 Million Unsecured 2015 Line of Credit, our $300 Million Unsecured 2011 Term Loan, the $300 Million Unsecured 2013 Term Loan, and the $170 Million Unsecured 2015 Term Loan. As a result, the primary market risk to which we believe we are exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control contribute to interest rate risk. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flow primarily through a low-to-moderate level of overall borrowings, as well as managing the variability in rate fluctuations on our outstanding debt. As such, all of our debt other than the $500 Million Unsecured 2015 Line of Credit and $170 Million Unsecured 2015 Term Loan is based on fixed or effectively-fixed interest rates to hedge against volatility in the credit markets. We do not enter into derivative or interest rate transactions for speculative purposes, as such all of our debt and derivative instruments were entered into for other than trading purposes. Our financial instruments consist of both fixed and variable-rate debt. As of December 31, 2017, our consolidated principal outstanding for aggregate debt maturities consisted of the following (in thousands): 2018 2019 2020 2021 2022 Thereafter Total Maturing debt: Variable rate repayments Variable rate average interest rate (1) Fixed rate repayments Fixed rate average interest rate (1) $ 170,000 (2) $ 23,000 (3) $ — $ — $ — $ — $ 193,000 2.54% 2.57% —% —% —% —% 2.54% $ 882 $ 301,014 (4) $ 301,072 (5) $ 27,702 $ 160,000 $ 750,000 $ 1,540,670 5.55% 2.79% 3.36% 5.55% 3.48% 3.96% 3.59% (1) (2) (3) See Note 5 to our accompanying consolidated financial statements for further details on our debt structure. Includes the balance of the $170 Million Unsecured 2015 Term Loan as of December 31, 2017; however, on January 4, 2018, Piedmont fully repaid the balance of this facility without penalty. Includes the balance of our $500 Million Unsecured 2015 Line of Credit. However, we may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of June 18, 2020), provided we are not then in default and upon payment of extension fees. 44 (4) (5) Includes the balance of the $300 Million Unsecured 2013 Term Loan as of December 31, 2017; however, on January 4, 2018, Piedmont fully repaid the balance of this facility without penalty. The amount includes the $300 Million Unsecured 2011 Term Loan which has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of changes to Piedmont's credit rating, the rate on this facility to 3.35% through maturity. As of December 31, 2016, our consolidated principal outstanding for aggregate debt maturities consisted of the following (in thousands): 2017 2018 2019 2020 2021 Thereafter Total Maturing debt: Variable rate repayments Variable rate average interest rate (1) Fixed rate repayments Fixed rate average interest rate (1) $ — $ 170,000 (2) $ 178,000 $ — $ — $ — $ 348,000 —% 1.78% 1.74% —% —% —% 1.76% $ 140,834 $ 960 $ 301,014 (3) $ 301,072 (4) $ 27,702 $910,000 $1,681,582 5.76% 5.55% 2.79% 3.36% 5.55% 3.88% 3.77% (1) (2) (3) (4) See Note 5 of our accompanying consolidated financial statements for further details on our debt structure. Includes the balance of the $170 Million Unsecured 2015 Term Loan as of December 31, 2017; however, on January 4, 2018, Piedmont fully repaid the balance of this facility without penalty. The amount includes the $300 Million Unsecured 2013 Term Loan which has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, absent any changes to Piedmont's credit rating, the rate on this facility to 2.78%. On January 4, 2018, Piedmont fully repaid the balance of this facility without penalty. The amount includes the $300 Million Unsecured 2011 Term Loan which has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of changes to Piedmont's credit rating, the rate on this facility to 3.35% through January 15, 2020. As of December 31, 2017 and December 31, 2016, the estimated fair value of our debt above was approximately $1.8 billion and $2.0 billion, respectively. Our interest rate swap agreements in place at December 31, 2017 and December 31, 2016 carried a notional amount totaling $600 million with a weighted-average fixed interest rate (not including the corporate credit spread) of 1.89%. Subsequent to December 31, 2017, we settled six of our interest rate swap agreements with a total notional amount of $300 million, in conjunction with the repayment of the $300 Million Unsecured 2013 Term Loan mentioned above. As a result of the settlement, Piedmont received approximately $0.8 million from its counterparties for settlement of swaps and will recognize a net, non-cash loss of approximately $1.1 million in its statement of operations in 2018 (see Note 7 to our accompanying consolidated financial statements for further information). The variable rate debt outstanding as of December 31, 2017 is based on LIBOR or the prime rate plus a specified margin as elected by us at certain intervals. An increase in the variable interest rate on the variable-rate facilities constitutes a market risk, as a change in rates would increase or decrease interest expense incurred and therefore cash flows available for distribution to stockholders. The current stated interest rate spread on the $500 Million Unsecured 2015 Line of Credit and the $170 Million Unsecured 2015 Term Loan is LIBOR plus 1.00% and 1.125%, respectively (based on our current corporate credit rating). On January 4, 2018, we fully repaid the $170 Million Unsecured 2015 Term Loan. A change in the market interest rate on the fixed, or effectively fixed, portion of our debt portfolio impacts the estimated fair value of the instrument but has no impact on interest incurred or cash flows. However, as of December 31, 2017, a 1% increase in interest rates on our variable rate debt outstanding would have increased interest expense approximately $1.9 million on a per annum basis. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data filed as part of this report are set forth on page F-1 of this report. 45 ITEM 9. FINANCIAL DISCLOSURE CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND There were no disagreements with our independent registered public accountants during the years ended December 31, 2017 or 2016. As previously reported on our Current Report on Form 8-K filed with the SEC on January 16, 2018, on January 10, 2018, we notified Ernst & Young LLP of its dismissal as our independent registered public accounting firm, which will become effective as of the close of business on the day we publicly file our audited consolidated financial statements for the fiscal year ended December 31, 2017. Also on January 10, 2018, upon the recommendation of our Audit Committee, we engaged Deloitte and Touche, LLP as our independent registered public accounting firm to perform audit services for the fiscal year ended December 31, 2018. ITEM 9A. CONTROLS AND PROCEDURES Management’s Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures We carried out an evaluation, under the supervision and with the participation of management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act") as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods in SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Report of Management on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of, the principal executive and principal financial officers, or persons performing similar functions, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: • • • pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets; provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and/or members of the board of directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of human error and the circumvention or overriding of controls, material misstatements may not be prevented or detected on a timely basis. In addition, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes and conditions or that the degree of compliance with policies or procedures may deteriorate. Accordingly, even internal controls determined to be effective can provide only reasonable assurance that the information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and represented within the time periods required. Our management has assessed the effectiveness of our internal control over financial reporting at December 31, 2017. To make this assessment, we used the criteria for effective internal control over financial reporting described in the 2013 Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management believes that, as of December 31, 2017, our system of internal control over financial reporting was effective. Piedmont’s independent registered public accounting firm has issued an attestation report on the effectiveness of Piedmont’s internal control over financial reporting, which appears in this Annual Report. 46 Changes in Internal Control Over Financial Reporting Management constantly monitors and reviews our internal control over financial reporting; however, there have been no significant changes in our internal control over financial reporting during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 47 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, the information required by Part III (Items 10, 11, 12, 13, and 14) is being incorporated by reference herein from our definitive proxy statement to be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2017 in connection with our 2018 Annual Meeting of Stockholders. We have adopted a Code of Ethics, which is available on Piedmont’s Web site at http://www.piedmontreit.com under the “Investor Relations” section. Any amendments to, or waivers of, the Code of Ethics will be disclosed on our Web site promptly following the date of such amendment or waiver. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 will be set forth in our definitive proxy statement to be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2017, and is incorporated herein by reference. ITEM 12. RELATED STOCKHOLDER MATTERS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND The information required by Item 12 will be set forth in our definitive proxy statement to be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2017, and is incorporated herein by reference. ITEM 13. INDEPENDENCE CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR The information required by Item 13 will be set forth in our definitive proxy statement to be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2017, and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Item 14 will be set forth in our definitive proxy statement to be filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2017, and is incorporated herein by reference. 48 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES PART IV (a) (a) 1. The financial statements begin on page F-4 of this Annual Report on Form 10-K, and the list of the financial statements contained herein is set forth on page F-1, which is hereby incorporated by reference. 2. Schedule III—Real Estate Assets and Accumulated Depreciation. Information with respect to this item begins on page S-1 of this Annual Report on Form 10-K. Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. (b) (c) The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto. See (a) 2. above. 49 Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 21st day of February, 2018. SIGNATURES Piedmont Office Realty Trust, Inc. (Registrant) By: /s/ DONALD A. MILLER, CFA Donald A. Miller, CFA President, Principal Executive Officer, and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity as and on the date indicated. Signature Title Date Chairman, and Director February 21, 2018 /s/ FRANK C. MCDOWELL Frank C. McDowell /s/ WESLEY E. CANTRELL Wesley E. Cantrell /s/ BARBARA B. LANG Barbara B. Lang /s/ RAYMOND G. MILNES, JR. Raymond G. Milnes, Jr. /s/ JEFFREY L. SWOPE Jeffrey L. Swope /s/ DALE H. TAYSOM Dale H. Taysom /s/ KELLY H. BARRETT Kelly H. Barrett Director Director Director Director Director Director February 21, 2018 February 21, 2018 February 21, 2018 February 21, 2018 February 21, 2018 February 21, 2018 February 21, 2018 /s/ DONALD A. MILLER, CFA President and Director Donald A. Miller, CFA /s/ ROBERT E. BOWERS Robert E. Bowers /s/ LAURA P. MOON Laura P. Moon (Principal Executive Officer) Chief Financial Officer and Executive Vice-President February 21, 2018 (Principal Financial Officer) Chief Accounting Officer (Principal Accounting Officer) February 21, 2018 50 EXHIBIT INDEX TO 2017 FORM 10-K OF PIEDMONT OFFICE REALTY TRUST, INC. Exhibit Number 3.1 Description of Document Third Articles of Amendment and Restatement of Piedmont Office Realty Trust, Inc. (f/k/a Wells Real Estate Investment Trust, Inc.) (the "Company") (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed on March 16, 2010) 3.2 3.3 3.4 3.5 4.1 4.2 4.3 4.4 4.5 10.1 10.2 10.3 10.4 10.5 10.6 Articles of Amendment of the Company effective June 30, 2011 (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on July 6, 2011) Articles Supplementary of the Company effective June 30, 2011 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on July 6, 2011) Articles Supplementary to the Third Articles of Amendment and Restatement of Piedmont Office Realty Trust, Inc., as supplemented and amended (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on November 14, 2016) Amended and Restated Bylaws of Piedmont Office Realty Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on May 9, 2017) Indenture, dated May 9, 2013, by and among Piedmont Operating Partnership, LP (the "Operating Partnership"), the Company and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, filed on May 13, 2013) Form of 3.40% Senior Notes due 2023 (included in Exhibit 4.1 hereto) Indenture, dated March 6, 2014, by and among the Operating Partnership, Piedmont Office Realty Trust, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, filed on March 6, 2014) Supplemental Indenture, dated March 6, 2014, by and among the Operating Partnership, Piedmont Office Realty Trust, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K, filed on March 6, 2014) Form of 4.450% Senior Notes due 2024 (included in Exhibit 4.4 hereto) Joint Venture Partnership Agreement of Wells Fund XIII-REIT Joint Venture Partnership dated June 27, 2001, by and between the Operating Partnership and Wells Real Estate Investment Fund XIII, L.P. (incorporated by reference to Exhibit 10.85 to Post-Effective Amendment No. 3 to the Company’s Form S-11 Registration Statement (Commission File No. 333-44900), filed on July 23, 2001) Amended and Restated Promissory Note dated November 1, 2007, by 1201 Eye Street, N.W. Associates LLC in favor of Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.9 to the Company’s Form 10-K for the fiscal year ended December 31, 2007 filed on March 26, 2008) Amended and Restated Deed of Trust, Security Agreement and Fixture Filing dated November 1, 2007, by 1201 Eye Street, N.W. Associates LLC for the benefit of Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K for the fiscal year ended December 31, 2007 filed on March 26, 2008) Amended and Restated Promissory Note dated November 1, 2007, by 1225 Eye Street, N.W. Associates LLC in favor of Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.11 to the Company’s Form 10-K for the fiscal year ended December 31, 2007 filed on March 26, 2008) Amended and Restated Deed of Trust, Security Agreement and Fixture Filing dated November 1, 2007, by 1225 Eye Street, N.W. Associates LLC for the benefit of Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.12 to the Company’s Form 10-K for the fiscal year ended December 31, 2007 filed on March 26, 2008) Limited Liability Company Agreement for 1201 Eye Street, N.W. Associates, LLC dated September 27, 2002 (incorporated by reference to Exhibit 10.119 to Post-Effective Amendment No. 6 to the Company’s Form S-11 Registration Statement (Commission File No. 333-85848), filed on December 17, 2003) 51 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14* 10.15* 10.16* 10.17* 10.18* 10.19* 10.20* 10.21* 10.22* 10.23* First Amendment to Limited Liability Company Agreement for 1201 Eye Street, N.W. Associates, LLC (incorporated by reference to Exhibit 10.120 to Post-Effective Amendment No. 6 to Company’s Form S-11 Registration Statement (Commission File No. 333-85848), filed on December 17, 2003) Limited Liability Company Agreement for 1225 Eye Street, N.W. Associates, LLC dated September 27, 2002 (incorporated by reference to Exhibit 10.121 to Post-Effective Amendment No. 6 to the Company’s Form S-11 Registration Statement (Commission File No. 333-85848), filed on December 17, 2003) First Amendment to Limited Liability Company Associates for 1225 Eye Street, N.W. Associates, LLC (incorporated by reference to Exhibit 10.122 to Post-Effective Amendment No. 6 to the Company’s Form S-11 Registration Statement (Commission File No. 333-85848), filed on December 17, 2003) Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated January 1, 2000 (incorporated by reference to Exhibit 10.64 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, filed on March 28, 2001) Amendment to Agreement of Limited Partnership of the Operating Partnership, as Amended and Restated as of January 1, 2000, dated April 16, 2007 (incorporated by reference to Exhibit 99.8 to the Company’s Current Report on Form 8-K, filed on April 20, 2007) Amendment to Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, as Amended and Restated as of January 1, 2000, dated August 8, 2007 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on August 10, 2007) Amended and Restated Dividend Reinvestment Plan of the Company adopted February 24, 2011 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on February 24, 2011) Piedmont Office Realty Trust, Inc. 2007 Omnibus Incentive Plan (f/k/a the Wells Real Estate Investment Trust, Inc. 2007 Omnibus Incentive Plan) (incorporated by reference to Exhibit 99.7 to the Company’s Current Report on Form 8-K, filed on April 20, 2007) Amendment Number One to the Piedmont Office Realty Trust, Inc. 2007 Omnibus Incentive Plan (f/k/a the Wells Real Estate Investment Trust, Inc. 2007 Omnibus Incentive Plan) (incorporated by reference to Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, filed on August 9, 2011) Long-Term Incentive Program (as amended and restated effective April 27, 2016) (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, filed on August 3, 2016) Long-Term Incentive Program Award Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011, filed on November 3, 2011) The Piedmont Office Realty Trust, Inc. Executive Nonqualified Deferred Compensation Plan dated December 5, 2013 (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013, filed on February 18, 2014) The Piedmont Office Realty Trust, Inc. Executive Nonqualified Deferred Compensation Plan Adoption Agreement dated December 5, 2013 (incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013, filed on February 18, 2014) Form of Employee Deferred Stock Award Agreement for 2007 Omnibus Incentive Plan of the Company effective May 18, 2007 (incorporated by reference to Exhibit 10.82 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007, filed on August 7, 2007) Form of Employee Deferred Stock Award Agreement for 2007 Omnibus Incentive Plan of the Company effective April 28, 2015 (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, filed on July 29, 2015) Employment Agreement dated February 2, 2007, by and between the Company and Donald A. Miller, CFA (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on February 5, 2007) Amendment Number One to Employment Agreement dated February 2, 2007, by and between the Company and Donald A. Miller, CFA (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on September 14, 2011) 52 10.24* 10.25* 10.26* 10.27* 10.28* 10.29* 10.30* 10.31 10.32 10.33 10.34 10.35 10.36 Employment Agreement dated April 16, 2007, by and between the Company and Robert E. Bowers (incorporated by reference to Exhibit 99.9 to the Company’s Current Report on Form 8-K, filed on April 20, 2007) Employment Agreement dated May 14, 2007, by and between the Company and Carroll A. “Bo” Reddic, IV (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on May 14, 2007) Employment Agreement dated May 14, 2007, by and between the Company and Raymond L. Owens (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed on May 14, 2007) Employment Agreement dated May 14, 2007, by and between the Company and Laura P. Moon (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K, filed on May 14, 2007) Offer Letter Dated October 17, 2012 among the Company and Robert K. Wiberg (incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012, filed on February 27, 2013) Consulting Agreement, dated as of November 28, 2016, by and between the Company and Raymond L. Owens (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016, filed on February 21, 2017) Confidential Retirement Agreement and General Release, dated as of November 28, 2016, by and between the Company and Raymond L. Owens (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016, filed on February 21, 2017) Term Loan Agreement, dated as of November 22, 2011, among the Operating Partnership, as Borrower, the Company, as Parent, JP Morgan Securities, LLC, and SunTrust Robinson Humphrey, Inc., as Joint- Lead Arrangers and Book Runners, JPMorgan Chase Bank as Administrative Agent, SunTrust Bank as Syndication Agent, Wells Fargo Bank as Documentation Agent, the other banks signatory thereto as Lenders (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on November 29, 2011) Amendment No. 1 to Term Loan Agreement, dated as of August 21, 2012, among Piedmont Operating Partnership, LP, as Borrower, Piedmont Office Realty Trust, Inc., as Parent, JPMorgan Chase Bank as Administrative Agent, and the other banks party thereto as Lenders (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on August 23, 2012) Amendment No. 2 To Term Loan Agreement, dated as of August 21, 2014, among the Operating Partnership, as Borrower, the Company, as Parent, J.P. Morgan Securities, LLC and SunTrust Robinson Humphrey, Inc., as Co-Lead Arrangers and Joint Book Runners, JPMorgan Chase Bank, N.A., as Administrative Agent, SunTrust Bank as Syndication Agent, and the financial institutions party thereto as Lenders (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 22, 2014) Term Loan Agreement, dated as of December 18, 2013, among Piedmont Operating Partnership, LP, as Borrower, Piedmont Office Realty Trust, Inc., as Parent, U.S. Bank, N.A., and SunTrust Robinson Humphrey, Inc., as Joint Book Runners and Joint Lead Arrangers, U.S. Bank, N.A., as Agent, SunTrust Bank as Syndication Agent, the other banks signatory thereto as Lenders (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on December 19, 2013) Term Loan Agreement, dated as of March 27, 2015, among Piedmont Operating Partnership, LP, as Borrower, Piedmont Office Realty Trust, Inc., as Parent, JP Morgan Securities, LLC, U.S. Bank National Association and SunTrust Robinson Humphrey, Inc., as Co-Lead Arrangers and Book Managers; JPMorgan Chase Bank, as Agent; U.S. Bank National Association, as Syndication Agent; SunTrust Bank, as Documentation Agent; and the financial institutions initially signatory thereto and their assignees, as Lenders (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 2, 2015) Revolving Credit Agreement dated June 18, 2015, by and among Piedmont Operating Partnership, LP, the Registrant, SunTrust Robinson Humphrey, Inc., U.S. Bank National Association, PNC Capital Markets LLC, SunTrust Bank, and the other financial institutions initially signatory thereto and their assignees (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 24, 2015) 53 10.37 10.38 10.39* 10.40* 10.41* 10.42 12.1 21.1 23.1 31.1 31.2 32.1 32.2 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE Loan Agreement dated as of June 23, 2015 between Piedmont 1901 Market LLC, as Borrower and The Prudential Insurance Company of America, as Lender (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on June 24, 2015) Open-End Mortgage and Security Agreement (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on June 24, 2015) Piedmont Office Realty Trust, Inc. Amended and Restated 2007 Omnibus Incentive Plan (incorporated by reference to Appendix A to the Company's Proxy Statement for its 2017 Annual Meeting of Stockholders filed with the Commission on March 22, 2017) Amendment Number Three to the Piedmont Office Realty Trust, Inc. Long-Term Incentive Program effective May 2, 2017 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017, filed on August 2, 2017) Form of Employee Deferred Stock Award Agreement for Amended and Restated 2007 Omnibus Incentive Plan of the Company effective May 2, 2017 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017, filed on August 2, 2017) First Amendment to the Loan Agreement between Piedmont 1901 Market LLC, as Borrower and The Prudential Insurance Company of America, as Lender Calculation of Ratio of Earnings to Fixed Charges List of Subsidiaries of the Company Consent of Ernst & Young LLP Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 XBRL Instance Document XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Definition Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase * Identifies each management contract or compensatory plan required to be filed. 54 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Financial Statements Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting Consolidated Balance Sheets as of December 31, 2017 and 2016 Consolidated Statements of Income for the Years Ended December 31, 2017, 2016, and 2015 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016, and 2015 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 2016, and 2015 Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015 Notes to Consolidated Financial Statements Financial Statement Schedule Schedule III - Real Estate Assets and Accumulated Depreciation Page F- 2 F- 3 F- 4 F- 5 F- 6 F- 7 F- 8 F- 9 S- 1 F- 1 To the Board of Directors and Stockholders of Piedmont Office Realty Trust, Inc. Report of Independent Registered Public Accounting Firm We have audited the accompanying consolidated balance sheets of Piedmont Office Realty Trust, Inc. as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2017 and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Piedmont Office Realty Trust, Inc. at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 21, 2018, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /S/ Ernst & Young LLP We have served as the Company's auditor since 2002. Atlanta, Georgia February 21, 2018 F- 2 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting To the Board of Directors and Stockholders of Piedmont Office Realty Trust, Inc. Opinion on Internal Control over Financial Reporting We have audited Piedmont Office Realty Trust, Inc.'s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Piedmont Office Realty Trust, Inc. management maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Piedmont Office Realty Trust, Inc. as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and schedule and our report dated February 21, 2018 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /S/ Ernst & Young LLP Atlanta, Georgia February 21, 2018 F- 3 PIEDMONT OFFICE REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per-share amounts) Assets: Real estate assets, at cost: Land Buildings and improvements, less accumulated depreciation of $785,206 and $700,304 as of December 31, 2017 and December 31, 2016, respectively Intangible lease assets, less accumulated amortization of $99,145 and $109,152 as of December 31, 2017 and December 31, 2016, respectively Construction in progress Real estate assets held for sale, net Total real estate assets Investment in and amounts due from unconsolidated joint venture Cash and cash equivalents Tenant receivables, net of allowance for doubtful accounts of $539 and $197 as of December 31, 2017 and December 31, 2016, respectively Straight-line rent receivables Restricted cash and escrows Prepaid expenses and other assets Goodwill Interest rate swaps Deferred lease costs, less accumulated amortization of $183,740 and $159,531 as of December 31, 2017 and December 31, 2016, respectively Other assets held for sale, net Total assets Liabilities: Unsecured debt, net of discount and unamortized debt issuance costs of $7,689 and $10,269 as of December 31, 2017 and December 31, 2016, respectively Secured debt, net of premiums and unamortized debt issuance costs of $946 and $1,161 as of December 31, 2017 and December 31, 2016, respectively Accounts payable, accrued expenses, dividends payable, and accrued capital expenditures Deferred income Intangible lease liabilities, less accumulated amortization of $55,847 and $48,377 as of December 31, 2017 and December 31, 2016, respectively Interest rate swaps Other liabilities held for sale, net Total liabilities Commitments and Contingencies Stockholders’ Equity: Shares-in-trust, 150,000,000 shares authorized, none outstanding as of December 31, 2017 or December 31, 2016 Preferred stock, no par value, 100,000,000 shares authorized, none outstanding as of December 31, 2017 or December 31, 2016 Common stock, $.01 par value; 750,000,000 shares authorized, 142,358,940 shares issued and outstanding as of December 31, 2017; and 145,235,313 shares issued and outstanding at December 31, 2016 Additional paid-in capital Cumulative distributions in excess of earnings Other comprehensive income Piedmont stockholders’ equity Noncontrolling interest Total stockholders’ equity Total liabilities and stockholders’ equity See accompanying notes. F- 4 December 31, 2017 December 31, 2016 $ 544,794 $ 542,640 2,418,023 2,442,178 77,805 11,710 332,410 3,384,742 10 7,382 12,139 163,160 1,373 22,517 98,918 688 99,695 34,460 612,719 3,731,692 7,360 6,992 26,494 136,862 1,212 23,281 98,918 — 261,907 47,131 3,999,967 $ 276,725 58,632 4,368,168 1,535,311 $ 1,687,731 191,616 216,653 29,582 38,458 1,478 380 2,013,478 — — — 332,744 165,410 28,406 47,537 8,169 468 2,270,465 — — — 1,424 3,677,360 (1,702,281) 8,164 1,984,667 1,822 1,986,489 3,999,967 $ 1,452 3,673,128 (1,580,863) 2,104 2,095,821 1,882 2,097,703 4,368,168 $ $ $ PIEDMONT OFFICE REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per-share amounts) Years Ended December 31, 2017 2016 2015 $ 475,777 $ 459,890 $ 96,711 1,685 574,173 220,630 119,288 75,367 46,461 31,130 492,876 81,297 (68,124) 657 — 3,845 (63,622) 17,675 — — — 115,874 133,549 15 133,564 0.92 — 0.92 $ $ $ 93,961 1,864 555,715 218,934 127,733 75,119 33,901 29,244 484,931 70,784 (64,860) (13) 34 362 (64,477) 6,307 — — — 93,410 99,717 15 99,732 0.69 — 0.69 $ $ $ 468,872 113,881 2,016 584,769 242,022 134,503 60,886 43,301 30,346 511,058 73,711 (73,998) 1,565 (278) 553 (72,158) 1,553 84 (1) 83 129,683 131,319 (15) 131,304 0.87 — 0.87 145,043,503 145,230,382 150,537,757 145,379,994 145,634,953 150,880,116 Revenues: Rental income Tenant reimbursements Property management fee revenue Expenses: Property operating costs Depreciation Amortization Impairment loss on real estate assets General and administrative Real estate operating income Other income (expense): Interest expense Other income/(expense) Net recoveries/(loss) from casualty events Equity in income of unconsolidated joint ventures Income from continuing operations Discontinued operations: Operating income Loss on sale of real estate assets Income from discontinued operations Gain on sale of real estate assets Net income Plus: Net loss/(income) applicable to noncontrolling interest Net income applicable to Piedmont Per share information— basic and diluted: Income from continuing operations and gain on sale of real estate assets Income from discontinued operations Net income applicable to common stockholders Weighted-average shares outstanding—basic Weighted-average shares outstanding—diluted $ $ $ See accompanying notes. F- 5 . C N I , T S U R T Y T L A E R E C I F F O T N O M D E I P E M O C N I E V I S N E H E R P M O C F O S T N E M E T A T S D E T A D I L O S N O C ) s d n a s u o h t n i ( 4 0 3 , 1 3 1 $ 2 3 7 , 9 9 $ 4 6 5 , 3 3 1 $ , 1 3 r e b m e c e D d e d n E s r a e Y 5 1 0 2 6 1 0 2 7 1 0 2 ) 0 4 6 , 6 ( 3 4 4 0 6 0 , 6 4 6 6 , 4 2 1 $ 5 7 1 , 0 0 1 $ 4 2 6 , 9 3 1 $ ) 6 ( 5 7 8 , 5 ) 9 0 5 , 2 1 ( 1 2 ) 6 2 1 , 4 ( 8 4 5 , 4 9 7 9 7 4 , 2 2 0 5 , 3 d n a d e t a n g i s e d e r a t a h t s t n e m u r t s n i e v i t a v i r e d n o ) s s o l ( / n i a g f o n o i t r o p e v i t c e f f E ) 7 e t o N e e S ( s e g d e h w o l f h s a c s a y f i l a u q ) 7 e t o N e e S ( e m o c n i t e n n i d e d u l c n i s s o l d e d r o c e r y l s u o i v e r p f o n o i t a c i f i s s a l c e R s e i t i r u c e s e l a s r o f e l b a l i a v a n i t n e m t s e v n i n o ) s s o l ( / n i a G t n o m d e i P o t e l b a c i l p p a e m o c n i e v i s n e h e r p m o C ) s s o l ( / e m o c n i e v i s n e h e r p m o c r e h t O t n o m d e i P o t e l b a c i l p p a e m o c n i t e N : ) s s o l ( / e m o c n i e v i s n e h e r p m o c r e h t O . s e t o n g n i y n a p m o c c a e e S 6 - F . C N I , T S U R T Y T L A E R E C I F F O T N O M D E I P Y T I U Q E ’ S R E D L O H K C O T S F O S T N E M E T A T S D E T A D I L O S N O C ) s t n u o m a e r a h s - r e p t p e c x e , s d n a s u o h t n i ( $ ) 1 8 2 , 2 0 7 , 1 ( $ 0 6 3 , 7 7 6 , 3 $ 4 2 4 , 1 $ 9 5 3 , 2 4 1 . s e t o n g n i y n a p m o c c a e e S 7 - F l a t o T ’ s r e d l o h k c o t S y t i u q E g n i l l o r t n o c n o N t s e r e t n I r e h t O e v i s n e h e r p m o C ) s s o L ( / e m o c n I e v i t a l u m u C n i s n o i t u b i r t s i D s g n i n r a E f o s s e c x E l a n o i t i d d A n I - d i a P l a t i p a C k c o t S n o m m o C t n u o m A s e r a h S 7 7 6 , 0 8 2 , 2 $ 9 0 6 , 1 $ 1 0 3 , 8 $ ) 8 5 9 , 6 9 3 , 1 ( $ 2 8 1 , 6 6 6 , 3 $ 3 4 5 , 1 $ 4 2 3 , 4 5 1 ) 6 2 3 ( 4 5 4 4 5 ) 0 6 8 , 8 5 1 ( ) 1 3 5 , 6 2 1 ( 5 1 3 8 1 , 3 ) 0 4 6 , 6 ( 4 0 3 , 1 3 1 — — — ) 4 8 5 ( ) 5 1 ( — 5 1 — — 0 2 4 , 3 2 1 , 2 5 2 0 , 1 ) 2 4 3 ( 8 8 8 ) 3 4 9 , 7 ( ) 5 1 ( 8 6 6 , 3 3 4 4 2 3 7 , 9 9 ) 8 4 1 , 2 2 1 ( — — 8 8 8 ) 6 1 ( — ) 5 1 ( — — ) 2 8 1 ( ) 0 5 7 , 1 6 ( ) 1 4 5 , 3 9 1 ( ) 5 1 ( 0 5 6 , 4 0 6 0 , 6 4 6 5 , 3 3 1 — — ) 5 4 ( — ) 5 1 ( — — 3 0 7 , 7 9 0 , 2 2 8 8 , 1 9 8 4 , 6 8 9 , 1 $ 2 2 8 , 1 — — — — — — — — ) 0 4 6 , 6 ( 1 6 6 , 1 — — — — — — — — — — — — — 3 4 4 4 0 1 , 2 $ 0 6 0 , 6 4 6 1 , 8 — — — ) 0 7 7 , 8 5 1 ( — — ) 4 7 2 , 6 2 1 ( — 4 0 3 , 1 3 1 ) 8 3 9 , 7 ( ) 8 9 6 , 0 5 5 , 1 ( — — ) 9 5 9 , 1 2 1 ( — — — 2 3 7 , 9 9 — ) 9 1 7 , 1 6 ( ) 3 6 8 , 0 8 5 , 1 ( ) 3 6 2 , 3 9 1 ( — — — 4 6 5 , 3 3 1 — 4 5 ) 6 2 3 ( 8 2 1 , 1 ) 2 4 2 ( 1 8 1 , 3 — — — — — — — 2 — — — — — — — 8 6 1 — — — ) 0 9 ( ) 0 8 9 , 8 ( 7 7 9 , 9 6 6 , 3 5 5 4 , 1 2 1 5 , 5 4 1 — ) 2 4 3 ( — ) 3 7 1 ( 6 6 6 , 3 — — — ) 5 ( ) 2 6 4 ( — — — 2 — — — — — — 5 8 1 — — — — ) 2 8 1 ( ) 3 3 2 ( 7 4 6 , 4 — — — ) 1 3 ( — — 3 — — — — — 7 5 2 — — — ) 3 3 1 , 3 ( 8 2 1 , 3 7 6 , 3 2 5 4 , 1 5 3 2 , 5 4 1 f o s r e d l o h k c o t s d e r r e f e r p o t s d n e d i v i d , ) e r a h s r e p 4 8 . 0 $ ( s r e d l o h k c o t s n o m m o c o t s d n e d i v i D d e t s e v n i e r s d n e d i v i d d n a , y r a i d i s b u s x a t f o t e n , n a l P e v i t n e c n I s u b i n m O 7 0 0 2 e h t r e d n u d e z i t r o m a d n a d e u s s i s e r a h S y t i t n e t s e r e t n i e l b a i r a v d e t a d i l o s n o c n i t s e r e t n i g n i l l o r t n o c n o n f o n o i t p m e d e R y r a i d i s b u s f o t s e r e t n i g n i l l o r t n o c n o n f o n o i t a c o l l a e R n a l p d e c n u o n n a f o t r a p s a s e s a h c r u p e r e r a h S 4 1 0 2 , 1 3 r e b m e c e D , e c n a l a B s t s o c g n i r e f f O e r u t n e v t n i o j d e t a d i l o s n o c n i t s e r e t n i g n i l l o r t n o c n o N n a l p d e c n u o n n a n a f o t r a p s a s e s a h c r u p e r e r a h S s t s o c g n i r e f f O t s e r e t n i g n i l l o r t n o c n o n o t e l b a c i l p p a e m o c n i t e N t n o m d e i P o t e l b a c i l p p a e m o c n i t e N s s o l e v i s n e h e r p m o c r e h t O 5 1 0 2 , 1 3 r e b m e c e D , e c n a l a B f o s r e d l o h k c o t s d e r r e f e r p o t s d n e d i v i d , ) e r a h s r e p 4 8 . 0 $ ( s r e d l o h k c o t s n o m m o c o t s d n e d i v i D d e t s e v n i e r s d n e d i v i d d n a , y r a i d i s b u s x a t f o t e n , n a l P e v i t n e c n I s u b i n m O 7 0 0 2 e h t r e d n u d e z i t r o m a d n a d e u s s i s e r a h S n a l p d e c n u o n n a n a f o t r a p s a s e s a h c r u p e r e r a h S s t s o c g n i r e f f O t s e r e t n i g n i l l o r t n o c n o n o t e l b a c i l p p a s s o l t e N t n o m d e i P o t e l b a c i l p p a e m o c n i t e N e m o c n i e v i s n e h e r p m o c r e h t O 6 1 0 2 , 1 3 r e b m e c e D , e c n a l a B f o s r e d l o h k c o t s d e r r e f e r p o t s d n e d i v i d , ) e r a h s r e p 4 3 . 1 $ ( s r e d l o h k c o t s n o m m o c o t s d n e d i v i D d e t s e v n i e r s d n e d i v i d d n a , y r a i d i s b u s x a t f o t e n , n a l P e v i t n e c n I s u b i n m O 7 0 0 2 e h t r e d n u d e z i t r o m a d n a d e u s s i s e r a h S t s e r e t n i g n i l l o r t n o c n o n o t e l b a c i l p p a s s o l t e N t n o m d e i P o t e l b a c i l p p a e m o c n i t e N e m o c n i e v i s n e h e r p m o c r e h t O 7 1 0 2 , 1 3 r e b m e c e D , e c n a l a B PIEDMONT OFFICE REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Cash Flows from Operating Activities: Net income Operating distributions received from unconsolidated joint ventures Adjustments to reconcile net income to net cash provided by operating activities: $ 133,549 11 $ 99,717 579 $ 131,319 774 Years Ended December 31, 2017 2016 2015 Depreciation Amortization of debt issuance costs Loss on settlement of forward starting interest rate swaps Other amortization Impairment loss on real estate assets Stock compensation expense Equity in income of unconsolidated joint ventures Gain on sale of real estate assets, net Changes in assets and liabilities: Increase in tenant and straight-line rent receivables, net Decrease/(increase) in prepaid expenses and other assets Increase/(decrease) in accounts payable and accrued expenses Increase in deferred income Net cash provided by operating activities Cash Flows from Investing Activities: Acquisition of real estate assets and intangibles Capitalized expenditures, net of accruals Redemption of noncontrolling interest in unconsolidated variable interest entity Net sale proceeds from wholly-owned properties Net sale proceeds received from unconsolidated joint ventures Investments in unconsolidated joint ventures Deferred lease costs paid Net cash provided by/(used in) investing activities Cash Flows from Financing Activities: Debt issuance costs paid Proceeds from debt Repayments of debt Costs of issuance of common stock Shares withheld to pay tax obligations related to employee stock compensation Repurchases of common stock as part of announced plan Dividends paid and discount on dividend reinvestments Net cash used in financing activities Net increase/(decrease) in cash, cash equivalents, and restricted cash and escrows Cash, cash equivalents, and restricted cash and escrows, beginning of year Cash, cash equivalents, and restricted cash and escrows, end of year $ See accompanying notes. 119,288 1,588 — 73,944 46,461 9,196 (3,845) (115,874) (21,392) 384 (1,521) 1,016 242,805 (35,262) (79,831) — 375,518 12,334 (1,162) (30,985) 240,612 (132) 180,000 (476,401) (182) (3,403) (60,474) (122,274) (482,866) 551 8,204 8,755 127,733 1,702 — 74,373 33,901 7,928 (362) (93,410) (26,747) 1,437 3,555 1,441 231,847 (349,668) (110,228) — 365,918 — — (25,896) (119,874) (264) 695,000 (706,875) (342) (2,344) (7,943) (91,616) (114,384) (2,411) 10,615 8,204 134,503 1,768 (1,284) 61,221 43,301 8,789 (553) (129,683) (29,478) (1,440) (162) 4,613 223,688 (387,923) (118,671) (4,000) 848,169 — — (37,683) 299,892 (1,081) 1,301,858 (1,544,301) (326) (1,710) (158,860) (126,531) (530,951) (7,371) 17,986 10,615 $ $ F- 8 PIEDMONT OFFICE REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2017, 2016, AND 2015 1. Organization Piedmont Office Realty Trust, Inc. (“Piedmont”) (NYSE: PDM) is a Maryland corporation that operates in a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes and engages in the acquisition, development, management, and ownership of commercial real estate properties located primarily in the Eastern-half of the United States, including properties that are under construction, are newly constructed, or have operating histories. Piedmont was incorporated in 1997 and commenced operations in 1998. Piedmont conducts business primarily through Piedmont Operating Partnership, L.P. (“Piedmont OP”), a Delaware limited partnership, as well as performing the management of its buildings through two wholly-owned subsidiaries, Piedmont Government Services, LLC and Piedmont Office Management, LLC. Piedmont owns 99.9% of, and is the sole general partner of, Piedmont OP and as such, possesses full legal control and authority over the operations of Piedmont OP. The remaining 0.1% ownership interest of Piedmont OP is held indirectly by Piedmont through its wholly-owned subsidiary, Piedmont Office Holdings, Inc. ("POH"), the sole limited partner of Piedmont OP. Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through various joint ventures. References to Piedmont herein shall include Piedmont and all of its subsidiaries, including Piedmont OP and its subsidiaries and joint ventures. As of December 31, 2017, Piedmont owned 67 in-service office properties comprised of approximately 19 million square feet (unaudited) of primarily Class A commercial office space, which was approximately 89.7% leased. As of December 31, 2017, approximately 88% of Piedmont's Annualized Lease Revenue (unaudited) was generated from select sub-markets located primarily within eight major office markets located in the Eastern-half of the United States: Atlanta, Boston, Chicago, Dallas, Minneapolis, New York, Orlando, and Washington, D.C. Piedmont internally evaluates all of its real estate assets as one operating segment, and accordingly does not report segment information. However, Piedmont has provided certain information specific to each of its geographical markets that it believes may be helpful to its investors in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (unaudited) included elsewhere in this Annual Report on Form 10-K. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation Piedmont’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of Piedmont, Piedmont’s wholly-owned subsidiaries, any variable interest entity ("VIE") of which Piedmont or any of its wholly-owned subsidiaries is considered to have the power to direct the activities of the entity and the obligation to absorb losses/right to receive benefits, or any entity in which Piedmont or any of its wholly-owned subsidiaries owns a controlling interest. In determining whether Piedmont or Piedmont OP has a controlling interest, the following factors, among others, are considered: equity ownership, voting rights, protective rights of investors, and participatory rights of investors. Piedmont owns a majority interest in four properties through three joint ventures. Two of these joint ventures, 1201 and 1225 Eye Street, NW Associates, which own the 1201 and 1225 Eye Street buildings, respectively, in Washington, D.C. are consolidated using the method prescribed in accounting for VIEs (see Note 6). The other joint venture, Piedmont-CNL Towers Orlando, LLC, which owns CNL Center I and II, in Orlando, Florida is an equity method investment consolidated under the voting model. Accordingly, Piedmont’s consolidated financial statements include the accounts of 1201 Eye Street, NW Associates, LLC, 1225 Eye Street, NW Associates, LLC, and Piedmont-CNL Towers Orlando, LLC . Please refer to Note 6 for a summary of Piedmont’s interests in and consolidation treatment of its various VIEs as of December 31, 2017. All inter-company balances and transactions have been eliminated upon consolidation. Further, Piedmont has formed special purpose entities to acquire and hold real estate. Each special purpose entity is a separate legal entity and consequently the assets of the special purpose entities are not available to all creditors of Piedmont. The assets owned by these special purpose entities are being reported on a consolidated basis with Piedmont’s assets for financial reporting purposes only. F- 9 Use of Estimates The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and notes. Actual results could differ from those estimates. Real Estate Assets Piedmont classifies its real estate assets as long-lived assets held for use or as long-lived assets held for sale. Held for use assets are stated at cost, as adjusted for any impairment loss, less accumulated depreciation. Held for sale assets are carried at lower of depreciated cost or estimated fair value, less estimated costs to sell. Piedmont generally reclassifies assets as held for sale once a sales contract has been executed and earnest money has become non-refundable. Amounts capitalized to real estate assets consist of the cost of acquisition or construction, any tenant improvements or major improvements, betterments that extend the useful life of the related asset, and transaction costs associated with the acquisition of an individual asset that does not qualify as a business combination. All repairs and maintenance are expensed as incurred. Additionally, Piedmont capitalizes interest while the development, or redevelopment, of a real estate asset is in progress. Approximately $0.2 million, $4.6 million, and $3.8 million of interest was capitalized for the years ended December 31, 2017, 2016, and 2015, respectively. Piedmont’s real estate assets are depreciated or amortized using the straight-line method over the following useful lives: Buildings Building improvements Land improvements Tenant allowances Furniture, fixtures, and equipment Intangible lease assets 40 years 5-25 years 20-25 years Lease term 3-5 years Lease term Piedmont continually monitors events and changes in circumstances that could indicate that the carrying amounts of the real estate and related intangible assets of either operating properties or properties under construction in which Piedmont has an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present, or when a sale in the near term is considered more than 50% probable, management assesses whether the respective carrying values including a proportionate amount of goodwill, if applicable, will be recovered from the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition for assets held for use, or from the estimated fair values, less costs to sell, for assets held for sale. In the event that the expected undiscounted future cash flows for assets held for use or the estimated fair value, less costs to sell, for assets held for sale do not exceed the respective asset carrying value, management adjusts such assets to the respective estimated fair values and recognizes an impairment loss. Estimated fair values are calculated based on the following information, depending upon availability, in order of preference: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of undiscounted cash flows, including estimated sales value (which is based on key assumptions such as estimated market rents, lease-up periods, estimated lease terms, and capitalization and discount rates) less estimated selling costs. Fair Value of Assets and Liabilities of Acquired Properties Upon the acquisition of real properties, Piedmont records the fair value of properties (plus any related acquisition costs) allocated based on relative fair value as tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, based on their estimated fair values. The estimated fair values of the tangible assets of an acquired property (which includes land and building) are determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and building based on management’s determination of the estimated fair value of these assets. Management relies on a sales comparison approach using closed land sales and listings in determining the land value, and determines the as-if-vacant estimated fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses and estimates F- 10 of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates the cost to execute similar leases including leasing commissions, legal, and other related costs. The estimated fair values of above-market and below-market in-place leases are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of market rates for the corresponding in-place leases, measured over a period equal to the remaining terms of the leases, taking into consideration the probability of renewals for any below-market leases. The capitalized above-market and below-market lease values are recorded as intangible lease assets or liabilities and amortized as an adjustment to rental revenues over the remaining terms of the respective leases. The estimated fair values of in-place leases include an estimate of the direct costs associated with obtaining the acquired or "in place" tenant, estimates of opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease. The amount capitalized as direct costs associated with obtaining a tenant include commissions, tenant improvements, and other direct costs and are estimated based on management’s consideration of current market costs to execute a similar lease. These direct lease origination costs are included in deferred lease costs in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These lease intangibles are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. Gross intangible assets and liabilities, inclusive of amounts classified as real estate assets held for sale, recorded at acquisition as of December 31, 2017 and 2016, respectively, are as follows (in thousands): Intangible Lease Assets: Above-Market In-Place Lease Assets In-Place Lease Valuation Intangible Lease Origination Costs (included as component of Deferred Lease Costs) Intangible Lease Liabilities (Below-Market In-Place Leases) December 31, 2017 December 31, 2016 $ 11,935 $ 165,015 $ 250,539 95,620 $ $ 25,425 $ 183,422 $ 261,075 97,230 $ For the years ended December 31, 2017, 2016, and 2015, respectively, Piedmont recognized amortization of intangible lease costs as follows (in thousands): Amortization of Intangible Lease Origination Costs and In-Place Lease Valuation included in amortization expense Amortization of Above-Market and Below-Market In-Place Lease intangibles as a net increase to rental revenues $ $ 58,467 6,575 $ $ 58,150 5,066 $ $ 42,278 4,571 2017 2016 2015 F- 11 Net intangible assets and liabilities, inclusive of amounts classified as real estate assets held for sale, as of December 31, 2017 will be amortized as follows (in thousands): For the year ending December 31: 2018 2019 2020 2021 2022 Thereafter Intangible Lease Assets Above-Market In-place Lease Assets In-Place Lease Valuation Intangible Lease Origination Costs (1) Below-Market In-place Lease Liabilities (2) $ $ 1,600 $ 18,497 $ 28,023 $ 910 157 104 84 142 14,181 10,179 9,013 7,869 15,069 23,102 17,739 15,685 13,752 27,800 8,449 7,263 5,669 5,468 4,847 7,142 2,997 $ 74,808 $ 126,101 $ 38,838 Weighted-Average Amortization Period (in years) 3 6 7 6 (1) (2) Included as a component of Deferred Lease Costs in the accompanying consolidated balance sheets. Includes approximately $0.4 million of future amortization of below-market in-place lease intangibles related to our 2017 Disposition Portfolio (see Note 14) below, which is classified as Other Liabilities Held for Sale, Net, on the accompanying consolidated balance sheets. These net below-market in-place lease intangibles will be included in the gain/loss on real estate assets upon their disposition on January 4, 2018. Investments in and Amounts Due from Unconsolidated Joint Ventures During the year ended December 31, 2017, Piedmont sold its investment in its last remaining unconsolidated joint venture. Prior to this disposition, during the three years ended December 31, 2017, Piedmont had accounted for its unconsolidated joint ventures using the equity method of accounting, whereby original investments were recorded at cost and subsequently adjusted for contributions, distributions, net income/(loss), and "other than temporary" impairment losses, if any, attributable to such joint ventures. All income and distributions were allocated to the joint venture partners in accordance with their respective ownership interests. Any distributions were classified on the accompanying consolidated statements of cash flow using the nature of distribution approach. Any distributions of net cash from operations were classified as cash inflows from operating activities, as they were presumed to be returns on Piedmont’s investment in the joint venture. Any proceeds received as the result of a sale of an asset from an unconsolidated joint venture were considered a return of Piedmont’s investment in the joint venture and classified as cash inflows from investing activities. Due from unconsolidated joint venture represents operating distributions due to Piedmont from its investment in the unconsolidated joint venture which have been declared but not received as of period end. Cash and Cash Equivalents Piedmont considers all highly-liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents include cash and short-term investments. Short-term investments consist of investments in money market accounts stated at cost, which approximates estimated fair value, and available-for-sale securities resulting from Piedmont's non-qualified deferred compensation program carried at estimated fair value. Tenant Receivables, net and Straight-line Rent Receivables Tenant receivables are comprised of rental and reimbursement billings due from tenants, and straight-line rent receivables representing the cumulative amount of future adjustments necessary to present rental income on a straight-line basis. Tenant receivables are recorded at the original amount earned, less an allowance for any doubtful accounts, which approximates estimated fair value. Management assesses the collectability of tenant receivables on an ongoing basis and provides for allowances as such balances, or portions thereof, become uncollectible. Piedmont records provisions for bad debts as property operating costs in the accompanying consolidated statements of income, and recognized approximately $350,000, $216,000, and $22,000 of provisions for bad debts during the years ended December 31, 2017, 2016, and 2015, respectively. F- 12 Restricted Cash and Escrows Restricted cash and escrows principally relate to the following types of items: • • • • escrow accounts held by lenders to pay future real estate taxes, insurance, debt service, and tenant improvements; net sales proceeds from property sales held by qualified intermediary for potential Section 1031 exchange; earnest money paid in connection with future acquisitions; and security and utility deposits paid by tenants per the terms of their respective leases. Restricted cash and escrows are generally reclassified to other asset or liability accounts upon being used to purchase assets, satisfy obligations, or settle tenant obligations. Prepaid Expenses and Other Assets Prepaid expenses and other assets are primarily comprised of the following items: • • • • prepaid property taxes, insurance and operating costs; deferred common area maintenance costs which will be reimbursed by tenants over specified time periods; receivables which are unrelated to tenants, for example, insurance proceeds receivable from insurers related to casualty losses; and equipment, furniture and fixtures, and tenant improvements for Piedmont’s corporate office and property management office space, net of accumulated depreciation. Prepaid expenses and other assets will be expensed as utilized or depreciated in the case of Piedmont's corporate assets. Balances without a future economic benefit are expensed as they are identified. Deferred common area maintenance costs are amortized to property operating costs as the related reimbursement income is recognized over the period specified in the respective lease. Piedmont recognized amortization of deferred common area maintenance for the years ended December 31, 2017, 2016, and 2015 of approximately $1.4 million, $1.4 million, and $2.5 million, respectively. Goodwill Goodwill is the excess of cost of an acquired entity over the amounts specifically assigned to assets acquired and liabilities assumed in purchase accounting for business combinations. Piedmont tests the carrying value of its goodwill for impairment on an annual basis, or on an interim basis if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Such interim circumstances may include, but are not limited to, significant adverse changes in legal factors or in the general business climate, adverse action or assessment by a regulator, unanticipated competition, the loss of key personnel, or persistent declines in an entity’s stock price below carrying value of the entity. Piedmont first assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of the reporting unit is less than its carrying amount. Piedmont internally evaluates its consolidated financial position and all of its operations as one reporting unit. In conjunction with performing the annual impairment test of goodwill as of December 31, 2017, Piedmont early adopted the provisions of the Accounting Standards Update No. 2017-04 Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment ("ASU 2017-04") issued by the Financial Accounting Standards Board (the "FASB"). Beginning with the 2017 annual test of goodwill impairment, Piedmont will no longer perform a "Step 2" analysis if, after assessing the totality of events or circumstances, Piedmont concludes that the goodwill balance may be impaired for any reporting unit. A Step 2 analysis requires an entity to calculate the implied fair value of existing goodwill, as compared to its carrying amount. Instead, if Piedmont determines during the qualitative analysis that it is more likely than not that the goodwill is impaired, then Piedmont will recognize a goodwill impairment loss by the excess of the reporting unit’s carrying amount over its estimated fair value (not to exceed the total goodwill allocated to that reporting unit). There were no changes in the carrying amount of Piedmont's goodwill during the year ended December 31, 2017. Interest Rate Derivatives Piedmont periodically enters into interest rate derivative agreements to hedge its exposure to changing interest rates. As of December 31, 2017 and 2016, all of Piedmont's interest rate derivatives were designated as effective cash flow hedges and carried on the balance sheet at estimated fair value. Piedmont reassesses the effectiveness of its derivatives designated as cash flow hedges on a regular basis to determine if they continue to be highly effective and if the forecasted transactions remain highly probable. Piedmont does not use derivatives for trading or speculative purposes. The changes in estimated fair value of interest rate swap agreements designated as effective cash flow hedges are recorded in other comprehensive income (“OCI”), and subsequently reclassified to earnings when the hedged transactions occur. The estimated fair F- 13 value of the interest rate derivative agreement is recorded as interest rate derivative asset or as interest rate derivative liability in the accompanying consolidated balance sheets. Amounts received or paid under interest rate derivative agreements are recorded as reductions or additions to interest expense in the consolidated income statements as incurred. Additionally, when Piedmont settles forward starting swap agreements, any gain or loss is recorded as accumulated other comprehensive income and is amortized to interest expense over the term of the respective notes on a straight line basis (which approximates the effective interest method). Further, Piedmont classifies cash flows from the settlement of hedging derivative instruments in the same category as the underlying exposure which is being hedged. Settlements resulting from the hedge of Piedmont's exposure to interest rate changes are classified as operating cash flows in the accompanying consolidated statements of cash flows. Deferred Lease Costs Deferred lease costs are comprised of costs and incentives incurred to acquire operating leases. In addition to direct costs, deferred lease costs also include intangible lease origination costs related to in-place leases acquired as part of a property acquisition and direct payroll costs incurred related to negotiating and executing specific leases. For the years ended December 31, 2017, 2016, and 2015, Piedmont capitalized approximately $0.3 million, $0.4 million, and $1.0 million, respectively, of internal leasing and development costs. Deferred lease costs are amortized on a straight-line basis over the terms of the related underlying leases in the accompanying consolidated statements of income as follows: • Approximately $50.8 million, $50.1 million, and $42.5 million of deferred lease costs for the years ended December 31, 2017, 2016, and 2015, respectively, are included in amortization expense; and • Approximately $4.8 million, $3.9 million, and $4.7 million, of deferred lease costs related to lease incentives granted to tenants for the years ended December 31, 2017, 2016, and 2015, respectively, was included as an offset to rental income. Upon receipt of a lease termination notice, Piedmont adjusts the amortization of any unamortized deferred lease costs to be recognized ratably over the revised remaining term of the lease after giving effect to the termination notice. If there is no remaining lease term and no other obligation to provide the tenant space in the property, then any unamortized tenant-specific costs are recognized immediately upon termination. Debt When mortgage debt is assumed upon the acquisition of real property, Piedmont adjusts the loan to estimated fair value with a corresponding adjustment to building and other intangible assets assumed as part of the purchase. The fair value adjustment is amortized to interest expense over the term of the loan using the effective interest method. Amortization of such fair value adjustments was approximately $0.5 million for each of the years ended December 31, 2017, 2016, and 2015, respectively. Additionally, Piedmont records debt issuance premiums/discounts as an increase/decrease to the principal amount of the loan in the accompanying consolidated balance sheets, and amortizes such premiums or discounts as a component of interest expense over the life of the underlying loan facility using the effective interest method. Piedmont recorded discount amortization of approximately $0.2 million for each of the years ended December 31, 2017, 2016, and 2015, respectively. Piedmont presents all debt issuance costs as a direct deduction from the principal amount of secured and unsecured debt in the accompanying consolidated balance sheets. Piedmont amortizes these costs to interest expense on a straight-line basis (which approximates the effective interest rate method) over the terms of the related financing arrangements. Piedmont recognized amortization of such costs for the years ended December 31, 2017, 2016, and 2015 of approximately $2.8 million, $2.9 million, and $2.8 million, respectively. Deferred income Deferred income is primarily comprised of the following items: • • prepaid rent from tenants; and tenant reimbursements related to operating expense or property tax expenses which may be due to tenants as part of an annual operating expense reconciliation. Deferred income related to prepaid rents from tenants will be recognized as income in the period it is earned. Amounts related to operating expense reconciliations or property tax expense are relieved when the tenant's reconciliation is completed in accordance with the underlying lease, and payment is issued to the tenant. F- 14 Shares-in-trust To date, Piedmont has not issued any shares-in-trust; however, under Piedmont’s charter, it has authority to issue a total of 150,000,000 shares-in-trust, which would be issued only in the event that there is a purported transfer of, or other change in or affecting the ownership of, Piedmont’s capital stock that would result in a violation of the ownership limits that are included in Piedmont’s charter to protect its REIT status. Preferred Stock To date, Piedmont has not issued any shares of preferred stock; however, Piedmont is authorized to issue up to 100,000,000 shares of one or more classes or series of preferred stock. Piedmont’s board of directors may determine the relative rights, preferences, and privileges of any class or series of preferred stock that may be issued, and can be more beneficial than the rights, preferences, and privileges attributable to Piedmont’s common stock. Common Stock Under Piedmont’s charter, it has authority to issue a total of 750,000,000 shares of common stock with a par value of $0.01 per share. Each share of common stock is entitled to one vote and participates in distributions equally. The board of directors of Piedmont authorized in May 2017 the repurchase and retirement of up to $250 million of Piedmont's common stock between May 2, 2017 and May 2, 2019. Piedmont may repurchase the shares from time to time, in accordance with applicable securities laws, in the open market or in privately negotiated transactions. The timing of repurchases is dependent upon market conditions and other factors, and repurchases may be commenced or suspended from time to time in Piedmont's discretion, without prior notice. As of December 31, 2017, Piedmont had approximately $188.2 million in remaining capacity under the program which may be used for share repurchases through May 2019. See Note 19 for additional information. Dividends As a REIT, Piedmont is required by the Internal Revenue Code of 1986, as amended (the “Code”), to make distributions to stockholders each taxable year equal to at least 90% of its annual taxable income, computed without regard to the dividends-paid deduction and by excluding net capital gains attributable to stockholders (“REIT taxable income”). Piedmont sponsors a dividend reinvestment plan ("DRP") pursuant to which common stockholders may elect (if their brokerage agreements allow) to reinvest an amount equal to the dividends declared on their common shares into additional shares of Piedmont’s common stock in lieu of receiving cash dividends. Under the DRP, Piedmont has the option to either issue shares purchased in the open market or issue shares directly from Piedmont's authorized but unissued shares, in both cases at a 2% discount for the stockholder. Such election takes place at the settlement of each quarterly and/or special dividend in which there are participants in the DRP, and may change from quarter to quarter based on management's judgment of the best use of proceeds for Piedmont. Noncontrolling Interest Noncontrolling interest is the equity interest of consolidated entities that is not owned by Piedmont. Noncontrolling interest is adjusted for the noncontrolling partners' share of contributions, distributions, and earnings (losses) in accordance with the respective partnership agreement. Earnings allocated to such noncontrolling partners are recorded as income applicable to noncontrolling interest in the accompanying consolidated statements of income. Revenue Recognition All leases of real estate assets held by Piedmont are classified as operating leases, and the related base rental income is recognized on a straight-line basis over the terms of the respective leases. Tenant reimbursements are recognized as revenue in the period that the related operating cost is incurred. Rents and tenant reimbursements collected in advance are recorded as deferred income in the accompanying consolidated balance sheets. Property management fee revenue is recognized in the period in which the services are performed. Lease termination revenues are recognized ratably as rental revenue over the revised remaining lease term after giving effect to the termination notice. Contingent rental income recognition is deferred until the specific lease-related targets are achieved. Gains on the sale of real estate assets are recognized upon completing the sale and, among other things, determining the sale price and transferring all of the risks and rewards of ownership without significant continuing involvement with the purchaser. Recognition of all or a portion of the gain would be deferred until both of these conditions are met. Losses are primarily recognized through impairment charges when identified. F- 15 Stock-based Compensation Piedmont has issued stock-based compensation in the form of restricted stock to its employees and directors. For employees, such compensation has been issued pursuant to Piedmont's Long-term Incentive Compensation ("LTIC") program. The LTIC program is comprised of an annual restricted stock grant component (the "Restricted Stock Award" program) and a multi-year performance share component (the "Performance Share" program). Awards granted pursuant to the Restricted Stock Award and Performance Share programs, as well as director's awards, are classified as equity awards or liability awards based on the underlying terms of the program agreement. Awards classified as equity awards are expensed straight-line over the vesting period, with issuances recorded as a reduction to additional paid in capital. Awards classified as liability awards are expensed over the service period, with issuances recorded as a reduction to accrued expense. The compensation expense recognized related to both of these award types is recorded as property operating costs for those employees whose job is related to property operations and as general and administrative expense for all other employees and directors in the accompanying consolidated statements of income. Non-qualified Deferred Compensation Plan Additionally, Piedmont has a non-qualified deferred compensation plan which allows certain employees to elect to defer their receipt of compensation, including both cash and stock-based compensation, until future taxable years. Amounts deferred are invested in trading securities held in a "rabbi trust" and are measured using quoted market prices as of the reporting date. As of December 31, 2017, Piedmont held approximately $0.8 million of these trading securities. Such investments are included in cash equivalents due to their short-term, liquid nature, with the corresponding liability included in accounts payable, accrued expenses, dividends payable, and accrued capital expenditures in the accompanying consolidated balance sheets. Legal Fees and Related Insurance Recoveries Piedmont recognizes legal expenses in the period in which services are rendered as a component of general and administrative expense for routine corporate matters or as property operating costs for legal expenses attributable to operating properties. Insurance reimbursements related to ongoing legal matters are recorded as a reduction of legal expense in the period that the insurance company definitively notifies Piedmont of its intent to issue payment. Casualty Losses and Related Insurance Recoveries From time to time, specific assets may be damaged or destroyed by natural disasters. Such damages may result in significant expenses related to the destruction of fixed assets or costs to clean, repair, and establish emergency operations at the building or buildings affected by the casualty event. In addition, Piedmont may recognize expenses as a result of issuing rent abatements to tenants for business interruptions caused by the tenants' inability to access the space that they lease from Piedmont. Losses related to the above items are estimated and recorded in the period incurred without regard to whether the loss may be ultimately recoverable under Piedmont's various insurance policies. Any related insurance recoveries are recorded as income in the period that the insurance company definitively notifies Piedmont of its intent to issue payment. During the years ended December 31, 2017, 2016, and 2015, Piedmont recorded net casualty recoveries/(loss) related to Hurricane Sandy of approximately $0, $34,000 and $(0.3) million, respectively. The net casualty loss for the year ended December 31, 2015 included $0.3 million of business interruption recoveries. Discontinued Operations Operational results related to properties sold or held for sale prior to Piedmont's adoption of Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08") continue to be presented as discontinued operations in the accompanying consolidated statements of income. Subsequent to the adoption of ASU 2014-08, gains and losses on sales related to properties that do not meet the revised definition of discontinued operations and the operational results of these properties are included in income from continuing operations, while the gain on sale is presented between discontinued operations and net income. These gains and/or losses, however, are included in continuing operations for purposes of calculating earnings per share data. F- 16 Net Income Available to Common Stockholders Per Share Net income per share-basic is calculated as net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Net income per share-diluted is calculated as net income available to common stockholders divided by the diluted weighted average number of common shares outstanding during the period, including the dilutive effect of nonvested restricted stock. The dilutive effect of nonvested restricted stock is calculated using the treasury stock method to determine the number of additional common shares that would become outstanding if the remaining unvested restricted stock awards vested. Income Taxes Piedmont has elected to be taxed as a REIT under the Code, and has operated as such, beginning with its taxable year ended December 31, 1998. To qualify as a REIT, Piedmont must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income. As a REIT, Piedmont is generally not subject to federal income taxes, subject to fulfilling, among other things, this distribution requirement. However, Piedmont is subject to federal income taxes related to the operations conducted by its taxable REIT subsidiary, POH, which have been provided for in the financial statements. Accordingly, the only provision for federal income taxes in the accompanying consolidated financial statements relates to POH. POH does not have significant tax provisions or deferred income tax items. These operations resulted in approximately $13,000, $415,000, and $85,000 in income tax expense for the years ended December 31, 2017, 2016, and 2015, respectively, as a component of other income/(expense) in the accompanying consolidated statements of income. Further, Piedmont is subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in general and administrative expenses in the accompanying consolidated financial statements. Reclassifications Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. The reclassifications relate to: (i) properties classified as held for sale as of March 31, 2017, June 30, 2017, September 30, 2017, and December 31, 2017 have been reclassified as held for sale as of December 31, 2016 for comparative purposes (see Note 14). Accounting Pronouncements Adopted during the Year Ended December 31, 2017 As mentioned in Goodwill above, Piedmont early adopted the provisions of ASU 2017-04 on a prospective basis beginning with the annual test of impairment as of December 31, 2017. The provisions in ASU 2017-04 simplify the testing of goodwill for impairment and the implementation did not result in any change to current or previously reported information. Additionally, as of December 31, 2017, Piedmont early adopted the provisions of FASB Accounting Standards Update No. 2016-18 Statement of Cash Flows (Topic 230), Restricted Cash (a consensus of the FASB Emerging Issues Task Force) in the accompanying consolidated statements of cash flows for all years presented on a retrospective basis. See Note 15 for additional required disclosures. Other Recent Accounting Pronouncements The Financial Accounting Standards Board (the "FASB") has issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). The amendments in ASU 2014-09, which are further clarified in ASUs 2016-08,10, 12, 20 and 2017-13 and 14 (collectively the "Revenue Recognition Amendments"), change the criteria for the recognition of certain revenue streams to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services using a five-step determination process. Substantially all of Piedmont's total revenues are derived from either long-term leases with its tenants or reimbursement of operating expenses, which are excluded, or expected to be excluded, from the scope of the Revenue Recognition Amendments. Piedmont's revenues which fall under the scope of the Revenue Recognition Amendments, which are effective in the first quarter of 2018 for Piedmont, include its property management fee revenues and certain of its parking and fiber or antennae fee income arrangements. Lease contracts and reimbursement revenues (provided certain conditions are met) are specifically excluded, or expected to be excluded, from the scope of the Revenue Recognition Amendments. Management has substantially completed its assessment of the impact of adoption of the Revenue Recognition Amendments and does not anticipate any material impact to its consolidated financial statements as a result of adoption. The FASB has issued Accounting Standards Update No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"). The provisions of ASU 2017-05 define the term "in substance nonfinancial asset" as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) is concentrated in nonfinancial assets. Further, it states that nonfinancial assets should be derecognized once the counterparty obtains control. Finally, the amendments provide clarification for partial sales of nonfinancial assets. ASU 2017-05 is effective F- 17 concurrent with the Revenue Recognition Amendments (detailed above), which will be the first quarter of 2018 for Piedmont. Although management continues to evaluate the guidance and disclosures required by ASU 2017-05, Piedmont does not anticipate a material change in how it recognizes, measures, or classifies the gains or losses on the disposition of real estate in its consolidated financial statements as a result of adoption. The FASB has issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). The amendments in ASU 2016-01 require equity investments, except those accounted for under the equity method of accounting, to be measured at estimated fair value with changes in fair value recognized in net income. Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments, and eliminates certain disclosure requirements. The amendments in ASU 2016-01 are effective in the first quarter of 2018, and Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption. The FASB has issued ASU 2016-02, which fundamentally changes the definition of a lease, as well as the accounting for operating leases by requiring lessees to recognize assets and liabilities which arise from the lease, consisting of a liability to make lease payments (the lease liability) and a right-of-use asset, representing the right to use the leased asset over the term of the lease. Accounting for leases by lessors is substantially unchanged from prior practice as lessors will continue to recognize lease revenue on a straight-line basis; however, ASU 2016-02 currently defines certain tenant reimbursements as non-lease components which will be subject to the guidance under ASU 2014-09; however under proposed Topic 842, lessors may elect a practical expedient not to separate components in a lease contract provided certain components are met. The amendments in ASU 2016-02 are effective in the first quarter of 2019, and Piedmont is currently evaluating the potential impact of adoption. The FASB has issued Accounting Standards Update No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"). The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for Piedmont in first quarter 2019, with early adoption, including adoption in an interim period, permitted. ASU 2017-12 requires a modified retrospective transition method in which Piedmont will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. While management continues to assess all potential impacts of the standard, Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption. The FASB has issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The provisions of ASU 2016-13 replace the "incurred loss" approach with an "expected loss" model for impairing trade and other receivables, held-to-maturity debt securities, net investment in leases, and off-balance-sheet credit exposures, which will generally result in earlier recognition of allowances for credit losses. Additionally, the provisions change the classification of credit losses related to available-for-sale securities to an allowance, rather than a direct reduction of the amortized cost of the securities. ASU 2016-13 is effective in the first quarter of 2020, with early adoption permitted as of January 1, 2019. Piedmont is currently evaluating the potential impact of adoption. 3. Acquisitions During the year ended December 31, 2017, Piedmont acquired one property using proceeds from the sale of other assets and cash on hand, as follows: Property Metropolitan Statistical Area Date of Acquisition Ownership Percentage Acquired Rentable Square Feet (Unaudited) Percentage Leased as of Acquisition (Unaudited) Net Contractual Purchase Price (in millions) Norman Pointe I Minneapolis, Minnesota December 28, 2017 100% 213,851 71% $ 35.2 4. Unconsolidated Joint Venture As of December 31, 2017 and 2016, Piedmont's investment in unconsolidated joint venture was $0 and $7.4 million, respectively. Piedmont owned a 72% interest in Fund XIII and REIT Joint Venture which held the 8560 Upland Drive building. During the year ended December 31, 2017, Fund XIII and REIT Joint Venture sold the remaining property located in Denver, Colorado. Piedmont's share of the purchase price was approximately $12.7 million (see Note 14). F- 18 5. Debt During the year ended December 31, 2017, Piedmont fully repaid the $140 Million WDC Fixed-Rate Loans prior to the maturity date without penalty and had net repayments on its $500 Million Unsecured 2015 Line of Credit of approximately $155.0 million, using a portion of the net proceeds from the sale of the Two Independence Square building located in Washington, D.C (see Note 14). Subsequent to December 31, 2017, Piedmont fully repaid the balances of the $300 Million Unsecured 2013 Term Loan and the $170 Million Unsecured 2015 Term Loan using proceeds from the 2017 Disposition Portfolio (see Note 14) and cash on hand, as well as drawing on its $500 Million Unsecured 2015 Line of Credit. As of December 31, 2017, Piedmont believes it was in compliance with all financial covenants associated with its debt instruments. See Note 8 for a description of Piedmont’s estimated fair value of debt as of December 31, 2017. The following table summarizes the terms of Piedmont’s indebtedness outstanding as of December 31, 2017 and 2016, including net discounts/premiums and unamortized debt issuance costs (in thousands): Facility (1) Secured (Fixed) $140 Million WDC Fixed-Rate Loans $35 Million Fixed-Rate Loan (3) $160 Million Fixed-Rate Loan (4) Net premium and unamortized debt issuance costs Subtotal/Weighted Average (5) Unsecured (Variable and Fixed) $170 Million Unsecured 2015 Term Loan (6) $300 Million Unsecured 2013 Term Loan $500 Million Unsecured 2015 Line of Credit (6) $300 Million Unsecured 2011 Term Loan $350 Million Unsecured Senior Notes $400 Million Unsecured Senior Notes Discounts and unamortized debt issuance costs Subtotal/Weighted Average (5) Total/Weighted Average (5) Stated Rate Effective Rate (2) Amount Outstanding as of Maturity 2017 2016 5.76% 5.55% 3.48% 3.81% LIBOR + 1.125% LIBOR + 1.20% LIBOR + 1.00% LIBOR + 1.15% 3.40% 4.45% 3.43% 3.48% 5.76% 3.75% 3.58% 11/1/2017 $ — $ 140,000 9/1/2021 7/5/2022 30,670 160,000 946 191,616 31,583 160,000 1,161 332,744 2.54% 5/15/2018 170,000 (7) 170,000 2.78% (8) 1/31/2019 300,000 (7) 300,000 2.57% 6/18/2019 (9) 23,000 178,000 3.35% (8) 3.43% 4.10% 1/15/2020 6/01/2023 3/15/2024 300,000 350,000 400,000 (7,689) 300,000 350,000 400,000 (10,269) 1,535,311 1,687,731 $ 1,726,927 $ 2,020,475 (1) (2) (3) (4) (5) (6) (7) Other than the $35 Million Fixed-Rate Loan, all of Piedmont’s outstanding debt as of December 31, 2017 and 2016 is interest-only. Effective rate after consideration of settled or in-place interest rate swap agreements, issuance premiums/discounts, and/or fair market value adjustments upon assumption of debt. Collateralized by the 5 Wall Street building in Burlington, Massachusetts. Collateralized by the 1901 Market Street building in Philadelphia, Pennsylvania. Weighted average is based on contractual balance of outstanding debt and the stated or effectively fixed interest rates in the table as of December 31, 2017. On a periodic basis, Piedmont may select from multiple interest rate options, including the prime rate and various-length LIBOR locks. All LIBOR selections are subject to an additional spread over the selected rate based on Piedmont’s current credit rating. On January 4, 2018, Piedmont repaid the entire outstanding balance of the $170 Million Unsecured 2015 Term Loan and the $300 Million Unsecured 2013 Term Loan without penalty. F- 19 (8) (9) Facility has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of Piedmont's credit rating, the rate shown as the effective rate. Piedmont may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of June 18, 2020) provided Piedmont is not then in default and upon payment of extension fees. A summary of Piedmont's consolidated principal outstanding for aggregate debt maturities of its indebtedness as of December 31, 2017, is provided below (in thousands): 2018 2019 2020 2021 2022 Thereafter Total $ 170,882 (1) (1) (2) 324,014 301,072 27,702 160,000 750,000 $ 1,733,670 (1) (2) On January 4, 2018, Piedmont repaid the entire outstanding balance of the $170 Million Unsecured 2015 Term Loan and the $300 Million Unsecured 2013 Term Loan without penalty, which were scheduled to mature on May 15, 2018 and January 31, 2019, respectively. Includes the balance outstanding as of December 31, 2017 on the $500 Million Unsecured 2015 Line of Credit of $23 million. However, Piedmont may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of June 18, 2020) provided Piedmont is not then in default and upon payment of extension fees. Piedmont’s weighted-average interest rate as of December 31, 2017 and 2016, for the aforementioned borrowings was approximately 3.48% and 3.43%, respectively. Piedmont made interest payments on all indebtedness, including interest rate swap cash settlements of approximately $67.6 million, $69.0 million, and $76.4 million during the years ended December 31, 2017, 2016, and 2015, respectively. F- 20 6. Variable Interest Entities and Equity Participation Rights Variable interest holders who have the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and have the obligation to absorb the majority of losses of the entity or the right to receive significant benefits of the entity must consolidate the VIE. Each of the following VIEs has the sole purpose of holding land and office buildings and their resulting operations, and are classified in the accompanying consolidated balance sheets in the same manner as Piedmont’s wholly- owned properties. A summary of Piedmont’s interests in its consolidated VIEs and their related carrying values as of December 31, 2017 and 2016 is as follows (net carrying amount in millions): Piedmont’s % Ownership of Entity Net Carrying Amount as of December 31, 2017 Net Carrying Amount as of December 31, 2016 Related Building Entity 1201 Eye Street N.W. Associates, LLC 98.6% (1) 1201 Eye Street 1225 Eye Street N.W. Associates, LLC 98.1% (1) 1225 Eye Street $ $ 81.1 $ (6.7) 65.2 $ 9.9 Piedmont 500 W. Monroe Fee, LLC 100% 500 W. Monroe $ 263.2 $ 262.4 Primary Beneficiary Considerations the partnership’s governing In accordance with documents, Piedmont currently receives 100% of the cash flow of the entity and has sole discretion in directing the management and leasing activities of the building. In accordance with the partnership’s governing documents, Piedmont currently receives 100% of the cash flow of the entity and has sole discretion in directing the management and leasing activities of the building. The Omnibus Agreement with the previous owner includes equity participation rights upon sale of the property for the previous owner, if certain financial returns are achieved; however, Piedmont has sole decision making authority and is entitled to 100% of the economic benefits of the property until such returns are met. (1) During the year ended December 31, 2017, Piedmont repaid the $140 million mortgage secured by the 1201 and 1225 Eye Street properties, and recapitalized the LLCs holding each asset, increasing Piedmont's ownership from 49.5% in each of the LLCs to the amounts stated above. 7. Derivative Instruments Risk Management Objective of Using Derivatives In addition to operational risks which arise in the normal course of business, Piedmont is exposed to economic risks such as interest rate, liquidity, and credit risk. In certain situations, Piedmont has entered into derivative financial instruments such as interest rate swap agreements and other similar agreements to manage interest rate risk exposure arising from current or future variable rate debt transactions. Interest rate swap agreements involve the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Piedmont’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. Cash Flow Hedges of Interest Rate Risk Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for Piedmont making fixed-rate payments over the life of the agreements without changing the underlying notional amount. As of December 31, 2017, Piedmont was party to various interest rate swap agreements, all of which are designated as effective cash flow hedges and fully hedge the variable cash flows covering the entire outstanding balances of the $300 Million Unsecured 2011 Term Loan and the $300 Million Unsecured 2013 Term Loan. The maximum length of time over which Piedmont is hedging its exposure to the variability in future cash flows for forecasted transactions is 24 months. F- 21 A detail of Piedmont’s interest rate derivatives outstanding as of December 31, 2017 is as follows: Total (1) Interest Rate Derivatives: Interest rate swaps Interest rate swaps Interest rate swaps Number of Swap Agreements (1) (1) 4 2 3 Associated Debt Instrument $300 Million Unsecured 2013 Term Loan $300 Million Unsecured 2013 Term Loan $300 Million Unsecured 2011 Term Loan Notional Amount (in millions) Effective Date Maturity Date $ $ 200 1/30/2014 1/31/2019 100 8/29/2014 1/31/2019 11/22/2016 1/15/2020 300 600 In January 2018, Piedmont terminated these interest rate swap agreements in conjunction with the repayment of the $300 Million Unsecured 2013 Term Loan (see Note 5 above). As a result of the termination, Piedmont received approximately $0.8 million from its counterparties for settlement of swaps and will recognize a net, non-cash loss of approximately $1.1 million in its statement of operations for the three months ending March 31, 2018. Piedmont presents its interest rate derivatives on its consolidated balance sheets on a gross basis as interest rate swap assets and interest rate swap liabilities. A detail of Piedmont’s interest rate derivatives on a gross and net basis as of December 31, 2017 and 2016, respectively, is as follows (in thousands): Interest rate swaps classified as: Gross derivative assets Gross derivative liabilities Net derivative liability December 31, 2017 December 31, 2016 $ $ $ 688 (1,478) (790) $ — (8,169) (8,169) The effective portion of Piedmont's interest rate derivatives, including any gain/(loss) associated with any early settlements or terminations of swaps, that was recorded in the accompanying consolidated statements of income for the years ended December 31, 2017, 2016, and 2015, respectively, was as follows (in thousands): Interest Rate Swaps in Cash Flow Hedging Relationships Amount of gain/(loss) recognized in OCI on derivatives Amount of previously recorded loss reclassified from accumulated OCI into interest expense $ $ 2,479 3,502 $ $ 2017 2016 (4,126) $ 2015 (12,509) 4,548 $ 5,875 Piedmont estimates that approximately $0.7 million will be reclassified from accumulated other comprehensive income as a reduction to interest expense over the next twelve months. Piedmont recognized approximately $0, $0, and $37,000 of net loss related to hedge ineffectiveness and terminations of its cash flow hedges during the years ended December 31, 2017, 2016, and 2015, respectively. Additionally, see Note 8 for fair value disclosures of Piedmont's derivative instruments. Credit-risk-related Contingent Features Piedmont has agreements with its derivative counterparties that contain a provision whereby if Piedmont defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Piedmont could also be declared in default on its derivative obligations. If Piedmont were to breach any of the contractual provisions of the derivative contracts, it would be required to settle its obligations under the agreements at their termination value of the estimated fair values plus accrued interest, or approximately $0.9 million as of December 31, 2017. Additionally, Piedmont has rights of set-off under certain of its derivative agreements related to potential termination fees and amounts payable under the agreements, if a termination were to occur. F- 22 8. Fair Value Measurements Piedmont considers its cash and cash equivalents, tenant receivables, notes receivable, restricted cash and escrows, accounts payable and accrued expenses, interest rate swap agreements, and debt to meet the definition of financial instruments. The following table sets forth the carrying and estimated fair value for each of Piedmont’s financial instruments, as well as its level within the GAAP fair value hierarchy, as of December 31, 2017 and 2016, respectively (in thousands): Financial Instrument Assets: Cash and cash equivalents (1) Tenant receivables, net (1) Restricted cash and escrows (1) Interest rate swap asset Liabilities: Accounts payable and accrued expenses (1) $ Interest rate swap liability $ December 31, 2017 December 31, 2016 Carrying Value Estimated Fair Value Level Within Fair Value Hierarchy Carrying Value Estimated Fair Value Level Within Fair Value Hierarchy $ $ $ $ 7,382 12,139 1,373 688 126,429 1,478 $ $ $ $ $ $ 7,382 Level 1 12,139 Level 1 1,373 Level 1 688 Level 2 126,429 1,478 Level 1 Level 2 $ $ $ $ $ $ 6,992 26,494 1,212 $ $ $ 6,992 26,494 1,212 Level 1 Level 1 Level 1 — $ — Level 2 44,733 8,169 $ $ 44,733 8,169 Level 1 Level 2 Level 2 Debt, net $ 1,726,927 $ 1,759,905 Level 2 $ 2,020,475 $ 2,027,436 (1) For the periods presented, the carrying value of these financial instruments approximates estimated fair value due to its short-term maturity. Piedmont's debt was carried at book value as of December 31, 2017 and 2016; however, Piedmont's estimate of its fair value is disclosed in the table above. Piedmont uses widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of the debt facilities, including the period to maturity of each instrument, and uses observable market- based inputs for similar debt facilities which have transacted recently in the market. Therefore, the estimated fair values determined are considered to be based on significant other observable inputs (Level 2). Scaling adjustments are made to these inputs to make them applicable to the remaining life of Piedmont's outstanding debt. Piedmont has not changed its valuation technique for estimating the fair value of its debt. Piedmont’s interest rate swap agreements presented above, and further discussed in Note 7, are classified as “Interest rate swap” assets and liabilities in the accompanying consolidated balance sheets and were carried at estimated fair value as of December 31, 2017 and 2016. The valuation of these derivative instruments was determined using widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of the derivatives, including the period to maturity of each instrument, and uses observable market-based inputs, including interest rate curves and implied volatilities. Therefore, the estimated fair values determined are considered to be based on significant other observable inputs (Level 2). In addition, Piedmont considered both its own and the respective counterparties’ risk of nonperformance in determining the estimated fair value of its derivative financial instruments by estimating the current and potential future exposure under the derivative financial instruments that both Piedmont and the counterparties were at risk for as of the valuation date. The credit risk of Piedmont and its counterparties was factored into the calculation of the estimated fair value of the interest rate swaps; however, as of December 31, 2017 and 2016, this credit valuation adjustment did not comprise a material portion of the estimated fair value. Therefore, Piedmont believes that any unobservable inputs used to determine the estimated fair values of its derivative financial instruments are not significant to the fair value measurements in their entirety, and does not consider any of its derivative financial instruments to be Level 3 assets or liabilities. F- 23 9. Impairment Loss on Real Estate Assets Piedmont recorded impairment loss on real estate assets for the years ended December 31, 2017, 2016, and 2015 (in thousands): Eastpoint I & II (1) 2 Gatehall Drive (1) 150 West Jefferson (1) 9221 Corporate Boulevard (2) 9200 and 9211 Corporate Boulevard (3) Disposal Group of 13 Assets (4) 2017 2016 2015 $ — $ — $ 6,195 — 37,106 — — — — 8,259 2,692 22,950 46,461 — — — — — Total impairment loss on real estate assets (5) $ 46,461 $ 33,901 $ 43,301 (1) (2) (3) (4) (5) Piedmont recognized an impairment loss on real estate assets based upon the difference between the carrying value of the asset including a proportionate amount of goodwill (because the asset met the definition of a disposed "business" at the time of measurement) and the contracted sales price, less estimated selling costs. Piedmont, using a probability-weighted model heavily weighted towards the short-term sale of the 9221 Corporate Boulevard building in Rockville, Maryland, determined that the carrying value would not be recovered from the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. As a result, Piedmont recognized a loss on impairment of approximately $2.7 million during the year ended December 31, 2016 calculated as the difference between the carrying value of the asset including a proportionate amount of goodwill and the anticipated contract sales price, less estimated selling costs. Piedmont elected to sell its remaining two assets and exit the Rockville, Maryland sub-market of Washington, D.C., after selling the 9221 Corporate Boulevard building in July 2016 (mentioned above). Upon management's change in its hold period assumption for the assets from a long-term hold to a near-term sale, Piedmont recognized an impairment loss of approximately $23.0 million. The impairment loss was calculated as the difference between the carrying value of the asset including a proportionate amount of goodwill and the anticipated contracted sales price, less estimated selling costs. During the fourth quarter 2017, Piedmont's management changed its hold period assumption and subsequently determined that a near- term sale was more than 50% probable for a disposal group of real estate assets. Piedmont recognized an impairment loss on this disposal group (see Note 14) based upon the difference between the carrying value of the assets (which did not include a proportionate amount of goodwill because the disposal group did not meet the definition of a disposed "business" at the time of measurement) and the contracted sales price, less estimated selling costs. The fair value measurements used in the evaluation of the non-financial assets above are considered to be Level 1 valuations within the fair value hierarchy as defined by GAAP, as there are direct observations and transactions involving the assets by unrelated, third party purchasers. 10. Commitments and Contingencies Commitments Under Existing Lease Agreements Under its existing lease agreements, Piedmont may be required to fund significant tenant improvements, leasing commissions, and building improvements. In addition, certain agreements contain provisions that require Piedmont to issue corporate or property guarantees to provide funding for capital improvements or other financial obligations. Piedmont classifies its capital improvements into two categories: (i) improvements which maintain the building's existing asset value and its revenue generating capacity (“non- incremental capital expenditures”) and (ii) improvements which incrementally enhance the building's asset value by expanding its revenue generating capacity (“incremental capital expenditures”). As of December 31, 2017, after excluding the properties sold in January 2018 as part of the 2017 Disposition Portfolio, commitments to fund potential non-incremental capital expenditures over the next five years for tenant improvements totaled approximately $38.6 million related to Piedmont's existing lease portfolio over the respective lease terms, the majority of which Piedmont estimates may be required to be funded over the next three years based on when the underlying leases commence. For most of Piedmont’s leases, the timing of the actual funding of these tenant improvements is largely dependent upon tenant requests for reimbursement. In some cases, these obligations may expire with the leases without further recourse to Piedmont. As of December 31, 2017, commitments for incremental capital expenditures (exclusive of the 2017 Disposition Portfolio) for tenant improvements associated with executed leases totaled approximately $14.1 million. F- 24 Contingencies Related to Tenant Audits/Disputes Certain lease agreements include provisions that grant tenants the right to engage independent auditors to audit their annual operating expense reconciliations. Such audits may result in the re-interpretation of language in the lease agreements which could result in the refund of previously recognized tenant reimbursement revenues, resulting in financial loss to Piedmont. Piedmont recorded reductions in reimbursement revenues related to such tenant audits/disputes of approximately $0.3 million, $1.1 million and $0.4 million during the years ended December 31, 2017, 2016, and 2015, respectively. Operating Lease Obligations As of December 31, 2017, the 2001 NW 64th Street building in Ft. Lauderdale, Florida was subject to a ground lease with an expiration date in 2048. The aggregate payments required under the terms of this operating lease as of December 31, 2017 are presented below (in thousands): 2018 2019 2020 2021 2022 Thereafter Total $ $ 93 93 93 93 93 2,346 2,811 Ground rent expense was approximately $0.1 million, $0.1 million, and $0.2 million for the years ended December 31, 2017, 2016, and 2015, respectively, and is included in property operating costs in the accompanying consolidated statements of income. The net book value of the 2001 NW 64th Street building was approximately $4.8 million and $4.7 million as of December 31, 2017 and 2016, respectively. On January 4, 2018, Piedmont closed on the sale of the 2001 NW 64th Street building as part of a portfolio disposition (see Note 14). The purchaser has assumed the ground lease and, as such, Piedmont will have no future operating lease obligations associated with this property. Ground rent expense for 2015 includes the River Corporate Center building located in Tempe, Arizona, which was sold in April 2015. Litigation Piedmont is from time to time a party to legal proceedings, which arise in the ordinary course of its business. None of these ordinary course legal proceedings are reasonably likely to have a material adverse effect on results of operations or financial condition. Piedmont is not aware of any such legal proceedings contemplated by governmental authorities. 11. Stock Based Compensation Deferred Stock Awards The Compensation Committee of Piedmont's Board of Directors has periodically granted deferred stock awards to all of Piedmont's employees and independent directors. Employee awards typically vest ratably over a multi-year period and independent director awards vest over one year. Certain employees' long-term equity incentive program is split equally between the time-vested awards described above and a multi-year performance share program whereby the actual awards are contingent upon Piedmont's total stockholder return ("TSR") relative to a peer group's TSR. The peer group is predetermined by the Board of Directors. Any shares earned are awarded at the end of the multi-year performance period and vest upon award. F- 25 A rollforward of Piedmont's equity based award activity for the year ended December 31, 2017 is as follows: Unvested and Potential Stock Awards as of December 31, 2016 Deferred Stock Awards Granted Increase in Estimated Potential Future Performance Share Awards, net of forfeitures Performance Stock Awards Vested Deferred Stock Awards Vested Deferred Stock Awards Forfeited Unvested and Potential Stock Awards as of December 31, 2017 Shares Weighted- Average Grant Date Fair Value 944,223 299,251 57,526 $ $ $ (118,446) $ (305,107) $ (9,010) $ 868,437 $ 19.44 21.38 24.68 22.00 19.34 19.93 21.69 The following table provides additional information regarding stock award activity during the years ended December 31, 2017, 2016, and 2015 (in thousands except for per share data): 2017 2016 2015 Weighted-Average Grant Date Fair Value of Deferred Stock Granted During the Period (per share) Total Grant Date Fair Value of Deferred Stock Vested During the Period Share-based Liability Awards Paid During the Period (1) $ $ $ 21.38 5,899 2,877 $ $ $ 19.96 4,806 1,127 $ $ $ 17.59 4,239 — (1) Amounts reflect the issuance of performance share awards related to the 2014-16 and 2013-15 Performance Share Plans during the years ended December 31, 2017 and 2016, respectively. F- 26 A detail of Piedmont’s outstanding employee deferred stock awards as of December 31, 2017 is as follows: Date of grant Type of Award Net Shares Granted (1) Grant Date Fair Value January 3, 2014 Deferred Stock Award 79,119 $ 16.45 May 1, 2015 Deferred Stock Award 216,811 $ 17.59 Fiscal Year 2015-2017 Performance Share Program May 1, 2015 — $ 18.42 May 24, 2016 Deferred Stock Award 232,960 $ 19.91 Vesting Schedule Of the shares granted, 20% vested or will vest on January 3, 2015, 2016, 2017, 2018, and 2019, respectively. Of the shares granted, 25% vested on the date of grant, and 25% of the shares vest on May 1, 2016, 2017, and 2018, respectively. Shares awarded, if any, will vest immediately upon determination of award in 2018. Of the shares granted, 25% vested on the date of grant, and 25% of the shares vest on May 24, 2017, 2018, and 2019, respectively. Fiscal Year 2016-2018 Performance Share Program Deferred Stock Award-Board of Directors May 24, 2016 May 18, 2017 — $ 23.02 Shares awarded, if any, will vest immediately upon determination of award in 2019. 26,187 $ 21.38 Of the shares granted, 100% will vest by May 18, 2018. Of the shares granted, 25% vested on the date of grant, and 25% vested or will vest on May 18, 2018, 2019, and 2020, respectively. May 18, 2017 Deferred Stock Award 246,671 $ 21.38 Fiscal Year 2017-2019 Performance Share Program May 18, 2017 Total Unvested and Potential Stock Awards — $ 30.45 Shares awarded, if any, will vest immediately upon determination of award in 2020. Unvested and Potential Shares as of December 31, 2017 32,829 66,922 161,005 132,195 122,154 26,187 199,810 127,335 868,437 (2) (2) (2) (1) (2) Amounts reflect the total grant to employees and independent directors, net of shares surrendered upon vesting to satisfy required minimum tax withholding obligations through December 31, 2017. Estimated based on Piedmont's cumulative TSR for the respective performance period through December 31, 2017. Share estimates are subject to change in future periods based upon Piedmont's relative performance compared to its peers' total stockholder return. During the years ended December 31, 2017, 2016, and 2015, Piedmont recognized approximately $9.5 million, $8.0 million and $8.9 million of compensation expense related to stock awards, of which approximately $7.7 million, $6.5 million and $7.0 million, related to the amortization of nonvested shares, respectively. During the year ended December 31, 2017, a total of 256,628 shares were issued to employees. As of December 31, 2017, approximately $3.8 million of unrecognized compensation cost related to nonvested, annual deferred stock awards remained, which Piedmont will record in its consolidated statements of income over a weighted-average vesting period of approximately one year. 12. Earnings Per Share There are no adjustments to “Net income applicable to Piedmont” for the diluted earnings per share computations. Net income per share-basic is calculated as net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Net income per share-diluted is calculated as net income available to common stockholders divided by the diluted weighted average number of common shares outstanding during the period, including unvested deferred stock awards. Diluted weighted average number of common shares reflects the potential dilution under the treasury stock F- 27 method that would occur if the remaining unvested deferred stock awards vested and resulted in additional common shares outstanding. Unvested deferred stock awards which are determined to be anti-dilutive are not included in the calculation of diluted weighted average common shares. The following table reconciles the denominator for the basic and diluted earnings per share computations shown on the consolidated statements of income for the years ended December 31, 2017, 2016, and 2015, respectively (in thousands): Weighted-average common shares—basic Plus: Incremental weighted-average shares from time-vested deferred and performance stock awards Weighted-average common shares—diluted 2017 145,044 2016 145,230 2015 150,538 336 405 342 145,380 145,635 150,880 Common stock issued and outstanding as of period end 142,359 145,235 145,512 13. Operating Leases Piedmont’s real estate assets are leased to tenants under operating leases for which the terms vary, including certain provisions to extend the lease term, options for early terminations subject to specified penalties, and other terms and conditions as negotiated. Piedmont retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant; however, generally they are not significant. Exposure to credit risk is limited to the extent that tenant receivables exceed this amount. Security deposits related to tenant leases are included in accounts payable, accrued expenses, dividends payable, and accrued capital expenditures in the accompanying consolidated balance sheets. As of December 31, 2017, approximately 88% of Piedmont's ALR (unaudited) was generated from select sub-markets located primarily within eight major office markets located in the Eastern-half of the United States: Atlanta, Boston, Chicago, Dallas, Minneapolis, New York, Orlando, and Washington, D.C. Furthermore, approximately 1.9% of Piedmont's ALR (unaudited) is generated from federal governmental agencies. The future minimum rental income from Piedmont’s investment in real estate assets under non-cancelable operating leases is presented below in total for properties held for use and held for sale as of December 31, 2017, as well as exclusive of properties which were held for sale as of December 31, 2017 and subsequently sold on January 4, 2018 (see Note 14 below) (in thousands): Years ending December 31: All properties owned as of December 31, 2017 Excluding properties held for sale as of December 31, 2017 2018 2019 2020 2021 2022 Thereafter Total $ $ 417,643 $ 401,120 377,556 344,991 316,053 1,348,156 3,205,519 $ 377,447 361,280 338,269 307,008 287,175 1,298,890 2,970,069 14. Property Dispositions, Assets Held for Sale, and Discontinued Operations Property Dispositions Since the adoption of ASU 2014-08 during the year ended December 31, 2014, none of Piedmont's property dispositions have met the criteria to be reported as discontinued operations. The operational results for periods prior to sale for properties sold since the adoption of ASU 2014-08 are presented as continuing operations in the accompanying consolidated statements of income, and the gain/(loss) on sale is presented separately in the consolidated statements of income unless otherwise indicated below. Details F- 28 of such properties sold are presented below (in thousands): Buildings Sold Location Date of Sale Gain/(Loss) on Sale Net Sales Proceeds 3900 Dallas Parkway Plano, Texas January 30, 2015 5601 Headquarters Drive Plano, Texas April 28, 2015 River Corporate Center Tempe, Arizona April 29, 2015 Copper Ridge Center Lyndhurst, New Jersey May 1, 2015 Eastpoint I & II Mayfield Heights, Ohio July 28, 2015 3750 Brookside Parkway Alpharetta, Georgia August 10, 2015 Chandler Forum Chandler, Arizona September 1, 2015 Aon Center Chicago, Illinois October 29, 2015 2 Gatehall Drive Parsippany, New Jersey December 21, 2015 1055 East Colorado Boulevard Pasadena, California April 21, 2016 Fairway Center II Brea, California April 28, 2016 1901 Main Street Irvine, California May 2, 2016 9221 Corporate Boulevard Rockville, Maryland July 27, 2016 150 West Jefferson Detroit, Michigan July 29, 2016 9200 and 9211 Corporate Boulevard Rockville, Maryland September 28, 2016 11695 Johns Creek Parkway Johns Creek, Georgia December 22, 2016 Braker Pointe III Austin, Texas December 29, 2016 Sarasota Commerce Center II Sarasota, Florida June 16, 2017 Two Independence Square Washington, D.C. July 5, 2017 8560 Upland Drive Denver, Colorado July 27, 2017 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 8,940 6,390 4,144 11,358 $ $ $ $ 25,803 33,326 24,223 50,372 (1) (177) (2) $ 17,342 761 13,805 84,218 $ $ $ 13,624 32,267 646,243 162 (2) $ 50,369 29,462 14,406 29,964 $ $ $ 60,076 33,062 63,149 (3) (192) (2) $ 12,035 (664) (2) $ 77,844 (41) (2) $ 12,519 1,978 18,579 6,493 109,381 3,683 $ $ $ $ $ 13,827 48,006 23,090 352,428 12,334 (4) (1) (2) (3) (4) As part of the transaction, Piedmont accepted a secured promissory note from the buyer for the remaining $45.4 million owed on the sale. During the year ended December 31, 2016, the note receivable was repaid in full and such proceeds are reflected in the accompanying consolidated statements of cash flows as net sales proceeds from the sale of wholly-owned properties. As discussed in Note 9 above, Piedmont recognized an impairment loss prior to, or in conjunction with, the sale of the property. Therefore, any gain/(loss) recognized upon the consummation of the sale consists solely of adjustments made subsequent to the sale for closing cost estimates or post-closing prorations. As part of the transaction, Piedmont accepted a secured promissory note from the buyer for $33.0 million, and the note receivable was repaid in full during the year ended December 31, 2016. As such, the full proceeds from the sale of the property are reflected in the accompanying consolidated statements of cash flows as net sales proceeds from the sale of wholly-owned properties. Property was owned as part of the unconsolidated joint venture, Fund XIII and REIT Joint Venture. As such, the gain on sale is presented as equity in income/(loss) of unconsolidated joint ventures. Amounts shown above reflect Piedmont's approximate 72% ownership. F- 29 Assets Held for Sale During the fourth quarter 2017, Piedmont entered into two binding, non-refundable contracts with unrelated third party buyers to sell a 14 property portfolio (collectively, the "2017 Disposition Portfolio"), as detailed below, both of which subsequently closed on January 4, 2018. Therefore, as of December 31, 2017, the 2017 Disposition Portfolio met the criteria for held for sale classification, and such properties are shown as held for sale as of December 31, 2017 and 2016, respectively. For comparative purposes, any property which met the criteria to be presented as held for sale as of March 31, 2017, June 30, 2017, or September 30, 2017 was re-classified as held for sale as of December 31, 2016. The only additional property other than the 2017 Disposition Portfolio meeting this criteria was the Two Independence Square building (sold on July 5, 2017). 2017 Disposition Portfolio: Building Desert Canyon 300 Windy Point I and II 2300 Cabot Drive 1075 West Entrance Drive Auburn Hills Corporate Center 5301 Maryland Way Suwanee Gateway One 5601 Hiatus Road 2001 NW 64th Street Piedmont Pointe I & II 1200 Crown Colony Drive 2120 West End Avenue Location Phoenix, Arizona Schaumburg, Illinois Lisle, Illinois Auburn Hills, Michigan Auburn Hills, Michigan Brentwood, Tennessee Suwanee, Georgia Tamarac, Florida Fort Lauderdale, Florida Bethesda, Maryland Quincy, Massachusetts Nashville, Tennessee Details of amounts held for sale as of December 31, 2017 and 2016 are presented below (in thousands): Real estate assets held for sale, net: Land Building and improvements, less accumulated depreciation of $169,116 and $244,269 as of December 31, 2017, and 2016, respectively Construction in progress Total real estate assets held for sale, net Other assets held for sale, net: Straight-line rent receivables Prepaid expenses and other assets Deferred lease costs, less accumulated amortization of $16,549 and $18,937 as of December 31, 2017 and 2016, respectively Total other assets held for sale, net Other liabilities held for sale, net: Intangible lease liabilities, less accumulated amortization of $935 and $848 as of December 31, 2017 and 2016, respectively $ $ $ $ $ December 31, 2017 December 31, 2016 74,498 $ 127,209 255,634 2,278 332,410 $ 25,975 $ 328 20,828 47,131 $ 485,145 365 612,719 28,986 374 29,272 58,632 380 $ 468 F- 30 Discontinued Operations Details comprising income from discontinued operations are presented below (in thousands): Revenues: Rental income Tenant reimbursements Expenses: Property operating costs Operating income, excluding loss on sale of real estate assets Loss on sale of real estate assets Income from discontinued operations Years Ended December 31, 2017 2016 2015 $ $ — $ — — — — — — — $ — $ — — — — — — — $ 19 64 83 (1) (1) 84 (1) 83 15. Supplemental Disclosures for the Statement of Consolidated Cash Flows Certain noncash investing and financing activities for the years ended December 31, 2017, 2016, and 2015 (in thousands) are outlined below: Accrued capital expenditures and deferred lease costs Change in accrued dividends and discount on dividend reinvestments Change in accrued share repurchases as part of an announced plan Investment in consolidated joint venture 2017 2016 2015 $ $ $ $ 11,276 71,267 1,276 63,026 $ $ $ $ 14,427 30,532 $ $ — $ — $ 20,630 — — — The following table provides a reconciliation of cash, cash equivalents, and restricted cash and escrows reported within the consolidated balance sheets that sum to the total of the same such amounts in the consolidated statement of cash flows as of the periods ended December 31, 2017, 2016, and 2015 (in thousands). Cash and cash equivalents Restricted cash and escrows: Real estate tax and escrowed cash Security and utility deposit escrows Total cash, cash equivalents, and restricted cash and escrows shown in the consolidated statement of cash flows 2017 2016 2015 7,382 $ 6,992 $ 5,441 833 540 757 455 4,772 402 8,755 $ 8,204 $ 10,615 $ $ Amounts in real estate tax and escrowed cash represent deposits which are required by Piedmont’s lenders under certain of its debt agreements to escrow amounts for the payment of real estate taxes, and other amounts escrowed, for instance, earnest money deposited for the purchase of a property. Security and utility deposit escrows represent the cash held for tenants and/or Piedmont for lease related deposits. F- 31 16. Income Taxes Piedmont’s income tax basis net income for the years ended December 31, 2017, 2016, and 2015, is calculated as follows (in thousands): GAAP basis financial statement net income Increase (decrease) in net income resulting from: Depreciation and amortization expense recognized for financial reporting purposes in excess of/(less than) amounts recognized for income tax purposes Rental income accrued for income tax purposes less than amounts for financial reporting purposes Net amortization of above/below-market lease intangibles for income tax purposes in excess of amounts for financial reporting purposes Gain on disposal of property for financial reporting purposes less than/(in excess of) amounts for income tax purposes Taxable income/(loss) of Piedmont Washington Properties, Inc., in excess of/(less than) amount for financial reporting purposes Other expenses, including impairment loss on real estate assets, for financial reporting purposes in excess of amounts for income tax purposes Taxable income for Piedmont Office Holdings, Inc. in excess of/(less than) amount for financial reporting purposes Income tax basis net income, prior to dividends paid deduction 2017 $ 133,564 2016 99,732 2015 $ 131,304 $ 62,916 69,214 (1,717) (25,432) (18,964) (12,123) (6,041) (4,895) (4,614) 10,068 (118,713) (43,493) 176 (1,042) 2,491 49,859 42,019 54,425 (28) $ 225,082 648 — $ 67,999 $ 126,273 For income tax purposes, dividends to common stockholders are characterized as ordinary income, capital gains, or as a return of a stockholder’s invested capital. The composition of Piedmont’s distributions per common share is presented below: Ordinary income Return of capital Capital gains 2017 53.61% —% 46.39% 100% 2016 2015 81.77% 18.23% —% 100% 31.75% —% 68.25% 100% As of December 31, 2017 and 2016, the tax basis carrying value of Piedmont’s total assets was approximately $4.2 billion and $4.3 billion, respectively. Approximately $3.8 million of accrued interest and penalties related to uncertain tax positions was included in accounts payable, accrued expenses, dividends payable, and accrued capital expenditures in the accompanying consolidated balance sheets as of December 31, 2017 and 2016. Piedmont recognized approximately $0.1 million of recoveries of previously recorded estimated accrued interest and penalties during the year ended December 31, 2017, and no additional expense or recoveries for the years ended December 31, 2016, and 2015, respectively, related to such positions. The tax years 2014 to 2016 remain open to examination by various federal and state taxing authorities. Tax Cuts and Jobs Act The Tax Cuts and Jobs Act ("H.R. 1"), which generally takes effect for taxable years beginning on or after January 1, 2018 (subject to certain exceptions), makes many significant changes to the U.S. federal income tax laws that will profoundly impact the taxation of individuals and corporations (including both regular C corporations and corporations that have elected to be taxed as REITs). For example, H.R. 1 limits the ability of corporations to utilize net operating loss carryforwards and limits the deductibility of business interest for all taxpayers, subject to an exception for taxpayers that are engaged in certain specified real property trades or business who make an irrevocable election not to apply the limitation to a particular real property trade or business and to depreciate their real property investments held in such trade or business using the less favorable alternative depreciation system. To date, the IRS has issued only limited guidance with respect to certain of the provisions of H.R. 1, and there are numerous interpretive issues that will require guidance. In addition, changes made by H.R. 1 may require Piedmont to accrue certain income for U.S. federal income tax purposes no later than when such income is taken into account as revenue on its financial statements, F- 32 unless the income is already subject to certain special methods of accounting under the Code. This could cause Piedmont to recognize taxable income prior to the receipt of the associated cash and accordingly, increase its distribution levels in order to maintain its status as a REIT. H.R. 1 also includes limitations on the deductibility of certain compensation paid to Piedmont's executives, certain interest payments, and certain net operating loss carryfowards, each of which could potentially increase Piedmont's taxable income and its required distributions. As described in Note 2 above, as of December 31, 2017, Piedmont has not recognized significant provisions for income tax or deferred tax assets or liabilities related to its taxable REIT subsidiary. Therefore, although management is still evaluating the effects of H.R. 1, Piedmont does not believe that H.R. 1 will significantly impact its financial statements. 17. Quarterly Results (unaudited) A summary of the unaudited quarterly financial information for the years ended December 31, 2017 and 2016, is presented below (in thousands, except per-share data): Revenues Real estate operating income/(loss) Income/(loss) from continuing operations Gain/(loss) on sale of real estate assets Net income/(loss) applicable to Piedmont Basic and diluted earnings/(loss) per share Dividends declared per share First $ 148,463 $ 33,300 $ 15,154 $ $ 15,104 0.10 $ Second $ 148,679 $ 35,491 $ 17,215 6,492 $ 23,710 0.16 $ (53) $ $ 0.21 $ 0.21 2017 Third 137,587 28,756 16,617 109,512 126,133 0.87 0.21 $ $ $ $ $ $ $ Fourth 139,444 (16,250) (31,311) (77) (31,383) (0.21) 0.71 (1) $ $ $ $ $ $ $ (1) On December 13, 2017, Piedmont's board of directors declared a special dividend of $0.50 per share. The record date was December 26, 2017, and the payment date was January 9, 2018. Revenues Real estate operating income/(loss) Income/(loss) from continuing operations Income/(loss) from discontinued operations Gain/(loss) on sale of real estate assets Net income/(loss) applicable to Piedmont Basic and diluted earnings/(loss) per share Dividends declared per share 2016 First $ 138,012 Second $ 135,307 Third $ 138,485 Fourth $ 143,911 $ 2,988 14,791 $ (1,553) $ (13,065) $ (1) $ 1 $ (57) $ $ $ (13,107) $ (0.09) $ $ $ 0.21 73,835 72,278 0.21 0.50 $ 26,633 10,529 — 19,652 30,189 0.21 0.21 $ $ $ $ $ $ $ 26,372 10,396 $ $ — $ (20) $ $ 10,372 0.07 0.21 $ $ F- 33 18. Guarantor and Non-Guarantor Financial Information The following condensed consolidating financial information for Piedmont Operating Partnership, L.P. (the "Issuer"), Piedmont Office Realty Trust, Inc. (the "Guarantor"), and the other directly and indirectly owned subsidiaries of the Guarantor (the "Non-Guarantor Subsidiaries") is provided pursuant to the requirements of Rule 3-10 of Regulation S-X regarding financial statements of guarantors and issuers of guaranteed registered securities. The Issuer is a wholly-owned subsidiary of the Guarantor, and all guarantees by the Guarantor of securities issued by the Issuer are full and unconditional. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Non-Guarantor Subsidiaries. F- 34 s t e e h S e c n a l a B d e t a d i l o s n o C d e s n e d n o C 7 1 0 2 , 1 3 r e b m e c e D f o s A d e t a d i l o s n o C s n o i t a n m i i l E - n o N r o t n a r a u G s e i r a i d i s b u S r o t n a r a u G r e u s s I 4 9 7 , 4 4 5 $ — 3 2 0 , 8 1 4 , 2 ) 0 0 3 ( 5 0 8 , 7 7 0 1 7 , 1 1 0 1 4 , 2 3 3 2 4 7 , 4 8 3 , 3 2 8 3 , 7 9 0 3 , 5 7 1 — — — 8 7 5 , 4 2 8 1 9 , 8 9 1 3 1 , 7 4 7 0 9 , 1 6 2 — — — — — ) 0 0 3 ( — — — ) 0 4 7 ( ) 8 0 9 , 1 7 9 , 7 ( ) 1 7 4 , 7 3 4 , 3 ( ) 0 1 3 , 3 3 2 ( $ 0 0 7 , 8 0 5 $ 7 3 4 , 7 3 2 , 2 4 2 6 , 7 7 5 2 6 , 1 1 5 9 5 , 9 9 2 1 8 9 , 4 3 1 , 3 2 4 3 , 3 8 1 4 , 8 5 1 — 2 7 1 2 2 2 , 0 2 0 0 5 , 4 4 1 — 5 6 8 , 4 4 6 9 2 , 5 4 2 — — — — — — — 0 5 1 2 — — — — 6 7 2 , 4 7 6 , 1 9 9 2 , 7 3 4 , 3 $ 4 9 0 , 6 3 $ 6 8 8 , 0 8 1 5 8 1 8 1 5 1 8 , 2 3 1 6 0 , 0 5 2 0 9 8 , 3 1 9 8 , 6 1 2 3 6 , 7 9 2 , 6 — 4 9 0 , 5 0 1 8 , 8 8 8 1 9 , 8 9 1 1 6 , 6 1 6 6 2 , 2 7 6 9 , 9 9 9 , 3 $ ) 9 2 7 , 3 4 6 , 1 1 ( $ 6 9 7 , 1 5 7 , 3 3 5 6 , 6 1 2 ) 0 4 7 ( 6 8 0 , 3 9 7 2 9 , 6 2 7 , 1 $ ) 0 1 3 , 3 3 2 ( $ 8 9 9 , 4 2 4 ) 3 6 1 , 0 7 0 , 8 ( 2 1 7 , 0 5 8 , 1 $ $ 7 2 7 , 1 1 1 , 5 — 8 2 0 , 4 0 1 7 5 9 , 7 7 2 , 5 $ $ 3 7 1 , 0 8 7 , 6 9 7 2 , 0 2 4 9 4 , 1 4 9 9 3 2 , 5 3 5 , 1 $ $ — 2 8 5 , 9 2 8 5 4 , 8 3 8 7 4 , 1 0 8 3 — — — — — 0 8 3 1 5 9 , 5 2 8 5 4 , 8 3 — — — — 1 3 6 , 3 — 8 7 4 , 1 — 8 7 4 , 3 1 0 , 2 ) 3 1 2 , 4 0 3 , 8 ( 5 8 5 , 3 3 4 , 2 5 8 9 , 1 8 3 , 5 1 2 1 , 2 0 5 , 2 4 2 4 , 1 4 6 1 , 8 0 6 3 , 7 7 6 , 3 ) 1 8 2 , 2 0 7 , 1 ( — 5 5 9 , 7 9 — ) 1 7 4 , 7 3 4 , 3 ( — 0 0 3 , 1 — 9 8 0 , 5 1 3 , 1 — 4 2 4 , 1 2 3 2 , 0 8 6 , 3 ) 4 1 9 , 1 5 9 , 3 ( 2 2 8 , 1 — 2 2 8 , 1 — 7 6 6 , 4 8 9 , 1 ) 6 1 5 , 9 3 3 , 3 ( 9 8 3 , 6 1 3 , 1 ) 8 5 2 , 0 7 2 ( — — 9 8 5 , 6 3 8 9 9 2 , 3 3 4 , 3 4 6 1 , 8 2 5 0 , 8 7 2 , 4 9 8 4 , 6 8 9 , 1 ) 6 1 5 , 9 3 3 , 3 ( 1 1 2 , 8 1 3 , 1 ) 8 5 2 , 0 7 2 ( 2 5 0 , 8 7 2 , 4 7 6 9 , 9 9 9 , 3 $ ) 9 2 7 , 3 4 6 , 1 1 ( $ 6 9 7 , 1 5 7 , 3 $ 7 2 7 , 1 1 1 , 5 $ 3 7 1 , 0 8 7 , 6 $ 5 3 - F s e r u t n e v t n i o j d e t a d i l o s n o c n u m o r f e u d s t n u o m a d n a , t e n , s e l b a v i e c e r e n i l - t h g i a r t s d n a t n a n e T s t e s s a r e h t o d n a , p a w s e t a r t s e r e t n i , s w o r c s e , h s a c d e t c i r t s e r , s e s n e p x e d i a p e r P y r a i d i s b u s n i t n e m t s e v n I s e t a i l i f f a o t s e c n a v d A e l b a v i e c e r s e t o N n o i t a i c e r p e d d e t a l u m u c c a s s e l , s t n e m e v o r p m i d n a s g n i d l i u B n o i t a z i t r o m a d e t a l u m u c c a s s e l , s t e s s a e s a e l e l b i g n a t n I t e n , e l a s r o f d l e h s t e s s a e t a t s e l a e R s s e r g o r p n i n o i t c u r t s n o C s t e s s a e t a t s e l a e r l a t o T s t n e l a v i u q e h s a c d n a h s a C : t s o c t a , s t e s s a e t a t s e l a e R d n a L ) s d n a s u o h t n i ( : s t e s s A s e r u t i d n e p x e l a t i p a c d e u r c c a d n a , e l b a y a p s d n e d i v i d , s e s n e p x e d e u r c c a , e l b a y a p s t n u o c c A t e n , e l a s r o f d l e h s t e s s a r e h t O t e n , s t s o c e s a e l d e r r e f e D l l i w d o o G s t e s s a l a t o T : s e i t i l i b a i L t e n , t b e D s g n i n r a e ) f o s s e c x e n i s n o i t u b i r t s i d e v i t a l u m u c ( / d e n i a t e R y t i u q e ’ s r e d l o h k c o t s d n a s e i t i l i b a i l l a t o T y t i u q e ’ s r e d l o h k c o t s t n o m d e i P s s o l e v i s n e h e r p m o c r e h t O y t i u q e ’ s r e d l o h k c o t s l a t o T t s e r e t n i g n i l l o r t n o c n o N t e n , e l a s r o f d l e h s e i t i l i b a i l r e h t O t e n , s e i t i l i b a i l e s a e l e l b i g n a t n I s p a w s e t a r t s e r e t n I s e t a i l i f f a m o r f s e c n a v d A e m o c n i d e r r e f e D s e i t i l i b a i l l a t o T : y t i u q E ’ s r e d l o h k c o t S k c o t s n o m m o C l a t i p a c n i - d i a p l a n o i t i d d A r o t n a r a u G - n o N s e i r a i d i s b u S $ 2 4 3 , 4 0 5 $ r o t n a r a u G r e u s s I s t e e h S e c n a l a B d e t a d i l o s n o C d e s n e d n o C 6 1 0 2 , 1 3 r e b m e c e D f o s A 0 4 6 , 2 4 5 8 7 1 , 2 4 4 , 2 5 9 6 , 9 9 0 6 4 , 4 3 9 1 7 , 2 1 6 2 9 6 , 1 3 7 , 3 0 6 3 , 7 2 9 9 , 6 6 5 3 , 3 6 1 — — — 3 9 4 , 4 2 8 1 9 , 8 9 2 3 6 , 8 5 5 2 7 , 6 7 2 $ — ) 0 0 3 ( — — — ) 0 0 3 ( — — — — — — ) 7 9 8 , 1 ( ) 1 5 7 , 9 7 7 , 7 ( ) 5 4 7 , 0 3 6 , 3 ( ) 0 0 7 , 4 8 1 ( d e t a d i l o s n o C s n o i t a n m i i l E — 6 0 4 , 8 2 7 3 5 , 7 4 9 6 1 , 8 8 6 4 0 1 4 , 5 6 1 — — — — ) 7 9 8 , 1 ( ) 7 0 0 , 8 7 8 , 7 ( 5 7 4 , 0 2 0 , 2 $ ) 0 0 7 , 4 8 1 ( 8 6 1 , 8 6 3 , 4 $ ) 3 9 3 , 7 9 5 , 1 1 ( $ $ 4 9 3 , 0 4 2 , 2 0 7 9 , 8 9 5 1 3 , 4 3 4 7 7 , 8 7 5 5 9 7 , 6 5 4 , 3 — 8 6 1 , 3 9 3 8 , 4 4 1 — 1 8 1 — 0 9 7 , 5 9 7 1 2 , 0 2 0 0 2 , 5 5 9 4 9 , 1 6 2 9 3 1 , 8 3 0 , 4 2 4 2 , 3 0 5 2 1 7 , 8 1 1 6 4 1 , 8 9 0 , 2 — 8 6 4 0 0 2 , 3 2 7 3 5 , 7 4 — — — — — — — — 0 5 1 — — — — — 6 1 6 , 5 1 3 , 1 4 6 5 , 0 3 6 , 3 $ 8 9 2 , 8 3 4 8 0 , 2 0 2 5 2 7 5 4 1 5 4 9 , 3 3 7 9 1 , 5 7 2 0 6 3 , 7 4 7 6 , 3 7 1 5 , 8 1 5 3 1 , 4 6 4 , 6 — 3 7 1 , 6 0 1 9 , 8 8 8 1 9 , 8 9 6 7 7 , 4 1 2 3 4 , 3 $ $ 0 3 3 , 6 4 9 , 4 — 0 3 2 , 1 3 1 2 5 , 1 7 0 , 5 $ $ 2 9 0 , 1 8 9 , 6 5 6 3 , 7 1 0 4 3 , 8 0 7 3 3 9 , 1 0 7 , 1 — — — — — 6 0 2 , 5 9 6 1 , 8 — 5 6 4 , 0 7 2 , 2 ) 4 0 6 , 4 6 0 , 8 ( 5 0 3 , 1 9 7 , 2 1 5 7 , 2 0 1 , 5 3 1 0 , 1 4 4 , 2 2 5 4 , 1 8 2 1 , 3 7 6 , 3 ) 3 6 8 , 0 8 5 , 1 ( 4 0 1 , 2 1 2 8 , 5 9 0 , 2 2 8 8 , 1 3 0 7 , 7 9 0 , 2 8 6 1 , 8 6 3 , 4 — ) 5 4 7 , 0 3 6 , 3 ( — 6 5 9 , 7 9 ) 9 8 7 , 2 3 5 , 3 ( — ) 9 8 7 , 2 3 5 , 3 ( — 9 0 3 , 1 — 3 4 6 , 3 4 2 , 1 2 8 8 , 1 2 5 9 , 4 4 2 , 1 4 3 8 , 6 4 2 , 1 2 5 4 , 1 0 0 0 , 6 7 6 , 3 ) 3 7 8 , 3 3 8 , 3 ( — ) 1 2 4 , 6 5 1 ( — ) 1 2 4 , 6 5 1 ( — 1 1 4 , 1 1 9 4 6 5 , 6 2 6 , 3 4 0 1 , 2 9 7 0 , 0 4 5 , 4 — 9 7 0 , 0 4 5 , 4 $ $ $ s e r u t n e v t n i o j d e t a d i l o s n o c n u m o r f e u d s t n u o m a d n a n i s t n e m t s e v n I t e n , s e l b a v i e c e r t n e r e n i l - t h g i a r t s d n a t n a n e T s t n e l a v i u q e h s a c d n a h s a C n o i t a i c e r p e d d e t a l u m u c c a s s e l , s t n e m e v o r p m i d n a s g n i d l i u B n o i t a z i t r o m a d e t a l u m u c c a s s e l , s t e s s a e s a e l e l b i g n a t n I t e n , e l a s r o f d l e h s t e s s a e t a t s e l a e R s s e r g o r p n i n o i t c u r t s n o C s t e s s a e t a t s e l a e r l a t o T s t e s s a r e h t o d n a , s w o r c s e , h s a c d e t c i r t s e r , s e s n e p x e d i a p e r P y r a i d i s b u s n i t n e m t s e v n I s e t a i l i f f a o t s e c n a v d A e l b a v i e c e r s e t o N : t s o c t a , s t e s s a e t a t s e l a e R d n a L ) s d n a s u o h t n i ( : s t e s s A t e n , e l a s r o f d l e h s t e s s a r e h t O t e n , s t s o c e s a e l d e r r e f e D l l i w d o o G s t e s s a l a t o T : s e i t i l i b a i L t e n , t b e D s e r u t i d n e p x e l a t i p a c d e u r c c a d n a , s e s n e p x e d e u r c c a , e l b a y a p s t n u o c c A s g n i n r a e ) f o s s e c x e n i s n o i t u b i r t s i d e v i t a l u m u c ( / d e n i a t e R y t i u q e ’ s r e d l o h k c o t s t n o m d e i P s s o l e v i s n e h e r p m o c r e h t O y t i u q e ’ s r e d l o h k c o t s l a t o T t s e r e t n i g n i l l o r t n o c n o N t e n , e l a s r o f d l e h s e i t i l i b a i l r e h t O t e n , s e i t i l i b a i l e s a e l e l b i g n a t n I s p a w s e t a r t s e r e t n I s e t a i l i f f a m o r f s e c n a v d A e m o c n i d e r r e f e D s e i t i l i b a i l l a t o T : y t i u q E ’ s r e d l o h k c o t S k c o t s n o m m o C l a t i p a c n i - d i a p l a n o i t i d d A 6 3 - F $ ) 3 9 3 , 7 9 5 , 1 1 ( $ 9 3 1 , 8 3 0 , 4 $ 0 3 3 , 6 4 9 , 4 $ 2 9 0 , 1 8 9 , 6 $ y t i u q e ’ s r e d l o h k c o t s d n a s e i t i l i b a i l l a t o T 1 1 7 , 6 9 7 7 7 , 5 7 4 5 8 6 , 1 3 7 1 , 4 7 5 0 3 6 , 0 2 2 8 8 2 , 9 1 1 7 6 3 , 5 7 1 6 4 , 6 4 0 3 1 , 1 3 7 9 2 , 1 8 6 7 8 , 2 9 4 7 5 6 5 4 8 , 3 ) 4 2 1 , 8 6 ( ) 2 2 6 , 3 6 ( 5 7 6 , 7 1 4 7 8 , 5 1 1 9 4 5 , 3 3 1 5 1 4 6 5 , 3 3 1 $ ) 4 7 4 ( ) 0 7 4 , 6 1 ( ) 5 3 7 , 8 1 ( ) 5 3 7 , 8 1 ( — — — — — ) 5 3 7 , 8 1 ( 0 6 3 , 5 1 ) 0 6 3 , 5 1 ( — — — — — — — 5 2 5 , 5 8 5 5 1 , 8 1 5 5 6 , 8 3 5 0 6 5 , 6 1 2 3 9 2 , 6 0 1 8 1 3 , 2 7 4 7 3 , 6 4 0 4 3 , 4 2 0 7 7 , 2 7 5 8 8 , 5 6 4 — 9 4 8 , 6 ) 5 1 7 , 6 2 ( ) 6 6 8 , 9 1 ( 4 0 9 , 2 5 3 4 4 , 9 0 1 7 4 3 , 2 6 1 5 1 — — — — — — — — 7 4 3 7 4 3 ) 7 4 3 ( — — — — ) 7 4 3 ( — — ) 7 4 3 ( $ 3 9 5 , 2 4 0 6 6 , 1 1 — 3 5 2 , 4 5 5 0 8 , 2 2 5 9 9 , 2 1 9 4 0 , 3 7 8 3 4 4 , 6 4 7 8 , 8 9 7 3 , 5 4 ) 9 6 7 , 6 5 ( 8 6 1 , 9 5 4 8 , 3 ) 6 5 7 , 3 4 ( ) 2 8 8 , 4 3 ( 1 3 4 , 6 ) 1 5 4 , 8 2 ( — $ $ 2 6 3 , 2 6 1 $ ) 7 4 3 ( $ ) 1 5 4 , 8 2 ( $ 7 3 - F $ ) 1 9 7 , 1 ( $ 5 7 9 , 4 3 4 $ d e t a d i l o s n o C s n o i t a n m i i l E - n o N r o t n a r a u G s e i r a i d i s b u S r o t n a r a u G r e u s s I e m o c n I f o s t n e m e t a t S d e t a d i l o s n o C d e s n e d n o C 7 1 0 2 , 1 3 r e b m e c e D d e d n e r a e y e h t r o F e u n e v e r e e f t n e m e g a n a m y t r e p o r P s t n e m e s r u b m i e r t n a n e T e m o c n i l a t n e R ) s d n a s u o h t n i ( : s e u n e v e R s t e s s a e t a t s e l a e r n o s s o l t n e m r i a p m I e v i t a r t s i n i m d a d n a l a r e n e G s t s o c g n i t a r e p o y t r e p o r P : s e s n e p x E n o i t a i c e r p e D n o i t a z i t r o m A ) s s o l ( / e m o c n i g n i t a r e p o e t a t s e l a e R ) e s n e p x e ( / e m o c n i r e h t O e s n e p x e t s e r e t n I : ) e s n e p x e ( e m o c n i r e h t O s e r u t n e v t n i o j d e t a d i l o s n o c n u f o e m o c n i n i y t i u q E t s e r e t n i g n i l l o r t n o c n o n o t e l b a c i l p p a s s o l t e N : s u l P t n o m d e i P o t e l b a c i l p p a ) s s o l ( / e m o c n i t e N s n o i t a r e p o g n i u n i t n o c m o r f ) s s o l ( / e m o c n I s t e s s a e t a t s e l a e r f o e l a s n o n i a G ) s s o l ( / e m o c n i t e N d e t a d i l o s n o C s n o i t a n m i i l E - n o N r o t n a r a u G s e i r a i d i s b u S r o t n a r a u G r e u s s I 1 6 9 , 3 9 0 9 8 , 9 5 4 4 6 8 , 1 5 1 7 , 5 5 5 4 3 9 , 8 1 2 3 3 7 , 7 2 1 9 1 1 , 5 7 1 0 9 , 3 3 4 4 2 , 9 2 4 8 7 , 0 7 1 3 9 , 4 8 4 ) 3 1 ( 4 3 2 6 3 ) 0 6 8 , 4 6 ( ) 7 7 4 , 4 6 ( 5 1 7 0 3 , 6 0 1 4 , 3 9 7 1 7 , 9 9 ) 8 9 4 ( ) 3 3 0 , 5 1 ( ) 2 6 1 , 8 1 ( ) 7 7 3 , 8 1 ( — — — ) 6 4 4 , 5 3 ( ) 3 2 8 , 3 5 ( 1 6 6 , 5 3 4 8 8 , 1 1 ) 4 8 8 , 1 1 ( — — — 1 6 6 , 5 3 — — 1 6 6 , 5 3 8 7 3 , 0 8 7 9 8 , 6 1 9 8 7 , 4 0 5 4 4 3 , 5 0 2 6 7 0 , 1 1 1 4 0 4 , 1 7 2 4 6 , 5 2 5 6 0 , 6 3 8 5 2 , 5 5 1 3 5 , 9 4 4 9 2 0 , 2 ) 6 3 6 , 7 2 ( 4 3 — ) 3 7 5 , 5 2 ( 5 1 5 8 6 , 9 2 5 3 1 , 2 6 0 2 8 , 1 9 $ ) 1 3 6 , 2 ( $ 4 1 5 , 7 0 4 $ — — — — — — — — 1 1 3 1 1 3 ) 1 1 3 ( — 2 8 2 — — 2 8 2 ) 9 2 ( — ) 9 2 ( — $ 7 0 0 , 5 5 1 8 0 , 4 1 — 8 8 0 , 9 6 7 6 9 , 1 3 7 5 6 , 6 1 5 1 7 , 3 9 5 2 , 8 4 1 3 , 8 2 2 1 9 , 8 8 ) 4 2 8 , 9 1 ( 0 6 5 , 9 ) 8 0 1 , 9 4 ( — 2 6 3 ) 6 8 1 , 9 3 ( ) 0 1 0 , 9 5 ( 5 7 2 , 1 3 ) 5 3 7 , 7 2 ( — $ 2 3 7 , 9 9 $ 1 6 6 , 5 3 $ 5 3 8 , 1 9 $ ) 9 2 ( $ ) 5 3 7 , 7 2 ( $ e m o c n I f o s t n e m e t a t S d e t a d i l o s n o C d e s n e d n o C 6 1 0 2 , 1 3 r e b m e c e D d e d n e r a e y e h t r o F e u n e v e r e e f t n e m e g a n a m y t r e p o r P s t n e m e s r u b m i e r t n a n e T e m o c n i l a t n e R ) s d n a s u o h t n i ( : s e u n e v e R s t e s s a e t a t s e l a e r n o s s o l t n e m r i a p m I e v i t a r t s i n i m d a d n a l a r e n e G s t s o c g n i t a r e p o y t r e p o r P : s e s n e p x E n o i t a i c e r p e D n o i t a z i t r o m A ) s s o l ( / e m o c n i g n i t a r e p o e t a t s e l a e R ) e s n e p x e ( / e m o c n i r e h t O e s n e p x e t s e r e t n I : ) e s n e p x e ( e m o c n i r e h t O s e r u t n e v t n i o j d e t a d i l o s n o c n u f o e m o c n i n i y t i u q E s t n e v e y t l a u s a c m o r f s e i r e v o c e r t e N t s e r e t n i g n i l l o r t n o c n o n o t e l b a c i l p p a s s o l t e N : s u l P t n o m d e i P o t e l b a c i l p p a ) s s o l ( / e m o c n i t e N s n o i t a r e p o g n i u n i t n o c m o r f ) s s o l ( / e m o c n I s t e s s a e t a t s e l a e r f o e l a s n o n i a G ) s s o l ( / e m o c n i t e N 8 3 - F d e t a d i l o s n o C s n o i t a n m i i l E - n o N r o t n a r a u G s e i r a i d i s b u S r o t n a r a u G r e u s s I 2 7 8 , 8 6 4 1 8 8 , 3 1 1 6 1 0 , 2 9 6 7 , 4 8 5 2 2 0 , 2 4 2 3 0 5 , 4 3 1 6 8 8 , 0 6 1 0 3 , 3 4 6 4 3 , 0 3 1 1 7 , 3 7 8 5 0 , 1 1 5 ) 8 7 2 ( 3 5 5 5 6 5 , 1 ) 8 9 9 , 3 7 ( 3 5 5 , 1 ) 8 5 1 , 2 7 ( ) 1 ( 4 8 3 8 ) 5 1 ( 3 8 6 , 9 2 1 9 1 3 , 1 3 1 ) 4 1 4 ( ) 5 8 7 , 5 1 ( ) 4 0 1 , 9 1 ( ) 6 8 7 , 9 1 ( — — — ) 3 6 5 , 5 3 ( ) 9 4 3 , 5 5 ( 5 4 2 , 6 3 6 4 2 , 1 1 ) 6 4 2 , 1 1 ( — — — 5 4 2 , 6 3 — — — — — 5 4 2 , 6 3 $ ) 5 0 9 , 2 ( $ 0 6 4 , 4 0 4 5 5 9 , 0 0 1 1 0 8 , 7 1 6 1 2 , 3 2 5 8 2 4 , 5 2 2 2 1 6 , 3 1 1 8 8 2 , 6 5 6 0 1 , 7 3 3 2 9 , 5 3 9 5 8 , 4 5 7 5 3 , 8 6 4 1 1 2 ) 1 0 3 ( — ) 0 4 5 , 3 3 ( ) 0 3 6 , 3 3 ( 9 2 2 , 1 2 9 6 — 9 6 ) 5 1 ( 8 5 4 , 4 8 6 5 7 , 5 0 1 $ — — — — — — — — 1 4 3 1 4 3 ) 1 4 3 ( — — — — — ) 1 4 3 ( — — — — — ) 1 4 3 ( $ 7 1 3 , 7 6 0 4 3 , 3 1 — 7 5 6 , 0 8 0 8 3 , 6 3 1 9 8 , 0 2 8 9 5 , 4 5 9 1 , 6 5 4 6 , 9 2 9 0 7 , 7 9 ) 2 5 0 , 7 1 ( ) 4 0 7 , 1 5 ( 0 0 6 , 2 1 3 2 3 5 5 ) 8 2 5 , 8 3 ( ) 0 8 5 , 5 5 ( ) 1 ( 5 1 4 1 — 5 2 2 , 5 4 ) 1 4 3 , 0 1 ( $ 4 0 3 , 1 3 1 $ 5 4 2 , 6 3 $ 1 4 7 , 5 0 1 $ ) 1 4 3 ( $ ) 1 4 3 , 0 1 ( $ 9 3 - F e m o c n I f o s t n e m e t a t S d e t a d i l o s n o C d e s n e d n o C 5 1 0 2 , 1 3 r e b m e c e D d e d n e r a e y e h t r o F s e r u t n e v t n i o j d e t a d i l o s n o c n u f o s s o l n i y t i u q E s t n e v e y t l a u s a c m o r f ) s s o l ( / s e i r e v o c e r t e N ) s s o l ( / e m o c n i g n i t a r e p o e t a t s e l a e R ) e s n e p x e ( / e m o c n i r e h t O e s n e p x e t s e r e t n I : ) e s n e p x e ( e m o c n i r e h t O s n o i t a r e p o g n i u n i t n o c m o r f ) s s o l ( / e m o c n I s n o i t a r e p o d e u n i t n o c s i d m o r f e m o c n I s t e s s a e t a t s e l a e r f o e l a s n o s s o L s t e s s a e t a t s e l a e r f o e l a s n o n i a G ) s s o l ( / e m o c n i t e N : s n o i t a r e p o d e u n i t n o c s i D e m o c n i g n i t a r e p O t s e r e t n i g n i l l o r t n o c n o n o t e l b a c i l p p a e m o c n i t e N : s u l P t n o m d e i P o t e l b a c i l p p a ) s s o l ( / e m o c n i t e N e u n e v e r e e f t n e m e g a n a m y t r e p o r P s t n e m e s r u b m i e r t n a n e T e m o c n i l a t n e R ) s d n a s u o h t n i ( : s e u n e v e R s t s o c g n i t a r e p o y t r e p o r P : s e s n e p x E s s o l t n e m r i a p m I n o i t a i c e r p e D n o i t a z i t r o m A e v i t a r t s i n i m d a d n a l a r e n e G s w o l F h s a C f o s t n e m e t a t S d e t a d i l o s n o C d e s n e d n o C 7 1 0 2 , 1 3 r e b m e c e D d e d n e r a e y e h t r o F d e t a d i l o s n o C s n o i t a n m i i l E - n o N r o t n a r a u G s e i r a i d i s b u S r o t n a r a u G r e u s s I ) s d n a s u o h t n i ( 5 0 8 , 2 4 2 $ — $ 7 9 2 , 6 5 2 $ 7 9 4 , 5 $ ) 9 8 9 , 8 1 ( $ s e i t i v i t c A g n i t a r e p O ) n I d e s U ( / y B d e d i v o r P h s a C t e N ) 3 9 0 , 5 1 1 ( — — 8 1 5 , 5 7 3 4 3 3 , 2 1 ) 2 6 1 , 1 ( ) 5 8 9 , 0 3 ( 2 1 6 , 0 4 2 ) 2 3 1 ( 0 0 0 , 0 8 1 ) 1 0 4 , 6 7 4 ( — ) 2 8 1 ( ) 3 0 4 , 3 ( ) 4 7 4 , 0 6 ( — ) 4 7 2 , 2 2 1 ( ) 6 6 8 , 2 8 4 ( 1 5 5 4 0 2 , 8 5 5 7 , 8 — — — — 0 1 6 , 8 4 0 1 6 , 8 4 — — — ) 0 1 6 , 8 4 ( — — — — — ) 9 7 4 , 3 1 1 ( ) 0 1 7 , 8 4 ( 0 9 4 , 2 5 3 — — ) 4 0 9 , 6 2 ( 7 9 3 , 3 6 1 — — 9 9 8 , 2 6 ) 1 0 4 , 1 4 1 ( — — — ) 5 4 ( ) 0 1 8 , 0 4 3 ( — — — — — — — — — — — ) 2 8 1 ( ) 3 0 4 , 3 ( ) 4 7 4 , 0 6 ( 1 9 7 , 0 8 1 ) 4 1 6 , 1 ( 0 0 1 8 2 0 , 3 2 4 3 3 , 2 1 ) 2 6 1 , 1 ( ) 1 8 0 , 4 ( 5 0 6 , 8 2 ) 2 3 1 ( 0 0 0 , 0 8 1 ) 0 0 0 , 5 3 3 ( ) 9 8 2 , 4 1 ( — — — 9 1 0 , 0 6 1 ) 9 2 2 , 2 2 1 ( — ) 0 1 6 , 8 4 ( ) 7 5 3 , 9 1 4 ( ) 7 9 4 , 5 ( ) 2 0 4 , 9 ( $ — — — $ 7 3 3 1 6 3 , 4 8 9 6 , 4 $ — 0 5 1 0 5 1 $ 4 1 2 3 9 6 , 3 7 0 9 , 3 $ 0 4 - F f o t e n , s e l b i g n a t n i d e t a l e r e t a t s e l a e r d n a , e r u t n e v t n i o j d e t a d i l o s n o c , s t e s s a e t a t s e l a e r n i t n e m t s e v n I : s e i t i v i t c A g n i t s e v n I m o r f s w o l F h s a C n o i t a s n e p m o c k c o t s e e y o l p m e o t d e t a l e r s n o i t a g i l b o x a t y a p o t d l e h h t i w s e r a h S n a l p d e c n u o n n a f o t r a p s a k c o t s n o m m o c f o s e s a h c r u p e R s e i t i v i t c a g n i c n a n i f ) n i d e s u ( / y b d e d i v o r p h s a c t e N s t n e m t s e v n i e r d n e d i v i d n o t n u o c s i d d n a d i a p s d n e d i v i D s e t a i l i f f a m o r f s t n e m y a p e r / ) o t s n o i t u b i r t s i D ( s w o r c s e d n a h s a c d e t c i r t s e r d n a , s t n e l a v i u q e h s a c , h s a c n i ) e s a e r c e d ( / e s a e r c n i t e N r a e y f o g n i n n i g e b , s w o r c s e d n a h s a c d e t c i r t s e r d n a , s t n e l a v i u q e h s a c , h s a C r a e y f o d n e , s w o r c s e d n a h s a c d e t c i r t s e r d n a , s t n e l a v i u q e h s a c , h s a C s e r u t n e v t n i o j d e t a d i l o s n o c n u m o r f d e v i e c e r s d e e c o r p s e l a s t e N s e i t i v i t c a g n i t s e v n i ) n i d e s u ( / y b d e d i v o r p h s a c t e N : s e i t i v i t c A g n i c n a n i F m o r f s w o l F h s a C s e r u t n e v t n i o j d e t a d i l o s n o c n u n i s t n e m t s e v n I d i a p s t s o c e s a e l d e r r e f e D s e i t r e p o r p d e n w o - y l l o h w m o r f s d e e c o r p s e l a s t e N e l b a v i e c e r e t o n y n a p m o c r e t n I s l a u r c c a k c o t s n o m m o c f o e c n a u s s i f o s t s o C d i a p s t s o c e c n a u s s i t b e D t b e d m o r f s d e e c o r P t b e d f o s t n e m y a p e R e l b a y a p e t o n y n a p m o c r e t n I s w o l F h s a C f o s t n e m e t a t S d e t a d i l o s n o C d e s n e d n o C 6 1 0 2 , 1 3 r e b m e c e D d e d n e r a e y e h t r o F d e t a d i l o s n o C s n o i t a n m i i l E - n o N r o t n a r a u G s e i r a i d i s b u S r o t n a r a u G r e u s s I ) s d n a s u o h t n i ( 7 4 8 , 1 3 2 $ 0 6 6 , 5 3 $ 6 3 2 , 7 1 2 $ 4 1 2 , 5 $ ) 3 6 2 , 6 2 ( $ s e i t i v i t c A g n i t a r e p O ) n I d e s U ( / y B d e d i v o r P h s a C t e N ) 6 9 8 , 9 5 4 ( — — — ) 6 9 8 , 5 2 ( 8 1 9 , 5 6 3 ) 4 7 8 , 9 1 1 ( ) 4 6 2 ( 0 0 0 , 5 9 6 ) 5 7 8 , 6 0 7 ( — ) 2 4 3 ( ) 4 4 3 , 2 ( ) 3 4 9 , 7 ( — ) 6 1 6 , 1 9 ( ) 4 8 3 , 4 1 1 ( ) 1 1 4 , 2 ( 4 0 2 , 8 5 1 6 , 0 1 0 6 4 , 1 7 — — — 0 6 4 , 1 7 — — — ) 0 6 4 , 1 7 ( — — — ) 6 3 8 , 4 5 4 ( ) 0 0 9 , 1 7 ( — ) 8 3 1 , 3 2 ( 8 9 6 , 5 6 1 ) 6 7 1 , 4 8 3 ( — — 0 6 0 , 1 8 ) 5 7 8 , 8 6 1 ( — — — $ — — — — ) 0 2 1 , 7 0 1 ( $ 9 6 2 , 8 1 6 3 , 4 ) 5 1 ( ) 8 0 9 , 3 ( 2 3 0 , 3 6 1 ) 0 6 6 , 5 3 ( 2 6 8 , 0 5 2 1 4 - F — — — — — — — — — — ) 2 4 3 ( ) 4 4 3 , 2 ( ) 3 4 9 , 7 ( 6 1 0 , 7 9 ) 1 0 6 , 1 9 ( ) 4 1 2 , 5 ( — 0 4 4 ) 0 6 0 , 5 ( ) 8 5 7 , 2 ( 0 2 2 , 0 0 2 2 4 8 , 2 9 1 ) 4 6 2 ( ) 0 0 6 , 9 ( 0 0 0 , 5 9 6 ) 0 0 0 , 8 3 5 ( — — — ) 8 1 2 , 2 1 3 ( — ) 2 8 0 , 5 6 1 ( t e n , s e l b i g n a t n i d e t a l e r e t a t s e l a e r d n a , e r u t n e v t n i o j d e t a d i l o s n o c , s t e s s a e t a t s e l a e r n i t n e m t s e v n I : s e i t i v i t c A g n i t s e v n I m o r f s w o l F h s a C y t i t n e t s e r e t n i e l b a i r a v d e t a d i l o s n o c n u n i t s e r e t n i g n i l l o r t n o c n o n f o n o i t p m e d e R e l b a v i e c e r e t o n y n a p m o c r e t n I s l a u r c c a f o n o i t a s n e p m o c k c o t s e e y o l p m e o t d e t a l e r s n o i t a g i l b o x a t y a p o t d l e h h t i w s e r a h S n a l p d e c n u o n n a f o t r a p s a k c o t s n o m m o c f o s e s a h c r u p e R s e i t i v i t c a g n i c n a n i f ) n i d e s u ( / y b d e d i v o r p h s a c t e N s t n e m t s e v n i e r d n e d i v i d n o t n u o c s i d d n a d i a p s d n e d i v i D s e t a i l i f f a m o r f s t n e m y a p e r / ) o t s n o i t u b i r t s i D ( s e i t i v i t c a g n i t s e v n i ) n i d e s u ( / y b d e d i v o r p h s a c t e N s e i t r e p o r p d e n w o - y l l o h w m o r f s d e e c o r p s e l a s t e N d i a p s t s o c e s a e l d e r r e f e D : s e i t i v i t c A g n i c n a n i F m o r f s w o l F h s a C k c o t s n o m m o c f o e c n a u s s i f o s t s o C d i a p s t s o c e c n a u s s i t b e D t b e d m o r f s d e e c o r P t b e d f o s t n e m y a p e R e l b a y a p e t o n y n a p m o c r e t n I $ — 0 5 1 0 5 1 $ 7 9 4 , 1 6 9 1 , 2 3 9 6 , 3 $ s w o r c s e d n a h s a c d e t c i r t s e r d n a , s t n e l a v i u q e h s a c , h s a c n i ) e s a e r c e d ( / e s a e r c n i t e N r a e y f o g n i n n i g e b , s w o r c s e d n a h s a c d e t c i r t s e r d n a , s t n e l a v i u q e h s a c , h s a C r a e y f o d n e , s w o r c s e d n a h s a c d e t c i r t s e r d n a , s t n e l a v i u q e h s a c , h s a C s w o l F h s a C f o s t n e m e t a t S d e t a d i l o s n o C d e s n e d n o C 5 1 0 2 , 1 3 r e b m e c e D d e d n e r a e y e h t r o F d e t a d i l o s n o C s n o i t a n m i i l E - n o N r o t n a r a u G s e i r a i d i s b u S r o t n a r a u G r e u s s I ) s d n a s u o h t n i ( 8 8 6 , 3 2 2 $ 5 4 2 , 6 3 $ 1 2 8 , 9 0 2 $ 9 9 6 , 4 $ ) 7 7 0 , 7 2 ( $ s e i t i v i t c A g n i t a r e p O y b ) n I d e s U ( / d e d i v o r P h s a C t e N ) 4 9 5 , 6 0 5 ( — ) 1 9 2 , 4 9 4 ( — ) 0 0 0 , 4 ( ) 3 8 6 , 7 3 ( 9 6 1 , 8 4 8 2 9 8 , 9 9 2 ) 1 8 0 , 1 ( 8 5 8 , 1 0 3 , 1 ) 1 0 3 , 4 4 5 , 1 ( — ) 6 2 3 ( ) 0 1 7 , 1 ( — ) 0 6 8 , 8 5 1 ( ) 1 3 5 , 6 2 1 ( ) 1 5 9 , 0 3 5 ( ) 1 7 3 , 7 ( 6 8 9 , 7 1 5 1 6 , 0 1 ) 0 0 0 , 2 7 ( — — — — ) 0 0 0 , 2 7 ( — — — 0 0 0 , 2 7 — — — ) 0 0 0 , 4 ( ) 1 9 8 , 3 3 ( 2 1 6 , 6 9 6 0 3 4 , 4 6 1 ) 6 0 5 ( 1 8 2 , 9 5 1 ) 1 0 3 , 6 0 1 ( ) 0 0 0 , 2 7 ( — — — $ — — — $ 7 8 3 , 5 2 8 8 , 2 9 6 2 , 8 ) 5 4 2 , 6 3 ( ) 3 2 3 , 9 4 3 ( — 5 5 7 , 5 3 ) 5 1 ( ) 4 6 8 , 8 6 3 ( — — — — — — — — — — ) 6 2 3 ( ) 0 1 7 , 1 ( ) 0 6 8 , 8 5 1 ( 3 7 0 , 1 8 2 ) 6 1 5 , 6 2 1 ( ) 9 3 3 , 6 ( ) 0 4 6 , 1 ( 0 9 7 , 1 — ) 3 0 3 , 2 1 ( 0 0 0 , 2 7 ) 2 9 7 , 3 ( 7 5 5 , 1 5 1 2 6 4 , 7 0 2 ) 5 7 5 ( 7 7 5 , 2 4 1 , 1 ) 0 0 0 , 8 3 4 , 1 ( — — — — — 5 9 4 , 4 0 1 ) 8 1 1 , 1 1 ( 4 1 3 , 3 1 ) 3 0 5 , 1 9 1 ( , s e l b i g n a t n i d e t a l e r e t a t s e l a e r d n a , e r u t n e v t n i o j d e t a d i l o s n o c , s t e s s a e t a t s e l a e r n i t n e m t s e v n I : s e i t i v i t c A g n i t s e v n I m o r f s w o l F h s a C y t i t n e t s e r e t n i e l b a i r a v d e t a d i l o s n o c n u n i t s e r e t n i g n i l l o r t n o c n o n f o n o i t p m e d e R e l b a v i e c e r e t o n y n a p m o c r e t n I s l a u r c c a f o t e n n o i t a s n e p m o c k c o t s e e y o l p m e o t d e t a l e r s n o i t a g i l b o x a t y a p o t d l e h h t i w s e r a h S k c o t s n o m m o c f o e c n a u s s i f o s t s o c t e N n a l p d e c n u o n n a f o t r a p s a k c o t s n o m m o c f o s e s a h c r u p e R s t n e m t s e v n i e r d n e d i v i d n o t n u o c s i d d n a d i a p s d n e d i v i D s e i t i v i t c a g n i c n a n i f ) n i d e s u ( / y b d e d i v o r p h s a c t e N s e t a i l i f f a m o r f s t n e m y a p e r / ) o t s n o i t u b i r t s i D ( s w o r c s e d n a h s a c d e t c i r t s e r d n a , s t n e l a v i u q e h s a c , h s a c n i ) e s a e r c e d ( / e s a e r c n i t e N r a e y f o g n i n n i g e b , s w o r c s e d n a h s a c d e t c i r t s e r d n a , s t n e l a v i u q e h s a c , h s a C s e i t r e p o r p d e n w o - y l l o h w m o r f s d e e c o r p s e l a s t e N d i a p s t s o c e s a e l d e r r e f e D s e i t i v i t c a g n i t s e v n i ) n i d e s u ( / y b d e d i v o r p h s a c t e N : s e i t i v i t c A g n i c n a n i F m o r f s w o l F h s a C d i a p s t s o c e c n a u s s i t b e D t b e d m o r f s d e e c o r P t b e d f o s t n e m y a p e R e l b a y a p e t o n y n a p m o c r e t n I $ 0 5 1 $ 6 9 1 , 2 $ r a e y f o d n e , s w o r c s e d n a h s a c d e t c i r t s e r d n a , s t n e l a v i u q e h s a c , h s a C 2 4 - F 19. Subsequent events Declaration of Dividend for the First Quarter 2018 On February 7, 2018, the board of directors of Piedmont declared dividends for the first quarter 2018 in the amount of $0.21 per share on its common stock to stockholders of record as of the close of business on February 23, 2018. Such dividends are to be paid on March 16, 2018. Sale of the 2017 Disposition Portfolio During the fourth quarter 2017, Piedmont entered into two binding contracts with two different buyers to sell 14 assets, each of which subsequently closed on January 4, 2018. The total gross sales price for both transactions was approximately $425.9 million (subject to an additional $4.5 million in contingent proceeds upon certain leasing activity occurring before July 2, 2018). See Note 14 for further information. Repayment of Two Unsecured Debt Facilities On January 4, 2018, using proceeds from the dispositions noted above and cash on hand, as well as a draw on its $500 Million Unsecured 2015 Line of Credit, Piedmont repaid the entire outstanding balance of the $170 Million Unsecured 2015 Term Loan and the $300 Million Unsecured 2013 Term Loan, which had maturity dates of May 15, 2018 and January 31, 2019, respectively. See Note 5 for further information. Property Under Contract for Acquisition On February 19, 2018, Piedmont entered into a binding contract to acquire, for $28 million, 501 W. Church Street, a value-add asset located in Orlando, Florida in close proximity to Piedmont's existing downtown Orlando assets, CNL Center I and II and SunTrust Center. 501 W. Church Street is an approximately 182,000 square foot, five-story office property adjacent to the Amway Center and the proposed Orlando downtown Sports Entertainment District. Share Repurchase Program Re-Authorized by Board of Directors From January 1, 2018 through February 21, 2018, Piedmont repurchased and retired approximately 7.8 million of its common stock at a weighted-average price of $18.97 per share. As of February 21, 2018, Piedmont has approximately $40.0 million of capacity outstanding under its current board-approved share repurchase authorization. On February 21, 2018, the board of directors of Piedmont re-authorized Piedmont’s stock repurchase plan to permit the additional purchase of shares of common stock having an aggregate purchase price of up to $200 million between February 21, 2018 and February 21, 2020. F- 43 n o e f i L h c i h w n o i t a i c e r p e D d n a n o i t a z i t r o m A d e t u p m o C s i ) s r a e y n i ( ) d ( e t a D f o e t a D d e t a l u m u c c A n o i t a i c e r p e D d n a d e r i u q c A n o i t c u r t s n o C n o i t a z i t r o m A l a t o T ) c ( d n a s g n i d l i u B s t n e m e v o r p m I d n a L s t s o C d e z i l a t i p a C t n e u q e s b u S o t n o i t i s i u q c A ) b ( l a t o T ) a ( d n a s g n i d l i u B s t n e m e v o r p m I d n a L s e c n a r b m u c n E p i h s r e n w O e g a t n e c r e P n o i t a c o L h c i h W t a t n u o m A s s o r G 7 1 0 2 , 1 3 r e b m e c e D t a d e i r r a C t s o C l a i t i n I . c n I , t s u r T y t l a e R e c i f f O t n o m d e i P n o i t a i c e r p e D d e t a l u m u c c A d n a e t a t s E l a e R - I I I e l u d e h c S 7 1 0 2 , 1 3 r e b m e c e D ) s d n a s u o h t n i s r a l l o d ( 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 - - - - - - - - - - - - - - - - - - - 0 0 0 0 0 0 0 0 2 / 1 2 / 2 1 4 9 9 1 0 0 0 2 / 1 2 / 2 1 0 0 0 2 3 5 6 , 9 1 7 3 8 , 3 2 5 6 0 , 7 4 9 5 5 , 1 4 6 0 5 , 5 0 5 0 , 2 5 1 0 , 5 4 5 1 9 , 7 3 8 4 0 , 1 6 7 2 0 , 3 5 1 2 0 , 8 4 9 1 , 8 4 5 8 , 2 5 4 5 1 , 5 4 0 0 1 , 7 0 0 7 , 7 e n o N e n o N 2 0 0 2 / 3 / 5 1 0 0 2 1 6 3 , 2 1 1 0 6 , 4 3 9 5 9 , 0 3 2 4 6 , 3 2 6 4 , 1 9 3 1 , 3 3 7 9 4 , 9 2 2 4 6 , 3 e n o N 2 0 0 2 / 5 1 / 8 9 9 9 1 2 0 5 , 0 2 5 3 2 , 1 5 8 7 0 , 8 4 7 5 1 , 3 2 2 4 , 4 3 1 8 , 6 4 6 5 6 , 3 4 7 5 1 , 3 e n o N 2 0 0 2 / 5 1 / 8 0 0 0 2 8 1 1 , 0 2 4 6 3 , 6 5 7 0 2 , 3 5 7 5 1 , 3 5 4 5 , 0 1 9 1 8 , 5 4 2 6 6 , 2 4 7 5 1 , 3 e n o N - 0 2 0 0 2 / 5 1 / 8 9 9 9 1 6 2 1 , 4 1 4 7 4 , 5 3 7 1 3 , 2 3 7 5 1 , 3 3 8 2 , 3 1 9 1 , 2 3 4 3 0 , 9 2 7 5 1 , 3 e n o N 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 2 / 2 2 / 1 1 1 9 9 1 4 6 3 , 4 4 5 2 0 , 7 5 1 3 6 4 , 6 2 1 2 6 5 , 0 3 6 4 4 , 2 2 9 7 5 , 4 3 1 4 1 8 , 4 0 1 5 6 7 , 9 2 e n o N 2 0 0 2 / 0 2 / 2 1 0 9 9 1 3 7 0 , 7 5 0 5 4 , 3 7 1 3 4 8 , 9 4 1 7 0 6 , 3 2 1 6 5 , 3 1 9 8 8 , 9 5 1 4 8 2 , 6 3 1 5 0 6 , 3 2 e n o N 3 0 0 2 / 1 / 5 0 0 0 2 3 6 6 , 1 7 0 4 2 , 5 0 2 2 0 1 , 4 9 1 8 3 1 , 1 1 3 7 4 , 8 1 7 6 7 , 6 8 1 9 2 6 , 5 7 1 8 3 1 , 1 1 e n o N 3 0 0 2 / 1 / 8 0 0 0 2 0 4 0 , 2 2 0 2 5 , 9 5 8 5 8 , 2 5 2 6 6 , 6 ) 3 7 1 , 6 1 ( 3 9 6 , 5 7 1 3 0 , 9 6 2 6 6 , 6 e n o N 3 0 0 2 / 4 1 / 8 2 0 0 2 2 5 8 , 6 2 7 9 3 , 9 7 9 6 0 , 1 7 8 2 3 , 8 ) 5 4 9 , 2 1 ( 2 4 3 , 2 9 0 6 1 , 4 8 2 8 1 , 8 e n o N 3 0 0 2 / 9 1 / 1 1 5 8 9 1 4 9 5 , 7 1 1 1 5 , 1 7 5 6 3 , 9 4 6 4 1 , 2 2 ) 5 7 3 ( 6 8 8 , 1 7 0 4 7 , 9 4 6 4 1 , 2 2 e n o N 3 0 0 2 / 9 1 / 1 1 8 9 9 1 2 6 1 , 6 2 3 4 5 , 5 9 7 0 9 , 1 8 6 3 6 , 3 1 9 8 9 , 0 1 4 5 5 , 4 8 8 1 9 , 0 7 6 3 6 , 3 1 e n o N 3 0 0 2 / 9 1 / 1 1 6 8 9 1 8 4 2 , 9 1 5 9 5 , 7 7 6 3 6 , 5 5 9 5 9 , 1 2 4 3 0 , 8 1 6 5 , 9 6 2 0 6 , 7 4 9 5 9 , 1 2 e n o N 3 0 0 2 / 9 1 / 1 1 1 0 0 2 0 5 8 , 1 2 9 4 8 , 0 0 1 4 6 8 , 8 6 5 8 9 , 1 3 5 2 7 , 5 4 2 1 , 5 9 9 3 1 , 3 6 5 8 9 , 1 3 e n o N 3 0 0 2 / 1 3 / 2 1 2 6 9 1 0 3 4 , 6 5 2 0 3 , 5 1 2 4 9 5 , 4 5 1 8 0 7 , 0 6 4 9 7 , 3 1 8 0 5 , 1 0 2 6 8 9 , 8 6 1 2 2 5 , 2 3 e n o N 4 0 0 2 / 8 / 1 3 7 8 1 8 8 2 , 7 1 7 4 7 , 9 3 2 8 3 , 5 3 5 6 3 , 4 ) 4 8 2 ( 1 3 0 , 0 4 1 2 8 , 5 3 0 1 2 , 4 e n o N 4 0 0 2 / 6 2 / 2 1 9 9 1 9 5 4 , 4 1 9 1 4 , 7 4 6 0 3 , 0 4 3 1 1 , 7 ) 5 9 4 , 4 2 ( 4 1 9 , 1 7 0 4 9 , 4 6 4 7 9 , 6 e n o N 4 0 0 2 / 6 1 / 3 5 0 0 2 1 7 5 , 7 5 1 2 , 0 2 1 8 2 , 6 1 4 3 9 , 3 1 8 2 , 6 1 4 3 9 , 3 — 4 3 9 , 3 e n o N 3 0 0 2 / 8 1 / 2 1 7 8 9 1 4 3 0 , 9 7 1 5 9 , 3 3 2 2 2 1 , 3 1 2 9 2 8 , 0 2 4 8 6 , 3 5 7 6 2 , 0 8 1 3 8 6 , 6 6 1 4 8 5 , 3 1 0 0 0 , 0 6 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 1 . 8 9 % 6 . 8 9 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 1 - S X T , n o t s u o H , a k n o t e n n i M N M , h g u o r o b x o B I I I E G D R T N E C S E R C E V A L C N E 0 3 4 1 Y A W K R A P n o i t p i r c s e D X T , g n i v r I X T , g n i v r I X T , g n i v r I N O I T C E N N O C 1 3 0 6 I E V R D N O I T C E N N O C 1 2 0 6 I E V R D N O I T C E N N O C 1 1 0 6 I E V R D A M T E E R T S L A R T N E C 0 9 , n o t g n i h s a W E C N E D N E P E D N I E N O C D E R A U Q S A C , e l a d n e l G , s i l o p a e n n i M D N A R B H T R O N 0 0 8 D R A V E L U O B N M R E T N E C P R O C N A B S U J N , r e t a w e g d i r B , n o t g n i h s a W C D A G , a t n a l t A A V , n o t g n i l r A , n o t g n i h s a W O W T S D N A L H G H I I E G D R N E L G R E T A W E G D R B 0 0 2 I G N I S S O R C I X A F R A F H T R O N 0 5 2 4 I E V R D I I E V A A N G R V 0 0 4 I , n o t g n i h s a W C D ) f ( T E E R T S E Y E 1 0 2 1 C D ) e ( T E E R T S E Y E 5 2 2 1 , a i h p l e d a l i h P A P T E E R T S T E K R A M 1 0 9 1 Y N , k r o Y w e N T E E R T S D A O R B 0 6 A M , e g d i r b m a C S T T E S U H C A S S A M 4 1 4 1 E U N E V A A M , e g d i r b m a C E R A U Q S E L T T A R B E N O J N , n o n a b e L I E V R D E T A R O P R O C 0 0 6 n o e f i L h c i h w n o i t a i c e r p e D d n a n o i t a z i t r o m A d e t u p m o C s i ) s r a e y n i ( ) d ( 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 - - - - - - - - - - - - - - - - - - - - 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 h c i h W t a t n u o m A s s o r G 7 1 0 2 , 1 3 r e b m e c e D t a d e i r r a C t s o C l a i t i n I e t a D f o e t a D d e t a l u m u c c A n o i t a i c e r p e D d n a d e r i u q c A n o i t c u r t s n o C n o i t a z i t r o m A l a t o T ) c ( d n a s g n i d l i u B s t n e m e v o r p m I d n a L s t s o C d e z i l a t i p a C t n e u q e s b u S o t n o i t i s i u q c A ) b ( l a t o T ) a ( d n a s g n i d l i u B s t n e m e v o r p m I d n a L s e c n a r b m u c n E p i h s r e n w O e g a t n e c r e P n o i t a c o L n o i t p i r c s e D 4 0 0 2 / 9 / 2 1 7 8 9 1 0 2 5 , 5 2 8 6 3 , 2 2 1 7 7 5 , 0 1 1 1 9 7 , 1 1 3 6 9 , 0 4 5 0 4 , 1 8 5 0 7 , 9 6 0 0 7 , 1 1 e n o N % 0 0 1 A V , n o t g n i l r A 6 0 0 2 / 7 1 / 2 2 0 0 2 4 4 8 , 7 1 4 7 3 , 7 6 4 7 9 , 6 5 0 0 4 , 0 1 ) 8 7 0 , 4 1 ( 2 5 4 , 1 8 2 5 0 , 1 7 0 0 4 , 0 1 e n o N % 0 0 1 J N , r e t a w e g d i r B N O D N E R A L C 0 0 1 3 D R A V E L U O B R E T A W E G D R B 0 0 4 I G N I S S O R C 6 0 0 2 / 1 3 / 8 8 9 9 1 6 0 0 2 / 1 3 / 8 8 9 9 1 5 8 7 , 5 4 9 5 , 9 1 7 0 , 9 1 8 2 5 , 6 1 3 4 5 , 2 ) 1 7 6 , 3 ( 2 4 7 , 2 2 0 3 8 , 8 1 2 1 9 , 3 e n o N 7 9 7 , 0 3 4 5 2 , 8 2 3 4 5 , 2 ) 0 8 5 , 3 ( 7 7 3 , 4 3 1 8 8 , 9 2 6 9 4 , 4 e n o N 6 0 0 2 / 7 / 2 1 1 9 9 1 4 9 1 , 2 3 6 3 3 , 8 8 0 8 1 , 0 8 6 5 1 , 8 4 3 3 , 3 1 2 0 0 , 5 7 2 3 6 , 0 7 0 7 3 , 4 e n o N 0 1 0 2 / 1 / 0 1 7 9 9 1 0 1 0 2 / 1 / 0 1 8 9 9 1 5 4 0 , 5 9 1 4 , 5 5 3 6 , 7 2 6 1 7 , 4 2 9 1 9 , 2 8 1 3 7 1 3 , 7 2 8 9 3 , 4 2 9 1 9 , 2 e n o N 0 4 0 , 9 2 9 7 3 , 6 2 1 6 6 , 2 7 3 6 3 0 4 , 8 2 2 4 7 , 5 2 1 6 6 , 2 e n o N 1 1 0 2 / 1 3 / 3 1 9 9 1 1 2 3 , 4 4 0 6 1 , 2 7 2 0 7 1 , 5 3 2 0 9 9 , 6 3 7 5 0 , 0 5 3 0 1 , 2 2 2 3 1 1 , 5 8 1 0 9 9 , 6 3 e n o N 1 1 0 2 / 9 2 / 4 7 9 9 1 1 1 0 2 / 7 / 6 8 0 0 2 1 1 0 2 / 3 1 / 9 0 0 0 2 4 2 5 , 4 8 8 7 , 3 0 8 6 , 9 7 6 2 , 9 1 7 8 1 , 5 1 0 8 0 , 4 7 7 8 0 9 3 , 8 1 0 1 3 , 4 1 0 8 0 , 4 e n o N 9 4 6 , 8 1 9 6 8 , 6 1 0 8 7 , 1 9 5 3 , 5 0 9 2 , 3 1 0 1 5 , 1 1 0 8 7 , 1 e n o N 1 1 0 2 / 3 1 / 9 1 0 0 2 5 0 5 , 1 1 1 7 2 , 8 4 3 3 1 , 4 4 8 0 6 , 0 4 6 9 9 , 6 3 2 1 6 , 3 8 3 1 , 4 6 6 9 6 2 4 5 , 0 4 6 1 9 , 6 3 6 2 6 , 3 e n o N 2 0 2 , 8 4 8 4 0 , 4 4 4 5 1 , 4 e n o N % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 X T , g n i v r I I R E T N E C E T A R O P R O C S A N I L O C S A L X T , g n i v r I I I R E T N E C E T A R O P R O C S A N I L O C S A L L I , a c s a t I E C A L P E C R E I P O W T N M , d l e i f h c i R S G N I S S O R C I I N A D R E M E N O N M , d l e i f h c i R S G N I S S O R C L I , o g a c i h C E O R N O M T S E W 0 0 5 T E E R T S A G , a t n a l t A E E R P U D E H T A G , a t n a l t A I I C D E M E H T A M , n o t s o B Y A W L A I T N E D I S E R P 5 2 2 A M , n o t s o B Y A W L A I T N E D I S E R P 5 3 2 I I N A D R E M O W T 1 1 0 2 / 0 1 / 1 1 8 0 0 2 8 7 1 , 5 4 5 4 , 7 2 4 8 8 , 4 2 0 7 5 , 2 9 2 3 , 4 5 2 1 , 3 2 5 5 5 , 0 2 0 7 5 , 2 e n o N % 0 0 1 L F , y r a M e k a L K R A P N W O T 0 0 4 3 1 0 2 / 4 / 3 5 0 0 2 4 9 8 , 5 1 4 0 4 , 0 6 1 4 7 4 , 3 2 1 0 3 9 , 6 3 ) 6 9 5 , 5 ( 0 0 0 , 6 6 1 0 7 0 , 9 2 1 0 3 9 , 6 3 e n o N % 0 0 1 A V , n o t g n i l r A Y A W E T A G N O T G N I L R A 3 1 0 2 / 2 2 / 3 1 0 0 2 / 9 9 9 1 3 9 6 , 9 3 8 1 , 5 6 3 9 9 , 7 5 0 9 1 , 7 8 4 5 , 2 5 3 6 , 2 6 5 4 4 , 5 5 0 9 1 , 7 e n o N % 0 0 1 A M , n o t g n i l r u B D A O R E D I S Y A W 5 1 & 5 3 1 0 2 / 5 / 2 1 8 9 9 1 3 1 0 2 / 0 2 / 2 1 9 9 9 1 3 1 0 2 / 0 3 / 2 1 8 9 9 1 4 1 0 2 / 7 2 / 6 8 0 0 2 2 5 7 , 4 2 4 6 , 6 4 3 1 , 2 8 7 2 , 7 7 5 0 , 2 4 7 3 2 , 7 3 0 2 8 , 4 ) 0 3 5 ( 7 8 5 , 2 4 7 6 7 , 7 3 0 2 8 , 4 e n o N 7 3 2 , 3 5 7 9 5 , 6 4 0 4 6 , 6 7 8 7 , 1 0 5 4 , 1 5 0 1 8 , 4 4 0 4 6 , 6 e n o N 7 8 5 , 2 1 7 6 5 , 0 1 0 2 0 , 2 ) 3 1 1 ( 0 0 7 , 2 1 0 8 6 , 0 1 0 2 0 , 2 e n o N % 0 0 1 % 0 0 1 % 0 0 1 X T , g n i v r I R U H T R A C A M 5 6 5 6 D R A V E L U O B X T , s a l l a D K R A P N L O C N I L E N O X T , g n i v r I E T A R O P R O C 1 6 1 R E T N E C 1 6 6 , 8 5 1 0 1 , 9 4 0 6 5 , 9 ) 5 7 1 , 1 ( 6 3 8 , 9 5 6 7 2 , 0 5 0 6 5 , 9 0 7 6 , 0 3 % 0 0 1 A M , n o t g n i l r u B T E E R T S L L A W 5 4 1 0 2 / 8 2 / 8 0 0 0 2 4 0 0 , 0 1 4 2 7 , 2 7 4 5 8 , 6 6 0 7 8 , 5 5 9 1 7 , 2 7 9 4 8 , 6 6 0 7 8 , 5 e n o N % 0 0 1 A G , a t n a l t A I R E T E M R E P 5 5 1 1 T S E W R E T N E C 2 - S n o e f i L h c i h w n o i t a i c e r p e D d n a n o i t a z i t r o m A d e t u p m o C s i ) s r a e y n i ( ) d ( 0 4 - 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 - - - - - - - - - - - - - 0 0 0 0 0 0 0 0 0 0 0 0 0 0 A N / 7 1 0 2 5 1 0 2 / 6 1 / 1 6 8 9 1 5 1 0 2 / 4 2 / 7 8 8 9 1 A N / 5 1 0 2 / 4 / 1 1 5 1 0 2 / 4 / 1 1 5 1 0 2 8 8 9 1 7 8 9 1 5 1 0 2 / 4 2 / 1 1 8 9 9 1 6 1 0 2 / 1 / 8 9 9 9 1 6 1 0 2 / 1 / 8 6 0 0 2 5 8 7 5 6 5 , 4 4 9 9 1 9 5 , 3 4 6 5 , 2 1 9 3 7 , 7 1 6 2 , 5 5 9 9 , 4 5 3 2 , 3 5 2 1 , 7 2 8 7 9 , 4 2 7 4 1 , 2 3 5 0 , 3 2 7 0 , 4 2 5 2 9 , 1 2 7 4 1 , 2 e n o N 8 2 3 , 4 4 8 5 8 , 9 3 0 7 4 , 4 0 1 8 , 1 8 1 5 , 2 4 8 4 0 , 8 3 0 7 4 , 4 e n o N 6 1 5 , 0 1 6 3 5 , 8 0 8 9 , 1 ) 4 9 3 ( 0 1 9 , 0 1 0 3 9 , 8 0 8 9 , 1 e n o N 0 4 7 , 5 6 6 5 6 , 1 5 1 3 7 4 , 9 7 0 5 8 , 3 6 6 9 9 , 9 3 1 3 7 4 , 5 7 0 9 8 , 1 0 6 6 , 1 1 0 0 0 , 4 6 5 7 , 3 1 8 9 9 1 9 , 1 4 8 9 , 1 6 4 9 0 , 0 6 5 7 6 , 0 5 1 5 1 0 , 9 3 1 4 5 5 , 7 7 4 5 5 , 3 7 0 9 8 , 1 0 6 6 , 1 1 0 0 0 , 4 e n o N e n o N e n o N 8 8 7 , 6 5 8 2 8 , 0 5 0 6 9 , 5 5 1 8 3 7 9 , 5 5 3 1 0 , 0 5 0 6 9 , 5 e n o N 5 2 0 , 4 8 5 5 5 , 7 7 0 7 4 , 6 ) 3 0 3 ( 8 2 3 , 4 8 8 5 8 , 7 7 0 7 4 , 6 e n o N 0 4 6 , 0 6 0 9 0 , 6 5 0 5 5 , 4 1 8 4 9 5 1 , 0 6 9 0 6 , 5 5 0 5 5 , 4 e n o N 6 1 0 2 / 0 1 / 8 8 0 0 2 / 7 9 9 1 7 8 5 , 5 4 6 3 , 3 6 4 2 1 , 7 5 0 4 2 , 6 — 4 6 3 , 3 6 4 2 1 , 7 5 0 4 2 , 6 e n o N 6 1 0 2 / 7 / 0 1 4 8 9 1 7 2 1 , 3 2 3 2 , 2 6 2 6 7 , 5 5 0 7 4 , 6 ) 3 6 ( 5 9 2 , 2 6 5 2 8 , 5 5 0 7 4 , 6 e n o N 6 1 0 2 / 0 3 / 1 1 9 9 9 1 3 4 1 , 2 5 6 8 , 5 4 5 0 0 , 8 3 0 6 8 , 7 2 0 7 , 1 3 6 1 , 4 4 3 0 3 , 6 3 0 6 8 , 7 e n o N A N / s u o i r a V A N / 7 1 0 2 / 8 2 / 2 1 0 0 0 2 1 1 0 2 / 0 2 / 2 1 A N / 6 3 6 7 6 3 2 0 8 6 , 6 2 2 2 3 , 2 2 8 5 3 , 4 — 0 8 6 , 6 2 2 2 3 , 2 2 8 5 3 , 4 e n o N 9 1 8 , 2 9 1 8 , 2 — 0 4 7 , 2 9 7 8 9 9 , 6 1 4 8 0 , 1 4 1 9 , 5 1 ) 3 6 0 , 1 ( 1 6 0 , 8 1 9 7 — — e n o N 1 6 0 , 8 1 e n o N 0 4 0 s u o i r a V s u o i r a V 7 2 1 , 9 6 1 6 2 5 , 1 0 5 8 2 0 , 7 2 4 8 9 4 , 4 7 ) 0 1 1 , 5 ( 6 3 6 , 6 0 5 1 5 3 , 3 3 4 5 8 2 , 3 7 e n o N 7 6 4 , 3 5 0 , 1 $ 9 0 2 , 8 3 4 , 4 $ 7 1 9 , 8 1 8 , 3 $ 2 9 2 , 9 1 6 $ 1 0 6 , 0 4 2 $ 8 0 6 , 7 9 1 , 4 $ 4 0 3 , 3 1 6 , 3 $ 4 0 3 , 4 8 5 $ % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 9 9 % 9 9 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 L F , y r a M e k a L K R A P N W O T 0 0 5 , h g u o r o b x o B X T , s a l l a D N O E C A L P K R A P K E E R C E L T R U T X T , n o t s u o H E C A L P E V A L C N E L F , o d n a l r O R E T N E C T S U R T N U S A G , a t n a l t A I 0 0 3 A R E L L A G A G , a t n a l t A E N O S D N A L H G H I I E G D R N E L G A M T E E R T S L A R T N E C 0 8 L F , o d n a l r O I R E T N E C L N C L F , o d n a l r O I I R E T N E C L N C A M , n o t s o B D A O R E D I S Y A W E N O A G , a t n a l t A I 0 0 2 A R E L L A G , n o t g n i m o o l B X T , g n i v r I Y A W E E R F R E T N E P R A C N H O J T S E W 0 5 7 ) g ( N M I I E T N O P N A M R O N J N , r e t a w e g d i r B s u o i r a V s u o i r a V D N A L D E P O L E V E D N U ) i ( S L E C R A P , R E W O P T N O M D E I P ) h ( C L L N O I T I S O P S I D 7 1 0 2 ) j ( O I L O F T R O P s e i t r e p o r P l l A — l a t o T r e v o d e z i t r o m a e r a s e l b i g n a t n I e s a e L d n a s t n e m e v o r p m I t n a n e T , y l l a r e n e G . s s a l c y b s t e s s a e h t f o s e v i l l u f e s u e h t r e v o d o h t e m e n i l - t h g i a r t s e h t g n i s u d e z i t r o m a r o d e t a i c e r p e d e r a s t e s s a s ’ t n o m d e i P . s r a e y 0 4 r e v o d e t a i c e r p e d e r a s g n i d l i u B d n a , s r a e y 5 2 - 0 2 r e v o d e t a i c e r p e d e r a s t n e m e v o r p m I d n a L , s r a e y 5 2 - 5 r e v o d e t a i c e r p e d e r a s t n e m e v o r p m I g n i d l i u B , y l l a r e n e G . m r e t e s a e l e h t . s e i t i l i b a i l e s a e l e l b i g n a t n i d n a s t s o c n o i t a n i g i r o e s a e l e l b i g n a t n i o t d e t a c o l l a e c i r p e s a h c r u p s e d u l c x e t s o c l a i t i n i l a t o T . s t e s s a e t a t s e l a e r n o s s o l t n e m r i a p m i s a l l e w s a , s t e s s a d e z i l a t i p a c d e z i t r o m a / d e t a i c e r p e d y l l u f f o s f f o - e t i r w s e d u l c n I . n o i l l i b 2 . 4 $ y l e t a m i x o r p p a s i s e s o p r u p x a t e m o c n i l a r e d e f r o f s t e s s a l a t o t s ’ t n o m d e i P f o e u l a v g n i y r r a c t e n e h T , s e t a i c o s s A W N . . t e e r t S e y E 5 2 2 1 e h t d e z i l a t i p a c e r d n a , . . C D , n o t g n i h s a W n i d e t a c o l y t r e p o r p t e e r t S e y E 5 2 2 1 e h t y b d e r u c e s e g a g t r o m e h t d i a p e r t n o m d e i P , 7 1 0 2 , 1 3 r e b m e c e D d e d n e r a e y e h t g n i r u D . g n i d l i u b e h t g n i d u l c n i , e r u t n e v t n i o j e h t s e t a d i l o s n o c , h c u s s a , d n a e r u t n e v t n i o j e h t r e v o l o r t n o c e v a h o t d e m e e d s i t n o m d e i P . % 1 . 8 9 o t % 5 . 9 4 m o r f p i h s r e n w o s ' t n o m d e i P g n i s a e r c n i , C L L , s e t a i c o s s A W N . . t e e r t S e y E 1 0 2 1 e h t d e z i l a t i p a c e r d n a , . . C D , n o t g n i h s a W n i d e t a c o l y t r e p o r p t e e r t S e y E 1 0 2 1 e h t y b d e r u c e s e g a g t r o m e h t d i a p e r t n o m d e i P , 7 1 0 2 , 1 3 r e b m e c e D d e d n e r a e y e h t g n i r u D . g n i d l i u b e h t g n i d u l c n i , e r u t n e v t n i o j e h t s e t a d i l o s n o c , h c u s s a , d n a e r u t n e v t n i o j e h t r e v o l o r t n o c e v a h o t d e m e e d s i t n o m d e i P . % 6 . 8 9 o t % 5 . 9 4 m o r f p i h s r e n w o s ' t n o m d e i P g n i s a e r c n i , C L L . n o i l l i m 0 . 1 $ r o f s e r c a 5 . 3 f o l e c r a p d n a l e l b a p o l e v e d , g n i n i o j d a n a d e s a h c r u p t n o m d e i P , y t r e p o r p e h t f o n o i t i s i u q c a e h t f o t r a p s A 3 - S ) a ( ) b ( ) c ( ) d ( ) e ( ) f ( ) g ( h c i h W t a t n u o m A s s o r G 7 1 0 2 , 1 3 r e b m e c e D t a d e i r r a C t s o C l a i t i n I e t a D f o e t a D d e t a l u m u c c A n o i t a i c e r p e D d n a d e r i u q c A n o i t c u r t s n o C n o i t a z i t r o m A l a t o T ) c ( d n a s g n i d l i u B s t n e m e v o r p m I d n a L s t s o C d e z i l a t i p a C t n e u q e s b u S o t n o i t i s i u q c A ) b ( l a t o T ) a ( d n a s g n i d l i u B s t n e m e v o r p m I d n a L s e c n a r b m u c n E p i h s r e n w O e g a t n e c r e P n o i t a c o L n o i t p i r c s e D y d n i W , I t n i o P y d n i W , d a o R s u t a i H 1 0 6 5 , e v i r D y n o l o C n w o r C 0 0 2 1 : 7 1 0 2 , 1 3 r e b m e c e D f o s a e l a s r o f d l e h s a d e i f i s s a l c e r e r e w h c i h w s e i t r e p o r p g n i w o l l o f e h t s e d u l c n i o i l o f t r o P n o i t i s o p s i D 7 1 0 2 1 0 3 5 , e n O y a w e t a G e e n a w u S , I I e t n i o P t n o m d e i P , I e t n i o P t n o m d e i P , e v i r D t o b a C 0 0 3 2 , e v i r D e c n a r t n E t s e W 5 7 0 1 , r e t n e C e t a r o p r o C s l l i H n r u b u A , 0 0 3 n o y n a C t r e s e D , t e e r t S h t 4 6 W N 1 0 0 2 , I I t n i o P 7 1 0 2 e h T . g n i s o l c n o p u r e s a h c r u p e h t y b d e m u s s a s a w e s a e l s i h t , r e v e w o h ; e s a e l d n u o r g m r e t - g n o l a o t t c e j b u s d e n w o s a w t e e r t S h t 4 6 W N 1 0 0 2 , r e h t r u F . e u n e v A d n E t s e W 0 2 1 2 d n a , y a W d n a l y r a M . 8 1 0 2 , 4 y r a u n a J n o d e s o l c o i l o f t r o P n o i t i s o p s i D . e r u t u f e h t n i p o l e v e d y a m t n o m d e i P h c i h w s l e c r a p d n a l s e d u l c n i s l e c r a P d n a L d e p o l e v e d n U . g n i d l i u b g n i s s o r C r e t a w e g d i r B 0 0 4 e h t t a s l e n a p r a l o s s t n e s e r p e R ) h ( ) i ( ) j ( 4 - S . c n I , t s u r T y t l a e R e c i f f O t n o m d e i P n o i t a i c e r p e D d e t a l u m u c c A d n a e t a t s E l a e R - I I I e l u d e h c S 7 1 0 2 , 1 3 r e b m e c e D ) s d n a s u o h t n i s r a l l o d ( ) 3 ( ) 9 6 1 , 0 4 ( ) 3 ( ) 8 9 8 , 0 3 ( ) 2 ( ) 1 6 4 , 6 4 ( 6 0 1 , 2 5 4 ) 2 9 5 , 6 2 9 ( 8 0 9 , 2 2 4 ) 9 1 3 , 6 9 2 ( 8 6 3 , 5 8 ) 1 1 9 , 3 5 3 ( ) 8 6 7 , 7 ( ) 6 9 0 , 0 2 ( ) 6 9 8 , 1 1 ( ) 6 6 8 , 8 ( ) 8 8 1 , 7 3 ( ) 4 2 6 , 9 ( 6 9 0 , 5 2 7 , 4 $ 5 2 0 , 0 0 8 , 4 $ 9 0 2 , 8 3 4 , 4 $ 5 1 6 , 7 6 2 , 5 $ 6 9 0 , 5 2 7 , 4 $ 5 2 0 , 0 0 8 , 4 $ 5 1 0 2 6 1 0 2 7 1 0 2 9 0 0 , 5 5 1 ) 8 3 0 , 0 9 2 ( ) 8 6 7 , 7 ( ) 6 9 0 , 0 2 ( 4 7 2 , 5 5 1 ) 1 7 4 , 5 9 ( ) 6 9 8 , 1 1 ( ) 6 6 8 , 8 ( 7 3 8 , 5 4 1 ) 2 6 2 , 4 0 1 ( ) 8 8 1 , 7 3 ( ) 4 2 6 , 9 ( 6 5 5 , 2 8 1 , 1 $ 3 6 6 , 9 1 0 , 1 $ 4 0 7 , 8 5 0 , 1 $ 3 6 6 , 9 1 0 , 1 $ 4 0 7 , 8 5 0 , 1 $ 7 6 4 , 3 5 0 , 1 $ . ) 9 e t o N e e s ( o i l o f t r o P n o i t i s o p s i D 7 1 0 2 e h t f o t r a p s a s t e s s a e t a t s e l a e r f o p u o r g l a s o p s i d a n o s s o l t n e m r i a p m i n a d e z i n g o c e r t n o m d e i P . e r u t n e v t n i o j d e t a d i l o s n o c n u n a n i t n e m t s e v n i g n i n i a m e r t s a l s ' t n o m d e i P , y t r e p o r p e v i r D d n a l p U 0 6 5 8 e h t f o n o i t i s o p s i d e h t s e d u l c n I . ) 9 e t o N e e s ( l l i w d o o g f o n o i t a c o l l a e h t f o t l u s e r a s a s t e s s a r e h t o n o d e z i n g o c e r s s o l t n e m r i a p m i e d u l c n i t o n s e o D . s n o i t a n i m r e t d n a s t n e m d n e m a , s g n i r u t c u r t s e r e s a e l o t d e t a l e r s t e s s a e s a e l e l b i g n a t n i f o s f f o - e t i r w f o s t s i s n o C ) 1 ( ) 2 ( ) 3 ( ) 4 ( s t e s s a d e z i t r o m a / d e t a i c e r p e d y l l u f f o s f f o - e t i r W ) 4 ( s t e s s a e l b i g n a t n i f o s f f o - e t i r W ) 1 ( d e s o p s i d s t e s s A d e r i a p m i s t e s s A e t a t s e l a e r f o s t n e m e v o r p m i / o t s n o i t i d d A r a e y e h t f o g n i n n i g e b e h t t a e c n a l a B : e t a t s E l a e R e s n e p x e n o i t a z i t r o m a d n a n o i t a i c e r p e D ) 4 ( s t e s s a e l b i g n a t n i f o s f f o - e t i r W ) 1 ( d e s o p s i d s t e s s A : n o i t a z i t r o m A d n a n o i t a i c e r p e D d e t a l u m u c c A r a e y e h t f o g n i n n i g e b e h t t a e c n a l a B r a e y e h t f o d n e e h t t a e c n a l a B s t e s s a d e z i t r o m a / d e t a i c e r p e d y l l u f f o s f f o - e t i r W r a e y e h t f o d n e e h t t a e c n a l a B 5 - S EXHIBIT 31.1 PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Donald A. Miller, CFA, certify that: 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of Piedmont Office Realty Trust, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) b) c) d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: February 21, 2018 By: /s/ DONALD A. MILLER, CFA Donald A. Miller, CFA Principal Executive Officer EXHIBIT 31.2 PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert E. Bowers, certify that: 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of Piedmont Office Realty Trust, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) b) c) d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: February 21, 2018 By: /s/ ROBERT E. BOWERS Robert E. Bowers Principal Financial Officer EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) In connection with the Annual Report of Piedmont Office Realty Trust, Inc. (the “Registrant”) on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission (the “Report”), the undersigned, Donald A. Miller, CFA, Chief Executive Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. It is not intended that this statement be deemed to be filed for the purposes of the Securities Exchange Act of 1934. By: /s/ DONALD A. MILLER, CFA Donald A. Miller, CFA Chief Executive Officer February 21, 2018 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) In connection with the Annual Report of Piedmont Office Realty Trust, Inc. (the “Registrant”) on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission (the “Report”), the undersigned, Robert E. Bowers, Chief Financial Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. It is not intended that this statement be deemed to be filed for the purposes of the Securities Exchange Act of 1934. By: /s/ ROBERT E. BOWERS Robert E. Bowers Chief Financial Officer February 21, 2018 Board of Directors: CORPORATE INFORMATION Frank C. McDowell Director and Chairman of the Board of Directors Dale H. Taysom Kelly H. Barrett Director and Vice-Chairman of the Board of Directors Director and Senior Vice-President – Home Services for The Home Depot Wesley E. Cantrell Director Barbara B. Lang Director and Managing Principal & Chief Executive Officer of Lang Strategies, LLC Donald A. Miller, CFA Chief Executive Officer, President, and Director Raymond G. Milnes, Jr. Director Jeffrey L. Swope Corporate Officers: Director and Managing Partner and Chief Executive Officer of Champion Partners Ltd. Donald A. Miller, CFA Chief Executive Officer, President, and Director Robert E. Bowers Chief Financial Officer and Executive Vice-President Christopher A. Kollme Executive Vice-President – Finance and Strategy Laura P. Moon Joseph H. Pangburn Thomas R. Prescott Chief Accounting Officer and Senior Vice-President Executive Vice-President – Southwest Region Executive Vice-President – Midwest Region Carroll A. “Bo” Reddic, IV Executive Vice-President – Real Estate Operations C. Brent Smith George M. Wells Robert K. Wiberg Chief Investment Officer and Executive Vice-President – Northeast Region Executive Vice-President – Southeast Region Executive Vice-President – Mid-Atlantic Region and Head of Development Form 10-K Exhibits We will furnish any exhibit to our Annual Report on Form 10-K upon the payment of a fee equal to our reasonable expenses in furnishing such exhibit. Requests for exhibits should be directed to our Corporate Secretary, by phone at 770-418-8800, or by mail at 11695 Johns Creek Parkway, Suite 350, Johns Creek, GA 30097. Transfer Agent Computershare 866-354-3485 Investor.services@piedmontreit.com 

Continue reading text version or see original annual report in PDF format above